<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1996
REGISTRATION NO. 333-6697
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
AFTERMARKET TECHNOLOGY CORP.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3714 95-4486486
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
-------------------
33309 FIRST WAY SOUTH, SUITE A-206
FEDERAL WAY, WASHINGTON 98003
(206) 838-0346
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
-------------------
STEPHEN J. PERKINS
CHIEF EXECUTIVE OFFICER
AFTERMARKET TECHNOLOGY CORP.
33309 FIRST WAY SOUTH, SUITE A-206
FEDERAL WAY, WASHINGTON 98003
(206) 838-0346
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
-------------------
WITH COPIES TO:
<TABLE>
<S> <C>
BRUCE D. MEYER, ESQ. JEROME L. COBEN, ESQ.
Gibson, Dunn & Crutcher LLP Skadden, Arps, Slate, Meagher & Flom
333 South Grand Avenue LLP
Los Angeles, California 90071-3197 300 South Grand Avenue
(213) 229-7000 Los Angeles, California 90071-3144
(213) 687-5000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
-------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CROSS REFERENCE SHEET
(PURSUANT TO RULE 404(A) OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND ITEM 501 OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NO. AND CAPTION IN FORM S-1 LOCATION OR CAPTION IN PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing Page of Registration Statement; Cross
Reference Sheet; Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Prospectus; Additional
Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors
4. Use of Proceeds...................................... Use of Proceeds
5. Determination of Offering Price...................... Outside Front Cover Page of Prospectus; Risk Factors;
Underwriters
6. Dilution............................................. Dilution
7. Selling Security Holders............................. Not Applicable
8. Plan of Distribution................................. Outside Front Cover Page of Prospectus; Prospectus
Summary; Underwriters
9. Description of Securities to be Registered........... Description of Capital Stock; Certain United States
Federal Tax Consequences to Non-United States
Holders
10. Interests of Named Experts and Counsel............... Legal Matters; Experts
11. Information with Respect to the Registrant........... Outside Front Cover Page of Prospectus; Prospectus
Summary; Risk Factors; Recent Developments;
Reorganization; Dividend Policy; Capitalization;
Selected Financial Data; Pro Forma Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Ownership of Voting Securities; Certain
Transactions; Description of Capital Stock;
Description of Certain Indebtedness; Financial
Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED OCTOBER 25, 1996
SHARES
[LOGO]
COMMON STOCK
-----------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK.
IT IS CURRENTLY ESTIMATED THAT THE INITIAL OFFERING PRICE PER SHARE WILL BE
BETWEEN $ AND $ . SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING
PRICE.
-------------------
APPLICATION HAS BEEN MADE FOR QUOTATION OF THE COMMON STOCK ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ATAC."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS
OF THE COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-------------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------------- --------------- ------------
<S> <C> <C> <C>
PER SHARE............................ $ $ $
TOTAL (3)............................ $ $ $
</TABLE>
- ------------
(1) THE COMPANY HAS AGREED TO INDEMNIFY THE UNDERWRITERS AGAINST CERTAIN
LIABILITIES, INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(3) THE COMPANY HAS GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN
30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF
ADDITIONAL SHARES AT THE PRICE TO PUBLIC LESS UNDERWRITING DISCOUNTS AND
COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY. IF THE
UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO PUBLIC,
UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO COMPANY WILL BE
$ , $ AND $ , RESPECTIVELY. SEE "UNDERWRITERS."
------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY SKADDEN, ARPS, SLATE, MEAGHER & FLOM, COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT THE DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT ,
1996 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST
PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY & CO.
INCORPORATED
WILLIAM BLAIR & COMPANY
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1996
<PAGE>
(THIS IS A NARRATIVE DESCRIPTION OF THE GRAPHICS)
On the inside front cover will be the following pictures and text:
- -- upper left corner:
-- "ATC Distribution Centers"
-- picture of standard transmission parts
-- picture of remanufactured torque converter
-- picture of automatic transmission parts
-- picture of Intercont parts washer
-- text below pictures: "Ability to Serve:" "17,000 Transmission Shops"
"54,000 General Repair Shops"
- -- upper right corner: "Leading Position in the Automotive Aftermarket"
- -- middle of the page:
-- "OEM Customers"
-- picture of remanufactured engine
-- picture of remanufactured transmission
-- "American Isuzu" "AWTEC (Toyota)" "BMW" "Chrysler" "Hyundai" "Jaguar"
"Mitsubishi Fuso" "Mitsubishi" "Nissan Diesel" "Saab" "Subaru" "Volvo"
- -- lower right corner:
-- "Retail Parts Stores"
-- picture of remanufactured engine
-- picture of engine overhaul kit
-- picture of remanufactured crank kit
-- clutch kits and standard rebuild kits
-- "Advance Auto" "O'Reilly's" "Western Auto"
- -- lower left corner:
-- Aftermarket Technology Corp. logo
On the inside back cover will be the following pictures and text:
-- map of the United States with distribution centers denoted by o's and
manufacturing facilities denoted by x's.
-- "Manufacturing Facilities" "Rancho Cucamonga, California" "Harvey,
Illinois" "Louisville, Kentucky (3)" "Joplin, Missouri" "Springfield,
Missouri (3)" "Mahwah, New Jersey" "Dayton, Ohio" "Memphis, Tennessee"
"Janesville, Wisconsin" "Edmonton, Alberta -- Canada" "Mississauga,
Ontario -- Canada (2)" "Mexicali, Mexico"
-- "Distribution Centers" "Phoenix, Arizona" "Tucson, Arizona" "Azusa,
California" "Fresno, California" "Los Angeles, California" "Oakland,
California" "Rancho Cucamonga, California" "Sacramento, California" "San
Diego, California" "San Jose, California" "Van Nuys, California" "Colorado
Springs, Colorado" "Denver, Colorado" "Atlanta, Georgia" "Chicago,
Illinois" "Harvey, Illinois" "Louisville, Kentucky" "Grand Rapids,
Michigan" "Taylor, Michigan" "Kansas City, Missouri" "Springfield,
Missouri" "St. Louis, Missouri" "Las Vegas, Nevada" "Mahwah, New Jersey"
"Albuquerque, New Mexico" "Charlotte, North Carolina" "Portland, Oregon"
"Memphis, Tennessee" "Dallas, Texas" "Salt Lake City, Utah" "Norfolk,
Virginia" "Seattle, Washington" "Spokane, Washington" "Janesville,
Wisconsin" "Calgary, Alberta -- Canada" "Edmonton, Alberta -- Canada"
"Vancouver, British Columbia -- Canada (2)" "Moncton, New Brunswick --
Canada" "Mississauga, Ontario -- Canada" "Montreal, Quebec -- Canada"
"Regina, Saskatchewan -- Canada"
- -- lower left corner:
-- Aftermarket Technology Corp. logo
2
<PAGE>
CERTAIN STATEMENTS CONTAINED IN THIS PROSPECTUS THAT ARE NOT RELATED TO
HISTORICAL RESULTS ARE FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE PROJECTED OR IMPLIED IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED UNDER "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS."
FURTHER, CERTAIN FORWARD-LOOKING STATEMENTS ARE BASED UPON ASSUMPTIONS AS TO
FUTURE EVENTS THAT MAY NOT PROVE TO BE ACCURATE. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THOSE
SET FORTH UNDER "RISK FACTORS."
-------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Prospectus Summary............................... 4
Risk Factors..................................... 9
Recent Developments.............................. 13
Reorganization................................... 13
Use of Proceeds.................................. 13
Dividend Policy.................................. 14
Capitalization................................... 15
Dilution......................................... 16
Selected Financial Data.......................... 17
Pro Forma Financial Data......................... 18
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 20
Business......................................... 25
Management....................................... 36
<CAPTION>
PAGE
-----------
<S> <C>
Ownership of Voting Securities................... 42
Certain Transactions............................. 44
Description of Capital Stock..................... 45
Description of Certain Indebtedness.............. 47
Shares Eligible for Future Sale.................. 50
Certain United States Federal Tax Consequences to
Non-United States Holders...................... 50
Underwriters..................................... 53
Legal Matters.................................... 54
Experts.......................................... 54
Additional Information........................... 55
Index to Financial Statements.................... F-1
</TABLE>
-------------------
The Company intends to furnish to its stockholders annual reports containing
consolidated financial
statements audited by an independent public accounting firm and quarterly
reports for the first three quarters of each fiscal year containing interim
unaudited financial information.
-------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
-------------------
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE COMMON STOCK OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH
IT IS UNLAWFUL FOR SUCH PERSON TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND THE HISTORICAL AND PRO FORMA FINANCIAL STATEMENTS OF THE
COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE HEREIN. THROUGHOUT
THIS PROSPECTUS, EXCEPT WHERE THE CONTEXT OTHERWISE REQUIRES, THE "COMPANY"
REFERS COLLECTIVELY TO AFTERMARKET TECHNOLOGY CORP. ("ATC") AND ITS
SUBSIDIARIES, INCLUDING THE PREDECESSOR COMPANIES (AS DEFINED HEREIN) FOR
PERIODS PRIOR TO THE INITIAL ACQUISITIONS (AS DEFINED HEREIN). UNLESS THE
CONTEXT OTHERWISE REQUIRES, THE INFORMATION CONTAINED HEREIN GIVES EFFECT TO THE
REORGANIZATION (AS DEFINED HEREIN). UNLESS OTHERWISE INDICATED, ALL INFORMATION
IN THIS PROSPECTUS ASSUMES NO EXERCISE OF (I) THE UNDERWRITERS' OVER-ALLOTMENT
OPTION, (II) OUTSTANDING EMPLOYEE STOCK OPTIONS TO PURCHASE 378,703 SHARES OF
COMMON STOCK AND (III) OUTSTANDING WARRANTS TO PURCHASE 70,176 SHARES OF COMMON
STOCK.
THE COMPANY
The Company is a leading remanufacturer and distributor of drive train
products used in the aftermarket repair of passenger cars and light trucks. The
Company's principal products include remanufactured transmissions, torque
converters and engines, as well as remanufactured and new parts for the repair
of automotive drive train and engine assemblies. The Company's principal
customers include: (i) independent transmission rebuilders, general repair shops
and distributors (the "Independent Aftermarket"); (ii) original equipment
manufacturers ("OEMs"), principally Chrysler, for use as replacement parts by
their dealers; and (iii) retail automotive parts stores. The Company believes it
is uniquely positioned within the highly fragmented aftermarket for drive train
products as a result of its extensive product line, diverse customer base and
broad geographic presence, with 43 distribution centers throughout the United
States and Canada.
The automotive aftermarket in the United States and Canada, which consists
of sales of parts and services for vehicles after their original purchase, has
been noncyclical and has generally experienced steady growth over the past ten
years, unlike the market for new vehicle sales. According to the Automotive
Parts & Accessories Association, between 1985 and 1995, estimated industry-wide
revenue for the automobile aftermarket increased from approximately $126 billion
to $170 billion. This consistent growth is due principally to the increase in
the number of vehicles in operation that are in the prime repair age of four to
12 years and the increase in the average number of miles driven annually per
vehicle. The Company competes specifically in the aftermarket segment for
automotive transmissions, engines and other drive train related products, which
represents more than $7 billion of the entire automotive aftermarket. The
Company believes that within this segment the market for remanufactured drive
train products has grown faster than the overall automotive aftermarket.
The Company was organized in 1994 by Aurora Capital Partners and a
management team led by William A. Smith to combine the businesses of four
existing companies serving the drive train remanufacturing market. Since that
time the Company has grown both internally and through five additional
acquisitions completed during 1995 and 1996. The Company and its predecessor
companies have achieved compound annual growth in revenue of 38.5% from 1992
through September 30, 1996 (29.7% if the Company's 1995 and 1996 acquisitions
are excluded). The Company believes the key elements of its success are the
quality and breadth of its product offerings and the Company's emphasis on
strong customer relationships, promoted by strong technical support, rapid
delivery time, innovative product development and competitive pricing. In
addition, the Company has benefited from the increasing use of remanufactured
transmissions, engines and other parts for aftermarket repairs as the industry
recognizes that remanufacturing provides a higher quality, lower cost
alternative to rebuilding the assembly or replacing it with a new assembly
manufactured by an OEM.
The Company's strategy is to achieve growth both internally and through
strategic acquisitions. The Company intends to expand its existing business by:
(i) increasing penetration of its current customer base; (ii) gaining new OEM,
Independent Aftermarket and retail customers; and (iii) introducing new products
to both existing and new customers. Strategic acquisitions have also been an
important element in the Company's historical growth. The Company sees
significant opportunities to continue expanding its customer
4
<PAGE>
base, geographic presence and product offerings through additional strategic
acquisitions, particularly among companies serving the highly fragmented
Independent Aftermarket. Management believes that future acquisitions will
enable it to enhance the Company's revenues and profitability by expanding the
Company's existing distribution base, increasing the range of products sold
through the Company's distribution network and realizing economies of scale in
areas including purchasing, administration and inventory management.
HISTORY; REORGANIZATION
ATC and its sole stockholder, Aftermarket Technology Holdings Corp.
("Holdings"), were incorporated under the laws of Delaware in July 1994 at the
direction of Aurora Capital Partners L.P. ("ACP") to acquire Aaron's Automotive
Products, Inc. ("Aaron's"), H.T.P., Inc. ("HTP"), Mamco Converters, Inc.
("Mamco") and RPM Merit, Inc. ("RPM") (collectively, the "Initial
Acquisitions"). Aaron's, HTP, Mamco and RPM as they existed prior to the Initial
Acquisitions are hereinafter collectively referred to as the "Predecessor
Companies." Subsequent to the Initial Acquisitions, the Company acquired
Component Remanufacturing Specialists, Inc. ("CRS") and Mascot Truck Parts Inc.
("Mascot") in June 1995, and King-O-Matic Industries Limited ("King-O-Matic") in
September 1995 (collectively, the "1995 Acquisitions") and Tranzparts, Inc.
("Tranzparts") in April 1996 and Diverco, Inc. ("Diverco") in October 1996 (the
"1996 Acquisitions" and, together with the Initial Acquisitions and the 1995
Acquisitions, the "Acquisitions"). ATC conducts all of its operations through
its wholly-owned subsidiaries and each of their respective subsidiaries.
Simultaneous with the consummation of this offering of Common Stock (the
"Offering"), Holdings will be merged into ATC (the "Reorganization"). Upon the
effectiveness of such merger, each outstanding share of Holdings Common Stock
will be converted into shares of ATC Common Stock, and each outstanding
share of Holdings Redeemable Exchangeable Cumulative Preferred Stock (the
"Holdings Preferred Stock") will be converted into the right to receive an
amount in cash equal to $100.00 plus an amount in cash equal to accrued and
unpaid dividends to the date of the Reorganization (the "Preferred Stock
Reorganization Consideration"). As of November 26, 1996, the aggregate Preferred
Stock Reorganization Consideration would be approximately $25.0 million. As of
October 15, 1996, 2,000,000 shares of Holdings Common Stock and 200,000 shares
of Holdings Preferred Stock were outstanding, all of which were issued in July
and August of 1994 when the Company was formed. See "Reorganization." Certain
officers and directors of the Company own Holdings Preferred Stock and will
therefore receive a portion of the Preferred Stock Reorganization Consideration.
See "Certain Transactions."
The principal executive offices of the Company are located at 33309 First
Way South, Suite A-206, Federal Way, Washington 98003, and its telephone number
is (206) 838-0346.
CONTROL OF THE COMPANY
Prior to the Offering, approximately 92% of the voting power (through direct
ownership of shares and the grant of irrevocable proxies) and 72% of the common
equity in the Company are held by Aurora Equity Partners L.P. and Aurora
Overseas Equity Partners I, L.P. (collectively, the "Aurora Partnerships"). The
general partner of each of the Aurora Partnerships is indirectly controlled by
Messrs. Richard R. Crowell, Richard K. Roeder and Gerald L. Parsky. Messrs.
Crowell and Roeder are also directors of the Company. Upon consummation of the
Offering, the Company will continue to be controlled by the Aurora Partnerships,
which will hold approximately % of the voting power (through direct ownership
and the grant of irrevocable proxies) and of the equity in the Company. See
"Risk Factors -- Control of the Company; Anti-Takeover Matters," "Ownership of
Voting Securities" and "Certain Transactions."
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered................ shares
Common Stock to be outstanding after
the Offering....................... shares (1)
Use of proceeds..................... For (i) the redemption of $30 million principal
amount of the Company's outstanding 12% Series B
Senior Subordinated Notes Due 2004 (the "Series B
Notes") and $10 million principal amount of 12%
Series D Senior Subordinated Notes Due 2004 (the
"Series D Notes" and, collectively with the Series B
Notes, the "Senior Notes"), and the payment of the
related redemption premium of $4.8 million as of
December 26, 1996 and accrued interest of $1.9
million as of the same date on the Senior Notes to be
redeemed, and (ii) for the payment of the aggregate
Preferred Stock Reorganization Consideration in the
amount of $25.0 million as of November 26, 1996
including accrued dividends of $5.0 million as of the
same date. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol............................. "ATAC"
</TABLE>
- ---------
(1) Does not reflect the issuance of 70,176 shares reserved for issuance upon
the exercise of outstanding warrants and 378,703 shares reserved for
issuance upon the exercise of outstanding employee stock options.
RISK FACTORS
See "Risk Factors" for a description of certain risks to be considered
before making an investment in the Common Stock.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present summary historical statement of income data for
the year ended December 31, 1993, summary pro forma statement of income data for
the years ended December 31, 1994 and December 31, 1995 and for the nine months
ended September 30, 1995 and 1996, and summary historical balance sheet data at
December 31, 1995 and September 30, 1996. The 1993 data were derived from the
Combined Financial Statements of the Predecessor Companies. The pro forma 1994
data were derived from the Combined Financial Statements of the Predecessor
Companies and the Consolidated Financial Statements of the Company. The 1995 and
1996 data were derived from the Consolidated Financial Statements of the
Company. The pro forma adjustments give effect to the Company's formation and
its subsequent acquisitions (including related financings) as indicated in the
applicable footnotes below. The "as adjusted" amounts give effect to the
Offering and the anticipated application of the net proceeds therefrom. See "Use
of Proceeds." This data should be read in connection with the "Selected
Financial Data," "Pro Forma Financial Data," "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the Combined and
Consolidated Financial Statements and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PRO FORMA PRO FORMA YEAR ENDED PRO FORMA
YEAR YEAR YEAR DECEMBER NINE MONTHS ENDED SEPTEMBER 30,
ENDED ENDED ENDED 31, -----------------------------------
DECEMBER DECEMBER DECEMBER 1995 1996
31, 31, 31, AS AS
1993 (1) 1994 (2) 1995 (3) ADJUSTED (3)(4) 1995 (3) 1996 (5) ADJUSTED (4)(5)
--------- --------- --------- ----------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales................ $110,702 $157,792 $224,837 $224,837 $163,030 $ 208,066 $208,066
Cost of sales............ 66,687 92,857 138,140 138,140 101,614 128,355 128,355
--------- --------- --------- ----------- --------- --------- -----------
Gross profit............. 44,015 64,935 86,697 86,697 61,416 79,711 79,711
Selling, general and
administrative
expenses................ 25,682 30,361 45,181 45,181 32,430 40,177 40,177
Amortization of
intangible assets....... 28 3,057 3,943 3,943 2,979 2,895 2,895
--------- --------- --------- ----------- --------- --------- -----------
Operating income......... 18,305 31,517 37,573 37,573 26,007 36,639 36,639
Interest expense
(income), net........... (302) 14,521 19,571 15,140 14,908 14,845 11,146
Income taxes............. 471 6,902 7,291 9,117 4,495 8,979 10,503
--------- --------- --------- ----------- --------- --------- -----------
Net income............... 18,136 10,094 10,711 13,316 6,604 12,815 14,990
Preferred stock dividends
(6)..................... -- 2,000 2,093 -- 1,542 1,689 --
--------- --------- --------- ----------- --------- --------- -----------
Net income available to
common stockholders..... $ 18,136 $ 8,094 $ 8,618 $13,316 $ 5,062 $ 11,126 $14,990
--------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- ----------- --------- --------- -----------
Pro forma (7):
Net income per share... $ $
Shares used in
computation of net
income per share......
OTHER DATA:
Capital expenditures
(8)..................... $ 2,310 $ 3,186 $ 5,187 $ 5,187 $ 3,905 $ 5,893 $ 5,893
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
DECEMBER 31, 1995 ACTUAL AS ADJUSTED (9)
----------------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................... $ 57,066 $ 65,140 $ 71,566
Property, plant and equipment (net)................................ 10,784 15,386 15,386
Total assets....................................................... 247,932 267,346 266,083
Long-term debt (10)................................................ 162,246 162,047 121,536
Preferred stock (6)................................................ 20,000 20,000 --
Common stockholders' equity........................................ 30,188 40,847 106,307
</TABLE>
- ---------
(FOOTNOTES ON FOLLOWING PAGE)
7
<PAGE>
(FOOTNOTES FROM PRIOR PAGE)
(1) Represents the combined historical results of the Predecessor Companies.
These results do not reflect the taxes that would have been payable by
certain of the Predecessor Companies if they had been taxed as C
Corporations rather than S Corporations during the period. In addition, the
results do not reflect the following adjustments related to the Initial
Acquisitions: (i) the interest expense and amortization of related financing
costs incurred in connection with the Initial Acquisitions; (ii) the
amortization of the goodwill created in connection with the Initial
Acquisitions; and (iii) the adjustment of compensation expense to levels
provided in new employment agreements following the Initial Acquisitions.
Accordingly, the 1993 combined results are not presented on the same basis
as the other periods presented.
(2) Reflects: (i) the results of operations of the Predecessor Companies as if
the Initial Acquisitions had occurred on January 1, 1994; (ii) federal and
state income taxes that would have been incurred for the year had all
Predecessor Companies been taxed as C Corporations and filed under a
consolidated tax return for the full period; and (iii) the initial capital
contribution made by Holdings in connection with the Initial Acquisitions as
if it had been made on January 1, 1994. The following reconciles the
Predecessor Companies' combined net income for the seven months ended July
31, 1994 (the date of the Initial Acquisitions) and the Company's
consolidated net income for the five months ended December 31, 1994 to the
pro forma net income for the year ended December 31, 1994:
<TABLE>
<S> <C>
Predecessor Companies' combined net income for the seven months ended July
31, 1994................................................................. $ 17,483
Company's consolidated net income for the five months ended December 31,
1994..................................................................... 3,611
---------
21,094
Net increase in interest expense on debt incurred in the Initial
Acquisitions............................................................. (8,640)
Increase in amortization of intangible assets acquired..................... (1,838)
Decrease in expenses associated with special bonuses paid by the
Predecessor Companies and other costs not duplicated..................... 4,320
Increase in cost of sales related to inventory write-up.................... (500)
Increase in provision for taxes for certain Predecessor Companies
previously taxed as S Corporations....................................... (4,342)
---------
$ 10,094
---------
---------
</TABLE>
(3) Reflects the results of operations of CRS, Mascot, King-O-Matic, Tranzparts
and Diverco as if the 1995 Acquisitions (including related financings) and
the 1996 Acquisitions had occurred on January 1, 1995.
(4) As adjusted to give effect to the anticipated application of the net
proceeds from the Offering as if the Offering had occurred at the beginning
of the respective periods. Amounts do not reflect the impact of the early
redemption premium on the Senior Notes that, combined with the related
unamortized debt issuance costs, will be expensed as an extraordinary item
at the time of redemption. As of September 30, 1996, the extraordinary item
would have been $3.4 million after the effect of taxes. See "Use of
Proceeds."
(5) Reflects the results of operations of Tranzparts and Diverco as if the 1996
Acquisitions had occurred on January 1, 1996.
(6) Consists of Holdings Preferred Stock. See "Reorganization."
(7) Pro forma net income per share amounts are based on the number of shares
determined in accordance with Note 1 of Notes to Consolidated Financial
Statements, adjusted for the number of shares assumed to be issued in
connection with the Offering as if the Offering had occurred at the
beginning of the respective periods.
(8) Excludes capital expenditures made by each of CRS, Mascot, King-O-Matic,
Tranzparts and Diverco prior to such subsidiaries' respective acquisitions
and any capital expenditures made in connection with such acquisitions.
(9) As adjusted to give effect to the application of the net proceeds from the
Offering as if the Offering had occurred on September 30, 1996. See "Use of
Proceeds" and "Capitalization."
(10) Excludes deferred tax liabilities. See Note 5 of Selected Financial Data.
8
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET
FORTH BELOW AS WELL AS THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN THE COMMON STOCK OFFERED HEREBY.
DEPENDENCE ON SIGNIFICANT CUSTOMER. The Company's largest customer,
Chrysler, accounted for approximately $67.6 million and $72.7 million of the
Company's combined net sales for the year ended December 31, 1995 and the nine
months ended September 30, 1996, respectively, or approximately 35.4% and 36.5%,
respectively, of the Company's net sales for such periods. No other customer
accounted for more than 10% of the Company's net sales during either of such
periods. Chrysler, like other North American OEMs, generally requires its
dealers using remanufactured products to use only those from approved suppliers.
Although the Company is currently the only factory-approved supplier of
remanufactured transmissions to Chrysler, Chrysler is not obligated to continue
to purchase the Company's products and there can be no assurance that the
Company will be able to maintain or increase the level of its sales to Chrysler
or that Chrysler will not approve other suppliers in the future. In addition,
within the last two years Chrysler reduced its standard new vehicle warranty
from seven years/70,000 miles to three years/36,000 miles and could implement a
shorter warranty in the future. Any such action could have the effect of
reducing the amount of warranty work performed by Chrysler dealers. An extended,
substantial decrease in orders from Chrysler would have a material adverse
effect on the Company. See "Business -- Marketing and Distribution; OEM
Customers."
SHORTAGE OF TRANSMISSION CORES AND COMPONENT PARTS. In its remanufacturing
operations, the Company obtains used transmissions, hard parts, engines and
related components, commonly known as "cores," which are sorted and either
placed into immediate production or stored until needed. The majority of the
cores remanufactured by the Company are obtained from customers as trade-ins.
The ability to obtain cores of the types and in the quantities required by the
Company is critical to the Company's ability to meet demand and expand
production. With the increased acceptance in the aftermarket of remanufactured
assemblies, the demand for cores has increased. The Company periodically has
experienced situations in which the inability to obtain sufficient cores has
limited its ability to accept all of the orders available to it. As part of its
expanding relationship with Chrysler and in response to the periodic shortage of
cores, in 1994 the Company established at Chrysler's request a central core
return center for all of Chrysler's transmission product lines and certain
engine product lines. The operation of this facility enables the Company to
manage more effectively the tracking and return of cores for Chrysler and its
United States dealers. There can be no assurance that the Company will not
experience core shortages in the future. If the Company were to experience such
a shortage, it could have a material adverse effect on the Company.
Certain component parts required in the remanufacturing process are
manufactured by Chrysler and the Company's other OEM customers. The Company has
experienced shortages of such component parts from time to time in the past and
future shortages could have a material adverse effect on the Company.
ABILITY TO ACHIEVE AND MANAGE GROWTH. An important element in the Company's
growth strategy is the acquisition and integration of complementary businesses
in order to broaden its product offerings, capture market share and improve
profitability. There can be no assurance that the Company will be able to
identify or reach mutually agreeable terms with acquisition candidates, or that
the Company will be able to manage additional businesses profitably or
successfully integrate such additional businesses into the Company without
substantial costs, delays or other problems. Acquisitions may involve a number
of special risks, including: initial reductions in the Company's reported
operating results; diversion of management's attention; unanticipated problems
or legal liabilities; and a possible reduction in reported earnings due to
amortization of acquired intangible assets in the event that such acquisitions
are made at levels that exceed the fair market value of net tangible assets.
Some or all of these items could have a material adverse effect on the Company.
There can be no assurance that businesses acquired in the future will achieve
sales and profitability that justify the investment therein. In addition, to the
extent that consolidation becomes more prevalent in the industry, the prices for
attractive acquisition candidates may increase to unacceptable levels. See
"Business -- Business Strategy -- External Growth."
9
<PAGE>
In addition to growth through acquisitions, the Company plans to expand its
existing operations by broadening its product lines and increasing the number of
its distribution centers in the United States. There can be no assurance that
any new product lines introduced by the Company will be successful, that the
Company will manage successfully the start-up and marketing of new products or
that additional distribution centers will be integrated into the Company's
existing operations or will be profitable. See "Business -- Business Strategy --
Internal Growth."
INDEBTEDNESS AND LIQUIDITY. The Company had outstanding indebtedness of
$165.0 million at September 30, 1996, bearing interest at a weighted average
rate of 11.7%, and the Company's ratio of earnings to fixed charges for the nine
months then ended was 2.3 to 1. After giving effect to the consummation of the
Offering and the anticipated application of the net proceeds therefrom (after
deducting the underwriting discount and estimated expenses of the Offering), the
consolidated indebtedness of the Company at September 30, 1996 would have been
$124.5 million and the Company's ratio of earnings to fixed charges for the nine
months then ended would have been 3.0 to 1. On October 1, 1996, the Company
borrowed $6.9 million under the revolving credit facility to purchase Diverco.
The level of the Company's consolidated indebtedness could have important
consequences to the holders of Common Stock, including the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of principal of and interest on its indebtedness and will not be
available for other purposes; (ii) the ability of the Company to obtain
financing in the future for working capital needs, capital expenditures,
acquisitions, investments, general corporate purposes or other purposes may be
materially limited or impaired; (iii) the Company's level of indebtedness may
reduce its flexibility to respond to changing business and economic conditions
or take advantage of business opportunities that may arise; and (iv) the ability
of the Company to pay dividends is restricted. See "Dividend Policy." Any
default by the Company with respect to its outstanding indebtedness, or any
inability on the part of the Company to obtain necessary liquidity, would have a
material adverse effect on the Company. See "Use of Proceeds" and "Description
of Certain Indebtedness."
DEPENDENCE ON KEY PERSONNEL. The Company is dependent on the continued
services of its management team, including William A. Smith, Chairman of the
Board and Stephen J. Perkins, President and Chief Executive Officer. Mr.
Perkins, Mr. Smith, Wesley N. Dearbaugh, President and General Manager of
Independent Aftermarket, and the presidents of the operating subsidiaries have
an average of 21 years experience in the automotive aftermarket industry.
Although the Company believes it could replace key employees in an orderly
fashion should the need arise, the loss of such personnel could have a material
adverse effect on the Company.
ENVIRONMENTAL MATTERS. The Company is subject to various evolving federal,
state, local and foreign environmental laws and regulations governing, among
other things, emissions to air, discharge to waters and the generation,
handling, storage, transportation, treatment and disposal of a variety of
hazardous and non-hazardous substances and wastes. These laws and regulations
provide for substantial fines and criminal sanctions for violations. The
operation of automotive parts remanufacturing plants involves environmental
risks.
The company from which RPM acquired its assets (the "Prior RPM Company"),
has been identified by the United States Environmental Protection Agency (the
"EPA") as one of the many potentially responsible parties for environmental
liabilities associated with a "Superfund" site located in the area of RPM's
former manufacturing facilities and current distribution facility in Azusa,
California. The EPA has preliminarily estimated that it will cost approximately
$47 million to construct and approximately $4 million per year for an indefinite
period to operate an interim remedial groundwater pumping and treatment system
for a part of the subregion of the Superfund site within which RPM's former
manufacturing facilities and current distribution facility, as well as those of
many other potentially responsible parties, are located. The actual cost of this
remedial action could vary substantially from this estimate, and additional
costs associated with the Superfund site are likely to be assessed. The Company
has significantly reduced its presence at the site and has moved all
manufacturing operations off-site. Since July 1995, the Company's only real
property interest in this site has been the lease of a 6,000 square foot storage
and distribution facility. The RPM acquisition agreement and the leases pursuant
to which the Company leased RPM's facilities after the Company acquired the
assets of RPM (the "RPM Acquisition") expressly provide that the Company did not
10
<PAGE>
assume any liabilities for environmental conditions existing on or before the
RPM Acquisition, although the Company could become responsible for these
liabilities under various legal theories. The Company is indemnified against any
such liabilities by the seller of RPM as well as the Prior RPM Company
shareholders. There can be no assurance, however, that the Company would be able
to make any recovery under any indemnification provisions. Since the RPM
Acquisition, the Company has been engaged in negotiations with the EPA to settle
any liability that it may have for this site. The Company believes, although
there can be no assurance, that it will not incur any material liability as a
result of these pre-existing environmental conditions.
In connection with the Initial Acquisitions, the Company conducted certain
investigations of Aaron's, RPM's, HTP's and Mamco's facilities (in addition to
the Prior RPM Company's Azusa facilities) and their compliance with applicable
environmental laws. The Company conducted similar investigations in connection
with its subsequent acquisitions of CRS, Mascot, King-O-Matic, Tranzparts and
Diverco. The investigations, which included "Phase I" assessments by independent
consultants of all manufacturing and certain distribution facilities, found that
certain remedial, reporting and other regulatory requirements, including certain
waste management procedures, were not or may not have been satisfied. Based in
part on the investigations conducted, and the indemnification provisions of the
agreements entered into in connection with the Initial Acquisitions and the
Company's subsequent acquisitions, the Company believes, although there can be
no assurance, that its liabilities relating to these environmental matters will
not have a material adverse effect, individually or in the aggregate, on the
Company. See "Business -- Environmental."
COMPETITION. The automotive aftermarket for transmissions, engines and
other drive train products is highly fragmented and highly competitive. There
can be no assurance that the Company will compete successfully with other
companies in its industry segment, some of which are larger than the Company and
have greater financial and other resources available to them than does the
Company.
CONTROL OF THE COMPANY; ANTI-TAKEOVER MATTERS. Upon consummation of the
Offering, the Company will continue to be controlled by the Aurora Partnerships,
which will beneficially own in the aggregate approximately % of the
outstanding Common Stock. Therefore, the Aurora Partnerships will be able to
elect all of the directors of the Company and to approve or disapprove any
matter submitted to a vote of the Company's stockholders. As a result of the
Aurora Partnerships' substantial ownership interest in the Common Stock, it may
be more difficult for a third party to acquire the Company. A potential buyer
would likely be deterred from any effort to acquire the Company absent the
consent of the Aurora Partnerships or their participation in the transaction.
The general partner of each of the Aurora Partnerships is controlled by Messrs.
Crowell, Roeder and Parsky. Messrs. Crowell and Roeder are directors of the
Company. The Indentures governing the Senior Notes contain provisions that would
allow a holder to require the Company to repurchase such holder's Senior Notes
at a cash price equal to 101% of the principal amount thereof, together with
accrued interest, upon the occurrence of a change of control of the Company. See
"Ownership of Voting Securities" and "Description of Certain Indebtedness."
In addition, the Company's Board of Directors is authorized, subject to
certain limitations prescribed by law, to issue up to 1,000,000 shares of
preferred stock in one or more classes or series and to fix the designations,
powers, preferences, rights, qualifications, limitations or restrictions,
including voting rights, of those shares without any further vote or action by
stockholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate transactions, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of preferred stock.
POSSIBLE EFFECT ON SHARE PRICE OF SHARES ELIGIBLE FOR FUTURE SALE. Upon
consummation of the Offering, the Company will have shares of Common
Stock outstanding, of which approximately shares will be "restricted
securities" within the meaning of Rule 144 ("Rule 144") promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and may not be sold
without registration under the Securities Act unless an exemption from
registration is available. Each of the Company's current
11
<PAGE>
stockholders and certain holders of the Company's outstanding options have been
granted certain "piggyback" registration rights with respect to the shares of
Common Stock owned by them or to be issued to them. However, the Company will
agree not to offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase an option, right or warrant to purchase or otherwise
transfer or dispose of any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock for a period of 180 days from
the date of this Prospectus without the prior written consent of Morgan Stanley
& Co. Incorporated. Each of the Company's current stockholders, directors,
executive officers and warrant holders will enter into or is bound by a similar
agreement. No predictions can be made as to the effect, if any, that public
sales of shares or the availability of shares for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock in the public market, particularly by directors and officers
of the Company, or the perception that such sales could occur, could have an
adverse effect on the market price of the Common Stock. See "Shares Eligible for
Future Sale."
DILUTION. The initial public offering price per share of Common Stock will
exceed the net tangible book value per share of Common Stock. Accordingly, the
current stockholders of the Company will experience an immediate appreciation in
the net tangible book value of their equity investment in the Company, and the
purchasers of Common Stock will experience immediate and substantial dilution in
the net tangible book value of their equity investment in the Company. In
addition, there will be outstanding after the consummation of the Offering
options and warrants to purchase approximately 448,879 shares of Common Stock at
exercise prices ranging from $10 to $28 per share, the exercise of which would
cause further dilution to new investors. See "Dilution."
ABSENCE OF A PUBLIC MARKET; DETERMINATION OF OFFERING PRICE. Prior to the
Offering, there has been no public market for the Common Stock. Consequently,
the initial public offering price will be determined through negotiations
between the Company and representatives of the Underwriters. See "Underwriters"
for factors to be considered in determining the initial public offering price.
There can be no assurance that a regular trading market for the Common Stock
will develop after the Offering or, if developed, that a public trading market
can be sustained. The initial public offering price will not necessarily
reflect, and may be higher than, the market price of the Common Stock after the
Offering.
12
<PAGE>
RECENT DEVELOPMENTS
On October 1, 1996 the Company acquired Diverco, Inc., a distributor of
standard drive train parts (primarily gears, transfer cases, synchronizers,
bearings), engine parts (valve train components), gaskets and other soft parts
for transmission and engine repair and complete transmissions for light trucks
and automobiles for aftermarket customers. On the acquisition closing date, the
Company made an initial cash payment of $8.5 million, with a potential future
post-closing purchase price adjustment to be made based upon Diverco's financial
performance for the year ending December 31, 1996. Diverco's sales have
increased from $6.7 million for the year ended December 31, 1993 to $7.3 million
for the 12 months ended August 31, 1996. Diverco is located in Harvey, Illinois.
The Company periodically evaluates acquisition opportunities in the
automotive aftermarket business and expects to continue to do so in the future.
The Company has entered into a non-binding letter of intent for another North
American drive train parts distributor. The letter of intent provides for a
purchase price of approximately $10 million and is subject to certain
contingencies, including the Company's satisfactory completion of business,
legal, accounting and environmental due diligence reviews, negotiation of
definitive agreements, and approval of the respective transactions by the
Company's Board of Directors. The letter of intent does not obligate either the
Company or the potential acquisition candidate to enter into a definitive
agreement, and there can be no assurance given that the Company will enter into
a definitive acquisition agreement or consummate such acquisition.
REORGANIZATION
Simultaneous with the consummation of the Offering, Holdings will be merged
into ATC. Upon the effectiveness of such merger, each outstanding share of
Holdings Common Stock will be converted into shares of ATC Common
Stock and each outstanding share of Holdings Preferred Stock will be converted
into the right to receive the Preferred Stock Reorganization Consideration. As
of November 26, 1996 the aggregate Preferred Stock Reorganization Consideration
would be approximately $25 million (including $5.0 million of accrued dividends
as of such date). Holdings' 1994 Stock Incentive Plan will become ATC's plan
(the "Stock Incentive Plan"), and outstanding employee stock options that were
issued by Holdings pursuant to the Holdings plan will be converted into options
to purchase ATC Common Stock. Outstanding warrants that were issued by Holdings
will be converted into warrants to purchase ATC Common Stock on the same
exercise ratio as the ratio applicable to the Holdings Common Stock.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares offered
hereby are estimated to be approximately $69 million (approximately $79 million
if the Underwriters' over-allotment option is exercised in full), based upon an
assumed offering price of $ per share and after deducting estimated
underwriting discounts and offering expenses.
Approximately $46.7 million of the net proceeds of the Offering will be used
by the Company to redeem $40,000,000 in aggregate principal amount of the
Company's Senior Notes at a redemption price of 112% plus accrued interest
thereon (assuming a December 26, 1996 redemption date). The $40,000,000 of
Senior Notes are redeemable after the giving of at least 30 days' prior written
notice to the holders of such Senior Notes. Approximately $25 million of the net
proceeds of the Offering will be used by the Company to pay the aggregate
Preferred Stock Reorganization Consideration assuming a November 26, 1996
Reorganization date.
Any remaining net proceeds will be used by the Company for general corporate
purposes. Pending such application, the Company intends to invest the net
proceeds from this Offering in investment-grade, short-term, interest-bearing
securities. If the net proceeds from the Offering are not sufficient to fund the
intended redemption of Senior Notes and payment of the aggregate Preferred Stock
Reorganization Consideration, the balance will be paid from cash on hand.
13
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock to date. Because
the Company currently intends to retain any earnings to provide funds for the
operation and expansion of its business and for the servicing and repayment of
indebtedness, the Company does not intend to pay cash dividends on the Common
Stock in the foreseeable future. Furthermore, as a holding company with no
independent operations, the ability of the Company to pay cash dividends will be
dependent upon the receipt of dividends or other payments from its subsidiaries.
Under the terms of the Indentures governing the Senior Notes, the Company is not
permitted to pay any dividends on the Common Stock unless certain financial
ratio tests are satisfied. In addition, the Company's revolving credit facility
contains certain covenants which, among other things, prohibit the payment of
dividends by the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources." Any
determination to pay cash dividends on the Common Stock in the future will be at
the sole discretion of the Company's Board of Directors.
14
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at September 30, 1996, and as adjusted to give effect to the sale of
shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share, and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT(1):
12% Senior Notes due 2004........................................................... $ 162,047 $ 121,536
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized; 200,000 shares issued
and outstanding; no shares issued and outstanding, as adjusted (2)................. 20,000 --
Common stock, $.01 par value, 5,000,000 shares authorized; 2,000,000 shares issued
and outstanding; shares as
adjusted (3)....................................................................... 20,000 88,850
Retained earnings................................................................... 20,815 17,425(4)
Cumulative translation adjustment................................................... 32 32
---------- -----------
Total stockholders' equity........................................................ 60,847 106,307
---------- -----------
Total capitalization............................................................ $ 222,894 $ 227,843
---------- -----------
---------- -----------
</TABLE>
- ---------
(1) In addition, the Company had approximately $26 million available under its
$30 million revolving credit facility as of September 30, 1996. On October
1, 1996, the Company borrowed $6.9 million under the revolving credit
facility to purchase Diverco.
(2) Consists of Holdings Preferred Stock. See "Recapitalization."
(3) Does not give effect to the issuance of shares reserved for issuance upon
the exercise of outstanding warrants and employee stock options. See "Shares
Eligible for Future Sale."
(4) The 12% Senior Notes are subject to a redemption premium. This premium,
combined with the related unamortized debt issuance costs, will be expensed
as an extraordinary item at the time of redemption. As of September 30,
1996, the extraordinary item would have been $3.4 million after the effect
of taxes.
15
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of September 30,
1996 was $(187.6) million, or $( ) per share of Common Stock. Net tangible
book value per share is determined by dividing the tangible net worth of the
Company (total assets less intangible assets and total liabilities) by the
number of common shares outstanding, after giving effect to the payment of the
Preferred Stock Reorganization Consideration. Without taking into account any
changes in such net tangible book value after September 30, 1996, other than to
give effect to the sale of the shares of Common Stock at an assumed
initial public offering price of $ per share and the anticipated application
of the net proceeds therefrom, pro forma net tangible book value of the Company
as of September 30, 1996 would have been approximately $( ) million, or
$( ) per share (after giving effect to the use of the net proceeds from this
Offering). This represents an immediate increase in net tangible book value of
$ per share to current ATC stockholders and an immediate dilution of $ per
share to new stockholders. Dilution to new stockholders is determined by
subtracting the net tangible book value per share after this Offering from the
initial public offering price per share. The following table illustrates this
per share dilution.
<TABLE>
<S> <C> <C>
Initial public offering price per share........... $
Net tangible book value per share before
Offering....................................... $ ()
Increase per share attributable to sale of
Common Stock...................................
---------
Pro forma net tangible book value per share after
Offering......................................... ()
---------
Dilution per share to new investors............... $
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the difference between existing stockholders after giving effect to the
payment of the Preferred Stock Reorganization Consideration and the purchasers
of shares in the Offering with respect to the number of shares of Common Stock
purchased from the Company, the total consideration paid and the average price
per share paid by the existing stockholders and by purchasers of the shares
offered hereby (before deducting the underwriting discount and estimated
offering expenses payable by the Company).
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 2,000,000 % $ 20,000,000 % $ 10.00
New stockholders.......................
---------- ----- ------------- -----
Total.............................. 100.0% 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ---------
(1) Does not give effect to the issuance of shares reserved for issuance upon
the exercise of outstanding warrants and employee stock options. See "Shares
Eligible for Future Sale." To the extent warrants or options are exercised,
there will be further dilution to new investors.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below with respect to the statements
of income for the year ended December 31, 1993, seven months ended July 31,
1994, five months ended December 31, 1994, and the year ended December 31, 1995
and the balance sheets at December 31, 1994 and 1995 are derived from the
Combined Financial Statements of the Predecessor Companies and Consolidated
Financial Statements of the Company that have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere herein, and are qualified by
reference to such financial statements and notes related thereto. The selected
financial data with respect to the statement of income data for the year ended
December 31, 1992 and the balance sheet data at December 31, 1992 and 1993, are
derived from the audited Combined Financial Statements of the Predecessor
Companies that have been audited by Ernst & Young LLP, independent auditors, but
are not included herein. The balance sheet data at December 31, 1991 and the
statement of income data for the year then ended are derived from the unaudited
financial statements of the Predecessor Companies. The balance sheet data at
September 30, 1996 and the statement of income data for the nine months ended
September 30, 1995 and 1996 are derived from unaudited consolidated financial
statements. The unaudited consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, the Company
considers necessary for a fair presentation of the financial position at such
date and the results of operations for such periods. Operating results for the
nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. The data
provided should be read in conjunction with the Consolidated Financial
Statements, related notes, and other financial information included in this
Prospectus.
<TABLE>
<CAPTION>
COMBINED
--------------------------------------------- CONSOLIDATED
------------------------------------------------
FOR THE FOR THE NINE
YEAR ENDED FOR THE FOR THE FIVE FOR THE YEAR MONTHS ENDED
DECEMBER 31, SEVEN MONTHS MONTHS ENDED ENDED SEPTEMBER 30,
-------------------------- ENDED DECEMBER 31, DECEMBER 31, ------------------
1991 1992 1993 JULY 31, 1994 (1) 1994 1995 1995 1996
------- ------- -------- ----------------- ------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales......................... $63,612 $75,264 $110,702 $90,056 $67,736 $190,659 $132,472 $199,307
Cost of sales..................... 39,770 45,588 66,687 52,245 40,112 115,499 82,051 122,458
------- ------- -------- ------- ------------ ------------ -------- --------
Gross profit...................... 23,842 29,676 44,015 37,811 27,624 75,160 50,421 76,849
Selling, general and
administrative expenses.......... 18,220 22,103 25,682 20,475 14,206 38,971 26,438 38,651
Amortization of intangible
assets........................... 28 28 28 16 1,210 3,308 2,392 2,781
------- ------- -------- ------- ------------ ------------ -------- --------
Operating income.................. 5,594 7,545 18,305 17,320 12,208 32,881 21,591 35,417
Interest expense (income), net.... (314) (258) (302) (158) 6,032 16,915 12,290 14,430
Income taxes (2).................. 145 150 471 (5) 2,565 6,467 3,080 8,646
------- ------- -------- ------- ------------ ------------ -------- --------
Net income........................ $ 5,763 $ 7,653 $ 18,136 $17,483 3,611 9,499 6,221 12,341
------- ------- -------- -------
------- ------- -------- -------
Preferred stock dividends......... 853 2,093 1,542 1,689
------------ ------------ -------- --------
Net income available to common
stockholders..................... $ 2,758 $ 7,406 $ 4,679 $ 10,652
------------ ------------ -------- --------
------------ ------------ -------- --------
Pro forma (unaudited)(3):
Net income per common share..... $ $
Shares used in computation of
net income per share...........
OTHER DATA:
Capital expenditures (4).......... $ 1,149 $ 1,141 $ 2,310 $ 1,850 $ 1,336 $ 5,187 $ 3,905 $ 5,893
</TABLE>
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
------------------------- -----------------------------
DECEMBER 31, DECEMBER 31,
------------------------- ------------------ SEPTEMBER
1991 1992 1993 1994 1995 30, 1996
------- ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $14,825 $18,639 $26,651 $ 39,646 $ 57,066 $ 65,140
Property, plant and equipment
(net)............................. 3,167 3,274 4,678 6,196 10,784 15,386
Total assets....................... 26,558 32,654 45,618 187,293 247,932 267,346
Long-term debt (5)................. 1,060 1,497 998 121,483 165,724 166,793
Preferred stock.................... -- -- -- 20,000 20,000 20,000
Common stockholders' equity........ 18,144 22,107 31,720 22,757 30,188 40,847
</TABLE>
- ------------
(1) The combined financial statements for the seven months ended July 31, 1994
include the operations of the Predecessor Companies up to their respective
acquisition dates; operations for RPM between July 20, 1994 and July 31,
1994 and for the other three Predecessor Companies for August 1st and 2nd,
1994 are not significant. All material transactions between the Predecessor
Companies have been eliminated.
(2) Two of the Predecessor Companies elected to be taxed as S Corporations for
all periods through consummation of the Initial Acquisitions; therefore, for
federal and state income tax purposes, any income or loss generally was not
taxed to these companies but was reported by their respective stockholders.
A pro forma provision for taxes based on income reflecting the estimated
provision for federal and state income taxes which would have been provided
had these companies been C Corporations and included in consolidated returns
with the Company is as follows: $2,304, $3,036 and $7,334 for the years
ended December 31, 1991, 1992 and 1993, respectively, and $7,004 for the
seven months ended July 31, 1994.
(3) See Note 1 of Notes to Consolidated Financial Statements for description of
the computation of pro forma net income per share. The estimated net
proceeds from the sale of shares of Common Stock will be used to redeem
the Senior Notes and Holdings Preferred Stock. Assuming issuance of these
shares, redemption of the Senior Notes and payment of the Preferred Stock
Reorganization Consideration had occurred on January 1, 1995, pro forma net
income per share would have been $ for the year ended December 31, 1995,
and assuming such issuance, redemption and payment had occurred on January
1, 1996, pro forma net income per share would have been $ for the nine
months ended September 30, 1996.
(4) Excludes capital expenditures made by each of CRS, Mascot, King-O-Matic,
Tranzparts and Diverco prior to such subsidiaries' respective acquisitions
and any capital expenditures made in connection with such acquisitions.
(5) Includes deferred tax liabilities of $1,438, $3,478 and $4,746 at December
31, 1994 and 1995 and September 30, 1996, respectively.
17
<PAGE>
PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Statements of Income give effect to
business acquisitions made in 1995 and 1996 which were accounted for using the
purchase method of accounting. The acquisitions were as follows:
<TABLE>
<S> <C>
Component Remanufacturing Specialists, Inc. (CRS).......... June 1995
Mascot Truck Parts (Mascot)................................ June 1995
King-O-Matic Industries Limited (King-O-Matic)............. September 1995
Tranzparts, Inc. (Tranzparts).............................. April 1996
Diverco, Inc. (Diverco).................................... October 1996
</TABLE>
The Unaudited Pro Forma Consolidated Statements of Income for the year ended
December 31, 1995 and for the nine months ended September 30, 1996 assume that
the 1995 Acquisitions and the 1996 Acquisitions occurred on January 1, 1995 and
the 1996 Acquisitions occurred on January 1, 1996, respectively. The Unaudited
Pro Forma Statements of Income include the historical consolidated statements of
income of the Company (which includes the operations of CRS, Mascot,
King-O-Matic and Tranzparts from the dates of their respective acquisitions),
adjusted for the pro forma effects of the 1995 and 1996 Acquisitions. The
Unaudited Pro Forma Consolidated Statements of Income, as adjusted, for the year
ended December 31, 1995 and for the nine months ended September 30, 1996,
reflect the anticipated application of the estimated net proceeds from the sale
of shares of Common Stock at an assumed offering price of $ per
share, as if the Offering had occurred on January 1, 1995 and January 1, 1996,
respectively.
The Unaudited Pro Forma Consolidated Statements of Income are not
necessarily indicative of the results of the operations that would actually have
occurred if the transactions had been consummated as of January 1, 1995 or
January 1, 1996 or of the future operations. These statements should be read in
conjunction with the Consolidated Financial Statements, related notes, and other
financial information included in this Prospectus.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS
ACQUIRED PRO FORMA PRO FORMA FOR PRO FORMA
COMPANY BUSINESSES (1) ADJUSTMENTS CONSOLIDATED OFFERING AS ADJUSTED (2)
-------- -------------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $190,659 $34,178 $224,837 $224,837
Cost of sales........................... 115,499 21,537 $ 1,104(3) 138,140 138,140
-------- ------- ------------ ---------------
Gross profit............................ 75,160 12,641 86,697 86,697
Selling, general and administrative 38,971 8,008 (2,144)(4) 45,181 45,181
expenses............................... (38)(5)
296(6)
88(7)
Amortization of intangible assets....... 3,308 231 404(8) 3,943 3,943
-------- ------- ------------ ---------------
Income from operations.................. 32,881 4,402 37,573 37,573
Interest expense, net................... 16,915 157 2,639(9) 19,571 $(4,431)(10) 15,140
(140)(11)
-------- ------- ------------ ---------------
Income before income taxes.............. 15,966 4,245 18,002 22,433
Provision for income taxes.............. 6,467 95 729(12) 7,291 1,826(13) 9,117
-------- ------- ------------ ---------------
Net income.............................. $ 9,499 $ 4,150 $ 10,711 $ 13,316
-------- ------- ------------ ---------------
-------- ------- ------------ ---------------
</TABLE>
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED ADJUSTMENTS
ACQUIRED PRO FORMA PRO FORMA FOR PRO FORMA
COMPANY BUSINESSES ADJUSTMENTS CONSOLIDATED OFFERING AS ADJUSTED (2)
-------- --------------- ------------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $199,307 $ 8,759 $208,066 $208,066
Cost of sales...................... 122,458 5,897 128,355 128,355
-------- ------ ------------- --------
Gross profit....................... 76,849 2,862 79,711 79,711
Selling, general and administrative
expenses.......................... 38,651 2,265 $ (787)(4) 40,177 40,177
(18)(5)
66(7)
Amortization of intangible
assets............................ 2,781 53 61(8) 2,895 2,895
-------- ------ ------------- --------
Income from operations............. 35,417 544 36,639 36,639
Interest expense (income), net..... 14,430 (17) 398(9) 14,845 $(3,699)(10) 11,146
(45)(11)
79(14)
-------- ------ ------------- --------
Income before income taxes......... 20,987 561 21,794 25,493
Provision for income taxes......... 8,646 41 292(12) 8,979 1,524(13) 10,503
-------- ------ ------------- --------
Net income......................... $12,341 $ 520 $ 12,815 $ 14,990
-------- ------ ------------- --------
-------- ------ ------------- --------
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(1) Includes the historical operations of the acquired businesses prior to
their acquisition by the Company. Accordingly, included in the 1995 amounts are
CRS and Mascot for the five months ended June 1, 1995 and June 6, 1995,
respectively, King-O-Matic for the eight months ended September 12, 1995 and
Tranzparts and Diverco for the year ended December 31, 1995. The 1996 amounts
include Tranzparts for the three months ended April 2, 1996 and Diverco for the
nine months ended September 30, 1996.
(2) As adjusted to give effect to the anticipated application of the net
proceeds from the Offering as if the Offering had occurred at the beginning of
the respective periods. Amounts do not reflect the impact of the early
redemption premium on the Senior Notes that, combined with the related
unamortized debt issuance costs, will be expensed as an extraordinary item at
the time of redemption. As of September 30, 1996, the extraordinary item would
have been $3.4 million after the effect of taxes.
(3) Prior to its acquisition by the Company, one of the acquired companies
reduced its inventory reserve to state inventory at its fair value at the time
of the acquisition. Such amount would have been reflected as a purchase price
adjustment on January 1, 1995, and accordingly, is excluded from the pro forma
results for the period.
(4) Adjusts the compensation of the former owners of the acquired companies
to the amount payable under his employment agreement entered into with the
Company at the time of the acquisition.
(5) Reflects the revised rental payments on facilities based upon the lease
agreements signed at the time of the acquisition.
(6) Prior to its acquisition by the Company, one of the acquired companies
reduced its bad debt reserve to reflect estimated net realizable value of
receivables at the time of the acquisition. Such amount would have been
reflected as a purchase price adjustment on January 1, 1995, and accordingly, is
excluded from the pro forma results for the period.
(7) Reflects additional depreciation expense for the acquired companies
from the beginning of the period through the respective acquisition dates.
(8) Reflects additional amortization expense for the acquired companies
from the beginning of the period through the respective acquisition date.
(9) Reflects additional interest expense on debt issued in connection with
the acquisitions, as if the issuance had been consummated as of the beginning of
the periods presented. Amount includes $89,000 of debt issuance costs amortized
over the life of the related debt.
(10) Eliminates interest on the Senior Notes that are assumed to have been
redeemed.
(11) Eliminates interest on debt not assumed in the acquisitions.
(12) Reflects the adjustment of income taxes as a result of the pro forma
adjustments described in these Notes and the additional taxes that would have
been expensed had certain acquired companies been taxed as C Corporations rather
than S Corporations.
(13) Reflects additional income taxes resulting from the adjustment for
interest expense.
(14) Eliminates gain on sale to former owner of a building which was
subsequently leased to the Company.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Combined
Financial Statements of the Predecessor Companies and the Consolidated Financial
Statements of the Company and notes thereto included elsewhere in this
Prospectus. The Combined Financial Statements of the Predecessor Companies
represent the combination of the historical financial statements of the four
separate businesses of the Predecessor Companies.
The Company's revenues are generated through the sale of drive train
products used in the automotive aftermarket repair of passenger cars and light
trucks. Since its formation, the Company has benefited from a combination of
internal and acquisition-related revenue growth. The Company achieved compound
annual growth in revenue of 38.5% from 1992 through September 30, 1996 (29.7% if
the 1995 and 1996 Acquisitions are excluded).
The Company's revenues from sales to Independent Aftermarket customers
increased by 46.3% from $58.5 million to $85.6 million between 1992 and 1995.
This growth was due to geographic expansion through the addition of distribution
centers, a broadened product line, enhanced customer service, effective sales
efforts and acquisitions. During the same period, revenues from sales to OEM
customers increased 407.7% from $16.8 million to $85.3 million due to increased
sales to existing customers, including Chrysler, and the addition of new
customers. Revenues from sales to retail automotive parts stores increased from
virtually zero in 1992 to $19.8 million in 1995.
The primary components of the Company's cost of goods sold are the cost of
cores and component parts, labor costs and overhead. While certain of these
costs have fluctuated as a percentage of sales over time, cost of goods sold as
a percentage of sales has remained relatively constant from 1992 through 1995.
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries, commissions, rent, marketing expenses and other management
infrastructure expenses. SG&A expenses as a percentage of sales declined from
23.2% in 1993 to 20.5% in 1995 principally due to the effect of spreading
certain fixed costs over a larger sales base.
The Company regularly evaluates strategic acquisition opportunities in the
automotive aftermarket business and expects to continue to do so in the future.
The Company is a party to negotiations involving the potential acquisition by
the Company of a North American distributor of drive train components. See
"Recent Developments."
RESULTS OF OPERATIONS
The following table sets forth certain financial statement data expressed in
millions of dollars and as a percentage of net sales. The pro forma statement of
income for the year ended December 31, 1994 reflects the combined financial
statements for the seven months ended July 31, 1994 for Aaron's, HTP, Mamco and
20
<PAGE>
RPM, and the consolidated operations of these companies for the five months
ended December 31, 1994. Pro forma expense adjustments were made to reflect the
Initial Acquisitions as if they had occurred on January 1, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------ NINE MONTHS ENDED SEPTEMBER
30,
COMBINED PRO FORMA CONSOLIDATED -----------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ $110.7 100.0% $157.8 100.0% $190.7 100.0% $132.5 100.0% $199.3 100.0%
Cost of sales............ 66.7 60.3 92.9 58.9 115.5 60.6 82.1 62.0 122.5 61.5
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Gross profit............. 44.0 39.7 64.9 41.1 75.2 39.4 50.4 38.0 76.8 38.5
Selling, general and
administrative.......... 25.7 23.2 30.4 19.2 39.0 20.5 26.4 19.9 38.6 19.4
Amortization of
intangible assets....... -- -- 3.0 1.9 3.3 1.7 2.4 1.8 2.8 1.4
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Operating income......... 18.3 16.5 31.5 20.0 32.9 17.2 21.6 16.3 35.4 17.7
Interest expense
(income), net........... (.3) (.3) 14.5 9.2 16.9 8.8 12.3 9.3 14.4 7.2
Provision for income
taxes................... 0.5 0.4 6.9 4.4 6.5 3.4 3.1 2.3 8.7 4.4
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Net income............... $ 18.1 16.4% $ 10.1 6.4% $ 9.5 5.0% $ 6.2 4.7% $12.3 6.1%
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
NET SALES. Total net sales increased $66.8 million or 50.4%, from $132.5
million for the nine month period ended September 30, 1995 to $199.3 million for
the nine month period ended September 30, 1996. Of this increase, $39.0 million
was due to internal growth and $27.8 million was due to the incremental net
sales generated by the companies acquired in 1995 and 1996, including CRS,
Mascot, King-O-Matic and Tranzparts which were acquired on June 1, June 9, and
September 12, 1995, and April 2, 1996, respectively.
The internal growth was generated primarily from increased sales volumes
with existing OEM customers. To a lesser extent, internal growth was also
generated by the incremental sales from five new distribution centers opened
during the second half of 1995, increased sales volumes through existing
distributions centers and increased sales volumes with existing retail
customers.
Net sales to Chrysler of $72.7 million for the nine month period ended
September 30, 1996 represented 36.5% of the Company's total net sales for the
period, as compared to $46.1 million and 34.8% for the nine month period ended
September 30, 1995. Management believes, although there can be no assurance,
that the Chrysler inventory reduction discussed below in the net sales
comparison between 1995 and 1994 was a one-time effort to reverse an inventory
build-up in 1994 and is not expected to recur.
GROSS PROFIT. Gross profit as a percentage of net sales increased from
38.1% for the nine month period ended September 30, 1995 to 38.6% for the nine
month period ended September 30, 1996. The increase in gross profit margin was
primarily attributable to a shift in product mix, lower direct labor cost, and a
higher absorption of overhead resulting from increased production and sales
volumes of remanufactured transmissions. The gross profit margin improved
despite certain non-recurring start-up costs incurred during 1996 in connection
with the Company's new plant in Joplin, Missouri and the expansion of capacity
at the Company's plant in Springfield, Missouri needed to support sales growth
to retail and OEM customers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a result of an increase in
revenues, SG&A decreased as a percentage of net sales from 20.0% for the nine
month period ended September 30, 1995 to 19.4% for the nine month period ended
September 30, 1996. However, SG&A increased in absolute dollars from $26.4
million for the nine month period ended September 30, 1995 to $38.7 million for
the nine month period ended September 30, 1996, representing an increase of
$12.3 million or 46.6%. The increase in SG&A was due largely to the ongoing
incremental SG&A expenses of CRS, Mascot, King-O-Matic and Tranzparts. Other
significant factors contributing to the increase in SG&A include the ongoing
incremental expenses associated with the five new distribution centers opened
during the second half of 1995, and certain start-up and ongoing SG&A expenses
incurred in connection with the Company's new plant in Joplin, Missouri.
21
<PAGE>
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased $0.4 million for the nine month period ended September 30, 1996 as
compared to the nine month period ended September 30, 1995 reflecting the
increase in intangible assets that occurred as a result of the acquisitions of
CRS, Mascot, King-O-Matic and Tranzparts.
INCOME FROM OPERATIONS. Principally as a result of the factors described
above, income from operations increased 63.9% from $21.6 million for the nine
month period ended September 30, 1995 to $35.4 million for the nine month period
ended September 30, 1996.
INTEREST EXPENSE (INCOME), NET. Interest expense increased $2.1 million
from $13.0 million for the nine month period ended September 30, 1995 to $15.1
million for the nine month period ended September 30, 1996. The increase in
interest expense was due to the interest on the Series D Notes which were used
to finance the acquisitions of CRS, Mascot and King-O-Matic, and the related
amortization of debt issuance costs. The Series D Notes were issued on June 1,
1995 and therefore were only outstanding for four months during the nine month
period ended September 30, 1995.
CONSOLIDATED YEAR ENDED DECEMBER 31, 1995 COMPARED TO PRO FORMA YEAR ENDED
DECEMBER 31, 1994
NET SALES. Net sales increased by $32.9 million from $157.8 million in 1994
to $190.7 in 1995 primarily as a result of the acquisitions of CRS, Mascot, and
King-O-Matic. The three new acquisitions provided $24.7 million in additional
revenues. Net sales of remanufactured transmissions increased from $68.4 million
in 1994 to $85.9 million in 1995. The volume increase of remanufactured
transmissions resulted principally from the acquisitions of CRS and Mascot,
partially offset by a reduction in net sales of remanufactured transmissions to
Chrysler from $66.8 million in 1994 to $64.8 million in 1995. Net sales to
Chrysler reflected a decrease from $19.8 million during the third quarter of
1994 to $13.2 million for the third quarter of 1995 as Chrysler reduced its
inventory of remanufactured transmissions, partially offset by an increase from
$16.4 million during the fourth quarter of 1994 to $18.9 million for the fourth
quarter of 1995. Net sales of repair kits, hard parts and other drive train
products increased $6.0 million from $69.0 million in 1994 to $75.0 million in
1995 primarily as a result of the Company's acquisition of King-O-Matic. Net
sales of remanufactured engines increased $4.6 million from $15.2 million in
1994 to $19.8 million in 1995. The volume increase of remanufactured engines
resulted from increased demand from Western Auto at its retail outlets, and the
addition of new retail customers.
GROSS PROFIT. Gross profit as a percentage of net sales decreased from
41.1% in 1994 to 39.4% in 1995. The gross profit decrease of 1.7% of net sales
was due in large part to increased labor costs relating to remanufactured
engines and transmissions. The Company was not able to recover all of the
additional costs through increased selling prices.
In addition, the aggregate gross profit was affected by the acquisitions
that occurred in 1995. Total net sales in 1995 includes $24.7 million for CRS,
Mascot and King-O-Matic at a combined gross profit which was somewhat lower than
that of the Company as a whole for 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased from
$30.4 million in 1994 to $39.0 in 1995 or, as a percentage of net sales, from
19.2% in 1994 to 20.5% in 1995. The increase was partly due to the Company's
acquisitions of CRS, Mascot and King-O-Matic, which comprised $3.3 million of
the Company's SG&A expenses in 1995. Other significant factors that contributed
to the increase in SG&A expenses were the relocation of RPM's main facilities
from Azusa, California to Rancho Cucamonga, California and the addition of a new
manufacturing plant in Joplin, Missouri, both of which resulted in an increase
in ongoing SG&A expenses and a significant amount of non-recurring SG&A expenses
being incurred during 1995. Legal, audit, tax and other professional fees were
also higher in 1995 principally due to a full year of ATC operations as compared
with only five months of operations in 1994.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased $0.3 million in 1995 reflecting the increase in intangible assets that
occurred as a result of the acquisitions of CRS, Mascot and King-O-Matic.
INCOME FROM OPERATIONS. Principally as a result of the factors described
above, income from operations increased from $31.5 million in 1994 to $32.9
million in 1995.
22
<PAGE>
INTEREST EXPENSE (INCOME), NET. Interest expense increased $2.4 million
from $14.5 million in 1994 to $16.9 million in 1995. The increase in interest
expense reflects additional interest on the Series D Notes that were issued
principally to finance the acquisitions of CRS, Mascot and King-O-Matic and the
related amortization of debt issuance costs.
PRO FORMA 1994 COMPARED TO COMBINED 1993
NET SALES. Net sales increased by $47.1 million from $110.7 million in 1993
to $157.8 million in 1994 primarily as a result of increases in the number of
units sold. The increase in net sales is primarily comprised of an increase in
net sales of remanufactured transmissions from $37.5 million during 1993 to
$68.4 million during 1994. The volume increase of remanufactured transmissions
resulted principally from increased demand from Chrysler due to an increased use
of remanufactured transmissions in lieu of rebuilt transmissions for OEM
warranty-related service. Net sales of repair kits, hard parts and other drive
train products increased $9.7 million from $59.3 million in 1993 to $69.0
million in 1994, despite facility relocation of five distribution centers and
the relocation of the Company's Dayton, Ohio torque converter plant to expand
capacity. Net sales of remanufactured engines increased $4.8 million from $10.4
million in 1993 to $15.2 million in 1994. The volume increase of remanufactured
engines resulted from increased demand from Western Auto at its retail outlets.
GROSS PROFIT. Gross profit as a percentage of net sales increased from
39.7% in 1993 to 41.1% in 1994, primarily as a result of an increase in gross
profit due to higher sales volume resulting in greater absorption of overhead.
During 1994, the Company began its program of increasing capacity and has
realized increased labor efficiencies with the upgrading and reorganization of
certain manufacturing facilities.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. As a percentage of net sales,
SG&A expenses decreased from 23.2% of net sales in 1993 to 19.2% of net sales in
1994, primarily due to higher sales volume. The improvement in the percentage
occurred despite the additional expenses incurred by the Company related to the
start-up of the new Dayton torque converter plant, increases in legal,
accounting and professional fees relating to the integration of the Predecessor
Companies and increases in administrative support expenses. Management believes
that approximately half of these expenses are non-recurring in nature. SG&A
expenses for purposes of the pro forma financial statements for 1994 exclude
$3.5 million of one time employee bonuses and $0.8 million of excess executive
compensation and other costs, which were paid by the Predecessor Companies, net
of certain new overhead expenses.
INCOME FROM OPERATIONS. Principally as a result of the factors described
above, income from operations increased from $18.3 million in 1993 to $31.5
million in 1994.
INTEREST EXPENSE (INCOME), NET. Interest expense increased $14.8 million
from $(0.3) million in 1993 to $14.5 million in 1994. The increase in interest
expense reflects interest on the Series B Senior Notes, interest on the
outstanding amounts from time to time under the Revolving Credit Agreement, and
the amortization of deferred debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's inception in July 1994, the Company has funded its
operations and investments in property and equipment, including acquisitions,
through the issuance of Senior Notes totaling $162.4 million and the private
sale of Preferred and Common Stock totaling $40.0 million, and, to a lesser
extent, through cash provided by operating activities.
The Company had total cash and cash equivalents on hand of $8.3 million at
September 30, 1996, representing a decrease in net cash of $0.4 million for the
nine months then ended. The Company had total cash and cash equivalents on hand
of $8.3 million at September 30, 1996, representing a decrease in net cash of
$0.4 million for the nine months then ended. Net cash provided by operating
activities was $10.8 million in 1995. Net cash provided by operating activities
was $7.4 million for the nine months ended September 30, 1996. Net cash used in
investing activities was $45.4 million and $10.0 million for 1995 and for the
nine months ended September 30, 1996, respectively. The net cash used in
investing activities in 1995 was attributable to capital expenditures of $5.2
million, due primarily to investments in the Company's Joplin, Missouri and
Rancho Cucamonga, California manufacturing facilities and $40.3 million used to
acquire CRS, Mascot and King-O-Matic. Net cash used in investing activities was
$10.0 million for the nine months
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ended September 30, 1996, including $4.1 million for the acquisition of
Tranzparts and $5.9 million in capital expenditures largely for transmission and
engine remanufacturing equipment and other improvements related to the Company's
new plant in Joplin, Missouri. Net cash used in investing activities was $10.0
million for the nine months ended September 30, 1996, including $4.1 million for
the acquisition of Tranzparts and $5.9 million in capital expenditures largely
for transmission and engine remanufacturing equipment and other improvements
related to the Company's new plant in Joplin, Missouri. Net cash provided by
financing activities was $34.0 million in 1995, due principally to the issuance
of $42.4 million of Senior Notes, which was partially offset by certain payments
on other debt facilities and amounts due to former stockholders. Net cash
provided by financing activities was $2.1 million during the nine months ended
September 30, 1996 due to additional borrowings.
The Company has budgeted $9.8 million for capital expenditures for all of
1996. The budget includes $2.1 million for additional engine remanufacturing
equipment and $3.1 million for transmission remanufacturing equipment to provide
additional capacity. Of the budgeted capital expenditures, as of September 30,
1996, the Company had incurred $5.9 million and had placed purchase orders of
$2.2 million for additional equipment and leasehold improvements.
The Company has a $30.0 million revolving credit facility that matures in
July 1999. As of September 30, 1996, the Company had approximately $26 million
available under the revolving credit facility. On October 1, 1996, the Company
borrowed $6.9 million under the revolving credit facility to purchase Diverco.
The Company has entered into a non-binding letter intent for another North
American drive train parts distributor. The letter of intent provides for a
purchase price of approximately $10 million, which would be drawn from the
revolving credit facility if the transaction is consummated.
In July 1996, the Company entered into an agreement with Bank of Montreal
("BOM") for a $3.0 million Canadian revolving credit facility to accommodate the
working capital needs of the Company's Canadian subsidiaries, King-O-Matic and
Mascot. Borrowings under the agreement are limited to certain advance rates
based upon the eligible accounts receivable and inventory of King-O-Matic and
Mascot up to an aggregate maximum of $3.0 million Canadian, are due upon demand
and bear interest at the BOM prime lending rate plus 0.25%. The agreement
contains certain covenants including a tangible net worth covenant for
King-O-Matic and Mascot combined, and the terms of the agreement are subject to
annual review.
The Company believes that cash on hand, cash flow from operations and
existing borrowing capacity will be sufficient to fund its ongoing operations,
including amounts that the Company estimates would be expended in connection
with the potential acquisition discussed under "Recent Developments." In
pursuing additional future acquisitions, the Company expects to have to consider
the effect any such acquisition costs may have on its liquidity. In order to
consummate such acquisitions, the Company may accordingly need to seek to raise
additional capital through additional borrowings or equity financings. The
information in this paragraph is forward-looking and involves risks and
uncertainties that could significantly impact the Company's expected liquidity
requirements in the short and long term. While it is impossible to itemize the
many factors and specific events that could affect the Company's outlook for its
liquidity requirements, such factors would include the possible reduction in
deliveries to one or more significant customers for any reason and the possible
effect of assimilating acquisitions into the Company's existing operations and
the expansion of those operations.
INFLATION; LACK OF SEASONALITY
Although the Company is subject to the effects of changing prices, the
impact of inflation has not been a significant factor in results of operations
for the periods presented. In some circumstances, market conditions or customer
expectations may prevent the Company from increasing the prices of its products
to offset the inflationary pressures that may increase its costs in the future.
Historically, there has been little seasonal fluctuation in the Company's
business.
ENVIRONMENTAL MATTERS
See "Business -- Environmental" for a discussion of certain environmental
matters relating to the Company.
24
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BUSINESS
GENERAL
The Company is a leading remanufacturer and distributor of drive train
products used in the aftermarket repair of passenger cars and light trucks. The
Company's principal products include remanufactured transmissions, torque
converters and engines, as well as remanufactured and new parts for the repair
of automotive drive train and engine assemblies. The Company's principal
customers include: (i) independent transmission rebuilders, general repair shops
and distributors (I.E., the Independent Aftermarket); (ii) OEMs, principally
Chrysler, for use as replacement parts by their dealers; and (iii) retail
automotive parts stores. The Company believes it is uniquely positioned within
the highly fragmented aftermarket for drive train products as a result of its
extensive product line, diverse customer base and broad geographic presence,
with 43 distribution centers throughout the United States and Canada.
The Company was organized in 1994 by Aurora Capital Partners and a
management team led by William A. Smith to combine the businesses of four
existing companies serving the drive train remanufacturing market. Since that
time the Company has grown both internally and through five additional
acquisitions completed during 1995 and 1996. The Company and its predecessor
companies have achieved compound annual growth in revenue of 38.5% from 1992
through September 30, 1996 (29.7% if the Company's 1995 and 1996 acquisitions
are excluded). The Company believes the key elements of its success are the
quality and breadth of its product offerings and the Company's emphasis on
strong customer relationships, promoted by strong technical support, rapid
delivery time, innovative product development and competitive pricing. In
addition, the Company has benefited from the increasing use of remanufactured
transmissions, engines and other parts for aftermarket repairs as the industry
recognizes that remanufacturing provides a higher quality, lower cost
alternative to rebuilding the assembly or replacing it with a new assembly
manufactured by an OEM.
The Company's strategy is to achieve growth both internally and through
strategic acquisitions. The Company intends to expand its existing business by:
(i) increasing penetration of its current customer base; (ii) gaining new OEM,
Independent Aftermarket and retail customers; and (iii) introducing new products
to both existing and new customers. Strategic acquisitions have also been an
important element in the Company's historical growth. The Company sees
significant opportunities to continue expanding its customer base, geographic
presence and product offerings through additional strategic acquisitions,
particularly among companies serving the highly fragmented Independent
Aftermarket. Management believes that future acquisitions will enable it to
enhance the Company's revenues and profitability by expanding the Company's
existing distribution base, increasing the range of products sold through the
Company's distribution network and realizing economies of scale in areas
including purchasing, administration and inventory management.
AUTOMOTIVE AFTERMARKET INDUSTRY
MARKET SIZE AND GROWTH
The automotive aftermarket in the United States and Canada, which consists
of sales of parts and services for vehicles after their original purchase, has
been noncyclical and has generally experienced steady growth over the past ten
years, unlike the market for new vehicle sales. According to the Automotive
Parts & Accessories Association, between 1985 and 1995, estimated industry-wide
revenue for the automobile aftermarket increased from approximately $126 billion
to $170 billion. This consistent growth is due principally to the increase in
the number of vehicles in operation that are in the prime repair age of four to
12 years and the increase in the average number of miles driven annually per
vehicle. The Company competes specifically in the aftermarket segment for
automotive transmissions, engines and other drive train related products, which
represents more than $7 billion of the entire automotive aftermarket. The
Company believes that within this segment the market for remanufactured drive
train products has grown faster than the overall automotive aftermarket.
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REMANUFACTURING
Remanufacturing is a process through which used assemblies, such as
transmissions or engines, are returned to a central facility where they are
disassembled and their component parts cleaned, refurbished and tested. The
usable component parts are then combined with new parts in a high volume,
precision manufacturing process to create remanufactured assemblies.
When a drive train assembly such as a transmission or engine fails, there
are generally three alternatives available to return the vehicle to operating
condition. The dealer or independent repair shop may: (i) remove the assembly,
disassemble the unit into its component pieces, replace worn or broken parts
with remanufactured or new components, and reinstall that assembly ("rebuild");
(ii) replace the assembly with a remanufactured assembly or; (iii) in limited
instances, replace the assembly with a new assembly manufactured by the OEM.
Costs to the OEM associated with remanufactured assemblies generally are 50%
less than new or rebuilt assemblies due to the remanufacturers' use of high
volume manufacturing techniques and salvage methods that increase the number of
reusable components. In addition, remanufactured assemblies are generally of
higher quality than rebuilt assemblies because of the precision manufacturing
techniques, technical upgrades and rigorous inspection and testing procedures
employed in remanufacturing. In contrast, the quality of a rebuilt assembly is
heavily dependent on the skill level of the particular mechanic, who typically
is less able to remain current with engineering changes than remanufacturers,
who work in close liaison with OEM engineers. In addition, the proliferation of
transmission and engine designs, the increasing complexity of transmissions and
engines that incorporate electronic components, and the shortage of highly
trained mechanics qualified to rebuild assemblies all have tended to favor
remanufacturing over rebuilding assemblies for aftermarket repairs. For warranty
repairs, consistent quality of warranty repairs is important to the OEM standing
behind the applicable warranty, because once installed, the remanufactured
product is usually covered by the OEM for the balance of the original warranty
period. The Company believes that because of this combination of high quality
and low cost, the use of remanufactured assemblies for aftermarket repairs is
growing compared to the use of new or rebuilt assemblies.
PRODUCTS
The principal product lines of the Company are remanufactured transmissions,
repair kits and hard parts used in drive train repairs, and remanufactured
engines. The following table sets forth, by product line, the Company's combined
net sales (dollars in millions) and the percentage of the Company's total net
sales for the years 1993, 1994 and 1995 and the first nine months of 1995 and
1996:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
YEAR ENDED DECEMBER 31, 30,
------------------------------------------------ -----------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Transmissions....... $ 37.5 33.9% $ 68.4 43.4% $ 85.9 45.0% $57.5 43.4% $100.7 50.5%
Repair Kits and Hard
Parts.............. 59.3 53.5 69.0 43.8 75.0 39.4 54.2 40.9 69.6 34.9
Engines............. 10.4 9.4 15.2 9.6 19.8 10.4 15.0 11.3 20.2 10.1
Other............... 3.5 3.2 5.2 3.2 10.0 5.2 5.8 4.4 8.8 4.5
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
Total............... $110.7 100.0% $157.8 100.0% $190.7 100.0% $132.5 100.0% $199.3 100.0%
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
------ ------ ------ ------ ------ ------ ----- ------ ----- ------
</TABLE>
TRANSMISSIONS
The Company remanufactures transmissions which are factory approved and
suitable for warranty and post-warranty replacement of transmissions for
Chrysler and 12 foreign OEMs, including Hyundai Motor America, Subaru of America
and American Isuzu, for their United States dealer networks. The number of
transmission models remanufactured by the Company has been increasing to
accommodate the greater number of models currently used in vehicles manufactured
by the Company's OEM customers. The majority of the Company's transmissions are
sold to Chrysler under Chrysler's MOPAR brand name. In addition, the Company
rebuilds heavy duty and light duty truck transmissions and air compressors.
REPAIR KITS AND HARD PARTS
Repair kits sold by the Company consist of gaskets, friction plates, seals,
bands, filters and other "soft" parts that are used in rebuilding transmissions
for substantially all domestic and most imported passenger cars and light
trucks. Kits are currently sold principally to the Independent Aftermarket. Each
kit is designed specifically to include substantially all of the soft parts
necessary for rebuilding a particular model of
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transmission. In addition to manufacturing or remanufacturing certain of the
components that are used in its kits, the Company maintains a variety of supply
relationships that allow it to purchase components for its kits at competitive
prices. The components manufactured or remanufactured by the Company include
various friction plates, gaskets and bands. Many of the Company's competitors do
not manufacture any of the components that they distribute and the Company
believes this provides it a cost advantage over its competitors. The repair kits
are sold under the RPM, HTP, KING-O-MATIC, TRANZPARTS and DIVERCO brand names.
The Company remanufactures torque converters (the coupler between the
transmission and engine), planetary gears (speed regulating devices inside the
transmission) and transmission fluid pumps. These "hard" parts are sold
principally to the Independent Aftermarket for use in drive train repairs. Many
of the Company's competitors do not distribute as broad a line of hard parts or
remanufacture hard parts that they distribute. The Company believes these
factors provide it both an availability and cost advantage over its competitors.
Hard parts are sold under the RPM, HTP, MAMCO, TRANZPARTS and DIVERCO brand
names.
ENGINES
The Company remanufactures engines designed as replacement engines for use
in many domestic passenger cars and light trucks. Principal customers are
Western Auto and O'Reilly Auto Parts, as well as the Independent Aftermarket.
Over the past three years, the variety of engine models remanufactured by the
Company has increased from 50 to 75 as the Company has expanded the range of
engines offered to meet customer requirements. In June 1996, the Company
introduced engine repair kits marketed to the Independent Aftermarket under the
PROFORMANCE brand name. These kits are designed to provide mechanics with the
components required to repair or rebuild a broad selection of domestic engine
models.
OTHER
Other products consist principally of remanufactured rack and pinion
assemblies and CV axles for passenger cars and light trucks for the Independent
Aftermarket, and cleaning and testing equipment for the Independent Aftermarket
and other industrial businesses. These products are sold under the RPM, HTP,
KING-O-MATIC, TRANZPARTS and INTERCONT brand names. In the fourth quarter of
1995, the Company became the sole supplier of fully enclosed aqueous cleaning
equipment to Safety-Kleen (a provider of parts cleaner services). This equipment
permits the cleaning of automotive and industrial components without the use of
environmentally damaging solvents.
MARKETING AND DISTRIBUTION
The Company distributes its products to: (i) the Independent Aftermarket;
(ii) its OEM customers for use as replacement parts by their dealers; and (iii)
retail automotive parts stores.
INDEPENDENT AFTERMARKET
The Company supplies transmission repair kits and hard parts used in drive
train repairs to over 11,000 of the approximately 17,000 independent
transmission rebuilders and distributors in the United States and Canada, such
as AAMCO Transmissions Inc., MOTRA Corp. and Lee Myles Associates Corp. These
products are used in the Independent Aftermarket to rebuild transmissions and
other assemblies using remanufactured and new component parts purchased from a
variety of suppliers. In addition, the Company supplies transmission and engine
repair kits, hard parts used in drive train repairs, remanufactured engines and
certain remanufactured components such as CV axles to over 1,000 of the
approximately 54,000 general repair shops in the United States. Transmission and
engine repairs performed in the Independent Aftermarket are generally for
vehicles no longer covered by warranty or for OEM dealers who do not have access
to remanufactured assemblies or lack the in-house capabilities to repair
transmissions.
There are two characteristics of the Independent Aftermarket that influence
the Company's business strategy. First, as the number of vehicle models has
proliferated and repairs have become increasingly complex, the Independent
Aftermarket has grown more dependent on its suppliers for technical support and
for assistance in managing inventory by delivering product on a just-in-time
basis at competitive prices. Second, Independent Aftermarket customers
(including those affiliated with larger organizations such as
27
<PAGE>
AAMCO, MOTRA and Lee Myles) generally purchase parts at the individual repair
shop level. Independent Aftermarket customers tend to make purchasing decisions
based on availability and rapid delivery of products, competitive pricing,
breadth of product offering and technical assistance. To respond to these
requirements, the Company has developed a strategy of geographic expansion of
its distribution system to provide its Independent Aftermarket customers with
short-notice rapid delivery, high service levels and technical support for a
broad product offering in each local market. This is accomplished through 43
distribution centers located throughout the United States and Canada from which
the Company provides local technical support and a wide range of products
delivered by Company-operated trucks to its customers. The Company believes that
this system is the most extensive in the drive train segment of the automotive
aftermarket and represents a competitive advantage for the Company relative to
its typically smaller, local competitors. Accordingly, the Company believes
there are opportunities for further geographic penetration in this relatively
fragmented market. See "-- Business Strategy -- Internal Growth -- Independent
Aftermarket."
The Company has developed a common product identification and numbering
system which is currently being implemented on a Company-wide basis. In
addition, the Company is in the process of electronically linking its
distribution centers through a computer network that will enable each center to
determine more quickly if and where a particular part is located within the
distribution system, thereby further enhancing customer service. The Company
expects to implement this process in stages during 1996 and 1997, and it
believes that the process will be completed by the end of 1997. These changes
are expected to improve customer service, increase product availability, enhance
inventory management and improve operational efficiencies.
New customers are developed by a direct sales force operating from the
Company's local distribution centers, by national and local trade publication
advertising and by telemarketing. The Company also participates in trade shows.
The Company believes its RPM, HTP, KING-O-MATIC, MAMCO, TRANZPARTS, INTERCONT
and DIVERCO brand names are well recognized and respected in their regional
markets. Sales to Independent Aftermarket customers accounted for 44.9% of the
Company's revenues in 1995 and 41.5% in the first nine months of 1996.
OEM CUSTOMERS
The Company provides factory-approved remanufactured transmissions to OEMs
for use in warranty and, to a lesser extent, post-warranty repair work by their
dealers. The Company's largest OEM customer is Chrysler, to whom the Company
also supplies certain factory-approved remanufactured engines. The Company sells
to 12 foreign OEMs, including Hyundai Motor America, Subaru of America and
American Isuzu. Products are sold to each OEM pursuant to supply arrangements
for individual transmission models. Sales to the Company's OEM customers
accounted for 44.9% of the Company's 1995 revenues and 50.7% of revenues in the
first nine months of 1996. Sales to Chrysler accounted for 35.4% and 36.5% of
the Company's revenues in 1995 and in the first nine months of 1996,
respectively. See "Risk Factors -- Dependence on Significant Customer."
Over the past 12 years, the Company has developed and maintained strong
relationships at many levels of both the corporate and the factory organizations
of Chrysler. In recognition of the Company's consistently high level of service
and product quality throughout its relationship with Chrysler, in 1995 the
Company was awarded the Platinum Pentastar award, the highest award Chrysler
bestows on a supplier. The Company's Platinum Pentastar was one of only 14
awarded to Chrysler's 3,500 suppliers in 1995 and marks the first time that the
Platinum Pentastar has been awarded to a remanufacturer or to a supplier that
serves exclusively as a MOPAR aftermarket parts supplier. In addition to its
Platinum Pentastar, the Company received Gold Pentastar awards in 1993, 1994 and
1995. Only seven suppliers received the Gold Pentastar award in each of these
years.
Chrysler began implementing remanufacturing programs for its transmission
models in 1986 and selected the Company as its sole supplier of remanufactured
transmissions in 1989. Chrysler has advised the Company that, by implementing a
remanufacturing program, Chrysler has realized substantial warranty cost
savings, standardized the quality of its dealers' aftermarket repairs and
reduced its own inventory of
28
<PAGE>
replacement parts. Currently, Chrysler has remanufacturing programs for
transmission models that are used in less than 70% of its vehicles, and the
Company is the only factory-approved supplier of remanufactured transmissions
for these models. The Company estimates that, of the Chrysler transmissions for
which there is a remanufacturing program, the Company currently provides less
than 50% of the transmissions subject to major repair by Chrysler dealers, with
the balance being rebuilt by the dealers. This has been due to dealers' electing
to rebuild transmissions, generally through their own service departments,
rather than replacing them with remanufactured assemblies, as well as historical
constraints on the availability to the Company of parts from Chrysler used in
the remanufacturing process and, to a lesser extent, the availability of cores
to the Company.
As part of its expanding relationship with Chrysler and in response to the
periodic shortage of cores, at Chrysler's request the Company recently
established a central core return center for all of Chrysler's transmission
models and certain engine lines through which the Company manages the tracking
and return of cores. Under the Company's management system, Chrysler dealers
make arrangements to ship transmission and engine cores to a regional depot,
which then ships directly to the Company's central core return center located
near its main remanufacturing facility. The Company thus assists Chrysler by
improving the efficient and timely return of cores at a cost savings to
Chrysler. Furthermore, the Company performs value-added services such as core
audit and analysis in conjunction with Chrysler engineers. Additionally, the
Company's improved ability to track core supply allows it to schedule its
production more efficiently. The Company believes that this central core
facility has reduced the risk of future Chrysler core shortages. In addition,
the increased number of cores has resulted in a greater number of reusable
parts, which, together with recently expanded production capacity at Chrysler,
has increased the Company's supply of parts required in the remanufacturing
process.
Net sales to Chrysler grew from $14.9 million in 1991 to $67.6 million in
1995 and were $72.7 million for the first nine months of 1996. The Company has
developed a new production line dedicated to remanufacturing certain of the
Chrysler transmission models that are not yet covered by the remanufacturing
programs and has received an initial purchase order from Chrysler, although the
Company has not begun remanufacturing these transmission models.
RETAIL AUTOMOTIVE PARTS STORES
The Company supplies remanufactured engines, transmission filter kits,
engine components and engine repair kits to a portion of the approximately
60,000 automotive aftermarket retail stores throughout the United States, which
offer new and remanufactured parts and assemblies to a broad range of customers,
principally "do-it-yourself" customers and general repair shops. The retail
automotive parts store market is highly fragmented with most retail stores
obtaining products similar to those provided by the Company from a variety of
regional suppliers. These customers tend to make purchasing decisions based on
price, rapid delivery of products and breadth of product offering. As a supplier
with a national scope and a broader product line than many of its competitors,
the Company provides high quality products, competitive prices and high service
levels as well as promotional literature and advertisements. The Company's
principal retail customers are Western Auto (595 retail locations in 29 states),
O'Reilly Auto Parts (188 retail locations in four states) and Advance Auto (535
retail locations in nine states). Sales to retail automotive parts stores have
grown from virtually zero in 1991 to $19.8 million in 1995 and $15.6 million in
the first nine months of 1996.
BUSINESS STRATEGY
The Company's strategy is to achieve growth both internally and through
strategic acquisitions. The Company intends to expand its existing business by:
(i) increasing penetration of its current customer base; (ii) gaining new OEM,
Independent Aftermarket and retail customers; and (iii) introducing new products
to both existing and new customers. Strategic acquisitions have also been an
important element in the Company's historical growth. The Company sees
significant opportunities to continue expanding its customer base, geographic
presence and product offerings through additional strategic acquisitions,
particularly among companies serving the highly fragmented Independent
Aftermarket. Management believes that future acquisitions will enable it to
improve the Company's revenues and profitability by expanding the
29
<PAGE>
Company's existing distribution base, increasing the range of products sold
through the Company's distribution network and realizing economies of scale in
areas including purchasing, administration and inventory management.
INTERNAL GROWTH -- INDEPENDENT AFTERMARKET
INCREASING SALES TO EXISTING CUSTOMERS. The Company believes that it
currently supplies less than one-third of the remanufactured or new drive train
component requirements of its Independent Aftermarket customers. The Company
believes it is well positioned to expand sales to these customers through the
implementation of a common parts numbering system, a systemwide computer-based
inventory tracking system and the stocking in a central location of certain hard
parts that the Company's customers have previously had difficulty obtaining. The
Company also intends to expand its business with existing customers by
cross-selling products among its subsidiaries' customers. For example,
King-O-Matic has recently introduced Mamco torque converters to its customers
and RPM has increased its hard parts sales by offering HTP products.
ESTABLISHING NEW CUSTOMER RELATIONSHIPS. The Company believes that its
product mix and distribution network position it to expand its Independent
Aftermarket customer base in two ways. First, although the Company's
distribution network is currently the most extensive in the drive train segment
of the automotive aftermarket, there are significant opportunities for the
Company to expand to additional geographic markets. The Company currently has
facilities in 41 markets in the United States and Canada and has identified
expansion opportunities in over 60 additional markets. The Company opened ten
and closed two distribution centers in 1995. Second, the Company recently has
expanded its customer base to include general repair shops in the United States.
Although the Company began supplying this market on a selected basis with a
limited product line in 1993, since January 1995 the Company has expanded its
distribution of remanufactured engines and engine repair kits from two to ten
distribution centers and plans to expand the availability of these product lines
to its other distribution centers. The Company now serves approximately 1,000 of
the approximately 54,000 general repair shops in the United States. The
Company's product line breadth and depth and its distribution network contrast
with those of many other suppliers which offer only a limited product line on a
regional or local level. These factors are expected to enable the Company to
broaden its penetration among general repair shops with minimal additional
investment.
INTRODUCING NEW PRODUCTS. The Company regularly introduces new products for
the Independent Aftermarket. The Company monitors sales trends and is in
frequent communication with customers regarding potential new products. For
example, the Company has increased its remanufactured engine models from 50 to
75 since the beginning of 1995. The Company believes that its reputation for
high quality products and customer service enables it to leverage its
relationships with existing customers to sell additional products.
The Company also explores other opportunities to service the Independent
Aftermarket. For example, the Company has become the sole supplier of fully
enclosed aqueous cleaning equipment to Safety-Kleen, a provider of parts cleaner
services. The Company expects that the market for aqueous cleaning equipment,
which allows automotive and industrial parts to be cleaned without the use of
environmentally damaging solvents, will grow due to increasingly stringent
environmental regulations regarding the use and disposal of solvents.
INTERNAL GROWTH -- OEM
INCREASING SALES TO EXISTING CUSTOMERS. The Company intends to increase its
business with its existing OEM customers by working with the OEMs to increase
dealer utilization of remanufactured transmissions in both the warranty and
post-warranty period. The Company estimates that, of the transmissions for which
its OEM customers have remanufacturing programs, the Company currently provides
less than 50% of the transmissions subject to major repair by such customers,
with the balance being transmissions rebuilt by dealer mechanics. The Company is
working in tandem with OEMs to highlight to dealers the quality and cost
advantages of using remanufactured assemblies versus rebuilding. In addition,
the post-warranty repair market, which the Company believes is approximately
eight times as large as the OEM dealer warranty repair market, presents a growth
opportunity. Currently, the vast majority of post-warranty repairs are
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<PAGE>
performed in the Independent Aftermarket rather than at OEM dealers. Given the
relatively low cost and higher quality of remanufactured components, OEM dealers
can enhance their cost competitiveness compared to independent service centers
through the increased use of remanufactured components as well as providing end
customers with a higher quality product. To the extent that OEM dealers increase
their level of post-warranty repairs, the Company is well positioned to
capitalize on this market growth.
INTRODUCING NEW PRODUCTS. The Company has introduced 33 new transmission
models and a number of related drive train products in the last three years for
its OEM customers. The Company has developed a new production line dedicated to
remanufacturing certain of the Chrysler transmission models that are not yet
covered by the remanufacturing program and has received an initial purchase
order, although the Company has not begun remanufacturing these new products.
The Company's ability to add new products is in part dependent on the support
and approval of the OEM. The Company believes that its reputation for high
quality products and customer service will generate increased demand from OEMs
for additional remanufactured components.
ESTABLISHING NEW CUSTOMER RELATIONSHIPS. The Company believes that
opportunities exist with several foreign automotive OEMs relative to United
States based remanufacturing programs. The Company believes that this represents
an opportunity for growth and is currently working to develop programs with
certain foreign OEMs. In 1995, the Company initiated a remanufactured
transmission program for Mitsubishi and currently supplies remanufactured
transmissions models used in approximately 65% of the Mitsubishi vehicles.
INTERNAL GROWTH -- RETAIL STORES
INCREASING SALES TO EXISTING CUSTOMERS. The Company intends to increase its
business with its existing retail customers by increasing the distribution of
its current products throughout these customers' networks. For example, in 1992
the Company began supplying remanufactured engines to Western Auto and in 1996,
was selected to supply remanufactured engines to Western Auto's fourth
distribution center, thereby expanding this relationship to include all 885
Western Auto stores. The Company has generally increased its business with its
existing retail customers as they have increased their market coverage and
expects to continue to do so. In addition, the Company intends to increase sales
to existing customers by providing customized marketing programs. For example,
in 1995 the Company introduced an extended warranty program for remanufactured
engines to certain of its retail store customers.
INTRODUCING NEW PRODUCTS. The Company plans to increase its sales to
existing retail automotive parts store customers by introducing additional
products such as clutch kits, engine components and engine repair kits.
Recently, the Company's product offerings to retail chain stores were enhanced
by the acquisition of King-O-Matic, which added transmission filter kits to the
Company's product line. King-O-Matic products have been subsequently sold to
certain existing retail customers, allowing the Company to increase revenues
with limited incremental expenses.
ESTABLISHING NEW CUSTOMER RELATIONSHIPS. Of the 60,000 retail automotive
parts stores in the United States, the Company currently sells products to
approximately 1,000 stores, principally through three retail chains. The Company
believes that its position as a leading national supplier of remanufactured
engines affords it the opportunity to service additional national retail chains
as certain of these chains convert from a currently fragmented base of suppliers
and as other chains expand their product lines to include remanufactured
engines. For example, in 1995 the Company added O'Reilly Auto Parts and in 1996
the Company added Advance Auto as customers.
EXTERNAL GROWTH -- ACQUISITIONS
Strategic acquisitions have been an important element in the Company's
historical growth, and the Company plans to continue expanding its customer
base, geographic locations and product offerings through strategic acquisitions
in the future. The Independent Aftermarket supplier base is highly fragmented
and many local independent drive train product distributors lack the financial
and managerial resources to expand. Many such distributors also have limited
opportunities to realize their investment in the business. This dynamic has
historically created a significant number of attractive potential acquisition
candidates and the Company believes that significant opportunities for
profitable growth through acquisitions will continue
31
<PAGE>
to exist for the foreseeable future. By integrating an acquired company's
products into the Company's distribution system, the Company is able to offer
these products to a substantially greater number of markets than was the case
prior to the acquisition. In addition, the Company expects to realize economies
of scale in areas including purchasing, administration and inventory management.
The Company's management is experienced in identifying acquisition
opportunities and completing and integrating acquisitions within the automotive
aftermarket. Since its formation and acquisition of Aaron's, HTP, Mamco and RPM
in 1994, ATC has acquired CRS, Mascot and King-O-Matic in 1995 and Tranzparts
and Diverco in 1996. The Company is a party to negotiations involving the
potential acquisition by the Company of a North American distributor of drive
train components. See "Recent Developments."
REMANUFACTURING OF TRANSMISSIONS, HARD PARTS AND ENGINES
In its remanufacturing operations, the Company obtains used transmissions,
hard parts, engines and related components, commonly known as "cores," which are
sorted by make and model and either placed into immediate production or stored
until needed. In the remanufacturing process, the cores are evaluated and
disassembled into their component parts. The components that can be incorporated
into the remanufactured product are cleaned, tested and refurbished. All
components determined not reusable or repairable are replaced by other
remanufactured or new components. The units are then reassembled using high-
volume precision manufacturing techniques into finished assemblies. Inspection
and testing are conducted at various stages of the remanufacturing process, and
each finished assembly is tested on equipment designed to simulate performance
under operating conditions. Primarily as a result of its rigorous quality
control procedures, the Company has experienced an insignificant number of
warranty claims on its products. After testing, completed products are then
packaged for immediate delivery or shipped to one of the Company's distribution
centers.
The majority of the cores used in the Company's remanufacturing process for
sale to its Independent Aftermarket and retail customers are obtained from
customers as trade-ins. The Company encourages its Independent Aftermarket and
retail customers to return cores on a timely basis and charges customers a
supplemental core charge in connection with purchases of engines and critical
hard parts. The customer can satisfy this charge by returning a usable core or
making a cash payment equal to the amount of the supplemental core charge. If
cores are not returned in a timely manner, the Company then must procure cores
through its network of independent core brokers. While core prices are subject
to supply and demand price volatility, the Company believes its procurement
network for cores will continue to provide cores at reasonable prices.
COMPETITION
The Company competes in the highly fragmented automobile aftermarket for
transmissions, engines and other drive train components, in which the majority
of industry supply comes from small local/regional participants. Competition is
based primarily on product quality, service, delivery, technical support and
price. Many of the Company's competitors operate only in certain geographic
regions with a limited product line. The Company is one of the largest
participants in the aftermarket for remanufactured drive train components,
offers a more complete line of products across a varied customer base and has a
much broader geographic presence than many of its competitors. As a result, the
Company believes that it is well positioned to enhance its competitive position
by expanding its product line through the development of new products or
acquisition of new businesses as well as by expanding its distribution network
into new geographic markets. Nevertheless, the aftermarket for remanufactured
drive train components remains highly competitive, and certain of the Company's
competitors are larger than the Company and have greater financial and other
resources available to them than does the Company.
32
<PAGE>
FACILITIES
The Company currently leases 58 facilities with total leased space of
approximately 2.0 million square feet. The following table sets forth certain
information regarding the manufacturing facilities and distribution centers of
the Company.
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQ. FEET DATE TYPE OF FACILITY/PRODUCTS MANUFACTURED
- ---------------------------- ------------ --------------- ---------------------------------------------------------
<S> <C> <C> <C>
Phoenix, Arizona 22,000 1997 Distribution Center
Tucson, Arizona 6,400 1998 Distribution Center
Azusa, California 6,000 1998 Distribution Center
Fresno, California 14,000 1997 Distribution Center
Los Angeles, California 4,700 1998 Distribution Center
Oakland, California 10,000 1997 Distribution Center
Rancho Cucamonga, California 153,000 2002 Distribution Center, Torque Converters, Repair Kits, Hard
Parts
Sacramento, California 11,200 1998 Distribution Center
San Diego, California 10,000 1997 Distribution Center
San Jose, California 10,000 2000 Distribution Center
Van Nuys, California 6,800 2000 Distribution Center
Colorado Springs, Colorado 5,000 1997 Distribution Center
Denver, Colorado 9,000 1997 Distribution Center
Atlanta, Georgia 14,900 1998 Distribution Center
Chicago, Illinois 20,000 2000 Distribution Center
Harvey, Illinois 46,000 2001 Distribution Center, Transmissions, Hard Parts, Engine
Repair Kits
Louisville, Kentucky 51,500 1999 Distribution Center, Repair Kits, Hard Parts
Louisville, Kentucky 12,000 (1) CV Axles
Louisville, Kentucky 9,200 (1) CV Axles
Grand Rapids, Michigan 9,000 1998 Distribution Center
Jackson, Michigan 10,000 (1) Core Storage
Taylor, Michigan 12,200 2000 Distribution Center
Joplin, Missouri 264,000 1998 Transmissions, Engines
Kansas City, Missouri 10,200 2000 Distribution Center
Springfield, Missouri 280,800 2004 Transmissions, Engines
Springfield, Missouri 30,000 1998 Torque Converters
Springfield, Missouri 12,100 2001 Distribution Center
Springfield, Missouri 34,000 1998 Cleaning and Testing Equipment
Springfield, Missouri 20,000 1996 Core Storage
Springfield, Missouri 98,800 (1) Core Storage
Springfield, Missouri 10,000 1996 Core Storage
Springfield, Missouri 200,000 2006 Core Storage
St. Louis, Missouri 9,700 1998 Distribution Center
Las Vegas, Nevada 7,500 1999 Distribution Center
Mahwah, New Jersey 92,900 2002 Distribution Center, Transmissions
Albuquerque, New Mexico 7,000 1997 Distribution Center
Charlotte, North Carolina 23,000 2001 Distribution Center
Dayton, Ohio 42,000 1999 Torque Converters
Portland, Oregon 20,000 1997 Distribution Center
Memphis, Tennessee 37,800 2003 Distribution Center, Repair Kits
Dallas, Texas 15,000 1997 Distribution Center
Salt Lake City, Utah 15,000 1997 Distribution Center
Norfolk, Virginia 9,700 2000 Distribution Center
Federal Way, Washington 1,600 1998 Corporate Offices
Seattle, Washington 22,000 1997 Distribution Center
Spokane, Washington 9,500 2000 Distribution Center
Janesville, Wisconsin 30,000 2001 Distribution Center, Repair Kits, Hard Parts
Calgary, Alberta 3,000 1996 Distribution Center
Edmonton, Alberta 14,800 1998 Distribution Center, Heavy Duty Truck Transmissions
Vancouver, British Columbia 7,800 1997 Distribution Center
Vancouver, British Columbia 7,300 1997 Distribution Center
Moncton, New Brunswick 12,000 2000 Distribution Center
Mississauga, Ontario 35,100 1998 Distribution Center, Heavy Duty Truck Transmissions and
Air Compressors
Mississauga, Ontario 12,200 2001 Repair Kits
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
LOCATION SQ. FEET DATE TYPE OF FACILITY/PRODUCTS MANUFACTURED
- ---------------------------- ------------ --------------- ---------------------------------------------------------
Mississauga, Ontario 24,000 2000 Distribution Center
<S> <C> <C> <C>
Montreal, Quebec 11,200 2000 Distribution Center
Regina, Saskatchewan 600 (1) Distribution Center
Mexicali, Mexico 77,100 1998 Torque Converters, Cleaning and Testing Equipment
</TABLE>
- ------------
(1) Month-to-month lease.
The Company believes that its current manufacturing facilities and
distribution centers are adequate for the current level of the Company's
activities. The Company's transmission and engine remanufacturing facility in
Springfield, Missouri is currently employing three work shifts, seven days a
week. Other manufacturing sites have the flexibility to add both additional
shifts and production workers needed to accommodate additional demand for
products and services. However, in the event the Company were to experience a
material increase in sales, the Company may require additional manufacturing
facilities. The Company believes such additional facilities are readily
available on a timely basis on commercially reasonable terms. Further, the
Company believes that the leased space housing its existing manufacturing and
distribution facilities is not unique and could be readily replaced, if
necessary, at the end of the terms of its existing leases on commercially
reasonable terms. Many of the Company's leases are renewable at the option of
the Company.
ENVIRONMENTAL
The Company is subject to various evolving federal, state, local and foreign
environmental laws and regulations governing, among other things, emissions to
air, discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of a variety of hazardous and non-hazardous substances
and wastes. These laws and regulations provide for substantial fines and
criminal sanctions for violations. The operation of automotive parts
remanufacturing plants involves environmental risks.
Prior to the RPM Acquisition, the company from whom RPM acquired its assets
(the "Prior RPM Company") leased nine properties in the City of Azusa,
California (the "Azusa Properties") from a general partnership consisting of the
Prior RPM Company shareholders. The Azusa Properties are within an area which,
as a result of regional groundwater contamination, has been designated by the
EPA as the Baldwin Park Operable Unit ("BPOU") of the San Gabriel Valley
Superfund Sites. The federal Superfund law (the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended ("CERCLA")) both
provides for the appropriate cleanup of contaminated sites and assigns liability
for the cost of such cleanups. The parties held responsible for cleanup costs
are broadly defined under CERCLA, and generally include present owners and
operators of a site and certain past owners and operators. Liability for cleanup
costs imposed against such "responsible parties" is strict, joint and several.
However, such costs are typically allocable among responsible parties through
settlement or litigation based on factors including each particular party's
relative contribution of contaminants to the site and ability to pay.
The EPA has proposed a groundwater treatment system as an interim remedial
measure for the BPOU. The EPA has estimated that it will cost approximately $47
million to construct this system and approximately $4 million per year for an
indefinite period to operate it. The Company has not independently evaluated
this estimate, and the actual cost may vary substantially from this estimate. In
addition, the EPA has incurred substantial costs to date and will likely
continue to incur such costs in overseeing the implementation of remedial
measures. Further, if the EPA determines that the interim remedial measures are
not adequate, additional costs could be incurred. In addition to cleanup costs,
the responsible parties may be required to pay for natural resources damage. In
1993, the EPA notified the Prior RPM Company, the general partnership consisting
of the Prior RPM Company shareholders which owns the Azusa Properties and
approximately 100 other entities that they may be potentially responsible
parties ("PRPs") for the San Gabriel Valley Superfund Sites as present or former
owners or operators of properties located within that Site. In January 1995, the
EPA sent letters to 16 of these parties with respect to 15 properties in the
BPOU, describing 4 of those properties as apparently the "largest contributors
to the groundwater contamination" and the remaining 11 properties as apparently
in a range of moderate to lesser contributors. The letters identify the
recipients as PRPs for the proposed interim remediation and request that they
enter into
34
<PAGE>
negotiations to design, construct and operate the cleanup remedy. The recipients
of the letters included a general partnership comprised of the Prior RPM Company
shareholders, which was informed that the EPA considers it responsible for two
of the sites described as lesser to moderate contributors to the contamination.
In conjunction with the federal and state environmental investigation of
this area, the Prior RPM Company has been required by the California Regional
Water Quality Control Board (the "Water Board") to conduct an investigation on
the Azusa Properties. This investigation has detected soil contamination on
certain of the Azusa Properties formerly leased by RPM and as a result, the
Prior RPM Company is being required by the Water Board to undertake further
investigations and may be required to undertake remedial action on those
properties.
For one year after the RPM Acquisition, the Company leased the Azusa
Properties pursuant to leases which provide that the Company has not assumed any
liabilities with respect to environmental conditions existing on or about these
properties prior to the commencement of the lease period, although the Company
could be held responsible for such liabilities under various legal theories.
Since the RPM Acquisition, the Company has been engaged in negotiations with the
EPA to settle any liability that it may have for this site. The RPM acquisition
agreement provides that the Company did not assume any environmental liabilities
associated with hazardous substances existing on or about the Azusa Properties
occupied by the Prior RPM Company prior to the RPM Acquisition and that the
Prior RPM Company and the Prior RPM Company shareholders will jointly and
severally indemnify the Company for all liabilities or damages (other than
consequential damages) that the Company may reasonably incur as a result of any
claim asserted against the Company relating to unassumed environmental
liabilities. There can be no assurance, however, that the Company would be able
to make any recovery under any indemnification provisions. The Company also
could become responsible if the conduct of its business contributed to any
environmental contamination on these properties. The Company took steps to
insure that its business at these properties was conducted in compliance with
applicable environmental laws and in a manner that does not contribute to any
environmental contamination. Moreover, the Company has significantly reduced its
presence at the site and has moved all manufacturing operations off-site. Since
July 18, 1995, the Company's only real property interest in the Azusa Properties
has been the lease of a 6,000 square foot storage and distribution facility. The
Company believes, although there can be no assurance, that it will not incur any
material liability as a result of the pre-existing environmental conditions.
In connection with the CRS, Mascot, King-O-Matic, Aaron's, RPM, HTP, Mamco,
Tranzparts and Diverco acquisitions, the Company conducted certain
investigations of these companies' facilities and their compliance with
applicable environmental laws and is presently conducting similar investigations
with respect to one other potential acquisition. The investigations, which
included "Phase I" assessments by independent consultants of all manufacturing
and certain distribution facilities, found that certain remedial, reporting and
other regulatory requirements, including certain waste management procedures,
were not or may not have been satisfied. Based in part on the investigations
conducted, and the indemnification provisions of the agreements entered into in
connection with these acquisitions, the Company believes, although there can be
no assurance, that its liabilities relating to these environmental matters will
not have a material adverse effect, individually or in the aggregate, on the
Company.
LEGAL PROCEEDINGS
From time to time, the Company has been and is involved in various legal
proceedings. Management believes that all of such litigation is routine in
nature and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect, individually or in the aggregate, on the Company.
EMPLOYEES
As of September 30, 1996, the Company employed approximately 3,075 people.
The Company believes its employee and labor relations are good. None of the
Company's subsidiaries has experienced a work stoppage in its history, and the
Company has not experienced any work stoppage since its formation in 1994. None
of the Company's employees are members of any labor union.
35
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position with the Company
of each of the persons who serve as directors and executive officers of the
Company. Each director of the Company will hold office until the next annual
meeting of stockholders of the Company or until his successor has been elected
and qualified. Officers of the Company are elected by the Board of Directors of
the Company and serve at the discretion of the Board.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
- ----------------------------------- ----------- ----------------------------------------------------------------------
<S> <C> <C>
William A. Smith 50 Chairman of the Board of Directors
Stephen J. Perkins 49 President, Chief Executive Officer and Director
John C. Kent 44 Chief Financial Officer
Wesley N. Dearbaugh 44 President and General Manager, Independent Aftermarket
Daniel C. Buie 38 Corporate Controller
James R. Wehr 43 President, Aaron's
Michael L. LePore 42 President, CRS
Barry E. Schwartz 51 President, Mascot
Kenneth A. Bear 45 Executive Vice President and General Manager, Aaron's
Richard R. Crowell 41 Director
Mark C. Hardy 33 Director
Dr. Michael J. Hartnett 51 Director
Kurt B. Larsen 32 Director
William E. Myers, Jr. 36 Director
Richard K. Roeder 48 Director
</TABLE>
Mr. Larsen is expected to resign his position as a director of the Company
shortly after completion of the Offering. In that event, the remaining
directors, pursuant to the Company's Bylaws, will select a new director to fill
the resulting vacancy on the Board of Directors. It is expected that the new
director will have no prior affiliation with the Company or ACP.
WILLIAM A. SMITH has been the Chairman of the Board of Directors since July
1994. Mr. Smith was the President and Chief Executive Officer of the Company
from July 1994 until October 1996. From March 1993 to July 1994, Mr. Smith
served as a consultant to ACP in connection with the Initial Acquisitions. From
March 1992 to March 1993, Mr. Smith was President of the Rucker Fluid Power
Division of Lucas Industries, plc. From October 1988 to March 1992, Mr. Smith
was Vice President of Parts Operations for Navistar International Transportation
Corporation, a truck engine manufacturer, where Mr. Smith managed its
aftermarket parts business, including four new aftermarket business lines. From
July 1985 to October 1988, Mr. Smith served as President for Labinal, Inc., a
French automotive and aerospace equipment manufacturer, where he was in charge
of its North American operations. From 1979 to 1985, Mr. Smith was Vice
President of Marketing of the Cummins Diesel Recon business, Cummins Engine
Company's aftermarket remanufacturing division. From 1972 to 1979, Mr. Smith
held several director level positions at Cummins Engine Company covering
distribution, technical service, service training, market planning, parts
marketing, service publications and warranty administration.
STEPHEN J. PERKINS was elected as the President and Chief Executive Officer
of the Company in October 1996. From February 1992 to October 1996, Mr. Perkins
was President and Chief Executive Officer of Senior Flexonics, an international
division of Senior Engineering, plc. Senior Flexonics included 20 operations in
13 countries which manufactured and distributed engineered flexible tubular
products for the automotive, aerospace and industrial markets. From September
1983 to February 1992, Mr Perkins was President and Chief Executive Officer of
Flexonics, Inc., the privately held predecessor of Senior Flexonics. From March
1979 to September 1983, Mr Perkins was the Director of Manufacturing and then
Vice President and General Manager of the Flexonics Division of what is now
Allied Signal. From July 1971 to March 1979, Mr. Perkins held several management
positions in manufacturing at multiple facilities for the Steel Tubing Group of
Copperweld Corporation. Mr Perkins began his career with U.S. Steel as an
Industrial Engineer.
36
<PAGE>
WESLEY N. DEARBAUGH joined ATC as President and General Manager of
Independent Aftermarket in June 1996. From 1993 to June 1996, Mr. Dearbaugh was
a Partner and Vice President of Marketing for Cummins, S.W., a multi-branch
distributor of heavy duty parts and service. From 1992 to 1993, he was Vice
President of Marketing for SEI, a large pension consulting firm. From 1983 to
1992, Mr. Dearbaugh held senior management and partner positions in value
investment funds and limited partnerships. From 1979 to 1983, Mr. Dearbaugh held
positions at Cummins Diesel Recon, Cummins Engine Company's Aftermarket
Remanufacturing Division including General Manager of Fuel Systems,
Director-Product Management, and Manager of Sales & Marketing. From 1974 to
1979, Mr. Dearbaugh held several positions in industrial engineering and
technical sales at Atlas Crankshaft, a manufacturing division of Cummins Engine
Company.
JOHN C. KENT became Chief Financial Officer of the Company in July 1994.
From March 1990 to July 1994, Mr. Kent was Vice President, Finance and Chief
Financial Officer of Aerotest, Inc., an aircraft maintenance and modification
company. In March 1995, Aerotest filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code. The Aerotest bankruptcy
proceedings are still pending. From 1987 to March 1990, Mr. Kent was an
Assistant Treasurer at Security Pacific Auto Finance. From 1978 to 1987 Mr. Kent
served in several capacities at Western Airlines, Inc., including Director of
Cash and Risk Management.
DANIEL C. BUIE became the Corporate Controller of the Company in November
1995. Mr. Buie, a CPA, was the Chief Financial Officer of The Bagel Place, Inc.
(a subsidiary of Specialty Foods Corp.) from 1994 to 1995. Mr. Buie was the Vice
President, Finance and Administration of Davey Roofing Inc. from 1991 to 1994,
and Controller of Davey Roofing from 1987 to 1991. In August 1993, Davey Roofing
filed a voluntary petition for relief under Chapter 11 of the United States
Bankruptcy Code, largely as a result of the severe real estate recession in
Southern California. Prior to joining Davey Roofing, Mr. Buie was an Audit
Manager with the public accounting firm of Deloitte & Touche.
JAMES R. WEHR has been President of Aaron's, since August 1990 and has
responsibility for developing and maintaining the relationships between Aaron's
and Chrysler, other OEMs and Western Auto. In 1983 Mr. Wehr founded Intercont,
Inc., a cleaning and testing equipment division of Aaron's. Mr. Wehr has been
involved in the automotive aftermarket since 1969.
MICHAEL L. LEPORE has been President of CRS since 1984. From 1976 to 1984
Mr. LePore was manager of U.S. Operations for Borg-Warner Parts and Service
Division, a subsidiary of Borg Warner LTD U.K.
BARRY E. SCHWARTZ has been the President of Mascot since 1988.
KENNETH A. BEAR has been Executive Vice President and General Manager at
Aaron's since 1983.
RICHARD R. CROWELL became a director of the Company in July 1994. Mr.
Crowell is a founding partner and Managing Director of ACP. Prior to forming ACP
in 1991, Mr. Crowell was a Managing Director of Rosecliff, Inc., the management
company for Acadia Partners L.P. since its inception in 1987.
MARK C. HARDY became a director of the Company in July 1994. Mr. Hardy is a
Vice President of ACP and joined ACP in June 1993. Prior to joining ACP, Mr.
Hardy was an Associate at Bain & Company, a consulting firm.
DR. MICHAEL J. HARTNETT became a director of the Company in July 1994. Since
March 1992 Dr. Hartnett has been Chairman, President and Chief Executive Officer
of Roller Bearing Company of America, Inc., a manufacturer of ball and roller
bearings that is controlled by an affiliate of ACP. Prior to joining Roller
Bearing in 1990 as General Manager of its Industrial Tectonics subsidiary, Dr.
Hartnett spent 18 years with The Torrington Company, a bearing manufacturer.
KURT B. LARSEN became a director of the Company in July 1994. Mr. Larsen is
a Principal of ACP and joined ACP at its founding in 1991. Prior to joining ACP,
Mr. Larsen was an Associate at Drexel Burnham Lambert Inc.
37
<PAGE>
WILLIAM E. MYERS, JR. became a director of the Company in July 1994. Mr.
Myers has been, for more than the past five years, the Chairman of the Board and
Chief Executive Officer of W.E. Myers and Company, a private merchant bank.
RICHARD K. ROEDER became a director of the Company in July 1994. Mr. Roeder
is a founding partner and Managing Director of ACP. Prior to forming ACP in
1991, Mr. Roeder was a partner in the law firm of Paul, Hastings, Janofsky &
Walker, where he served as Chairman of the firm's Corporate Law Department and a
member of its National Management Committee.
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee are Messrs. Roeder, Hardy and Larsen. After Mr. Larsen resigns as a
director, the Board will select one of the directors to succeed him on the Audit
Committee. The members of the Compensation Committee are Messrs. Crowell, Roeder
and Smith. The Compensation Committee administers the Company's Stock Incentive
Plan. Directors do not receive compensation for service on the Board of
Directors or its committees, and the Company does not expect to pay fees to its
directors for the foreseeable future.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth, for the period beginning with the
commencement of the Company's operations in July 1994 and ending on December 31,
1994, and for the year ended December 31, 1995, the cash compensation paid or
awarded by the Company to the Chief Executive Officer, and the other four most
highly compensated Executive Officers of the Company (the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL NUMBER OF
COMPENSATION SECURITIES ALL OTHER
-------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#)(1) ($)
- ---------------------------------------------- --------- ------------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
William A. Smith.............................. 1995 300,000 -- -- --
Chairman of the Board of Directors, President 1994 150,000 -- 140,351 250,000(2)
and Chief Executive Officer(3)
James R. Wehr................................. 1995 258,000 -- -- --
President, Aaron's 1994 109,000 -- 23,392 --
Michael L. LePore............................. 1995 160,838(4) 179,038(5) 11,696 --
President, CRS 1994 120,451 131,119 -- --
Kenneth A. Bear............................... 1995 103,200 60,000 -- --
Executive Vice President and 1994 44,140 32,960 11,696 --
General Manager, Aaron's
John C. Kent.................................. 1995 124,615 12,000 -- --
Chief Financial Officer 1994 56,154 -- 11,696 --
</TABLE>
- ---------
(1) Includes only options to purchase securities of the Company, which options
were issued pursuant to the Stock Incentive Plan. Pursuant to the Stock
Incentive Plan, the Compensation Committee of the Board of Directors
determines the terms and conditions of each option granted.
(2) In July 1994 the Company paid Mr. Smith $250,000 for consultation services
rendered in connection with the Initial Acquisitions.
(3) Mr. Perkins was appointed as the Company's President and Chief Executive
Officer in October 1996.
(4) Includes five months salary of $56,777 prior to the acquisition by the
Company of CRS in April 1995.
38
<PAGE>
(5) Includes $86,759 of bonus earned prior to the acquisition by the Company of
CRS in April 1995.
OPTION GRANTS
Shown below is information concerning grants of options issued by the
Company to the Named Executive Officers for the year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
GRANTS VALUE AT ASSUMED
--------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (1)
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------------------------- ------------------ ------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William A. Smith........................... -- -- -- -- -- --
James R. Wehr.............................. -- -- -- -- -- --
Michael L. LePore.......................... 5,848(2) 28.5% $ 10.00 6/1/2005 $ 16,140 $ 35,703
5,848(3) 28.5 10.00 12/31/2005 16,140 35,703
Kenneth A. Bear............................ -- -- -- -- -- --
John C. Kent............................... -- -- -- -- -- --
</TABLE>
- ---------
(1) The potential gains shown are net of the option exercise price and do not
include the effect of any taxes associated with exercise. The amounts shown
are for the assumed rates of appreciation only, do not constitute
projections of future stock price performance, and may not necessarily be
realized. Actual gains, if any, on stock option exercises depend on the
future performance of the Common Stock, continued employment of the optionee
through the term of the options, and other factors.
(2) These options were granted under the Stock Incentive Plan. One third of the
options vest and become exercisable on each of the first three anniversaries
of the date of grant.
(3) These options were granted under the Stock Incentive Plan. One third of the
options vest and become exercisable on the first, third and fifth
anniversaries of the date of the grant.
EXERCISES OF OPTIONS AND AGGREGATE YEAR-END OPTION VALUES
Shown below is information with respect to the year-end values of all
options held by the Named Executive Officers. No Named Executive Officer
exercised any options during the fiscal year ended December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END (1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William A. Smith.......................................... 93,568 46,783 $ 748,544 $ 374,264
James R. Wehr............................................. 7,797 15,595 62,376 124,760
Michael L. LePore......................................... -- 11,696 -- 93,568
Kenneth A. Bear........................................... 3,899 7,797 31,192 62,376
John C. Kent.............................................. 3,899 7,797 31,192 62,376
</TABLE>
- ---------
(1) The exercise price of each option is $10 per share, the same price per share
as paid by all purchasers of the Company's Common Stock at the time of the
Initial Acquisitions. There have been no subsequent issuances of the Common
Stock since such time. The values of the unexercised options represent the
Company's estimated net value of the Common Stock underlying the options as
of December 31, 1995, $18, less the applicable per share exercise price of
the option, $10.
39
<PAGE>
MANAGEMENT COMPENSATION AND EMPLOYMENT AGREEMENTS
William A. Smith entered into an employment agreement with the Company
effective as of October 7, 1996, pursuant to which he will serve as Chairman of
the Board of Directors of the Company at an annual salary of $300,000 through
December 31, 1998. The employment agreement with Mr. Smith contains a noncompete
provision for a period of five years from the cessation of his employment with
the Company and a nondisclosure provision which is effective for the term of the
employment agreement and indefinitely thereafter. Mr. Smith is also entitled to
participate in any bonus, incentive or other benefit plans provided by the
Company to its employees.
Stephen J. Perkins entered into an employment agreement with the Company
effective as of October 7, 1996, pursuant to which he will serve as President
and Chief Executive Officer of the Company at an annual salary of $300,000 for a
period of three years. The employment agreement with Mr. Perkins contains a
noncompete provision for a period of 19 months from the cessation of his
employment with the Company and a nondisclosure provision which is effective for
the term of the employment agreement and indefinitely thereafter. Mr. Perkins is
also entitled to participate in any bonus, incentive or other benefit plans
provided by the Company to its employees.
John C. Kent entered into an employment agreement with the Company effective
as of October 1, 1996, pursuant to which he will serve as Chief Financial
Officer of the Company at an annual salary of $150,000 for a period of three
years. The employment agreement with Mr. Kent contains a noncompete provision
for a period of five years from the cessation of his employment with the Company
and a nondisclosure provision which is effective for the term of the employment
agreement and indefinitely thereafter. Mr. Kent is also entitled to participate
in any bonus, incentive or other benefit plans provided by the Company to its
employees.
James R. Wehr entered into an employment agreement with Aaron's effective as
of August 2, 1994, pursuant to which he will serve as President of Aaron's at an
annual salary of $260,000 for a period of three years, which Aaron's may renew
annually for an additional one year term. The employment agreement and related
agreements with Mr. Wehr contain a noncompete provision for a period ending
August 1, 1999 and a nondisclosure provision which is effective for the term of
his employment with Aaron's and indefinitely thereafter. Mr. Wehr is also
entitled to participate in any bonus, incentive or other benefit plans provided
by Aaron's to its employees.
Michael L. LePore entered into an employment agreement with CRS effective as
of June 1, 1995, pursuant to which he will serve as President of CRS at an
annual salary of approximately $180,000 for a period of five years, which CRS
may renew for an additional one year term. The employment agreement and related
agreements with Mr. LePore contain a noncompete provision for a period ending
June 1, 2002 and a nondisclosure provision which is effective for the term of
his employment with CRS and indefinitely thereafter. Mr. LePore is also entitled
to participate in any bonus, incentive or other benefit plans provided by CRS to
its employees.
Kenneth A. Bear entered into an employment agreement with Aaron's effective
July 28, 1994, pursuant to which he will serve as Executive Vice President and
General Manager of Aaron's at an annual salary of $104,000 for a period of three
years, which Aaron's may renew annually for an additional one year term. The
employment agreement with Mr. Bear contains a nondisclosure provision which is
effective for the term of his employment with Aaron's and indefinitely
thereafter. Mr. Bear is also entitled to participate in any bonus, incentive or
other benefit plans provided by Aaron's to its employees.
The Compensation Committee is also considering implementation of one or more
forms of retirement or similar plans for its officers and employees. In
addition, the Compensation Committee reviews the employment contracts described
above on an annual basis.
1994 STOCK INCENTIVE PLAN
The 1994 Stock Incentive Plan was adopted in order to provide incentives to
employees and directors of the Company by granting them awards tied to the
Company's Common Stock. In February 1995, the Stock Incentive Plan was amended
to include non-employee directors and independent contractors. The Stock
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<PAGE>
Incentive Plan is administered by the Compensation Committee, which has broad
authority in administering and interpreting the Stock Incentive Plan. Awards are
not restricted to any specified form or structure and may include, without
limitation, sales or bonuses of stock, restricted stock, stock options, reload
stock options, stock purchase warrants, other rights to acquire stock,
securities convertible into or redeemable for stock, stock appreciation rights,
phantom stock, dividend equivalents, performance units or performance shares
(collectively, "Awards"). Options granted to employees under the Stock Incentive
Plan may be options intended to qualify as incentive stock options under Section
422 of the Internal Revenue Code of 1986, as amended, or options not intended to
so qualify. An Award granted under the Stock Incentive Plan to an employee or
independent contractor may include a provision terminating the Award upon
termination of employment under certain circumstances or accelerating the
receipt of benefits upon the occurrence of specified events, including, at the
discretion of the Compensation Committee, any change of control of the Company.
As of October 15, 1996, the Company has granted options to purchase an
aggregate of up to 378,703 shares of Common Stock to officers and employees of
the Company. The exercise price for these options to purchase an aggregate of
254,463 shares is $10 per share and $28 per share for options to purchase an
aggregate of 124,240 shares. Each option is subject to certain vesting
provisions. All options expire on the tenth anniversary of the date of grant.
The number of shares available for issuance pursuant to options granted under
the Stock Incentive Plan is 21,297. For certain information regarding options
granted to officers of the Company, see "Ownership of Voting Securities."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Richard K. Roeder, William A.
Smith and Richard R. Crowell. Mr. Smith does not participate in any matters
considered by the Committee relating to his compensation.
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<PAGE>
OWNERSHIP OF VOTING SECURITIES
The following table sets forth the beneficial ownership of each class of
issued and outstanding voting securities of the Company, as of October 15, 1996,
by each director of the Company, each of the Named Executive Officers, the
directors and executive officers of the Company as a group and each person who
at such time beneficially owned more than 5% of the outstanding shares of any
class of voting securities of the Company.
<TABLE>
<CAPTION>
VOTING PERCENTAGE
------------------------
AFTER
OFFERING
AND GEPT
NUMBER OF BEFORE PRIVATE
SHARES (1) OFFERING PLACEMENT
---------- ----------- -----------
<S> <C> <C> <C>
Aurora Equity Partners L.P. (Other beneficial owners: Richard R. Crowell,
Richard K. Roeder and Gerald L. Parsky) (2)(4)(5)............................. 1,638,662 81.9%
Aurora Overseas Equity Partners I, L.P. (Other beneficial owners: Richard R.
Crowell, Richard K. Roeder and Gerald L. Parsky) (3)(4)(5).................... 596,587 29.8
General Electric Pension Trust(4) ............................................. 177,143 8.9
3003 Summer Street
Stanford, CT 06905
William A. Smith (6)(7)........................................................ 147,664 6.9
Stephen J. Perkins (7)(8)...................................................... 0 *
John C. Kent (7)(9)............................................................ 3,898 *
James R. Wehr (10)(11)......................................................... 161,844 8.0
Michael L. LePore (12) ........................................................ 1,949 *
400 Corporate Drive
Mahwah, NJ 07430
Kenneth A. Bear (9)(11)........................................................ 3,898 *
Richard R. Crowell (2)(3)(4)(13)(14)........................................... 1,836,687 91.8
Richard K. Roeder (2)(3)(4)(13)(14)............................................ 1,836,687 91.8
Mark C. Hardy (13)(14)......................................................... 3,040 *
Dr. Michael J. Hartnett (15) .................................................. 7,719 *
60 Round Hill Road
Fairfield, CT 06430
Kurt B. Larsen (13)(14)........................................................ 4,437 *
William E. Myers, Jr. (16) .................................................... 46,784 2.3
2 North Lake Avenue, Suite 650
Pasadena, CA 91101
All directors and officers as a group (15 persons)(17)......................... 2,214,786 99.6
</TABLE>
- ---------
* Less than 1%.
(1) The shares of Common Stock underlying options, warrants, rights or
convertible securities that are exercisable as of October 15, 1996 or that
will become exercisable within 60 days thereafter are deemed to be
outstanding for the purpose of calculating the beneficial ownership of the
holder of such options, warrants, rights or convertible securities, but are
not deemed to be outstanding for the purpose of computing the beneficial
ownership of any other person.
(2) Includes 221,419 shares of Holdings Common Stock that are subject to an
irrevocable proxy granted to Aurora Equity Partners L.P. ("AEP") and Aurora
Overseas Equity Partners I, L.P. ("AOEP") by certain holders of Holdings
Common Stock, including Messrs. Crowell, Hardy, Larsen and Roeder, Gerald L.
Parsky, certain other limited partners of AEP and certain affiliates of a
limited partner of AOEP. The proxy terminates upon the transfer of such
shares. AEP is a Delaware limited partnership the general partner of which
is ACP, a Delaware limited partnership whose general partner is Aurora
Advisors, Inc. ("AAI"). Messrs. Crowell, Roeder and Parsky are the sole
stockholders and directors of AAI, are
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<PAGE>
limited partners of ACP and may be deemed to beneficially share ownership of
Holdings Common Stock beneficially owned by AEP and all the shares of Common
Stock of the Company held by Holdings and may be deemed to be the organizers
of the Company under regulations promulgated under the Securities Act. Also
includes the 177,143 shares of Holdings Common Stock held by General
Electric Pension Trust. See Footnote (4) below.
(3) Includes 221,419 shares of Holdings Common Stock that are subject to an
irrevocable proxy granted to AEP and AOEP by certain holders of Holdings
Common Stock, including Messrs. Crowell, Hardy, Larsen, Roeder, Parsky,
certain other limited partners of AEP and certain affiliates of a limited
partner of AOEP. The proxy terminates upon the transfer of such shares. AOEP
is a Cayman Islands limited partnership the general partner of which is
Aurora Overseas Capital Partners P.L. ("AOCP"), a Cayman Islands limited
partnership whose general partner is Aurora Overseas Advisors, Ltd.
("AOAL"). Messrs. Crowell, Roeder and Parsky are the sole stockholders and
directors of AOAL, are limited partners of AOCP and may be deemed to
beneficially own the shares of Holdings Common Stock beneficially owned by
AOEP and all the shares of Common Stock of the Company held by Holdings.
Also includes the 177,143 shares of Holdings Common Stock held by General
Electric Pension Trust. See Footnote (4) below.
(4) With limited exceptions, General Electric Pension Trust has agreed to vote
these shares in the same manner as AEP and AOEP vote their respective shares
of Holdings Common Stock. This provision terminates upon the transfer of
such shares.
(5) The address for this beneficial holder is West Wind Building, P.O. Box
1111, Georgetown, Grand Cayman, Cayman Islands, B.W.I.
(6) Includes 140,351 shares of Common Stock subject to options granted under
the Stock Incentive Plan that are exercisable as of October 15, 1996 or that
will become exercisable within 60 days thereafter.
(7) The address for this beneficial holder is 33309 First Way South, Suite
A-206, Federal Way, WA 98003.
(8) Excludes 83,000 shares of Common Stock subject to options granted under the
Stock Incentive Plan that are not exercisable within 60 days of October 15,
1996.
(9) Consists of shares of Common Stock subject to options granted under the
Stock Incentive Plan that are exercisable as of October 15, 1996 or that
will become exercisable within 60 days thereafter. Excludes 7,798 shares of
Common Stock subject to options granted under the Stock Incentive Plan that
are not exercisable within 60 days of October 15, 1996.
(10) Includes 15,594 shares of Common Stock subject to options granted under the
Stock Incentive Plan that are exercisable as of October 15, 1996 or that
will become exercisable within 60 days thereafter. Excludes 7,798 shares of
Common Stock subject to options granted under the Stock Incentive Plan that
are not exercisable within 60 days of October 15, 1996.
(11) The address for this beneficial holder is 2699 North Westgate, Springfield,
MO 65803.
(12) Consists of shares of Common Stock subject to options granted under the
Stock Incentive Plan that are exercisable as of October 15, 1996 or that
will become exercisable within 60 days thereafter. Excludes 9,747 shares of
Common Stock subject to options granted under the Stock Incentive Plan that
are not exercisable within 60 days of October 15, 1996.
(13) The address for this beneficial holder is 1800 Century Park East, Suite
1000, Los Angeles, CA 90067.
(14) The holder of these shares has granted an irrevocable proxy covering these
shares to AEP and AOEP.
(15) Consists of shares of Common Stock subject to warrants that are exercisable
as of October 15, 1996 or that will become exercisable within 60 days
thereafter. Excludes 3,977 shares of Common Stock subject to warrants that
are not exercisable within 60 days of October 15, 1996.
(16) Consists of shares of Common Stock subject to exercisable warrants.
(17) Includes 224,526 shares of Common Stock subject to warrants and employee
stock options that are exercisable as of October 15, 1996 or that will
become exercisable within 60 days thereafter.
43
<PAGE>
CERTAIN TRANSACTIONS
The Company believes the transactions described below that were entered into
by the Company and its subsidiaries were beneficial to the respective companies,
and were at least as favorable to the respective companies as could have been
obtained from unaffiliated third parties pursuant to arms-length negotiations.
FEES PAYABLE TO ACP
Fees in the amount of $0.8 million were paid to ACP in 1995 for investment
banking services provided in connection with the acquisitions of Mascot, CRS and
King-O-Matic. The Company has also agreed to pay to ACP a base annual management
fee of $500,000 for advisory and consulting services pursuant to a written
management services agreement (the "Management Services Agreement"). ACP is also
entitled to reimbursements from the Company for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its obligations under the Management Services Agreement. The base annual
management fee is subject to increase, at the discretion of the disinterested
members of the Company's Board of Directors, by up to an aggregate of $250,000
in the event the Company consummates one or more significant corporate
transactions. The base annual management fee was not increased as a result of
the acquisitions of CRS, Mascot, King-O-Matic, Tranzparts and Diverco. The base
annual management fee is also subject to increase for specified cost of living
increases. If the Company's EBITDA in any year exceeds management's budgeted
EBITDA by 15.0% or more for that year, ACP will be entitled to receive an
additional management fee equal to one half of its base annual management fee
for such year. Because the Company's EBITDA did not exceed management's budgeted
EBITDA by 15.0% in 1995, ACP did not receive this additional management fee in
1995. In the event the Company consummates any significant corporate transaction
(which will not include this Offering), ACP will be entitled to receive a
closing fee from the Company equal to 2.0% of the first $75.0 million of the
acquisition consideration (including debt assumed and current assets retained)
and 1.0% of acquisition consideration (including debt assumed and current assets
retained) in excess of $75.0 million. Notwithstanding the foregoing, no payment
will be made to ACP pursuant to the Management Services Agreement at any time
that certain events of default shall have occurred and be then continuing under
any of the Indentures governing the Senior Notes or the Revolving Credit
Agreement. The Management Services Agreement also provides that the Company
shall provide ACP and its directors, employees, partners and affiliates with
customary indemnification against all actions not involving gross negligence or
willful misconduct. The base annual management fee payable to ACP will be
reduced as the collective beneficial ownership of Common Stock by AEP and AOEP
declines below 50%: for any period during which the collective beneficial
ownership of AEP and AOEP is less than 50% but at least 40%, the base annual
management fee payable for the period will be 80% of the original base annual
management fee (as such original base annual management fee may previously have
been adjusted due to cost of living increases, the "Original Fee"); for any
period during which AEP's and AOEP's collective beneficial ownership is less
than 40% but at least 30%, the base annual management fee payable for the period
will be 60% of the Original Fee; and for any period during which the collective
beneficial ownership of AEP and AOEP is less than 30% but at least 20%, the base
annual management fee payable for the period will be 40% of the Original Fee. If
AEP's and AOEP's collective beneficial ownership declines below 20%, the
Management Services Agreement will terminate. For information regarding the
general and certain of the limited partners of ACP, see "Ownership of Voting
Securities."
FACILITY LEASES
In connection with its acquisition of Aaron's, the Company entered into a
lease with CRW, Inc., an affiliate of C.R. Wehr and James R. Wehr (whose
individual family trusts owned all of the outstanding capital stock of Aaron's
prior to its acquisition by the Company), for Aaron's headquarters and primary
remanufacturing facility located in Springfield, Missouri with an initial term
beginning as of January 1, 1994 and expiring as of December 31, 2004, subject to
the Company's option to extend the term for a period of five years. The monthly
base rent is $33,105 and the Company is responsible for paying property taxes,
insurance and maintenance expenses for the leased premises. The Company also
entered into three leases with C.R. Wehr, Westway Partnership, JRW, Inc. and
C.J. Cates Real Estate Co. (each, an affiliate of C.R. Wehr and James R. Wehr)
for three manufacturing facilities comprising approximately 84,000 square feet
for an aggregate rent of $12,000 per month with an initial term beginning as of
January 1, 1994 and expiring as of
44
<PAGE>
December 31, 1996 and December 31, 1998 (depending upon the facility), subject
to the Company's option to extend the term of the lease for a 30,000 square foot
facility for one successive period of five years through December 31, 2003. In
November 1994, the Company entered into another lease with the same parties for
a 98,800 square foot storage facility for monthly rent of $7,300 per month. The
initial term of the lease expired during 1995 and pursuant to its terms,
continues as a month-to-month lease until terminated. The Company is responsible
for paying property taxes, insurance and maintenance expenses for each of these
leased premises. James R. Wehr is an executive officer of the Company.
In addition, the Company recently entered into a new lease with Patricia L.
Bridgeforth, Mr. Wehr's sister. The lease for Aaron's 200,000 square foot core
storage facility has an initial term of ten years, expiring October 31, 2006,
with an option to renew for five years. The base monthly rent is $35,833 for the
initial term, with specified increases for each renewal term. The Company is
also required to pay taxes, maintenance and operating expenses.
Mascot is a party to a lease with The Estate of Murray Schwartz, Barry
Schwartz, Bernard Schwartz and Bertha Schwartz for Mascot's remanufacturing
facility located in Mississauga, Ontario. Rent payments under such lease for the
approximately 35,100 square foot facility are $9,505 Canadian per month
beginning as of October 1, 1993 and expiring as of September 30, 1998. The
Company has an option to extend the term for a period of five years subject to
renegotiation of the annual rent amount. The Company is responsible for paying
property taxes, insurance and maintenance expenses for the leased premises.
Barry Schwartz is an executive officer of the Company.
PAYMENT OF PREFERRED STOCK REORGANIZATION CONSIDERATION
Upon the effectiveness of the Reorganization, each outstanding share of
Holdings Common Stock will be converted into shares of ATC Common Stock
and each outstanding share of Holdings Preferred Stock will be converted into
the right to receive the Preferred Stock Reorganization Consideration in cash,
which will be an amount in cash equal to $100.00 per share of Holdings Preferred
Stock plus an amount equal to accrued and unpaid dividends to the date of the
Reorganization.
In connection with the formation of the Company, in July and August 1994
Holdings issued Holdings Preferred Stock to each purchaser of Holdings Common
Stock for consideration of $100 per share, totaling an aggregate of 200,000
outstanding shares. As of November 26, 1996, the aggregate Preferred Stock
Reorganization Consideration would be approximately $25 million (including
approximately $5 million of accrued and unpaid dividends). Messrs. Smith, Wehr,
Crowell, Hardy, Larsen and Roeder (each of whom is a director and/or executive
officer of the Company) hold the following shares of Holdings Preferred Stock,
respectively: 563; 11,250; 1,624; 109; 187; and 243. Such shares will be
converted into the right to receive the following respective amounts in
Preferred Stock Reorganization Consideration: $ ; $ ; $ ; $ ; $ ;
and $ . AEP and AOEP originally purchased 95,392 and 15,233 shares of
Holdings Preferred Stock, respectively, which were subsequently distributed to
their general and limited partners.
REGISTRATION RIGHTS
The holders of the Company's outstanding Common Stock have been granted
certain registration rights pursuant to a Stockholders' Agreement. See "Shares
Eligible for Future Sale" for a description of such rights.
DESCRIPTION OF CAPITAL STOCK
Giving effect to the Reorganization, the authorized capital stock of ATC
consists of shares of Common Stock, par value $0.01 per share, and
shares of Preferred Stock, par value $0.01 per share ("Preferred Stock"). As of
October 15, 1996, 2,000,000 shares of Common Stock were issued and outstanding
and were held of record by 37 stockholders and 448,879 shares were reserved for
issuance under outstanding options and warrants. As of the same date, no shares
of Preferred Stock were outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. Holders of Common
Stock do not have the right to cumulate their votes
45
<PAGE>
in the election of Directors. Subject to preferences that may be granted to the
holders of Preferred Stock, each holder of Common Stock is entitled to share
ratably in distributions to stockholders and to receive ratably such dividends
as may be declared by the Board of Directors out of funds legally available
therefor and, in the event of the liquidation or dissolution of the Company, is
entitled to share ratably in all assets of the Company remaining after payment
of liabilities. Holders of Common Stock have no conversion, preemptive or other
subscription rights, and there are no redemption rights or sinking fund
provisions with respect to the Common Stock. The outstanding Common Stock is,
validly issued, fully paid and non-assessable.
Additional shares of Common Stock may be issued from time to time by the
Company. The Company's Certificate of Incorporation provides that the Board of
Directors has no power to alter the rights of any outstanding shares of Common
Stock. Certain other provisions of the Company's Certificate of Incorporation
affect the rights of holders of Common Stock and may have the effect of
delaying, deferring or preventing a change in control of the Company.
PREFERRED STOCK
The Board of Directors, without further action by the holders of Common
Stock, may issue shares of Preferred Stock and may fix or alter the voting
rights, redemption provisions (including sinking fund provisions), dividend
rights, dividend rates, liquidation preferences, conversion rights and the
designation of and number of shares constituting any wholly unissued series of
Preferred Stock. The issuance of Preferred Stock could adversely affect the
voting power and other rights of the holders of Common Stock. See "Risk Factors
- -- Control of the Company; Anti-Takeover Matters."
The authority possessed by the Board of Directors to issue Preferred Stock
could potentially be used to discourage attempts by others to obtain control of
the Company through a merger, tender offer, proxy contest or otherwise by making
such attempts more difficult to achieve or more costly. The Board of Directors
may issue Preferred Stock with voting and conversion rights that could adversely
affect the voting power of the holders of Common Stock. There are no agreements
or understandings for the issuance of Preferred Stock and the Board of Directors
has no present intention to issue any Preferred Stock.
WARRANTS
In August 1994, the Company issued warrants to Mr. Myers and another
individual to purchase an aggregate of 58,480 shares of Common Stock, which are
exercisable at any time. In December 1994, the Company issued warrants to Dr.
Hartnett to purchase an aggregate of 11,696 shares of Common Stock, which
warrants vest one third annually beginning December 31, 1994.
Each warrant, when exercised, entitles the holder thereof to receive the
number of shares of Common Stock set forth on such Warrant at $10.00 per share.
The warrants will automatically expire on the tenth anniversary of the date of
grant. The exercise price and the number of Warrant Shares are subject to
customary anti-dilution provisions that are effective upon the occurrence of
certain events such as stock splits and stock dividends. In the event of an
issuance of Common Stock to either AEP, AOEP or their affiliates below the fair
market value of the Common Stock on the date of such issuance, the exercise
price of 58,480 of the warrants and the number of shares issuable upon the
exercise thereof will be adjusted accordingly; the other 11,696 warrants do not
contain this adjustment provision. In addition, the warrants are subject to
customary provisions regarding the assumption by a successor corporation in the
event of reorganization, reclassification, consolidation, merger or sale of the
Company. The issuance of Common Stock pursuant to the Offering will not cause
any adjustment in the warrants.
The warrant holders have no right to vote on matters submitted to the
stockholders of the Company and have no right to receive dividends. The warrant
holders are not entitled to share in the assets of the Company in the event of
the liquidation or dissolution of the Company or the winding up of the Company's
affairs.
ANTI-TAKEOVER STATUTE
Section 203 of the DGCL generally prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination,
46
<PAGE>
the transaction is approved by the board of directors of the corporation, (ii)
upon consummation of the transaction which resulted in the stockholder becoming
an interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock, or (iii) on or after the date such stockholder became
an interested stockholder, the business combination is approved by the board and
by the affirmative vote of at least 66 2/3% of the outstanding voting stock
which is not owned by the interested stockholder. A "business combination"
includes mergers, certain asset sales and certain other transactions resulting
in a financial benefit to the stockholder. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability for (i) any
breach of their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL or (iv) any
transaction from which the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall pay all costs and
expenses (including legal expenses) incurred by and indemnify from any monetary
liability its present and former officers and directors who are named or
threatened to be named, a party to any administrative, civil, investigative or
criminal proceeding potentially seeking to impose liability on such person for
acts alleged to have been committed by such person while a director or officer
of the Company or while serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, unless a determination is made that the person did
not act in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Such determination shall be made (i) by the Board by a majority vote
of a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) of such a quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written option, or (iii) by the stockholders of the Company. There is no action
or proceeding pending or, to the knowledge of the Company, threatened which may
result in a claim for indemnification by any director officer, employee or agent
of the Company.
The Company believes that the provisions in its Certificate of Incorporation
and its Bylaws are necessary to attract and retain qualified persons as officers
and Directors.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
ChaseMellon Shareholder Services.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The materials terms of certain indebtedness of the Company are described
below. Each of the following summaries is subject to and qualified in its
entirety by reference to the detailed provisions of the respective agreements
and instruments to which each summary relates. Copies of such agreements and
instruments have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.
BANK LINES OF CREDIT
In July 1994, the Company entered into a Revolving Credit Agreement with The
Chase Manhattan Bank (formerly known as Chemical Bank, the "Bank") and Heller
Financial, Inc. providing for a $30.0 million revolving credit facility
available to the Company for working capital purposes. Subject to the
satisfaction of customary conditions, advances under the Revolving Credit
Agreement may be made, and letters of credit may be issued, in each case up to
an aggregate of $30.0 million and up to $10.0 million with respect to any
individual letter of credit, at any time prior to July 19, 1999 (the
"Termination Date"). The funds
47
<PAGE>
available to be advanced may not exceed the aggregate of 85% of the Company's
eligible accounts receivable and 60% of the Company's eligible inventory, in
each case as defined in the Revolving Credit Agreement. All amounts advanced
under the Revolving Credit Agreement become due and payable on the Termination
Date. The Company may pre-pay outstanding advances in whole or in part without
incurring any premium or penalty.
All obligations of the Company and its subsidiaries under the Revolving
Credit Agreement are secured by a first priority security interest in all of the
accounts receivable and inventory of the Company and its existing and future
subsidiaries. The obligations of the Company under the Revolving Credit
Agreement are guaranteed by each of the Company's existing and future
subsidiaries.
At the Company's election, amounts advanced under the Revolving Credit
Agreement will bear interest at either (i) the Alternate Base Rate plus 1.25%,
or (ii) the Eurodollar Rate plus 2.25%. The "Alternate Base Rate" is equal to
the highest of (a) the Bank's prime rate, (b) the secondary market rate for
three-month certificates of deposit plus 1.0%, and (c) the federal funds rate
plus 0.5%, in each case as in effect from time to time. The "Eurodollar Rate" is
the rate offered by the Bank for eurodollar deposits for one, two, three or six
months (as selected by the Company) in the interbank eurodollar market in the
approximate amount of the Bank's share of the advance under the Revolving Credit
Agreement. Interest payments on advances which bear interest based upon the
Alternate Base Rate are due quarterly in arrears and on the Termination Date,
and interest payments on advances which bear interest based upon the Eurodollar
Rate are due on the last day of each relevant interest period (or, if such
period exceeds three months, quarterly after the first day of such period).
The Revolving Credit Agreement contains extensive affirmative and negative
covenants, including, among others, covenants relating to levels of net worth,
leverage, EBITDA and cash flow coverage and certain limits on the ability of the
Company to incur indebtedness, make capital expenditures, create liens, engage
in mergers and consolidations, make restricted payments, make asset sales, make
capital expenditures or investments, issue stock and engage in transactions with
affiliates of the Company and its subsidiaries. The Revolving Credit Agreement
also contains customary events of default provisions.
The Company paid the Bank a one time facility and commitment fee upon the
effectiveness of the Revolving Credit Agreement and is required to pay the Bank
quarterly in arrears a commitment fee equal to 0.5% per annum of the average
daily unused portion of the Revolving Credit Agreement during such quarter. The
Company must also reimburse the Bank for certain legal and other costs of the
Bank and pay a fee on outstanding letters of credit at a per annum equal to the
applicable margin then in effect for advances bearing interest at the Eurodollar
Rate.
In July 1996, the Company entered into a Revolving Credit Agreement with
Bank of Montreal (the "BOM Revolving Credit Agreement") for a $3.0 million
Canadian revolving credit facility to accommodate the working capital needs of
the Company's Canadian subsidiaries. Subject to the satisfaction of customary
conditions, advances under the BOM Revolving Credit Agreement may be made, and
letters of credit may be issued, in each case up to an aggregate of $3.0 million
Canadian, due upon demand, and subject to annual review. The funds available to
be advanced may not exceed the aggregate of 75% of the eligible accounts
receivable of Mascot and King-O-Matic and 50% of the eligible inventory of
Mascot and King-O-Matic in each case as defined in the BOM Revolving Credit
Agreement. The amounts advanced under the BOM Revolving Credit Agreement bear
interest at the Bank of Montreal prime lending rate plus 0.25%. The agreement
contains certain convenants including a tangible net worth convenant for the
combined results of Mascot and King-O-Matic.
SENIOR NOTES
GENERAL. ATC's $120,000,000 aggregate principal amount of its Series B
Notes and $40,000,000 aggregate principal amount of its Series D Notes were
issued pursuant to an Indenture dated August 2, 1994, by and among ATC, each of
ATC's subsidiaries and Firstar Bank of Minnesota, N.A. (formerly known as
American Bank N.A.), as trustee. The Senior Notes are fully and unconditionally
guaranteed on a joint and several basis by each of ATC's subsidiaries. Each
series of Senior Notes has substantially identical terms. The
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<PAGE>
Senior Notes may be redeemed at the option of the Company in whole or in part at
(a) 106% of the principal amount redeemed on or after August 1, 1999 but prior
to August 1, 2000, (b) 104% of the principal amount redeemed on or after August
1, 2000 but prior to August 1, 2001, (c) 102% of the principal amount redeemed
on or after August 1, 2001 but prior to August 1, 2002 or (d) 100% of the
principal amount redeemed on or after August 1, 2002 through maturity, in each
case plus accrued and unpaid interest, if any. Notwithstanding the foregoing, at
any time prior to August 1, 1997, the Company may also redeem up to $30 million
and $10 million in aggregate principal amount of the Series B Notes and Series D
Notes, respectively, at 112% of the principal amount redeemed with the net cash
proceeds from one or more public equity offerings of the Company, and intends to
do so in connection with the Offering.
The Indentures governing the Senior Notes contain various restrictive
covenants that, among other things, limit: (i) the incurrence of certain
additional indebtedness by the Company or its subsidiaries; (ii) the creation of
Senior Debt of the Company which is, by its terms, subordinated in right of
payment to other indebtedness of the Company; and (iii) the payment of dividends
on capital stock of the Company and its subsidiaries (see "Risk Factors --
Absence of Dividends"). Affirmative covenants include, among others, an
obligation to pay principal, interest and premium, if any, when due, hold funds
for note payments in trust, maintain its corporate existence, maintain its
properties in good condition, pay taxes when due, furnish to the trustee copies
of certain financial information, and certify as to whether the Company is in
default within 120 days after the end of each fiscal year of the Company. Events
of default under the Indentures governing the Senior Notes include, among other
things: (i) a default in the payment of any interest on any Senior Note when
due, which default continues for 30 days; (ii) a default in the payment of any
principal of or premium, if any, on any Senior Note when due; (iii) the failure
by the Company to comply with any agreement or covenant in the Indentures
governing the Senior Notes, which failure continues for 30 days after a Notice
of Default (as defined in the Indentures governing the Senior Notes) is given;
(iv) final unsatisfied judgments in excess of $2.5 million (excluding amounts
covered by insurance) not discharged, waived or stayed for 60 days; (v) default
under indebtedness of the Company or any of its subsidiaries, which indebtedness
has a principal amount of over $2.5 million either resulting from the failure to
pay principal at maturity or as a result of which the maturity of such
indebtedness has been accelerated prior to its stated maturity; and (vi) certain
events of bankruptcy, insolvency or reorganization of the Company or any of its
subsidiaries.
CHANGE OF CONTROL PUT. Upon the occurrence of a Change of Control, the
Company will be required to make an offer to repurchase the Senior Notes at a
price equal to 101% of the principal amount thereof, together with accrued and
unpaid interest thereon. A "Change of Control" is defined as (i) any sale or
transfer of all or substantially all of the assets of the Company, on a
consolidated basis, in one transaction or a series of related transactions, if,
immediately after giving effect to such transaction, any person (other than the
Company, its subsidiaries or certain other entities related to ACP (an "Excluded
Person")) is or becomes the "beneficial owner," directly or indirectly, of more
than 35% of the total voting power, (ii) any person (other than an Excluded
Person) is or becomes the "beneficial owner," directly or indirectly, of more
than 35% of the total voting power in the aggregate of all classes of
outstanding capital stock of the Company unless the percentage so owned by an
Excluded Person is greater. The occurrence of the Offering will not constitute a
"Change of Control" for purposes of the Senior Notes.
In addition, indebtedness under the Indentures governing the Senior Notes
and the Revolving Credit Agreement would be accelerated or trigger a similar
repurchase right upon a change of control, as defined in the relevant debt
instrument, and other debt the Company may incur could contain a similar
provision. In the event of any such occurrence, the Company would be required to
repay such indebtedness. See "Risk Factors -- Control of the Company,
Anti-Takeover Matters."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. The shares sold in the Offering (
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradable without restriction under the Securities Act, except for any
such shares held at any time by an "affiliate" of the Company, as such term is
defined under Rule 144 promulgated under the Securities Act.
The 2,000,000 shares of Common Stock outstanding immediately prior the
consummation of the Offering were issued in private transactions and may be
publicly sold only if registered under the Securities Act or sold in accordance
with an applicable exemption from registration, such as Rule 144. In general,
under Rule 144, as currently in effect, a person who has beneficially owned
shares for at least two years, including an "affiliate," as that term is defined
in Rule 144, is entitled to sell, within any three-month period, a number of
"restricted" shares that does not exceed the greater of one percent (1%) of the
then outstanding shares of Common Stock ( shares immediately after the
Offering) or the average weekly trading volume during the four calendar weeks
preceding such sale. Sales under Rule 144 are subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about the Company. Rule 144(k) provides that a person who is not
deemed an "affiliate" and who has beneficially owned shares for at least three
years is entitled to sell such shares at any time under Rule 144 without regard
to the limitations described above.
The Company currently has outstanding warrants to purchase an aggregate of
70,176 shares of Common Stock and employee stock options to purchase an
aggregate of 378,703 shares of Common Stock. The shares issuable upon the
exercise of such warrants and options will be "restricted" shares for Rule 144
purposes.
The parties to a Stockholders Agreement among the Company and its
stockholders, certain of its optionholders and its warrant holders (the
"Stockholders Agreement"), who in the aggregate held all of the outstanding
shares of Common Stock as of September 30, 1996, have been granted certain
"piggy-back" registration rights with respect to shares of the Common Stock in
connection with a qualified initial public offering by the Company (which have
been waived with respect to this Offering) and in connection with certain
secondary public offerings effected by the Company. The Company will bear all
expenses incident to any such registration, including the fees and expenses of a
single counsel retained by the selling stockholders; however, each selling
stockholder will be responsible for the underwriting discounts and commissions
and transfer taxes in connection with shares sold by such stockholder. Each
selling stockholder and the underwriters through whom shares are sold on behalf
of a selling stockholder will be entitled to customary indemnification from the
Company against certain liabilities, including liabilities under the Securities
Act.
The Company will agree with the Underwriters not to sell or otherwise
dispose of any shares of Common Stock for a period of 180 days from the date of
this Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. Each of the Company's current stockholders, directors, executive
officers and warrant holders will enter into or is bound by a similar agreement.
See "Underwriters."
The Company is unable to estimate the number of shares that may be sold in
the future by the existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
such stockholders could adversely affect prevailing market prices.
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-UNITED STATES HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the acquisition, ownership, and disposition of the Common Stock
by an initial purchaser that, for United States Federal income tax purposes, is
not a "United States person" (a "Non-United States Holder"). This discussion is
based upon the United States Federal tax law now in effect, which is subject to
change, possibly retroactively. For purposes of this discussion, a "United
States person" means a citizen or resident of the United States, a
50
<PAGE>
corporation, partnership, or other entity created or organized in the United
States or under the laws of the United States or of any political subdivision
thereof, or an estate or trust whose income is includible in gross income for
United States Federal income tax purposes regardless of its source. This
discussion does not consider any specific facts or circumstances that may apply
to a particular Non-United States Holder. Prospective investors are urged to
consult their tax advisors regarding the United States Federal tax consequences
of acquiring, holding, and disposing of Common Stock, as well as any tax
consequences that may arise under the laws of any foreign, state, local, or
other taxing jurisdiction.
DIVIDENDS
Dividends on Common Stock paid to a Non-United States Holder generally will
be subject to withholding of United States Federal income tax at the rate of
30%, unless the withholding rate is reduced under an applicable income tax
treaty between the United States and the country of tax residence of the
Non-United States Holder. The 30% withholding tax will not apply if the dividend
is effectively connected with a trade or business conducted within the United
States by the Non-United States Holder (or, alternatively, where an income tax
treaty applies, if the dividend is effectively connected with a permanent
establishment maintained within the United States by the Non-United States
Holder), but, instead, the dividend will be subject to the United States Federal
income tax on net income that applies to United States persons (and, with
respect to corporate holders, also may be subject to the branch profits tax). A
Non-United States Holder may be required to satisfy certain certification
requirements in order to claim treaty benefits or to otherwise claim a reduction
of or exemption from withholding under the foregoing rules. A Non-United States
Holder that is eligible for a reduced rate of U.S. withholding tax pursuant to a
tax treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale, redemption, or other
disposition of Common Stock unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder, or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Common Stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
and certain other requirements are met.
Also, special rules apply to Non-United States Holders if the Company is or
becomes a "United States real property holding corporation" for United States
Federal income tax purposes. In general, gain on the disposition of interests in
a United States real property holding corporation is subject to United States
Federal income tax. A corporation is generally a United States real property
holding corporation if the fair market value of its United States real property
interests equals or exceeds 50 percent of the sum of the fair market value of
its worldwide real property interests plus its other assets used or held for use
in a trade of business. The Company believes it is not currently, and is not
likely to become, a United States real property holding corporation for United
States Federal income tax purposes.
FEDERAL ESTATE TAXES
Common Stock owned or treated as owned by an individual who is not a citizen
or resident (as specifically defined for United States Federal estate tax
purposes) of the United States at the date of death, or Common Stock subject to
certain lifetime transfers made by such an individual, will be included in such
individual's estate for United States Federal estate tax purposes and may be
subject to United States Federal estate tax, unless an applicable estate tax
treaty provides otherwise. Estates of nonresident aliens are generally allowed a
credit that is equivalent to an exclusion of $600,000 of assets from the estate
for United States Federal estate tax purposes.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report to the holders of the Common Stock and to the
Internal Revenue Service the amount of any dividends paid on Common Stock in
each calendar year and the amounts of tax withheld, if any, with respect to such
payments. That information may also be made available to the tax authorities of
the country in which a Non-United States Holder resides.
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<PAGE>
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to dividends paid on the Common Stock to a Non-United States Holder.
Payments by a United States office of a broker of the proceeds of a sale of the
Common Stock is subject to both backup withholding at a rate of 31% and
information reporting unless the holder certifies its Non-United States Holder
status under penalties of perjury or otherwise establishes an exemption.
Information reporting requirements (but not backup withholding) will also apply
to payments of the proceeds of sales of the Common Stock by foreign offices of
United States brokers, or foreign brokers with certain types of relationships to
the United States, unless the broker has documentary evidence in its records
that the holder is a Non-United States Holder and certain other conditions are
met, or the holder otherwise establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
These information reporting and backup withholding rules are under review by
the United States Treasury and their application to the Common Stock could be
changed by future regulations. On April 15, 1996, the IRS issued proposed
Treasury Regulations concerning the withholding of tax and reporting for certain
amounts paid to non-resident individuals and foreign corporations. The proposed
Treasury Regulations, if adopted in their present form, would be effective for
payments made after December 31, 1997. Prospective investors should consult
their tax advisors concerning the potential adoption of such proposed Treasury
Regulations and the potential effect on their ownership of the Common Stock.
THE FOREGOING IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF HOLDING COMMON STOCK AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND ADVICE BASED UPON THE INDIVIDUAL CIRCUMSTANCES OF THE HOLDER.
52
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UNDERWRITERS
Under the terms and subject to conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, William Blair & Company, L.L.C. and Donaldson,
Lufkin & Jenrette Securities Corporation are serving as Representatives, have
severally agreed to purchase, and the Company has agreed to sell to them, the
respective number of shares of Common Stock set forth opposite the name of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
- ---------------------------------------------------------------------------------- -----------
<S> <C>
Morgan Stanley & Co. Incorporated.................................................
William Blair & Company, L.L.C....................................................
Donaldson, Lufkin & Jenrette Securities Corporation...............................
-----------
Total.........................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions, including the conditions that no stop order
suspending the effectiveness of the Registration Statement of which this
Prospectus is a part is in effect and no proceedings for such purpose are
pending before or threatened by the Securities and Exchange Commission and that
there has been no material adverse change or any development involving a
prospective material adverse change in the business, financial condition or
results of operations of ATC and its subsidiaries, taken as a whole, from that
set forth in such Registration Statement. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any are taken.
The Underwriters propose to offer part of the shares of Common Stock offered
hereby directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price which represents a
concession not in excess of $ per share under the public offering price.
Any Underwriter may allow, and such dealers may re-allow, a concession not in
excess of $ per share to other Underwriters or to certain other dealers.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to an additional shares of Common Stock at
the public offering price set forth on the cover page hereof, less underwriting
discounts and commissions. The Underwriters may exercise such option to purchase
solely for the purpose of covering over-allotments, if any, incurred in the sale
of the shares of Common Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number set forth next to such Underwriter's name in the preceding
table bears to the total number of shares of Common Stock offered by the
Underwriters hereby.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
The Company, on the one hand, and the Underwriters, on the other hand, have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.
53
<PAGE>
The Company will agree in the Underwriting Agreement that it will not,
without the prior written consent of Morgan Stanley & Co. Incorporated, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common or any securities convertible into or exercisable or
exchangeable for Common Stock or enter into any swap or other arrangement that
transfers to another, in whole on in part, any of the economic consequences of
ownership of the Common Stock, for a period of 180 days after the date of this
Prospectus. Each of the Company's current stockholders, directors, executive
officers and warrant holders will enter into or is bound by a similar agreement.
At the request of the Company, the Underwriters have reserved up to
shares of the shares of Common Stock offered hereby for sale at the
public offering price to certain directors, officers and employees of the
Company. The number of shares of Common Stock available for sale to the general
public will be reduced to the extent such persons purchase such reserved shares.
Any reserved shares not so purchased will be offered by the Underwriters to the
general public on the same basis as the other shares offered hereby. All
purchasers of the shares of Common Stock reserved pursuant to this paragraph who
are also directors or executive officers of the Company will be required to
enter into agreements identical to those described in the immediately preceding
paragraph restricting the transferability of such shares for a period of 180
days after the date of this Prospectus.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the shares of
Common Stock of the Company. The initial public offering price will be
determined by negotiation between the Company and the Representatives. Among the
factors considered in determining the initial public offering price will be the
future prospects of the Company and its industry in general, sales, earnings and
certain other financial and operating information of the Company in recent
periods, and the price-earnings ratios, price-sales ratios, market prices of
securities and certain financial and operating information of companies engaged
in activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this preliminary Prospectus
is subject to change as a result of market conditions and other factors.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Gibson, Dunn & Crutcher LLP, Los Angeles,
California. Upon consummation of the Initial Acquisitions, certain partners of
Gibson, Dunn & Crutcher LLP acquired beneficial interests in shares representing
in the aggregate less than 1% of all outstanding Common Stock at the same price
per share paid by other purchasers of Common Stock on or prior to that date.
Certain matters in connection with the Offering will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Aftermarket Technology Corp. as of
December 31, 1994 and 1995 and for the five months ended December 31, 1994 and
for the year ended December 31, 1995, the combined financial statements of the
Predecessor Companies to Aftermarket Technology Corp. for the year ended
December 31, 1993 and for the seven months ended July 31, 1994, and the
financial statements of Component Remanufacturing Specialists, Inc. as of March
31, 1995 and for the ten months then ended included in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
in the Registration Statement, and are included in reliance on such reports
given upon the authority of such firm as experts in accounting and auditing.
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<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain items of which are omitted as permitted by the rules and regulations of
the Commission. Statements made in this Prospectus as to the contents of any
agreement or other document referred to herein are not necessarily complete, and
reference is made to the copy of such agreement or other document filed as an
exhibit or schedule to the Registration Statement and each such statement shall
be deemed qualified in its entirety by such reference. For further information,
reference is made to the Registration Statement and to the exhibits and
schedules filed therewith, which are available for inspection without charge at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549. Copies of the material containing
this information may be obtained from the Commission upon payment of the
prescribed fees.
The Company is subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended. Such reports
may be inspected at the public reference facilities maintained by the Commission
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material may be obtained by mail from the Public
Reference Branch of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by an independent public accounting
firm accompanied by an opinion expressed by such independent public accounting
firm and quarterly reports for the first three quarters of each fiscal year
containing unaudited consolidated financial information in each case prepared in
accordance with generally accepted accounting principles.
The "Aaron's Transmissions" trademark is a federally protected servicemark
of the Company. This Prospectus also contains the registered trademarks of other
companies.
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AFTERMARKET TECHNOLOGY CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Aftermarket Technology Corp.
Report of Ernst & Young LLP, Independent Auditors........................................................ F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Income........................................................................ F-4
Consolidated Statements of Stockholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
Component Remanufacturing Specialists, Inc.
Report of Ernst & Young LLP, Independent Auditors........................................................ F-19
Balance Sheet............................................................................................ F-20
Statement of Income...................................................................................... F-21
Statement of Stockholders' Equity........................................................................ F-22
Statement of Cash Flows.................................................................................. F-23
Notes to Financial Statements............................................................................ F-24
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and Board of Directors
Aftermarket Technology Corp.
We have audited the accompanying consolidated balance sheets of Aftermarket
Technology Corp. (the Company) as of December 31, 1994 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
five months ended December 31, 1994, and for the year ended December 31, 1995.
We have also audited the accompanying combined statements of income,
stockholders' equity, and cash flows of the Predecessor Companies to Aftermarket
Technology Corp. (the Predecessor Companies) for the year ended December 31,
1993 and for the seven months ended July 31, 1994. These financial statements
are the responsibility of the Company's and Predecessor Companies' managements.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Aftermarket
Technology Corp. at December 31, 1994 and 1995, and the consolidated results of
the Company's operations and cash flows for the five months ended December 31,
1994, and for the year ended December 31, 1995 and the combined results of the
operations of the Predecessor Companies to Aftermarket Technology Corp. and
their cash flows for the year ended December 31, 1993, and for the seven months
ended July 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
June 21, 1996
F-2
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------------- SEPTEMBER 30, SEPTEMBER 30,
1994 1995 1996 1996 (1)
------------- ------------- ------------- -------------
(UNAUDITED)
(UNAUDITED) (NOTE 1)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 9,427,318 $ 8,755,691 $ 8,307,369 $ 8,307,369
Accounts receivable, net........................ 24,622,834 32,965,874 37,889,351 37,889,351
Inventories..................................... 26,635,133 43,064,712 53,305,883 53,305,883
Prepaid and other assets........................ 579,002 2,032,671 2,807,626 2,807,626
Deferred tax assets............................. 1,435,000 2,267,000 2,534,960 2,534,960
------------- ------------- ------------- -------------
Total current assets.............................. 62,699,287 89,085,948 104,845,189 104,845,189
Equipment and leasehold improvements:
Machinery and equipment......................... 3,373,435 7,187,840 10,836,264 10,836,264
Autos and trucks................................ 958,296 1,503,760 1,818,222 1,818,222
Furniture and fixtures.......................... 429,744 858,070 1,373,432 1,373,432
Leasehold improvements.......................... 1,823,208 2,860,711 4,264,799 4,264,799
------------- ------------- ------------- -------------
6,584,683 12,410,381 18,292,717 18,292,717
Less accumulated depreciation and
amortization................................... 388,520 1,625,917 2,906,930 2,906,930
------------- ------------- ------------- -------------
6,196,163 10,784,464 15,385,787 15,385,787
Debt issuance costs, net.......................... 5,715,838 7,162,690 6,537,558 6,537,558
Cost in excess of net assets acquired, net........ 112,344,868 140,652,620 140,237,861 140,237,861
Other assets...................................... 337,252 245,897 339,231 339,231
------------- ------------- ------------- -------------
Total assets...................................... $ 187,293,408 $ 247,931,619 $267,345,626 $267,345,626
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 5,897,091 $ 12,951,575 $ 21,306,676 $ 21,306,676
Accrued payroll and related costs............... 1,433,142 2,094,237 3,550,075 3,550,075
Accrued interest payable........................ 6,066,835 8,097,647 3,371,661 3,371,661
Other accrued expenses.......................... 2,652,723 3,170,162 3,104,571 3,104,571
Bank lines of credit............................ 1,160,000 811,067 2,924,475 27,559,727
Due to former stockholders...................... 4,989,867 36,734 36,734 36,734
Income taxes payable............................ -- 1,912,116 775,401 775,401
Dividends payable............................... 853,288 2,946,300 4,635,252 --
------------- ------------- ------------- -------------
Total current liabilities......................... 23,052,946 32,019,838 39,704,845 59,704,845
Deferred tax liabilities.......................... 1,483,000 3,478,000 4,746,161 4,746,161
12% Series B and D Senior Subordinated Notes...... 120,000,000 162,245,762 162,047,458 162,047,458
Commitments and contingencies.....................
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 1,000,000
Issued and outstanding shares -- 200,000
Aggregate liquidation and redemption value of
$23,033,582 at December 31, 1995 (24,635,252
at
September 30, 1996)........................... 20,000,000 20,000,000 20,000,000 --
Common stock, $.01 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- 2,000,000..... 20,000,000 20,000,000 20,000,000 20,000,000
Retained earnings............................... 2,757,462 10,163,019 20,815,391 20,815,391
Cumulative translation adjustment............... -- 25,000 31,771 31,771
------------- ------------- ------------- -------------
Total stockholders' equity........................ 42,757,462 50,188,019 60,847,162 40,847,162
------------- ------------- ------------- -------------
Total liabilities and stockholders' equity........ $ 187,293,408 $ 247,931,619 $267,345,626 $267,345,626
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
- ------------
(1) The pro forma balance sheet reflects the redemption of all outstanding
preferred stock, including accrued dividends, without the application of
the net proceeds from the Company's proposed initial public offering. Such
amounts were assumed to have been funded from the Company's available line
of credit.
See accompanying notes.
F-3
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
----------------------------- -----------------------------------------------------------
FOR THE FOR THE
SEVEN MONTHS FIVE MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, ---------------------------
1993 1994 1994 1995 1995 1996
------------- ------------- ------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.......................... $110,702,341 $90,055,996 $67,735,869 $190,659,143 $132,471,865 $199,306,548
Cost of sales...................... 66,686,938 52,245,178 40,111,819 115,499,023 82,051,302 122,457,605
------------- ------------- ------------- ------------- ------------ ------------
Gross profit....................... 44,015,403 37,810,818 27,624,050 75,160,120 50,420,563 76,848,943
Selling, general, and
administrative expense............ 25,681,754 20,475,113 14,205,750 38,971,230 26,439,390 38,651,311
Amortization of intangible
assets............................ 28,202 15,534 1,209,971 3,307,563 2,391,467 2,780,654
------------- ------------- ------------- ------------- ------------ ------------
Income from operations............. 18,305,447 17,320,171 12,208,329 32,881,327 21,589,706 35,416,978
Interest and other income.......... 536,670 288,059 341,342 1,099,588 688,362 715,206
Interest expense................... 235,220 130,036 6,373,921 18,015,346 12,977,656 15,144,880
------------- ------------- ------------- ------------- ------------ ------------
Income before income taxes......... 18,606,897 17,478,194 6,175,750 15,965,569 9,300,412 20,987,304
Provision (benefit) for income
taxes............................. 471,000 (5,000) 2,565,000 6,467,000 3,080,332 8,645,980
------------- ------------- ------------- ------------- ------------ ------------
Net income......................... $ 18,135,897 $17,483,194 3,610,750 9,498,569 6,220,080 12,341,324
------------- -------------
------------- -------------
Dividends accrued on preferred
stock............................. 853,288 2,093,012 1,542,396 1,688,953
------------- ------------- ------------ ------------
Net income available to common
stockholders...................... $ 2,757,462 $ 7,405,557 $ 4,677,684 $ 10,652,371
------------- ------------- ------------ ------------
------------- ------------- ------------ ------------
Pro forma (unaudited):
Income before income taxes per
above........................... $ 18,606,897 $17,478,194
Provision for income taxes....... 7,334,000 7,004,000
------------- -------------
------------- -------------
Pro forma net income............. $ 11,272,897 $10,474,194
------------- -------------
------------- -------------
Net income per share............. $ $
------------- ------------
------------- ------------
Shares used in calculation of pro
forma net income per share......
------------- ------------
------------- ------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMBINED
----------------------------
FOR THE
SEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31, JULY 31,
1993 1994
------------- -------------
<S> <C> <C>
Stockholders' equity at beginning of period........................................ $ 22,106,960 $ 31,719,717
Distributions to stockholders.................................................... (8,523,140) (5,503,000)
Net income....................................................................... 18,135,897 17,483,194
------------- -------------
Stockholders' equity at end of period.............................................. $ 31,719,717 $ 43,699,911
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED
-----------------------------------------------------------------------
CUMULATIVE
PREFERRED COMMON RETAINED TRANSLATION
STOCK STOCK EARNINGS ADJUSTMENT TOTAL
------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of 200,000 shares of
preferred stock for cash at $100 per
share, August 2, 1994............... $ 20,000,000 $ -- $ -- $ $ 20,000,000
Issuance of 2,000,000 shares of
common stock for cash at $10 per
share, August 2, 1994............... -- 20,000,000 -- -- 20,000,000
Net income for the five months ended
December 31, 1994................... -- -- 3,610,750 -- 3,610,750
Accrued dividends on preferred
stock............................... -- -- (853,288) -- (853,288)
------------- ------------- ------------- ----------- -------------
Balance at December 31, 1994........... 20,000,000 20,000,000 2,757,462 0 42,757,462
Translation adjustment............... -- -- -- 25,000 25,000
Net income for the year ended
December 31, 1995................... -- -- 9,498,569 -- 9,498,569
Accrued dividends on preferred
stock............................... -- -- (2,093,012) -- (2,093,012)
------------- ------------- ------------- ----------- -------------
Balance at December 31, 1995........... 20,000,000 20,000,000 10,163,019 25,000 50,188,019
Translation adjustment............... -- -- -- 6,771 6,771
Net income for the nine months ended
September 30, 1996 (unaudited)...... -- -- 12,341,324 -- 12,341,324
Accrued dividends on preferred stock
(unaudited)......................... -- -- (1,688,952) -- (1,688,952)
------------- ------------- ------------- ----------- -------------
Balance at September 30, 1996
(unaudited)........................... $ 20,000,000 $ 20,000,000 $ 20,815,391 $ 31,771 $ 60,847,162
------------- ------------- ------------- ----------- -------------
------------- ------------- ------------- ----------- -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
---------------------------- ---------------------------------------------------------
FOR THE FOR THE
SEVEN MONTHS FIVE MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, --------------------------
1993 1994 1994 1995 1995 1996
------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net Income.............................. $ 18,135,897 $17,483,194 $ 3,610,750 $ 9,498,569 $ 6,220,080 $12,341,324
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 1,111,547 726,761 1,598,491 4,680,388 3,403,440 4,167,746
Increase (decrease) in allowance for
losses on accounts receivable........ (97,000) 249,176 192,208 496,591 454,565 129,300
Loss (gain) on sale of equipment...... (60,750) 24,276 4,804 (5,955) 4,506 28,634
Amortization of debt issuance costs... -- -- 268,650 710,281 504,793 625,132
Increase (decrease) in net deferred
tax liability........................ -- -- 50,000 1,274,000 1,237,916 978,201
Changes in operating assets and
liabilities:
Accounts receivable................. (6,926,601) (6,218,650) (1,799,626) (3,172,303) 720,961 (4,138,735)
Inventories......................... (4,697,190) (2,716,807) (576,145) (8,118,364) (3,735,723) (9,179,984)
Prepaid and other assets............ (32,501) (519,553) 299,101 (1,137,901) (1,562,404) (849,761)
Accounts payable and accrued
expenses........................... 3,049,765 2,102,961 4,249,395 6,555,947 (5,828,570) 3,287,866
------------- ------------ ------------- ------------ ------------ -----------
Net cash provided by (used in) operating
activities............................. 10,483,167 11,131,358 7,897,628 10,781,253 1,419,564 7,389,723
INVESTING ACTIVITIES
Purchases of equipment.................. (2,310,175) (1,850,224) (1,335,551) (5,187,400) (3,905,148) (5,892,715)
Proceeds from sale of fixed assets...... 130,236 78,657 55,603 7,685 (2,645) 48,232
Acquisition of companies, net of cash
received............................... -- -- (146,954,457) (40,264,452) (39,875,396) (4,106,970)
------------- ------------ ------------- ------------ ------------ -----------
Net cash used in investing activities... (2,179,939) (1,771,567) (148,234,405) (45,444,167) (43,783,189) (9,951,453)
</TABLE>
F-6
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
---------------------------- ---------------------------------------------------------
FOR THE FOR THE
SEVEN MONTHS FIVE MONTHS NINE MONTHS ENDED
YEAR ENDED ENDED ENDED YEAR ENDED SEPTEMBER 30,
DECEMBER 31, JULY 31, DECEMBER 31, DECEMBER 31, --------------------------
1993 1994 1994 1995 1995 1996
------------- ------------ ------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
FINANCING ACTIVITIES
Issuance of senior subordinated notes... $ -- $ -- $120,000,000 $42,400,000 $42,377,966 $ --
Borrowings on revolving credit
facility............................... -- -- 18,160,000 3,500,000 -- --
Payments on revolving credit facility... -- -- (17,000,000) (4,742,458) -- --
Payment of debt issuance costs.......... -- -- (5,697,413) (2,179,167) (1,788,481) --
Payment of offering costs............... -- -- (5,339,855) -- -- --
Net payments on other long-term debt.... (166,718) (100,584) (358,637) -- -- --
Borrowings (payments) on bank lines of
credit................................. 800,000 (1,000,000) -- -- 2,235,395 2,113,408
Payment on amounts due to former
stockholders........................... -- -- -- (4,987,088) (4,083,834) --
Net payments to related parties......... (579,344) (88,737) -- -- -- --
Sale of common stock.................... -- -- 20,000,000 -- -- --
Sale of preferred stock................. -- -- 20,000,000 -- -- --
Distributions to stockholders........... (8,523,140) (5,503,000) -- -- -- --
------------- ------------ ------------- ------------ ------------ -----------
Net cash (used in) provided by financing
activities............................. (8,469,202) (6,692,321) 149,764,095 33,991,287 38,741,046 2,113,408
------------- ------------ ------------- ------------ ------------ -----------
Increase (decrease) in cash and cash
equivalents............................ (165,974) 2,667,470 9,427,318 (671,627) (3,622,579) (448,322)
Cash and cash equivalents at beginning
of period.............................. 747,654 581,680 -- 9,427,318 9,427,318 8,755,691
------------- ------------ ------------- ------------ ------------ -----------
Cash and cash equivalents at end of
period................................. $ 581,680 $ 3,249,150 $ 9,427,318 $ 8,755,691 $ 5,804,739 $8,307,369
------------- ------------ ------------- ------------ ------------ -----------
------------- ------------ ------------- ------------ ------------ -----------
Cash paid during the period for:
Interest.............................. $ 233,133 $ 128,259 $ 185,817 $15,376,365 $15,236,248 $19,342,319
------------- ------------ ------------- ------------ ------------ -----------
------------- ------------ ------------- ------------ ------------ -----------
Income taxes.......................... $ 360,179 209,671 $ 2,571,000 $ 3,221,356 $ 4,443,167 $8,438,414
------------- ------------ ------------- ------------ ------------ -----------
------------- ------------ ------------- ------------ ------------ -----------
</TABLE>
See accompanying notes.
F-7
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Aftermarket Technology Corp.
include the combined results of Aftermarket Technology Holdings Corp. (Holdings)
and its wholly owned subsidiary, Aftermarket Technology Corp. (ATC)
(collectively, the "Company"). Concurrent with the completion of ATC's proposed
initial public offering, Holdings will be merged into ATC. The accompanying
financial statements are presented on a combined basis with the elimination of
intercompany accounts and transactions and will represent the historical
financial statements of ATC upon the completion of the merger.
The consolidated financial statements include the results of the following
remanufactured automotive products businesses which sell to customers throughout
the United States and Canada: (i) Aaron's Automotive Products, Inc. (Aaron's), a
Springfield, Missouri based remanufacturer of transmissions, engines, torque
converters, and other drive train parts for automotive original equipment
manufacturers, independent rebuilders and distributors, and retail chain store
customers; (ii) Component Remanufacturing Specialists (CRS), a Mahwah, New
Jersey based remanufacturer and distributor of automotive drive train and
transmission components; (iii) H.T.P., Inc. (HTP), a Louisville, Kentucky based
remanufacturer and warehouse distributor of new and remanufactured parts for
independent transmission rebuilders; (iv) Mamco Converters, Inc. (Mamco), a
Dayton, Ohio based remanufacturer of torque converters for independent
transmission rebuilders and distributors; (v) King-O-Matic and Mascot Truck
Parts Inc. (Mascot), Canadian based remanufacturers and distributors of
automotive components and a rebuilder of heavy duty truck transmissions,
respectively, are located in Mississauga, Canada; and (vi) RPM Merit (RPM), a
Rancho Cucamonga, California (formerly Azusa, California) based remanufacturer
of torque converters, constant velocity axles, and transmission fluid pumps, and
a warehouse distributor of remanufactured parts and new part kits to independent
transmission rebuilders.
The combined financial statements of the Predecessor Companies to
Aftermarket Technology Corp. (the Predecessor Companies) represent the
combination of the historical financial statements of Aaron's, RPM, HTP, and
Mamco. The Company was formed for the purpose of effecting the acquisitions of
the Predecessor Companies and is a wholly owned subsidiary of Holdings. Holdings
does not have any operations other than its investment in the Company. The
Predecessor Companies were acquired pursuant to four separate purchase
agreements for a total purchase price of approximately $160.4 million (the
Initial Acquisitions). The combined financial statements for the seven months
ended July 31, 1994 include the operations of the Predecessor Companies up to
their respective closing dates, which approximated July 31, 1994.
INTERIM FINANCIAL INFORMATION
The financial information at September 30, 1996 and for the nine months
ended September 30, 1995 and 1996 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Operating results for the
nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the entire year.
PRINCIPLES OF CONSOLIDATION
The Company's acquisitions have been accounted for as purchases, and the
consolidated financial statements for the twelve months ended December 31, 1995
and five months ended December 31, 1994 include operations of the Company and
its wholly owned operating subsidiaries from the dates of acquisition.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents.
F-8
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of new and used engine and transmission parts, and
cores and finished goods. Appropriate consideration is given to deterioration,
obsolescence, and other factors in evaluating estimated market value.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation is
computed using accelerated and straight-line methods over the estimated useful
lives of the assets, which range from three to fifteen years.
FOREIGN CURRENCY TRANSLATION
The financial statements of Canadian subsidiaries have been translated into
U.S. dollars in accordance with SFAS No. 52, "Foreign Currency Translation." All
balance sheet accounts have been translated using the exchange rates in effect
at the balance sheet date. Income statement amounts have been translated using
the average exchange rate for the year. The translation gain resulting from the
changes in exchange rates has been reported separately as a component of
stockholders' equity.
The effect on the statements of income of transaction gains or losses is
insignificant for the periods presented.
DEBT ISSUANCE COSTS
Debt issuance costs incurred in connection with the sale of the 12% Series B
and Series D Senior Subordinated Notes (Note 6) and Revolving Credit Facility
(Note 5) are being amortized over the life of the debt of ten, nine, and seven
years, respectively.
COST IN EXCESS OF NET ASSETS ACQUIRED
The excess of the purchase price over the fair value of the assets purchased
is being amortized over 40 years on a straight-line basis. Cost in excess of net
assets acquired is reflected net of accumulated amortization of $1,199,809 and
$4,466,669 at December 31, 1994 and 1995, respectively.
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," the Company
assesses the recoverability of cost in excess of net assets acquired by
determining whether the amortization of the asset balance over its remaining
life can be recovered through the undiscounted future operating cash flows of
the acquired operation. The amount of the impairment, if any, is measured based
on projected discounted future operating cash flows. The Company believes that
no impairment has occurred and that no reduction in the estimated useful life is
warranted.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist of accounts receivable from its customers,
which are primarily in the automotive aftermarket industry throughout the United
States and Canada. The credit risk associated with the Company's accounts
receivable is mitigated by its credit evaluation process, reasonably short
collection terms and, except for one significant customer, the geographical
dispersion of sales transactions.
F-9
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company grants credit to certain customers who meet pre-established
credit requirements. Customers who do not meet those requirements are required
to pay for products upon delivery. Credit losses are provided for in the
financial statements and consistently have been within management's
expectations.
Accounts receivable is reflected net of an allowance for doubtful accounts
of $766,000 and $2,469,000 at December 31, 1994 and 1995, respectively.
WARRANTY POLICY
The Company generally provides a warranty on its products for a period of up
to twelve months or 12,000 miles.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." Statement No. 123 is effective
for fiscal years beginning after December 15, 1995. Under Statement No. 123,
stock-based compensation expense is measured using either the intrinsic value
method, as prescribed by Accounting Principles Board Opinion No. 25, or the fair
value method described in Statement No. 123. Companies choosing the intrinsic
value method will be required to disclose the pro forma impact of the fair value
method on net income and earnings per share. The Company plans to implement
Statement No. 123 in 1996 using the intrinsic value method.
INCOME TAXES
Two of the Predecessor Companies elected to be taxed as S Corporations for
all periods through the respective closing dates of the Acquisitions; therefore,
for federal and state income tax purposes, any income or loss accrued prior to
that date generally was not taxed to these companies but was reported by their
respective stockholders. The pro forma provision for taxes reflects the
estimated provision for federal and state income taxes which could have been
provided had these companies been C Corporations and filed consolidated returns.
Because these pro forma income taxes do not represent obligations of, and will
not be paid by, the Predecessor Companies, they have not been reflected in the
combined balance sheets or in the combined statements of cash flows.
PRO FORMA DATA (UNAUDITED)
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share will be calculated as follows upon the
determination of the number of shares of common stock to be offered in the
Company's proposed initial public offering and the assumed initial public
offering price per share:
Pro forma net income per share is based on the weighted average number of
shares of common stock and common equivalent shares outstanding using the
treasury stock method and the estimated number of shares of common stock to be
issued in the Company's proposed initial public offering whose net proceeds will
be used to redeem the outstanding preferred stock including accrued dividends.
Pursuant to the Securities and Exchange Commission requirements, common and
common equivalent shares issued during the 12-month period prior to the filing
of the Company's proposed initial public offering have been included in the
calculation as if they were outstanding for all periods presented using the
treasury stock method, based on the assumed initial public offering price.
Historical earnings per share is not considered meaningful due to the
significant changes in the Company's capital structure that will occur upon the
closing of the Company's initial public offering; accordingly, such per share
information is not presented.
F-10
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA BALANCE SHEET
As a result of the Company's proposed initial public offering, all
outstanding preferred stock, including accrued dividends, will be redeemed. The
pro forma balance sheet at September 30, 1996 reflects the redemption of the
preferred stock including accrued dividends without the application of net
proceeds from such offering. The amounts were assumed to have been funded from
the Company's available line of credit at September 30, 1996.
2. ACQUISITIONS
During the year ended December 31, 1995, the Company acquired three new
companies for a total purchase price of approximately $42.8 million. The CRS and
Mascot acquisitions closed on June 1, 1995, and June 9, 1995, respectively, and
the King-O-Matic acquisition closed on September 12, 1995 (collectively, the
1995 Acquisitions). The Company issued $40 million of principal amount of 12%
Senior Subordinated Notes due in 2004 concurrent with the acquisition of CRS,
the proceeds of which financed the New Acquisitions (Note 6). In addition, on
April 2, 1996, the Company acquired Tranzparts, Inc. for $4.0 million and on
October 1, 1996 the Company acquired Diverco, Inc. ("Diverco") for $8.5 million
for the 1996 Acquisitions. All such acquisitions have been accounted for as
purchases. Accordingly, the allocation of the cost of the acquired assets and
liabilities has been made on the basis of the estimated fair value.
The consolidated financial statements include the operating results of each
business from the date of acquisition. The following unaudited pro forma
information for the year ended December 31, 1994 reflects the acquisition of the
Predecessor Companies as if the acquisition had occurred on January 1, 1994,
adjusted to give effect for federal and state income taxes on the results of
operations had all Predecessor Companies been taxed as a corporation and filed a
consolidated return, and gives effect to the 1995 acquisitions as if such
acquisitions had occurred on January 1, 1994. The unaudited pro forma
information for the year ended December 31, 1995 gives effect to the 1995
Acquisitions and the 1996 Acquisitions as if such acquisitions occurred on
January 1, 1995. The unaudited pro forma information for the nine-months ended
September 30, 1996 gives effect as if such Acquisitions occurred at the
beginning of 1996. The pro forma information
includes adjustments for interest expense that would have been incurred to
finance the acquisitions, additional depreciation based on the fair market
values of the property, plant, and equipment acquired, and amortization of
intangibles arising from the transactions. The pro forma financial information
is not necessarily indicative of the results of operations as they would have
been had the transactions been effected on the assumed dates.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER ENDED
31, SEPTEMBER 30,
---------------------- -------------
1994 1995 1996
---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................. $ 192,431 $ 224,837 $ 208,066
Net income................................................ 8,824 10,711 12,815
</TABLE>
3. RELATED-PARTY TRANSACTIONS
Aaron's had sales to a company owned by Aaron's former stockholders
amounting to $327,472 for the year ended December 31, 1993 and $115,422 for the
seven months ended July 31,1994.
The Predecessor Companies leased land and buildings, primarily its
production facilities, under operating lease arrangements with the respective
stockholders, or entities controlled by the stockholders, of the Predecessor
Companies. Rent expense under these operating leases amounted to $1,156,000 for
the year
F-11
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
3. RELATED-PARTY TRANSACTIONS (CONTINUED)
ended December 31, 1993, and $808,000 for the seven months ended July 31, 1994.
Upon completion of the Prior Acquisitions, the Company entered into three- to
five-year lease agreements on most of the properties which had been leased from
related parties to the Predecessor Companies.
The Company had liabilities to former stockholders totaling $4,989,867 and
$36,734 at December 31, 1994 and 1995, respectively. These amounts are composed
primarily of an additional purchase price payable to Aaron's former
stockholders. The remaining amount will be paid upon collection of certain
accounts receivable in 1996.
The Company paid Aurora Capital Partners (ACP), which has a majority
interest in Holdings, the Company's parent, $800,000 in fees for investment
banking services provided in connection with the acquisitions of Mascot, CRS,
and King. In addition, ACP was paid management fees of $208,000 and $500,000 in
1994 and 1995, respectively. ACP is also entitled to various additional fees
depending on the Company's profitability or future acquisitions. No such fees
were paid in 1994 and 1995.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- SEPTEMBER 30,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Raw materials, including core inventories........................... $ 7,415,495 $ 19,015,530 $ 29,539,596
Work-in-process..................................................... 186,338 1,394,479 974,496
Finished goods...................................................... 19,033,300 22,654,703 22,791,791
------------- ------------- -------------
$ 26,635,133 $ 43,064,712 $ 53,305,883
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Finished goods include purchased parts which are available for sale.
5. BANK LINES OF CREDIT
On July 19, 1994, the Company entered into an agreement with The Chase
Manhattan Bank (formerly known as Chemical Bank), as agent, providing for a $30
million revolving credit facility (Revolving Credit Facility) to finance the
Prior Acquisitions and for working capital purposes. The funds available to be
advanced may not exceed 85% of the Company's eligible accounts receivable and
60% of the Company's eligible inventories, as defined in the agreement. The
available borrowing base at December 31, 1995 was approximately $27 million. All
amounts advanced are secured by all accounts receivable and inventories and
become due on July 31, 1999. The Company may prepay outstanding advances in
whole or in part without incurring any premium or penalty.
At the Company's election, amounts advanced under the Revolving Credit
Facility will bear interest at either (i) the Alternate Base Rate plus 1.25% or
(ii) the Eurodollar Rate plus 2.25%. The Alternate Base Rate is equal to the
highest of (a) the Bank's prime rate, (b) the secondary market rate for
three-month certificates of deposit plus 1.0%, or (c) the federal funds rate
plus 0.5%. Interest payments on advances which bear interest based upon the
Alternate Base Rate are due quarterly in arrears, and interest payments on
advances which bear interest based upon the Eurodollar Rate are due on the last
day of each relevant interest period (or, if such period exceeds three months,
quarterly after the first day of such period).
The Company paid the Bank a one-time facility and commitment fee upon
establishing the Revolving Credit Facility and is required to pay the Bank
quarterly in arrears a commitment fee of 0.5% per annum of the average daily
unused portion of the Revolving Credit Facility.
F-12
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
5. BANK LINES OF CREDIT (CONTINUED)
The Revolving Credit Agreement contains several covenants, including levels
of net worth, leverage, EBITDA and cash flow coverage, and certain limits on the
Company to incur indebtedness, make capital expenditures, create liens, engage
in mergers and consolidations, make restricted payments (including dividends),
make asset sales, make investments, issue stock, and engage in transactions with
affiliates of the Company and its subsidiaries. At December 31, 1995, no amounts
were outstanding under this line of credit.
On June 8, 1995, the Company entered into an agreement with the Royal Bank
of Canada (Royal Bank), as agent, providing for a C$1.35 million revolving
credit facility for working capital purposes. All amounts advanced are secured
by an irrevocable standby letter of credit from Chemical Bank in the amount of
the U.S. equivalent of C$1.35 million. At December 31, 1995, $811,067 was
outstanding under this line of credit. Amounts advanced under the credit
agreement bear interest at the Royal Bank prime rate and are payable on the 30th
of each quarter-end commencing September 30, 1995. The rate in effect at
December 31, 1995 was 7.5%.
6. 12% SERIES B AND SERIES D SENIOR SUBORDINATED NOTES
On August 2, 1994, the Company completed a private placement issuance of
$120 million of principal amount of 12% Series A Senior Subordinated Notes due
2004. Proceeds from the issuance, together with the $40 million capital
contribution, were used to finance the Initial Acquisitions. The privately
placed debt was exchanged for public debt (designated Series B) on February 22,
1995.
On June 1, 1995, the Company completed another private placement issuance of
$40 million of principal amount of 12% Series C Senior Subordinated Notes due in
2004. Proceeds of $42.4 million from the issuance were used to finance the 1995
Acquisitions. These notes have an effective interest rate of 10.95%. The
privately placed debt was exchanged for public debt (designated Series D) on
September 10, 1995.
Interest on the Notes is payable semiannually on February 1 and August 1 of
each year, commencing on February 1, 1995 for the Series B Notes and August 1,
1995 for the Series D Notes. The Notes will mature on August 1, 2004. On or
after August 1, 1999, the Notes may be redeemed at the option of the Company, in
whole or in part, at specified redemption prices plus accrued and unpaid
interest:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ----------------------------------------------------------------------- ---------------
<S> <C>
1999................................................................... 106%
2000................................................................... 104
2001................................................................... 102
2002 and thereafter.................................................... 100
</TABLE>
In addition, at any time on or prior to August 1, 1997, the Company may,
subject to certain requirements, redeem up to $30 million of the Series B Notes
and $10 million of the Series D Notes of the aggregate principal amount of the
Notes with the net cash proceeds of one or more public equity offerings, at a
price equal to 112% of the principal amount to be redeemed plus accrued and
unpaid interest. In the event of a change in control, the Company would be
required to offer to repurchase the Notes at a price equal to 101% of the
principal amount plus accrued and unpaid interest.
The Notes are general obligations of the Company, subordinated in right of
payment to all existing and future senior debt (including the Revolving Credit
Facility). The Notes are guaranteed by each of the Company's existing and future
subsidiaries other than any subsidiary designated as an unrestricted subsidiary
(as defined). The Company may incur additional indebtedness, including
borrowings under its $30 million Revolving Credit Facility (Note 5), subject to
certain limitations.
F-13
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
6. 12% SERIES B AND SERIES D SENIOR SUBORDINATED NOTES (CONTINUED)
The indenture under which the Notes were issued contains certain covenants
that, among other things, limit the Company from incurring other indebtedness,
issuing disqualified capital stock, engaging in transactions with affiliates,
incurring liens, making certain restricted payments (including dividends),
making certain asset sales, and permitting certain restrictions on the ability
of its subsidiaries to make distributions. As of December 31, 1995, the Company
was in compliance with such covenants.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Book basis of intangible assets in excess of tax amounts............... $ 1,466,000 $ 3,208,000
Other.................................................................. 17,000 270,000
------------ ------------
Total deferred tax liabilities........................................... 1,483,000 3,478,000
Deferred tax assets:
Inventory obsolescence reserve......................................... 483,000 898,000
Bad debt reserves...................................................... 331,000 545,000
Product warranty accruals.............................................. 295,000 438,000
Other.................................................................. 326,000 386,000
------------ ------------
Total deferred tax assets................................................ 1,435,000 2,267,000
Valuation allowance for deferred tax assets.............................. -- --
------------ ------------
Net deferred tax asset................................................... 1,435,000 2,267,000
------------ ------------
Net deferred tax liability............................................... $ 48,000 $ 1,211,000
------------ ------------
------------ ------------
</TABLE>
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Current:
Federal.................................................................. $2,136,000 $4,429,000
State.................................................................... 379,000 764,000
------------ ------------
Total current.............................................................. 2,515,000 5,193,000
Deferred:
Federal.................................................................. 53,000 1,137,000
State.................................................................... (3,000) 137,000
------------ ------------
Total deferred............................................................. 50,000 1,274,000
------------ ------------
$2,565,000 $6,467,000
------------ ------------
------------ ------------
</TABLE>
F-14
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
The components of the provision for deferred income taxes are as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Amortization of intangible assets.......................................... $ 754,000 $1,759,000
Inventory obsolescence reserve............................................. (483,000) (333,000)
Bad debt reserves.......................................................... (85,000) (223,000)
Product warranty accruals.................................................. (56,000) (20,000)
Depreciation............................................................... 2,000 339,000
Other...................................................................... (82,000) (248,000)
------------ ------------
Provision for deferred income taxes........................................ $ 50,000 $1,274,000
------------ ------------
------------ ------------
</TABLE>
The reconciliation of income tax expense computed at the U.S. federal
statutory tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
FIVE MONTHS
ENDED YEAR ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995
------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Tax at U.S. statutory rates.............................. $ 2,159,000 35.0% $ 5,588,000 35.0%
State income taxes, net of federal tax benefit........... 244,000 3.9 529,000 3.3
Other.................................................... 162,000 2.7 350,000 2.2
------------ --- ------------ ---
$ 2,565,000 41.6% $ 6,467,000 40.5%
------------ --- ------------ ---
------------ --- ------------ ---
</TABLE>
8. PREFERRED STOCK
The Company has issued 200,000 shares of nonvoting preferred stock. The
preferred stock accrues dividends at 10% per annum and accrues interest at 10%
per annum on unpaid dividends. Dividends are payable annually on the last
business day in June if declared by the Board of Directors. Dividends on each
share of the preferred stock are cumulative and accrue from day to day, whether
or not earned or declared, commencing with the date of issue of such share. No
dividends have been paid to date.
The preferred stock is exchangeable at the option of the Company, in whole
or in part, after July 31, 1996, for Subordinated Exchange Debentures due July
31, 2006. The Debentures shall be issued pursuant to an indenture the form of
which shall have been approved by the Company and the holders of a majority of
the outstanding shares of preferred stock.
The preferred stock may be redeemed at the option of the Board of Directors
at any time, in whole or in part, at a redemption price equal to the stated
value per share, together with accrued and unpaid dividends to the date fixed
for such redemption. Shares of preferred stock are also subject to mandatory
redemption should substantially all of the assets of the Company be sold or
transferred, or should there be a merger of Holdings with or into any other
corporation in which Holdings is not the surviving entity. In the case of a
mandatory redemption, outstanding shares of preferred stock would be redeemed at
a redemption price equal to the stated value per share, together with accrued
and unpaid dividends including accrued interest to the date fixed for such
redemption.
In the event of any liquidation, the preferred stockholders are entitled to
receive an amount equal to the stated value per share, together with accrued and
unpaid dividends. Thereafter, any remaining proceeds
F-15
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
8. PREFERRED STOCK (CONTINUED)
shall be distributed to the common stockholders. If the assets of the Company
are not sufficient to pay the redemption amount, then holders of outstanding
shares of preferred stock shall share ratably in such distribution.
9. COMMON STOCK
At December 31, 1995, the Company had 370,176 shares of common stock
reserved for the exercise and future granting of stock options and warrants.
STOCK OPTION PLAN
The Company adopted its 1994 Stock Incentive Plan in July 1994 in order to
provide incentives to employees and directors of the Company. The Company has
reserved 300,000 shares of common stock for issuance under the plan. Options are
generally granted at the fair value on the date of grant and vest over a period
of time to be determined by the Board of Directors, generally five years. The
options expire 10 years from the date of grant.
The following table summarizes the stock option activity:
<TABLE>
<CAPTION>
SHARES
SUBJECT PRICE
TO OPTION PER SHARE
----------- -------------
<S> <C> <C>
Granted in 1994................................................................. 233,919 $ 10
-----------
Balance, December 31, 1994....................................................... 233,919 10
Granted in 1995................................................................ 20,544 10
-----------
Balance, December 31, 1995....................................................... 254,463
Granted in 1996................................................................ 19,544 28
Balance, September 30, 1996...................................................... 274,007
-----------
-----------
</TABLE>
At December 31, 1995, 126,706 (183,901 at September 30, 1996) options are
exercisable, and 45,537 (21,297 at September 20, 1996) options remain available
for future grant.
In connection with the prior acquisitions, warrants to purchase 58,480
shares of common stock at $10 per share were issued to two individuals. The
warrants are exercisable through 2004. The Company has also issued a warrant to
one member of the Board of Directors to purchase 11,696 shares of common stock
at $10 per share, the fair value of the common stock on the date of grant. The
warrant vests one-third annually beginning December 31, 1994.
On September 19, 1996, the shareholders approved the amendment of the Plan
to increase the number of shares available for issuance to 400,000.
F-16
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities under various operating lease
agreements which expire on various dates through 2004. Leases that expire
generally are expected to be renewed or replaced by other leases. Future minimum
lease payments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
- ---------------------------------------------------------------------
<S> <C>
1996................................................................. $ 3,878,952
1997................................................................. 3,751,918
1998................................................................. 3,026,401
1999................................................................. 2,221,990
2000................................................................. 1,841,698
Thereafter........................................................... 3,134,820
-------------
$ 17,855,779
-------------
-------------
</TABLE>
Rent expense under operating leases approximated $1,800,000, $1,159,000,
$902,000, and $3,114,999 for the year ended December 31, 1993, the seven months
ended July 31, 1994, the five months ended December 31, 1994, and the year ended
December 31, 1995, respectively.
Rent expense includes amounts paid to related parties of $254,000 and
$611,000 for the five months ended December 31, 1994 and the year ended December
31, 1995, respectively.
The company from which RPM acquired its assets in 1994 (the "Prior RPM
Company") has been identified by the EPA as one of the many potentially
responsible parties for environmental liabilities associated with a "Superfund"
site located in the area of the Company's former manufacturing facilities and
current distribution facility in Azusa, California. The EPA has preliminarily
estimated that it will cost approximately $47 million to construct, and
approximately $4 million per year for an indefinite period to operate, an
interim remedial groundwater treatment system for the part of the Superfund Site
within which the Company's former manufacturing facilities and current
distribution facility, as well as those of many other potentially responsible
parties, are located. The actual cost of this remedial action could vary
substantially from this estimate, and additional costs associated with the
Superfund site are likely to be assessed. The Company has significantly reduced
its presence at the site and has moved all manufacturing operations off-site.
Since July 1995, the Company's only real property interest in this site has been
the lease of a 6,000 square foot storage and distribution facility. The RPM
acquisition agreement and the leases pursuant to which the Company leased RPM's
facilities after the RPM Acquisition expressly provide that the Company did not
assume any liabilities for environmental conditions existing on or before the
RPM Acquisition, although the Company could become responsible for these
liabilities under various legal theories. The Company is indemnified against any
such liabilities by the seller of RPM as well as the Prior RPM Company
shareholders. There can be no assurance, however, that the Company would be able
to make any recovery under any indemnification provisions. Since the RPM
Acquisition, the Company has been engaged in negotiations with EPA to settle any
liability that it may have for this site. The Company's management believes that
the Company will not incur any material liability as a result of these
pre-existing environmental conditions.
In connection with the acquisitions of Aaron's, RPM, HTP, Mamco, CRS,
King-O-Matic and Tranzparts, the Company conducted certain investigations of
these companies' facilities and their compliance with applicable environmental
laws. The investigations, which for all manufacturing and certain distribution
facilities also included "Phase I" assessments by independent consultants, found
that certain remedial, reporting and other regulatory requirements, including
certain hazardous waste management procedures, were not or may not have been
satisfied. Based in part on the investigations conducted and the
F-17
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF SEPTEMBER 30, 1996 AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
indemnification provisions of the Prior Acquisitions' agreements with respect to
certain of these matters, the Company's management believes that its liabilities
relating to these environmental matters will not have a material adverse effect
on its future consolidated financial position or results of operations.
The Company is also involved in several lawsuits which arise in the ordinary
course of business which management believes will not have a material adverse
effect, individually or in the aggregate, on the Company's consolidated
financial position or results of operations.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments approximate their fair
values at December 31, 1994 and 1995, except for the Series B and Series D
subordinated debt.
The fair values of the Company's Series B and Series D subordinated debt are
estimated using discounted cash flow analyses, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of these financial instruments at
December 31 are as follows:
<TABLE>
<CAPTION>
1994 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
12% subordinated notes (Series B)...................... $ 120,000 $ 123,600 $ 120,000 $ 126,600
12% subordinated notes (Series D)...................... -- -- 40,000 42,200
</TABLE>
12. SIGNIFICANT CUSTOMER
For the year ended December 31, 1993, the seven months ended July 31, 1994,
the five months ended December 31, 1994, and the year ended December 31, 1995,
sales to one customer accounted for 34%, 43%, 45%, and 35% of net sales,
respectively. Additionally, at December 31, 1994 and 1995, this customer
accounted for approximately 71% and 46% of accounts receivable, respectively. No
other customer accounted for more than 10% of net sales in any period.
F-18
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Component Remanufacturing Specialists, Inc.
We have audited the accompanying balance sheet of Component Remanufacturing
Specialists, Inc. (the Company) as of March 31, 1995, and the related statements
of income, stockholders' equity and cash flows for the ten months then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Component Remanufacturing
Specialists, Inc. at March 31, 1995 and the results of its operations and its
cash flows for the ten months then ended in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
White Plains, New York
May 3, 1995, except for Note 5
as to which the date is May 10, 1995
F-19
<PAGE>
COMPONENT REMANUFACTURING SPECIALISTS, INC.
BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents...................................... $1,909,060
Accounts receivable............................................ 3,209,663
Inventories.................................................... 2,518,626
Prepaid insurance.............................................. 107,141
----------
Total current assets......................................... 7,744,490
Equipment and leasehold improvements:
Machinery and equipment........................................ 1,069,900
Furniture and fixtures......................................... 50,236
Leasehold improvements......................................... 286,254
----------
1,406,390
Less accumulated depreciation and amortization................. (890,649)
----------
515,741
Covenants not to compete, net.................................... 88,434
Costs in excess of net assets acquired, net...................... 619,391
Other assets..................................................... 33,166
----------
Total assets................................................. $9,001,222
----------
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................... $2,067,107
Accrued compensation........................................... 251,891
Accrued warranty............................................... 330,000
Other accrued expenses......................................... 133,202
Income taxes payable........................................... 49,796
Notes payable.................................................. 151,667
----------
Total current liabilities.................................... 2,983,663
Stockholders' equity:
Common stock (2,500 shares authorized, 300 shares issued and
outstanding -- no par value).................................. --
Additional paid-in capital..................................... 530,000
Retained earnings.............................................. 5,487,559
----------
Total stockholders' equity................................... 6,017,559
----------
Total liabilities and stockholders' equity................... $9,001,222
----------
----------
</TABLE>
See accompanying notes.
F-20
<PAGE>
COMPONENT REMANUFACTURING SPECIALISTS, INC.
STATEMENT OF INCOME
TEN MONTHS ENDED MARCH 31, 1995
<TABLE>
<S> <C>
Sales............................................................. $19,024,253
Cost of sales..................................................... 13,534,690
-----------
Gross profit...................................................... 5,489,563
Selling, general and administrative expense....................... 779,165
Amortization of intangible assets................................. 77,515
-----------
Income from operations............................................ 4,632,883
Interest income................................................... 53,250
Interest expense.................................................. 21,348
-----------
Income before income taxes........................................ 4,664,785
Provision for state income taxes.................................. 114,000
-----------
Net income........................................................ $ 4,550,785
-----------
-----------
</TABLE>
See accompanying notes.
F-21
<PAGE>
COMPONENT REMANUFACTURING SPECIALISTS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
---------- ------------ ------------
<S> <C> <C> <C>
Balance at June 1, 1994................................................... $ 530,000 $ 2,644,180 $ 3,174,180
Dividends............................................................... -- 1,707,406 1,707,406
Net income.............................................................. -- 4,550,785 4,550,785
---------- ------------ ------------
Balance at March 31, 1995................................................. $ 530,000 $ 5,487,559 $ 6,017,559
---------- ------------ ------------
---------- ------------ ------------
</TABLE>
See accompanying notes.
F-22
<PAGE>
COMPONENT REMANUFACTURING SPECIALISTS, INC.
STATEMENT OF CASH FLOWS
TEN MONTHS ENDED MARCH 31, 1995
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income...................................................................... $4,550,785
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation.................................................................. 74,423
Amortization.................................................................. 77,515
Loss on sale of equipment..................................................... 79,788
Changes in operating assets and liabilities:
Accounts receivable......................................................... (1,266,650)
Inventories................................................................. (830,994)
Prepaid and other assets.................................................... (33,653)
Accounts payable and accrued expenses....................................... (475,820)
----------
Net cash provided by operating activities....................................... 2,175,394
INVESTING ACTIVITIES
Purchases of equipment and leasehold improvements............................... (466,213)
----------
Net cash used in investing activities........................................... (466,213)
FINANCING ACTIVITIES
Payments on long-term debt...................................................... (277,379)
Dividends....................................................................... (1,707,406)
----------
Net cash used in financing activities........................................... (1,984,785)
----------
Decrease in cash................................................................ (275,604)
Cash and cash equivalents at beginning of period................................ 2,184,664
----------
Cash and cash equivalents at end of period...................................... $1,909,060
----------
----------
Cash paid during the period for:
Interest...................................................................... $ 21,348
----------
----------
Income taxes.................................................................. $ 950,000
----------
----------
</TABLE>
See accompanying notes.
F-23
<PAGE>
COMPONENT REMANUFACTURING SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
The Company is a New Jersey based remanufacturer of automotive components
for original equipment manufacturers (OEMs). It has U.S. and Canadian
remanufacturing rights for designated transmissions, steering racks and water
pumps produced by certain foreign and domestic OEMs.
SIGNIFICANT CUSTOMERS
For the ten months ended March 31, 1995, sales to the Company's three
largest customers, all of whom are subsidiaries of foreign corporations,
approximated 51%, 15% and 13% of sales. Additionally, at March 31, 1995,
accounts receivable from these three customers approximated $1,403,000, $468,000
and $669,000, respectively. Contracts with customers may be terminated by either
party generally upon 30 days notice.
The Company generally sells to a limited number of OEMs. The Company grants
credit to substantially all of these customers. No credit losses are expected by
management, and no provision for credit losses are reflected in the financial
statements.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of new and used transmission parts. Reserves
consider deterioration, obsolescence and other factors in evaluating estimated
net realizable value.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation is
computed using accelerated and straight-line methods over the estimated useful
lives of the assets which range from five to twenty years.
CASH AND CASH EQUIVALENTS
Investments with maturities of less than 90 days when purchased are
considered the equivalent of cash. Cash and cash equivalents are principally
held by one financial institution.
INTANGIBLE ASSETS
The excess of the purchase price over the fair value of the assets purchased
is being amortized over 40 years on a straight-line basis. Cost in excess of net
assets acquired is reflected net of accumulated amortization of $74,965 at March
31, 1995.
Covenants not to compete are being amortized over five years and are
presented net of accumulated amortization of $576,566.
WARRANTY
The Company extends warranties upon installation ranging from one year or
12,000 miles to two years or 24,000 miles, whichever occurs first. The estimated
cost under existing warranties has been provided for in the financial
statements.
INCOME TAXES
As of June 1, 1994, the Company elected to be treated as an "S Corporation"
for Federal and State tax purposes under the provisions of the respective taxing
authorities.
The Company provides for state income taxes based on income reported for
financial reporting purposes.
F-24
<PAGE>
COMPONENT REMANUFACTURING SPECIALISTS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
Inventories consist of the following at March 31, 1995:
<TABLE>
<S> <C>
Raw material parts...................................................... $2,337,767
Work-in-process......................................................... 130,612
Finished goods.......................................................... 50,247
---------
$2,518,626
---------
---------
</TABLE>
3. BANK LINE OF CREDIT AND NOTES PAYABLE
The Company has a $1,200,000 line of credit which bears interest at the
prime rate (9%) plus .75% and is collateralized by all the tangible and
intangible property of the Company and is available through December 6, 1995. At
March 31, 1995, the Company did not have any outstanding borrowings under the
line of credit. The line of credit is subject to compliance provisions,
including working capital requirements, other borrowings, acquisitions,
redemption of Company stock and dividends. The agreement also provides covenants
as to ownership and management control (See Note 5).
Notes Payable of $151,667 bear interest at 10% and are payable in monthly
installments through December 1995 to the former majority shareholders of the
Company. Included in that amount is approximately $68,000 due to the president
of the Company who currently maintains a minority interest in the Company.
4. COMMITMENTS
In July 1994, the Company relocated its operations to a new manufacturing
facility. The facility is subleased under a five-year noncancelable lease
expiring July 12, 1999. There is an option to renew the lease for two additional
five year periods at an increased monthly rental. Rent expense for leased
facilities for the ten months ended March 31, 1995 was $251,110.
The facility lease also requires the Company to pay real estate taxes and
common area maintenance charges.
The following is a schedule of future minimum rental payments under
operating leases:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31 TOTAL
- ---------------------- ------------
<S> <C>
1996 $ 317,000
1997 301,000
1998 323,000
1999 330,000
2000 83,000
------------
$ 1,354,000
------------
------------
</TABLE>
5. SUBSEQUENT EVENTS
Effective April 1, 1995, the Company instituted a 401K plan covering
substantially all of its employees.
On May 10, 1995, the Company's shareholders signed a stock purchase
agreement to sell their common stock in the Company to Aftermarket Technology
Corp. The transaction is expected to close on or about June 1, 1995.
F-25
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- ----------------------------------------------------------------------------------- ---------
<S> <C>
SEC Registration Fee............................................................... $ 29,742
NASD Fee........................................................................... 9,125
Nasdaq National Market Fee......................................................... *
Printing Expenses.................................................................. *
Legal Fees and Expenses............................................................ *
Transfer Agent and Registrar Fees.................................................. *
Accounting Fees and Expenses....................................................... *
Blue Sky Fees and Expenses......................................................... 20,000
Miscellaneous Expenses............................................................. *
---------
TOTAL.......................................................................... $ *
---------
---------
</TABLE>
- ---------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the DGCL makes provision for the indemnification of officers
and directors in terms sufficiently broad to indemnify officers and directors of
the Company under certain circumstances from liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933.
The Company's Certificate of Incorporation and Bylaws provide, in effect, that,
to the fullest extent and under the circumstances permitted by Section 145 of
the DGCL, the Company will indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is a director or officer of the Company or is or was
serving at the request of the Company as a director or officer of another
corporation or enterprise. The Company may, in its discretion, similarly
indemnify its employees and agents. The Certificate of Incorporation relieves
its directors from monetary damages to the Company or its stockholders for
breach of such director's fiduciary duty as directors to the fullest extent
permitted by the DGCL. Under Section 102(b)(7) of the DGCL, a corporation may
relieve its directors from personal liability to such corporation or its
stockholders for monetary damages for any breach of their fiduciary duty as
directors except (i) for a breach of the duty of loyalty, (ii) for failure to
act in good faith, (iii) for intentional misconduct or knowing violation of law,
(iv) for willful or negligent violation of certain provisions in the DGCL
imposing certain requirements with respect to stock repurchases, redemption and
dividends, or (v) for any transactions from which the director derived an
improper personal benefit. Depending upon the character of the proceeding, under
Delaware law, the Company may indemnify against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding if the person
indemnified acted in good faith and in a manner he or she reasonably believed to
be in or not opposed to the best interest of the Company, and, with respect to
any criminal action or proceeding, had no cause to believe his or her conduct
was unlawful. To the extent that a director or officer of the Company has been
successful in the defense of any action, suit or proceeding referred to above,
the Company will be obligated to indemnify him or her against expenses
(including attorneys' fees) actually and reasonably incurred in connection
therewith.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In July 1996, the Company issued 1,000 shares of Common Stock to Holdings in
consideration of $13.5 million in cash. The Company believes that this
transaction was exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. Concurrent with the consummation of the Offering,
II-1
<PAGE>
Holdings will be merged into the Company, and each outstanding share of Holdings
Common Stock will be converted into shares of Common Stock of the Company. The
following is a description of the issuances of the unregistered securities of
Holdings.
Holdings sold all 2,000,000 currently outstanding shares of its Common Stock
in July 1994 at the time of the Initial Acquisitions at a price of $10.00 per
share to AEP, AOEP and certain other investors. There have been no subsequent
issuances of the Common Stock of Holdings since such time. The Company believes
that this transaction was exempt from registration pursuant to Section 4(2) of
the Act.
In August 1994, Holdings issued options to purchase an aggregate of 216,375
shares of its Common Stock to Messrs. Smith, Wehr, Hester, Kent, Bear, an
employee and a consultant. In September 1994, Holdings issued options to
purchase an aggregate of 11,696 shares to two employees of the Company. In
October 1994, Holdings issued options to purchase 5,848 shares to an employee of
the Company. In connection with the acquisition of the outstanding capital stock
of CRS, Holdings in June 1995 issued options to purchase an aggregate of 6,848
shares of Common Stock to Mr. LePore and an employee, both of whom were former
shareholders of CRS. Also in June 1995, Holdings issued options to purchase
5,848 shares of Common Stock to an employee. In August 1995 and November 1995,
Holdings issued options to purchase 1,000 shares to each of Mr. Prugh and an
employee, respectively. In December 1995, Holdings issued options to purchase
5,848 shares to Mr. LePore. In June 1996, Holdings issued options to purchase
17,554 shares to Mr. Dearbaugh. In August 1996, Holdings issued options to
purchase an aggregate of 2,000 shares to two employees. In October 1996,
Holdings issued options to purchase an aggregate of 104,696 shares to Messrs.
Buie, Dearbaugh, Kent, Hardy, Larsen, Perkins and two consultants. The exercise
price for the options issued through 1995 is $10, and the exercise price for the
options issued after December 1995 is $28. Such options were issued pursuant to
the Stock Incentive Plan to incentivize such employees, non-employee directors
and consultants. The Company believes that the issuances of these options were
exempt from registration pursuant to Section 4(2) of the Securities Act.
In August 1994, Holdings issued warrants to purchase an aggregate of 58,480
shares of its Common Stock to Mr. Myers and one other individual as part of a
fee for acting as a finder in connection with the formation of the Company. In
December 1994, Holdings issued warrants to purchase 11,696 shares of its Common
Stock to Dr. Hartnett as incentive compensation for Dr. Hartnett's duties as a
director of Holdings. The exercise price for such warrants is $10.00. The
Company believes that the issuances of such warrants were exempt from
registration pursuant to Section 4(2) of the Securities Act.
On August 2, 1994, the Company completed the sale of $120 million of Series
A Notes to Chemical Securities Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Initial Purchasers"). The Series A Notes were resold to
Qualified Institutional Buyers ("QIBs") and Accredited Institutional Investors
("AII"). The Company believes that the initial placement of the securities was
exempt from registration under Section 4(2) of the Act and the resale of the
Notes by the Initial Purchasers was exempt from Registration by virtue of Rule
144A under the Act ("Rule 144A").
On June 1, 1995, the Company completed the sale of an aggregate $40 million
principal amount of Series C Notes to the Initial Purchasers. The Series C Notes
were resold to QIBs and AIIs. The Company believes that the initial placement of
the securities was exempt from registration under Section 4(2) of the Act and
the resale of the Notes by the Initial Purchasers was exempt from Registration
by virtue of Rule 144A.
ITEM 16. EXHIBITS.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
**3.1 Amended and Restated Certificate of Incorporation of Aftermarket Technology Corp.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
3.2 Bylaws of Aftermarket Technology Corp. (previously filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-4 filed on November 30, 1994, Commission File No. 33-86838 and
incorporated herein by this reference)
4.1 Indenture, dated August 2, 1994, among Aftermarket Technology Corp., the Guarantors named therein
and Firstar Bank of Minnesota, N.A. (formerly known as American Bank N.A.), as Trustee for the
Series B Notes (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form
S-4 filed on November 30, 1994, Commission File No. 33-86838 and incorporated herein by this
reference)
4.2 Indenture, dated June 1, 1995, among Aftermarket Technology Corp., the Guarantors named therein
and Firstar Bank of Minnesota, N.A. (formerly known as American Bank N.A.), as Trustee for the
Series D Notes (previously filed as Exhibit 4.1 to the Company's Registration Statement on Form
S-4 filed on June 21, 1995, Commission File No. 33-93776 and incorporated herein by this
reference)
**4.3 First Supplemental Indenture, dated as of February 23, 1995, among Aftermarket Technology Corp.,
the Guarantors named therein and Firstar Bank of Minnesota, N.A. (formerly known as American Bank
N.A.), as Trustee for the Series B Notes
**4.4 Second Supplemental Indenture, dated as of June 1, 1995, among Aftermarket Technology Corp., the
Guarantors named therein and Firstar Bank of Minnesota, N.A. (formerly known as American Bank
N.A.), as Trustee for the Series B Notes
**4.5 Third Supplemental Indenture to the Series B Indenture and First Supplemental Indenture to the
Series D Indenture, dated as of July 25, 1996, among Aftermarket Technology Corp., the Guarantors
named therein and Firstar Bank of Minnesota, N.A. (formerly known as American Bank N.A.), as
Trustee for the Notes
*5.1 Opinion and consent of Gibson, Dunn & Crutcher LLP.
10.1 Stockholders Agreement, dated as of August 2, 1994, among Holdings, and certain of its
stockholders, optionholders and warrant holders (previously filed as Exhibit 10.1 to the
Company's Registration Statement on Form S-4 filed on November 30, 1994, Commission File No.
33-86838 and incorporated herein by this reference)
10.2 Revolving Credit Agreement, dated as of July 19, 1994, among Aftermarket Technology Corp., the
Lenders from time to time parties thereto and The Chase Manhattan Bank (formerly know as Chemical
Bank), as Agent (previously filed as Exhibit 10.5 to the Company's Registration Statement on Form
S-4 filed on November 30, 1994, Commission File No. 33-86838 and incorporated herein by this
reference)
*10.3 Amended and Restated Tax Sharing Agreement, dated as of , 1996, among Aftermarket
Technology Holdings Corp., Aftermarket Technology Corp., Aaron's Automotive Products, Inc., ATC
Components, Inc., CRS Holdings Corp., Diverco Acquisition Corp., H.T.P., Inc., Mamco Converters,
Inc., R.P.M. Merit, Inc. and Transparts Acquisition Corp.
10.4 Management Services Agreement, dated July 19, 1994, by and among Aftermarket Technology Corp., the
subsidiaries of Aftermarket Technology Corp., and Aurora Capital Partners L.P. (previously filed
as Exhibit 10.12 to the Company's Registration Statement on Form S-4 filed on November 30, 1994,
Commission File No. 33-86838 and incorporated herein by this reference)
**10.5 Aftermarket Technology Holdings Corp. Amended and Restated 1994 Stock Incentive Plan.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
10.6 Employment Agreement, dated as of July 29, 1994, between Aftermarket Technology Corp. and William
A. Smith (previously filed as Exhibit 10.6 to the Company's Registration Statement on Form S-4
filed on November 30, 1994, Commission File No. 33-86838 and incorporated herein by this
reference)
**10.7 Employment Agreement, dated as of October 1, 1996, between John C. Kent and Aftermarket Technology
Corp.
10.8 Employment Agreement, dated August 2, 1994, between Kenneth T. Hester and H.T.P., Inc. (previously
filed as Exhibit 10.8 to the Company's Registration Statement on Form S-4 filed on November 30,
1994, Commission File No. 33-86838 and incorporated herein by this reference)
10.9 Employment Agreement, dated August 2, 1994, between James R. Wehr and Aaron's Automotive Products,
Inc. (previously filed as Exhibit 10.9 to the Company's Registration Statement on Form S-4 filed
on November 30, 1994, Commission File No. 33-86838 and incorporated herein by this reference)
10.10 Employment Agreement, dated as of June 1, 1995, between Michael L. LePore and Component
Remanufacturing Specialists, Inc. (previously filed as Exhibit 10.11 to the Company's
Registration Statement on Form S-4 filed on June 21, 1995, Commission File No. 33-93776 and
incorporated herein by this reference)
10.11 Employment Agreement, dated as of June 9, 1995, between Barry E. Schwartz and Mascot Truck Parts
Inc. (previously filed as Exhibit 10.12 to the Company's Registration Statement on Form S-4 filed
on June 21, 1995, Commission File No. 33-93776 and incorporated herein by this reference)
10.12 Employment Agreement, dated September 12, 1995, between Gordon King and King-O-Matic Industries
Limited (previously filed as Exhibit 10.12 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 and incorporated herein by this reference)
**10.13 Employment Agreement, dated as of April 2, 1996, between J. Peter Donoghue and Tranzparts, Inc.
10.14 Warrant Certificate, dated August 2, 1994, for 46,784 warrants issued to William E. Myers, Jr.
(previously filed as Exhibit 10.10 to the Company's Registration Statement on Form S-4 filed on
November 30, 1994, Commission File No. 33-86838 and incorporated herein by this reference)
10.15 Warrant Certificate, dated August 2, 1994, for 11,696 warrants issued to Brian E. Sanderson
(previously filed as Exhibit 10.11 to the Company's Registration Statement on Form S-4 filed on
November 30, 1994, Commission File No. 33-86838 and incorporated herein by this reference)
10.16 Stock Purchase Agreement, dated May 16, 1994, by and among C.R. Wehr, Jr., Rev. Liv. Trust, James
R. Wehr, Aaron's Automotive Products, Inc. and AAP Acquisition Corp. (previously filed as Exhibit
10.14 to the Company's Registration Statement on Form S-4 filed on November 30, 1994, Commission
File No. 33-86838 and incorporated herein by this reference)
10.17 Stock Purchase Agreement, dated July 21, 1994, by and among John B. Maynard, Kenneth T. Hester,
H.T.P., Inc. and HTP Acquisition Corp. (previously filed as Exhibit 10.15 to the Company's
Registration Statement on Form S-4 filed on November 30, 1994, Commission File No. 33-86838 and
incorporated herein by this reference)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
10.18 Stock Purchase Agreement, dated July 21, 1994, by and among John B. Maynard, Mamco Converters,
Inc. and Mamco Acquisition Corp. (previously filed as Exhibit 10.16 to the Company's Registration
Statement on Form S-4 filed on November 30, 1994, Commission File No. 33-86838 and incorporated
herein by this reference)
10.19 Asset Purchase Agreement, dated June 24, 1994, by and among RPM Merit, Donald W. White, John A.
White, The White Family Trust and RPM Acquisition Corp. (previously filed as Exhibit 10.17 to the
Company's Registration Statement on Form S-4 filed on November 30, 1994, Commission File No.
33-86838 and incorporated herein by this reference)
10.20 Agreement and Plan of Merger and Reorganization, dated May 10, 1995, by and among Component
Remanufacturing Specialists, Inc., James R. Crane, Michael L. LePore, Aftermarket Technology
Corp., CRS Holdings Corp. and CRS Acquisition Corp. (previously filed as Exhibit 2 to the
Company's Current Report on Form 8-K filed on June 15, 1995, Commission File No. 33-80838-01 and
incorporated herein by this reference)
10.21 Stock Purchase Agreement, dated June 9, 1995, by and among Dianne Hanthorn, Jobian Limited,
Randall Robinson, Barry E. Schwartz, Bradley Schwartz, Angela White, John White, Incorporated
Investments Limited, Glenn M. Hanthorn, Guido Sala and Tony Macharacek, Mascot Truck Parts Inc.
and Mascot Acquisition Corp. (previously filed as Exhibit 10.22 to the Company's Registration
Statement on Form S-4 filed on June 21, 1995, Commission File No. 33-93776 and incorporated
herein by this reference)
10.22 Stock Purchase Agreement, dated September 12, 1995, by and among Gordon King, 433644 Ontario
Limited, 3179338 Canada Inc., King-O-Matic Industries Limited, KOM Acquisition Corp. and
Aftermarket Technology Corp. (previously filed as Exhibit 10.23 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated herein by this reference)
**10.23 Stock Purchase Agreement, dated as of April 2, 1996, by and among the Charles T. and Jean F.
Gorham Charitable Remainder Trust dated March 27, 1996, Charles T. Gorham, J. Peter Donoghue,
Tranzparts, Inc. and Tranzparts Acquisition Corp.
10.24 Lease, dated as of October 1, 1993, between The Estate of Murray Schwartz, Barry Schwartz, Bernard
Schwartz and Bertha Schwartz and Mascot Truck Parts Inc. with respect to property located at 1415
Shawson Drive, Mississauga, Ontario (previously filed as Exhibit 10.5 to the Company's
Registration Statement on Form S-4 filed on June 21, 1995, Commission File No. 33-93776 and
incorporated herein by this reference)
10.25 Lease, dated January 1, 1994, between CRW, Incorporated and Aaron's Automotive Products, Inc. with
respect to property located at 2600 North Westgate, Springfield, Missouri (previously filed as
Exhibit 10.4 to the Company's Registration Statement on Form S-4 filed on November 30, 1994,
Commission File No. 33-86838 and incorporated herein by this reference)
**10.26 Lease, dated May 31, 1996, between Patricia L. Bridgeforth and Aaron's Automotive Products, Inc.
with respect to property located at 2720 N. Airport Commerce Avenue, Springfield, Missouri
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------
<C> <S>
10.27 Exchange and Registration Rights Agreement, dated August 2, 1994, by and among Aftermarket
Technology Corp., the subsidiaries of Aftermarket Technology Corp., Chemical Securities Inc., and
Donaldson, Lufkin & Jenrette Securities Corporation (previously filed as Exhibit 10.13 to the
Company's Registration Statement on Form S-4 filed on November 30, 1994, Commission File No.
33-83868 and incorporated herein by this reference)
10.28 Exchange and Registration Rights Agreement, dated June 1, 1995, by and among Aftermarket
Technology Corp., the subsidiaries of Aftermarket Technology Corp., Chemical Securities Inc., and
Donaldson, Lufkin & Jenrette Securities Corporation (previously filed as Exhibit 10.16 to the
Company's Registration Statement on Form S-4 filed on June 21, 1995, Commission File No. 33-93776
and incorporated herein by this reference)
*10.29 Form of Merger Agreement between Aftermarket Technology Holdings Corp. and Aftermarket Technology
Corp.
**10.30 First Amendment, dated as of May 23, 1995, to the Credit Agreement, dated as of July 19, 1994,
among Aftermarket Technology Corp., the Lenders from time to time parties thereto and The Chase
Manhattan Bank (formerly known as Chemical Bank), as Agent (the "Credit Agreement")
**10.31 Second Amendment, dated as of June 7, 1996, to the Credit Agreement
**10.32 Waiver and Third Amendment, dated as of July 31, 1996, to the Credit Agreement
**10.33 Firstbank Lending Agreement, dated as of June 28, 1996, between Mascot Trust Parts Inc. and/or
King-O-Matic Industries Ltd. and Bank of Montreal
**10.34 Stock Purchase Agreement, dated as of October 1, 1996, by and among Robert T. Carren Qualified
Annuity Trust, Robert T. Carren, Diverco, Inc., and Diverco Acquisition Corp.
**10.35 Employment Agreement, dated as of October 7, 1996, between Stephen J. Perkins and Aftermarket
Technology Corp.
**10.36 Form of Incentive Stock Option Agreement
**10.37 Form of Non-Qualified Stock Option Agreement
*11.1 Computation of Pro Forma Net Income Per Share
**21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, independent auditors (included on page II-8)
*23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
24.1 Power of Attorney (previously filed with the signature page to the Company's Registration
Statement on Form S-1 (Registration No. 333-6697) and incorporated herein by this reference)
</TABLE>
- ---------
* To be filed by amendment.
** Filed herewith.
(b) Financial Statement Schedules. The following financial statement
schedule is filed with Part II of this Registration Statement:
II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
applicable instructions or are inapplicable and therefore have been omitted.
II-6
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising out of the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense in any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Federal Way, State of
Washington, on October , 1996.
AFTERMARKET TECHNOLOGY CORP.
By: /s/ STEPHEN J. PERKINS
-----------------------------------
Stephen J. Perkins
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on the dates indicated.
<TABLE>
<C> <S> <C>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
/s/ STEPHEN J. PERKINS
------------------------------------------- Chief Executive Officer (Principal October , 1996
Stephen J. Perkins Executive Officer)
/s/ JOHN C. KENT*
------------------------------------------- Chief Financial Officer (Principal October , 1996
John C. Kent Financial Officer)
/s/ DANIEL C. BUIE*
------------------------------------------- Corporate Controller (Principal October , 1996
Daniel C. Buie Accounting Officer)
/s/ WILLIAM A. SMITH
------------------------------------------- Chairman of the Board of Directors October , 1996
William A. Smith
/s/ RICHARD R. CROWELL*
------------------------------------------- Director October , 1996
Richard R. Crowell
/s/ MARK C. HARDY*
------------------------------------------- Director October , 1996
Mark C. Hardy
/s/ MICHAEL J. HARTNETT*
------------------------------------------- Director October , 1996
Michael J. Hartnett
/s/ KURT B. LARSEN*
------------------------------------------- Director October , 1996
Kurt B. Larsen
/s/ WILLIAM E. MYERS, JR.*
------------------------------------------- Director October , 1996
William E. Myers, Jr.
/s/ RICHARD K. ROEDER*
------------------------------------------- Director October , 1996
Richard K. Roeder
*By: /s/ WILLIAM A. SMITH
---------------------------------------
William A. Smith,
ATTORNEY-IN-FACT
</TABLE>
II-8
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Selected Financial Data" and to the use of our reports dated June 21, 1996 with
respect to Aftermarket Technology Corp. and May 3, 1995, except for Note 5 as to
which the date is May 10, 1995 with respect to Component Remanufacturing
Specialists, Inc., in the Registration Statement on Form S-1 and related
Prospectus of Aftermarket Technology Corp. for the registration of its common
stock.
/s/ ERNST & YOUNG LLP
Seattle, Washington
October 25, 1996
II-9
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
ON FINANCIAL STATEMENTS SCHEDULE
Stockholders and Board of Directors
Aftermarket Technology Corp.
We have audited the accompanying consolidated balance sheets of Aftermarket
Technology Corp. (the Company) as of December 31, 1994 and 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
five months ended December 31, 1994 and for the year ended December 31, 1995
(included elsewhere in this Registration Statement). We have also audited the
related combined statements of income, stockholders' equity and cash flows of
the Predecessor Companies to Aftermarket Technology Corp. (the Predecessor
Companies) for the year ended December 31, 1993 and for the seven months ended
July 31, 1994 (included elsewhere in this Registration Statement). Our audit
also included the financial statement schedule as of and for each of the three
years in the period ended December 31, 1995 listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Seattle, Washington
June 21, 1996
S-1
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGE TO
BEGINNING COSTS AND OTHER BALANCE AT
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
---------- ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Combined:
Year ended December 31, 1993:
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts........ $421,640 $ 459,753 $ -- $556,643(1) $ 324,750
Seven months ended July 31, 1994:
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts........ 324,750 308,550 -- 32,588(1) 600,712
Consolidated:
Five months ended December 31, 1994:
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts........ 600,712 190,044 -- 24,756(1) 766,000
Reserve for inventory obsolescence.......... -- 785,603 -- -- 785,605
Year ended December 31, 1995:
Reserve and allowances deducted from asset
accounts:
Allowance for uncollectible accounts........ 766,000 1,239,138 1,216,529(2) 752,667(1) 2,469,000
Reserve for inventory obsolescence.......... 785,603 1,034,259 294,442(2) -- 2,114,304
</TABLE>
- ------------
(1) Uncollectible accounts written off, net of recoveries.
(2) Balances added through new acquisitions.
S-2
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
AFTERMARKET TECHNOLOGY CORP.
A DELAWARE CORPORATION
The undersigned, for the purpose of amending and restating the
Certificate of Incorporation of Aftermarket Technology Corp., a Delaware
corporation (the "Corporation"), does hereby certify that:
1. The date of filing of the Corporation's original Certificate of
Incorporation with the Secretary of State of the State of Delaware was April 25,
1994 and the name under which it originally incorporated was Aftermarket
Technologies & Components, Inc..
2. This Restated Certificate of Incorporation has been duly adopted
pursuant to Section 228, 242 and 245 of the Delaware General Corporation Law.
3. The Certificate of Incorporation of the Corporation is hereby
amended and restated in its entirety as follows:
ARTICLE I
NAME OF CORPORATION
The name of this corporation is:
Aftermarket Technology Corp.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation in the State
of Delaware is 1013 Centre Road, in the City of Wilmington, County of New
Castle, and the name of its registered agent at that address is Corporation
Service Company.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
<PAGE>
ARTICLE IV
AUTHORIZED CAPITAL STOCK
SECTION 1. AUTHORIZED SHARES. The Corporation shall be authorized
to issue two classes of shares of stock to be designated, respectively,
"Preferred Stock" and "Common Stock"; the total number of shares that the
Corporation shall have authority to issue is Six Million (6,000,000); the total
number of shares of Preferred Stock shall be One Million (1,000,000) and all
such shares shall have a par value of one cent ($.01); and the total number of
shares of Common Stock shall be Five Million (5,000,000), and each such share
shall have a par value of one cent ($.01).
SECTION 2. PREFERRED STOCK. The shares of Preferred Stock may be
issued from time to time in one or more series. The Board of Directors of the
Corporation (the "Board") is hereby vested with authority to fix by resolution
or resolutions the designations and the powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including, without limitation, the dividend rate,
conversion or exchange rights, redemption price and liquidation preference, of
any series of shares of Preferred Stock, and to fix the number of shares
constituting any such series, and to increase or decrease the number of shares
of any such series (but not below the number of shares thereof then
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status that
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series.
SECTION 3. DISTRIBUTIONS UPON LIQUIDATION. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the holders of each series of
Preferred Stock shall be entitled to receive, out of the net assets of the
Corporation, an amount for each share of such series of Preferred Stock equal to
the amount fixed and determined by the Board in the resolution or resolutions
creating such series and providing for the issuance of such shares, and no more,
before any of the assets of the Corporation shall be distributed or paid over to
the holders of Common Stock. After payment in full of said amounts to the
holders of Preferred Stock of all series, the remaining assets and funds of the
Corporation shall be divided among and paid to the holders of shares of Common
Stock. If, upon such dissolution, liquidation or winding up, the assets of the
Corporation distributable as aforesaid among the holders of Preferred Stock of
all series shall be insufficient to permit full payment to them of said
preferential amounts, then such assets shall be distributed ratably among such
holders of Preferred Stock in proportion to the respective total amounts that
they shall be entitled to receive as provided in this Section 3.
2
<PAGE>
ARTICLE V
ANNUAL MEETINGS OF STOCKHOLDERS
The annual meeting of stockholders shall be held at such time, on such
date and at such place (within or without the State of Delaware) as provided in
the Bylaws of the Corporation. Subject to any requirement of applicable law,
the books of the Corporation may be kept outside the State of Delaware at such
place or places as may be designated from time to time by the Board or in the
Bylaws of the Corporation. Elections of directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.
ARTICLE VI
CALL OF SPECIAL MEETINGS OF STOCKHOLDERS
Special meetings of stockholders of the Corporation for any purpose or
purposes may be called at any time (i) by a majority of the members of the Board
or (ii) by a committee of the Board that has been duly designated by the Board
and whose power and authority, as provided in a resolution by the Board or in
the Bylaws of the Corporation, includes the power to call such meetings; but
such special meetings of stockholders of the Corporation may not be called by
any other Person or Persons or in any other manner; PROVIDED, HOWEVER, that if
and to the extent that any special meeting of stockholders may be called by any
other Person or Persons specified in any certificate of designations filed under
Section 151(g) of the Delaware General Corporation Law (or its successor statute
as in effect from time to time), then such special meeting may also be called by
the Person or Persons, in the manner, at the times and for the purposes so
specified.
ARTICLE VII
STOCKHOLDER ACTION BY WRITTEN CONSENT
Any election of directors or other action by the stockholders of the
Corporation must be effected at an annual or special meeting of stockholders and
may not be effected by written consent without a meeting.
3
<PAGE>
ARTICLE VIII
ELECTION OF DIRECTORS
SECTION 1. BALLOT. Elections of directors need not be by written
ballot unless the Bylaws of the Corporation shall so provide.
SECTION 2. ELECTION OF DIRECTORS BY PREFERRED STOCKHOLDERS.
During any period when the holders of any Preferred Stock or any one or more
series thereof, voting as a class, shall be entitled to elect a specified number
of directors, by reason of dividend arrearages or other provisions giving them
the right to do so, then and during such time as such right continues (1) the
then otherwise authorized number of directors shall be increased by such
specified number of directors, and the holders of such Preferred Stock or such
series thereof, voting as a class, shall be entitled to elect the additional
directors so provided for, pursuant to the provisions of such Preferred Stock or
series; (2) each such additional director shall serve for such term, and have
such voting powers, as shall be stated in the provisions pertaining to such
Preferred Stock or series; PROVIDED, HOWEVER, that, notwithstanding the
foregoing, any such director's term shall earlier expire upon the due election
and qualification of a successor to such director or upon any resignation,
disqualification or removal of such director in accordance with law. Whenever
the holders of shares of any series of Preferred Stock are divested of such
rights to elect a specified number of directors pursuant to the resolution or
resolutions of the Board creating such series and providing for the issuance of
such shares, the terms of office of all directors elected by the holders of such
series of Preferred Stock pursuant to such rights, or elected to fill any
vacancies resulting from the death, resignation or removal of directors so
elected by the holders of such series of Preferred Stock, shall forthwith
terminate and the authorized number of directors shall be reduced accordingly.
SECTION 3. STOCKHOLDER NOMINEES. Nominations by stockholders of
persons for election to the Board shall be made only in accordance with the
procedures set forth in the Bylaws of the Corporation.
SECTION 4. REMOVAL. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any director, or the entire Board,
may be removed from office with or without cause, at any time, and only by the
affirmative vote of the holders of a majority of the shares of Voting Stock then
outstanding.
4
<PAGE>
ARTICLE IX
LIABILITY AND INDEMNIFICATION
To the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (the "Delaware Law"), a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
The Corporation shall indemnify, in the manner and to the fullest extent
permitted by the Delaware Law, any person (or the estate of any person) who is
or was a party to, or is threatened to be made a party to, any threatened,
pending or completed action, suit or proceeding, whether or not by or in the
right of the Corporation, and whether civil, criminal, administrative,
investigative or otherwise, by reason of the fact that such person is or was a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise. The Corporation may indemnify, in the
manner and to the fullest extent permitted by the Delaware Law, any person (or
the estate of any person) who is or was a party to, or is threatened to be made
a party to, any threatened, pending or completed action, suit or proceeding,
whether or not by or in the right of the Corporation, and whether civil,
criminal, administrative, investigative or otherwise, by reason of the fact that
such person is or was an employee or agent of the Corporation, or is or was
serving at the request of the Corporation as an employee or agent of another
corporation, partnership, joint venture, trust or other enterprise. Expenses
incurred by any such director, officer, employee or agent in defending any such
action, suit or proceeding may be advanced by the Corporation prior to the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director, officer, employee or agent to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified as authorized by the Delaware Law and this Article X. The
Corporation may, to the fullest extent permitted by the Delaware Law, purchase
and maintain insurance on behalf of any such director, officer, employee or
agent against any liability which may be asserted against such person. To the
fullest extent permitted by the Delaware Law, the indemnification provided
herein shall include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement and, in the manner provided by the Delaware Law, any
such expenses may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding. The indemnification provided herein shall
not be deemed to limit the right of the Corporation to indemnify any other
person for any such expenses to the fullest extent permitted by the Delaware
Law, nor shall it be deemed exclusive of any other rights to which any person
seeking indemnification from the Corporation may be entitled under any
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in such person's official capacity and as to action in another
capacity while holding such office.
5
<PAGE>
No repeal or modification of the foregoing paragraph shall adversely
affect any right or protection of a director of the Corporation existing by
virtue of the foregoing paragraph at the time of such repeal or modification.
ARTICLE X
CREDITOR COMPROMISE OR ARRANGEMENT
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
The undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation to do business both within and without the
State of Delaware, and in pursuance of the Delaware General Corporation Law,
does make and file this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Restated
Certificate of Incorporation on bhealf of the Corporation and does hereby verify
and affirm, under penalty of perjury, that this Restated Certificate of
Incorporation is the act and deed of the Corporation and that the facts stated
herein are true as of June 21, 1996.
--------------------------------------
John C. Kent, Secretary
6
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
First Supplemental Indenture, dated as of February 23, 1995, among
Aftermarket Technology Corp., a Delaware corporation (the "Company"), the
Guarantors named herein, and American Bank National Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 12%
Series A Senior Subordinated Notes due 2004 (the "Old Notes") and the 12% Series
B Senior Subordinated Notes due 2004 (the "Notes") to be exchanged for the Old
Notes. All capitalized terms used in this First Supplemental Indenture and not
defined herein shall have the meanings specified in the Indenture (defined
below).
WHEREAS, the Company, the Trustee, and each of the Guarantors other
than Partes Remanufacturades de Mexico, S.A. de C.V., a Mexico corporation
("PRM"), have entered into that certain Indenture, dated as of August 2, 1994
(the "Indenture"), relating to the issuance of the Old Notes and the Notes;
WHEREAS, pursuant to Section 13.3 of the Indenture, the Company and
the Guarantors have covenanted and agreed that they shall cause each person that
is or becomes a Subsidiary of the Company or any Guarantor to execute a Guaranty
and to cause such Subsidiary to execute an indenture supplement to the Indenture
for the purpose of adding such Subsidiary as a Guarantor under the Indenture;
WHEREAS, PRM, a Subsidiary of the Company, was inadvertently omitted
as a Guarantor in the Indenture;
WHEREAS, the parties hereto desire that PRM assume the rights, duties
and obligations of a Guarantor under the Indenture;
WHEREAS, Section 9.1 of the Indenture provides that the Company, when
authorized by a resolution of its board of directors, each Guarantor, when
authorized by a resolution of its board of directors, and the Trustee, may amend
or supplement the Indenture without notice to or the consent of any Holder if
the change does not adversely affect the rights of any Holder; and
WHEREAS, all things necessary to make this First Supplemental
Indenture a valid, binding and legal instrument supplemental to the Indenture
have been performed;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: that in consideration of
the covenants and premises, receipt whereof is hereby acknowledged, PRM hereby
agrees and provides, for the equal and proportionate benefit of the respective
Holders, that PRM shall hereby assume the rights, duties and obligations of a
Guarantor under the Indenture, as amended hereby, including without limitation
the execution of a Guaranty in the form attached hereto, and shall be bound by
the terms and conditions of the Indenture, as amended hereby, as if PRM were
originally a party thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First
Supplemental Indenture to be duly executed as of the date first written above.
AFTERMARKET TECHNOLOGY CORP.
[Seal]
By:
-----------------------------
William A. Smith,
Chief Executive Officer
Attest:
----------------------
Secretary
AMERICAN BANK NATIONAL
ASSOCIATION, as Trustee
By:
---------------------------
Name:
Title:
By:
---------------------------
Name:
Title:
THE "GUARANTORS":
AARON'S AUTOMOTIVE PRODUCTS, INC.,
a Delaware corporation
By:
---------------------------
William A. Smith,
Chief Executive Officer
2
<PAGE>
H.T.P., INC.,
a Kentucky corporation
By:
---------------------------
William A. Smith,
Chief Executive Officer
HTP CHARLOTTE, INC.,
a North Carolina corporation
By:
---------------------------
William A. Smith,
Chief Executive Officer
HTP MICHIGAN, INC.,
a Michigan corporation
By:
---------------------------
William A. Smith,
Chief Executive Officer
MAMCO CONVERTERS, INC.,
a Ohio corporation
By:
---------------------------
William A. Smith,
Chief Executive Officer
PARTES REMANUFACTURADAS DE
MEXICO, S.A. DE C.V.,
a Mexico corporation
By:
---------------------------
Pete Richardson,
President
3
<PAGE>
RPM MERIT, INC.,
a Delaware corporation
By:
---------------------------
William A. Smith
Chief Executive Officer
4
<PAGE>
SECOND SUPPLEMENTAL INDENTURE
Second Supplemental Indenture, dated as of June 1, 1995, among
Aftermarket Technology Corp., a Delaware corporation (the "Company"), the
Guarantors named herein, and American Bank National Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 12%
Series B Senior Subordinated Notes due 2004 (the "Notes"). All capitalized
terms used in this Second Supplemental Indenture and not defined herein shall
have the meanings specified in the Indenture (defined below).
WHEREAS, the Company, the Trustee, and each of the Guarantors other
than Component Remanufacturing Specialists, Inc., a New Jersey corporation
("CRS") and CRS Holdings Corp., a New Jersey corporation ("Holdings"), have
entered into that certain Indenture, dated as of August 2, 1994 (the
"Indenture"), as supplemented by the First Supplemental Indenture, dated as of
February 23, 1995, relating to the issuance of the Notes;
WHEREAS, pursuant to Section 13.3 of the Indenture, the Company and
the Guarantors have covenanted and agreed that they shall cause each person that
is or becomes a Subsidiary of the Company or any Guarantor to execute a Guaranty
and to cause such Subsidiary to execute an indenture supplement to the Indenture
for the purpose of adding such Subsidiary as a Guarantor under the Indenture;
WHEREAS, CRS and Holdings, both Subsidiaries of the Company, are not
currently included as Guarantors in the Indenture;
WHEREAS, the parties hereto desire that CRS and Holdings assume the
rights, duties and obligations of a Guarantor under the Indenture;
WHEREAS, all things necessary to make this Second Supplemental
Indenture a valid, binding and legal instrument supplemental to the Indenture
have been performed;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: that in consideration of
the covenants and premises, receipt whereof is hereby acknowledged, CRS and
Holdings hereby agree and provide, for the equal and proportionate benefit of
the respective Holders, that each of CRS and Holdings shall hereby assume the
rights, duties and obligations of a Guarantor under the Indenture, as amended
hereby, including without limitation the execution of a Guaranty in the form
attached hereto, and shall be bound by the terms and conditions of the
Indenture, as amended hereby, as if CRS and Holdings were originally parties
thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed as of the date first written above.
AFTERMARKET TECHNOLOGY CORP.
[Seal]
By: ________________________
William A. Smith,
Chief Executive Officer
Attest: ____________________
Mark C. Hardy,
Assistant Secretary
AMERICAN BANK NATIONAL
ASSOCIATION, as Trustee
By: ________________________
Name:
Title:
By: ________________________
Name:
Title:
2
<PAGE>
THE "GUARANTORS":
AARON'S AUTOMOTIVE PRODUCTS, INC.,
a Delaware corporation
By: ________________________
William A. Smith,
Chief Executive Officer
H.T.P., INC.,
a Kentucky corporation
By: ________________________
William A. Smith,
Chief Executive Officer
HTP CHARLOTTE, INC.,
a North Carolina corporation
By: ________________________
William A. Smith,
Chief Executive Officer
HTP MICHIGAN, INC.,
a Michigan corporation
By: ________________________
William A. Smith,
Chief Executive Officer
MAMCO CONVERTERS, INC.,
a Ohio corporation
By: ________________________
William A. Smith,
Chief Executive Officer
3
<PAGE>
PARTES REMANUFACTURADAS DE
MEXICO, S.A. DE C.V.,
a Mexico corporation
By: ________________________
William A. Smith,
Chairman of the Board of Directors
RPM MERIT, INC.,
a Delaware corporation
By: ________________________
William A. Smith
Chief Executive Officer
COMPONENT REMANUFACTURING
SPECIALISTS, INC.,
a New Jersey corporation
By: ________________________
William A. Smith
Chief Executive Officer
CRS HOLDINGS, INC.,
a New Jersey corporation
By: ________________________
William A. Smith
Chief Executive Officer
4
<PAGE>
THIRD SUPPLEMENTAL INDENTURE TO SERIES B INDENTURE
FIRST SUPPLEMENTAL INDENTURE TO SERIES D INDENTURE
Third Supplemental Indenture to the Series B Indenture (as defined
below) and First Supplemental Indenture to the Series D Indenture (as defined
below), dated as of July 25, 1996 (the "Supplemental Indenture"), among
Aftermarket Technology Corp., a Delaware corporation (the "Company"), the
Guarantors named herein and Firstar Bank of Minnesota, N.A., formerly known as
American Bank National Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
12% Series B Senior Subordinated Notes due 2004 (the "Series B Notes") and the
Holders of the Company's 12% Series D Senior Subordinated Notes due 2004 (the
"Series D Notes"). All capitalized terms used in this Supplemental Indenture
and not defined herein shall have the meanings specified in the Indentures
(defined below).
WHEREAS, the Company, the Trustee, and each of the Guarantors other
than Tranzparts Acquisition Corp., a Delaware corporation ("TAC"), Tranzparts,
Inc., a Wisconsin corporation ("Tranzparts"), King-O-Matic Industries Limited,
an Ontario corporation ("King"), and Mascot Truck Parts Inc., an Ontario
corporation ("Mascot"), have entered into (i) that certain Indenture, dated as
of August 2, 1994, as supplemented by the First Supplemental Indenture, dated as
of February 23, 1995, and the Second Supplemental Indenture, dated as of June 1,
1995, relating to the issuance of the Series B Notes (the "Series B Indenture")
and (ii) that certain Indenture, dated as of June 1, 1995, relating to the
issuance of the Series D Notes (the "Series D Indenture" and, collectively with
the Series B Indenture, the "Indentures");
WHEREAS, pursuant to the terms of each of the Indentures, the Company
and the Guarantors have covenanted and agreed that they shall cause each person
that is or becomes a Subsidiary of the Company or any Guarantor to execute a
Guaranty and to cause such Subsidiary to execute an indenture supplement to the
Indentures for the purpose of adding such Subsidiary as a Guarantor under the
Indentures;
WHEREAS, TAC, Tranzparts, King and Mascot, Subsidiaries of the
Company, are not currently included as Guarantors in the Indentures;
WHEREAS, the parties hereto desire that TAC, Tranzparts, King and
Mascot assume the rights, duties and obligations of a Guarantor under the
Indentures;
WHEREAS, all things necessary to make this Supplemental Indenture a
valid, binding and legal instrument supplemental to the Indentures have been
performed;
NOW, THEREFORE, THIS INDENTURE WITNESSETH: that in consideration of
the covenants and premises, receipt whereof is hereby acknowledged, TAC,
Tranzparts, King and Mascot hereby agree and provide, for the equal and
proportionate benefit of the respective Holders, that each of TAC, Tranzparts,
King and Mascot shall hereby assume the rights, duties and obligations of a
Guarantor under the Indentures, as amended hereby, including without limitation
the execution of a Guaranty in the form attached hereto, and shall be bound by
the terms and conditions of the Indentures, as amended hereby, as if TAC,
Tranzparts, King and Mascot were originally parties thereto.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first written above.
AFTERMARKET TECHNOLOGY CORP.
[Seal]
By:
--------------------------------
William A. Smith,
Chief Executive Officer
Attest:
------------------------
Mark C. Hardy,
Assistant Secretary
FIRSTAR BANK OF MINNESOTA, N.A.,
as Trustee
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
<PAGE>
THE "GUARANTORS":
AARON'S AUTOMOTIVE PRODUCTS, INC.,
a Delaware corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
COMPONENT REMANUFACTURING
SPECIALISTS, INC.,
a New Jersey corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
CRS HOLDINGS, INC.,
a New Jersey corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
H.T.P., INC.,
a Kentucky corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
KING-O-MATIC INDUSTRIES LIMITED,
an Ontario corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
<PAGE>
MAMCO CONVERTERS, INC.,
a Ohio corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
MASCOT TRUCK PARTS INC.,
an Ontario corporation
By:
--------------------------------
Barry E. Schwartz
Chief Executive Officer
PARTES REMANUFACTURADAS DE
MEXICO, S.A. DE C.V.,
a Mexico corporation
By:
--------------------------------
William A. Smith,
Chairman of the Board of Directors
RPM MERIT, INC.,
a Delaware corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
TRANZPARTS ACQUISITION CORP.,
a Delaware corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
<PAGE>
TRANZPARTS, INC.,
a Wisconsin corporation
By:
--------------------------------
William A. Smith,
Chief Executive Officer
<PAGE>
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this Amended and Restated 1994 Stock Incentive Plan
("Plan") of Aftermarket Technology Holdings Corp., a Delaware corporation (the
"Company"), is to enable the Company to attract, retain and motivate its
employees, non-employee directors, and independent contractors by providing for
or increasing the proprietary interests of such employees, non-employee
directors, and independent contractors in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any employee, non-employee director, or independent contractor of the
Company or any of its subsidiaries (each, a "Participant"), shall be eligible to
be considered for the grant of Awards (as hereinafter defined) hereunder.
Section 3. AWARDS
(a) The Committee (as hereinafter defined), on behalf of the Company,
is authorized under this Plan to enter into any type of arrangement with a
Participant that is not inconsistent with the provisions of this Plan and that,
by its terms, involves or might involve the issuance of (i) shares of common
stock, par value $.01, of the Company ("Common Shares") or (ii) a Derivative
Security (as such term is defined in Rule 16a-1 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as such rule may be
amended from time to time) with an exercise or conversion privilege at a price
related to the Common Shares or with a value derived from the value of the
Common Shares. The entering into of any such arrangement is referred to herein
as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or structure and
may include, without limitation, sales or bonuses of stock, restricted stock,
stock options, reload stock options, stock purchase warrants, other rights to
acquire stock, securities convertible into or redeemable for stock, stock
appreciation rights, phantom stock, dividend equivalents, performance units or
performance shares, and an Award may consist of one such security or benefit, or
two or more of them in tandem or in the alternative.
(c) Awards may be issued, and Common Shares may be issued pursuant to
an Award, for any lawful consideration as
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determined by the Committee, including, without limitation, services rendered by
the recipient of such Award.
(d) Subject to the provisions of this Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:
(i) a provision permitting the recipient of such Award, including any
recipient who is a director or officer of the Company, to pay the purchase
price of the Common Shares or other property issuable pursuant to such
Award, or such recipient's tax withholding obligation with respect to such
issuance, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
(B) the delivery of other property deemed acceptable by the
Committee;
(C) the delivery of previously owned shares of capital stock of
the Company (including "pyramiding") or other property; or
(D) a reduction in the amount of Common Shares or other property
otherwise issuable pursuant to such Award.
(ii) a provision conditioning or accelerating the receipt of benefits
pursuant to such Award, either automatically or in the discretion of the
Committee, upon the occurrence of specified events, including, without
limitation, a change of control of the Company (as defined by the
Committee), an acquisition of a specified percentage of the voting power of
the Company, the dissolution or liquidation of the Company, a sale of
substantially all of the property and assets of the Company or an event of
the type described in Section 7 hereof; or
(iii) a provision required in order for such Award to qualify as an
incentive stock option under Section 422 of the Internal Revenue Code (an
"Incentive Stock Option").
(e) For purposes of any Award under this Plan, unless provided
otherwise in the grant of such Award, the "Fair Market Value" of a Common Share
or other security on any date (the "Determination Date") shall be equal to the
closing price per Common Share or unit of such other security on the business
day immediately preceding the Determination Date, as reported in The Wall Street
Journal, Western Edition, or, if no closing price was so reported for such
immediately preceding business day, the
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closing price for the next preceding business day for which a closing price was
so reported, or, if no closing price was so reported for any of the 30 business
days immediately preceding the Determination Date, the average of the high bid
and low asked prices per Common Share or unit of such other security on the
business day immediately preceding the Determination Date in the over-the-
counter market, as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System or such other system then in use, or, if the
Common Shares or such other security were not quoted by any such organization on
such immediately preceding business day, the average of the closing bid and
asked prices on such day as furnished by a professional market maker making a
market in the Common Shares or such other security selected by the Board.
Section 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant
to all Incentive Stock Options granted under this Plan shall not exceed 300,000
subject to adjustment as provided in Section 7 hereof.
(b) At any time, the aggregate number of Common Shares issued and
issuable pursuant to all Awards (including all Incentive Stock Options) granted
under this Plan shall not exceed 300,000 subject to adjustment as provided in
Section 7 hereof.
(c) For purposes of Section 4(b) hereof, the aggregate number of
Common Shares issued and issuable pursuant to Awards granted under this Plan
shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such time
pursuant to Awards granted under this Plan, other than Common Shares that
were subsequently reacquired by the Company pursuant to the terms and
conditions of such Awards and with respect to which the holder thereof
received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable prior
to such time pursuant to Awards granted under this Plan, but that were
withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares that are or may be issuable
at or after such time pursuant to Awards granted under this Plan prior to
such time.
(d) Subject to adjustment as provided in Section 7 hereof, the
aggregate number of Common Shares subject to Awards
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granted during any calendar year to any one Participant (including the number of
shares involved in Awards having a value derived from the value of Common
Shares) shall not exceed 300,000 shares.
Section 5. DURATION OF PLAN
No Awards shall be made under this Plan after July 29, 2004. Although
Common Shares may be issued after July 29, 2004 pursuant to Awards made prior to
such date, no Common Shares shall be issued under this Plan after July 29, 2014.
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee (the "Committee")
of the Board of Directors of the Company (the "Board") consisting of two or more
directors. In the event that the Company becomes "publicly held" within the
meaning of Section 162(m) of the Internal Revenue Code, then the Committee
shall consist of two or more directors, each of whom: (i) is a "disinterested
person" (as such term is defined in Rule 16b-3 promulgated under the Exchange
Act, as such Rule may be amended from time to time), and (ii) is an "outside
director" within the meaning of Section 162(m) of the Internal Revenue Code.
(b) Subject to the provisions of this Plan, the Committee shall be
authorized and empowered to do all things necessary or desirable in connection
with the administration of this Plan, including, without limitation, the
following:
(i) adopt, amend and rescind rules and regulations relating to this
Plan;
(ii) determine which persons are eligible to participate in the Plan
and to which of such persons, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and
conditions thereof, including the number of Common Shares issuable pursuant
thereto;
(iv) determine whether, and the extent to which adjustments are
required pursuant to Section 7 hereof; and
(v) interpret and construe this Plan and the terms and conditions of
any Award granted hereunder.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan
are increased, decreased or exchanged for or converted into cash, property or a
different number or kind of
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securities, or if cash, property or securities are distributed in respect of
such outstanding securities, in either case as a result of a reorganization,
merger, consolidation, recapitalization, restructuring, reclassification,
dividend (other than a regular, quarterly cash dividend) or other distribution,
stock split, reverse stock split or the like, or if substantially all of the
property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (a) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Incentive
Stock Options and other Awards theretofore granted under this Plan and (b) the
maximum number and type of shares or other securities that may be issued
pursuant to Incentive Stock Options and other Awards thereafter granted under
this Plan.
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner, PROVIDED, HOWEVER, that no such amendment or termination shall deprive
the recipient of any Award theretofore granted under this Plan, without the
consent of such recipient, of any of his or her rights thereunder or with
respect thereto.
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of July 29, 1994 the date upon which
it was approved by the Board; PROVIDED, HOWEVER, that no Common Shares may be
issued under this Plan until it has been approved, directly or indirectly, by
the affirmative votes of the holders of a majority of the securities of the
Company present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.
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<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of October 1,
1996 by and between John C. Kent, an individual ("Executive"), and Aftermarket
Technology Corp., a Delaware corporation (the "Company").
WHEREAS, Executive and RPM Merit, Inc., a Delaware corporation
("RPM"), entered into that certain Employment Agreement dated July 29, 1994 (the
"Prior Agreement");
WHEREAS, Executive and RPM desire to terminate the Prior Agreement and
Executive and the Company desire to enter into this Agreement to replace the
Prior Agreement;
WHEREAS, all things necessary to make this Agreement a valid, binding
and legal instrument have been performed;
NOW, THEREFORE, THIS AGREEMENT WITNESSETH: that in consideration of
the covenants and premises, receipt whereof is hereby acknowledged, Executive
and the Company hereby agree and provide:
1. EMPLOYMENT BY THE COMPANY AND TERM.
(a) FULL TIME AND BEST EFFORTS. Subject to the terms set forth
herein, the Company agrees to employ Executive as Chief Financial Officer and
Executive hereby accepts such employment. During the term of his employment
with the Company, Executive will devote his full time, best efforts and
attention to the performance of his duties hereunder and to the business and
affairs of the Company.
(b) DUTIES. Executive shall serve in an executive capacity and shall
perform such duties as are customarily associated with his then current title,
consistent with the Bylaws of the Company and as required by the Company's Board
of Directors (the "Board") and the officers to whom the Executive reports,
including performing duties for such affiliates as the Board may specify.
(c) COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
the Company, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.
(d) TERM. The initial term of employment of Executive under this
Agreement shall begin as of the date hereof and end on the third anniversary
hereof (such period, the "Initial Term"), subject to the provisions for
termination set forth herein and renewal as provided in Section 1(e) below.
(e) RENEWAL. Unless the Company shall have given the Executive
notice that this Agreement shall not be renewed at least one (1) month prior to
the end of the Initial Term,
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the term of this Agreement shall be automatically extended for a period of
one year, such procedure to be followed in each such successive period. Each
extended term shall continue to be subject to the provisions for termination
set forth herein.
2. COMPENSATION AND BENEFITS.
(a) SALARY. Executive shall receive for services to be rendered
hereunder an annual base salary of One Hundred and Fifty Thousand Dollars
($150,000) (the "Base Salary") payable on a monthly basis, subject to increase
at the sole discretion of the Board, and subject to standard withholdings for
taxes and social security and the like. The Board of Directors shall review
Executive's salary on an annual basis and may, in their sole discretion,
increase Executive's salary.
(b) PARTICIPATION IN BENEFIT PLAN. During the term hereof, Executive
shall be entitled to participate in any group insurance, hospitalization,
medical, dental, health and accident, disability or similar plan or program of
the Company now existing or established hereafter to the extent that he is
eligible under the general provisions thereof. The Company may, in its sole
discretion and from time to time, establish additional senior management benefit
programs as it deems appropriate. Executive understands that any such plans may
be modified or eliminated in the Company's discretion in accordance with
applicable law.
(c) VACATION. Executive shall be entitled to a period of annual
vacation time equal to that provided to managers of equal position by the
Company's policies and procedures regarding vacation, but in any event not less
than three weeks per year. The days selected for Executive's vacation must be
mutually agreeable to the Company and Executive.
(d) LIFE INSURANCE. During the term hereof, the Company shall
procure and pay for a $250,000 life insurance policy covering Executive, for the
benefit of such beneficiaries as Executive shall designate.
(e) MOVING COSTS. The Company shall reimburse Executive for his
closing costs and household goods transfer costs incurred in connection with
moving his residence from Normandy Park to the Chicago area in accordance with
standard Company policy. Executive's home shall be turned over to a relocation
company. Executive is likewise entitled to two months' salary to cover all
other incidental moving costs. All costs for which the Executive is entitled to
reimbursement under this Paragraph shall be documented in accordance with the
Company's expense reimbursement policies.
3. OPTION AND BONUS PLANS.
(a) PARTICIPATION. During the term hereof, Executive shall be
entitled to participate in any stock option plan (an "Option Plan") and any
bonus or incentive plan (a "Bonus Plan") of the Company currently made available
by the Company to executive employees of the Company or which may be made
available in the future to executive employees of the Company, subject to and on
a basis consistent with the terms, conditions and administration of any such
plan.
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Executive understands that any such plan may be modified or eliminated in
the Company's discretion in accordance with applicable law.
(b) BONUSES. If, among other matters, the Company achieves the
management budget to be adopted by the Company for a full fiscal year and
throughout such fiscal year Executive is employed pursuant to this Agreement,
the Board may, at its sole discretion, grant Executive a bonus during the term
of this Agreement equal to fifty percent (50%) of his then annual base salary.
4. REASONABLE BUSINESS EXPENSES AND SUPPORT.
Executive shall be reimbursed for documented and reasonable business
expenses in connection with the performance of his duties hereunder. Executive
shall be furnished reasonable office space, assistance and facilities.
5. TERMINATION OF EMPLOYMENT. The date on which Executive's employment
by the Company ceases, under any of the following circumstances, shall be
defined herein as the "Termination Date."
(a) TERMINATION FOR CAUSE.
(i) TERMINATION; PAYMENT OF ACCRUED SALARY AND VACATION. The
Board may terminate Executive's employment with the Company at any time for
cause, immediately upon notice to Executive of the circumstances leading to such
termination for cause. In the event that Executive's employment is terminated
for cause, Executive shall receive payment for all accrued salary and vacation
time through the Termination Date, which in this event shall be the date upon
which notice of termination is given. The Company shall have no obligation to
pay severance of any kind nor to make any payment in lieu of notice.
(ii) DEFINITION OF CAUSE. "CAUSE" means the occurrence or
existence of any of the following with respect to Executive, as determined by
the Board at its sole discretion: (a) a material breach by the Executive of his
duty not to engage in any transaction that represents, directly or indirectly,
self-dealing with the Company or any of its affiliates which has not been
approved by the Board or of the terms of his employment, if in any such case
such material breach remains uncured after the lapse of 30 days following the
date that the Company has given the Executive written notice thereof; (b) the
repeated material breach by the Executive of any duty referred to in clause (a)
above as to which at least one written notice has been given pursuant to such
clause (a); (c) any act of dishonesty, misappropriation, embezzlement,
intentional fraud or similar conduct involving the Company or any of its
affiliates; (d) the conviction or the plea of nolo contenders or the equivalent
in respect of a felony involving moral turpitude; (e) any intentional damage of
a material nature to any property of the Company or any of its affiliates;
(f) the repeated non-prescription use of any controlled substance or the
repeated use of alcohol or any other non-controlled substance which, in the
reasonable determination of the Board, in any case described in this clause (f),
renders the Executive unfit to serve in his capacity as an officer or employee
of the Company or its affiliates; or (g) conduct by the Executive which in the
reasonable
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determination of the Board demonstrates gross unfitness to serve in
his capacity as an officer or employee of the Company or its affiliates.
(b) VOLUNTARY TERMINATION. Executive may voluntarily terminate his
employment with the Company at any time upon forty five (45) days prior written
notice, after which no further compensation of any kind or severance payment
will be payable under this Agreement.
(c) TERMINATION UPON DISABILITY. The Company may terminate
Executive's employment in the event Executive suffers a disability that renders
Executive unable to perform the essential functions of his position, even with
reasonable accommodation, for two (2) months within any four (4) month period.
After the Termination Date, which in this event shall be the date upon which
notice of termination is given, no further compensation will be payable under
this Agreement.
(d) TERMINATION WITHOUT CAUSE.
(i) TERMINATION PAYMENT DURING THE INITIAL TERM. In the event
Executive's employment is terminated without "cause," as defined above, the
Company shall pay Executive as severance an amount equivalent to his then base
salary for a period of one year, less standard withholdings for tax and social
security purposes, payable over such term in weekly PRO RATA payments commencing
as of the Termination Date plus any applicable PRO RATA earned bonus.
(ii) TERMINATION PERIOD AFTER THE INITIAL TERM. In the event
that the term of this Agreement is extended pursuant to Section 1(e) hereof (an
"Extension Period") and during such Extension Period Executive's employment is
terminated without "cause," as defined above, the Company shall pay Executive as
severance an amount equal to twelve (12) months of his then base salary, less
standard withholdings for tax and social security purposes, payable over such
twelve (12) month term in weekly PRO RATA payments commencing as of the
Termination Date.
(iii) FUNDAMENTAL CHANGES. In the event that the Company
makes a substantial change which results in diminution in the Executive's
duties, authority, responsibility or compensation without performance or market
justification, he may terminate his employment; PROVIDED, HOWEVER, that
Executive shall provide the Company 15 days' notice prior to any such
termination and the Company shall have until the end of such 15-day period to
cure such diminution. A termination in such circumstances shall be treated as a
Company termination without cause and Executive shall be entitled to the same
severance payments provided in paragraphs 5(d)(i) and (5)(d)(ii), as applicable.
(e) BENEFITS UPON TERMINATION. All benefits provided under
paragraphs 2(b) and 2(d) hereof shall be extended, at the Company's election and
cost, to the extent permitted by the Company's insurance policies and benefit
plans, for one year after Executive's Termination Date, except (a) as required
by law (e.g., COBRA health insurance continuation election) or (b) in the event
of a termination described in paragraph 5(a).
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(f) TERMINATION UPON DEATH. If Executive dies prior to the
expiration of the term of this Agreement, the Company shall continue coverage of
Executive's dependents (if any) under all benefit plans or programs of the type
listed above in paragraph 2(b) herein for a period of twelve (12) months.
6. PROPRIETARY INFORMATION OBLIGATIONS.
During the term of employment under this Agreement, Executive will
have access to and become acquainted with the Company's confidential and
proprietary information, including but not limited to information or plans
regarding the Company's customer relationships, personnel, or sales, marketing,
and financial operations and methods; trade secrets; formulas; devices; secret
inventions; processes; and other compilations of information, records, and
specifications (collectively "Proprietary Information"). Executive shall not
disclose any of the Company's Proprietary Information directly or indirectly, or
use it in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment for the Company
or as authorized in writing by the Company. All files, records, documents,
computer-recorded information, drawings, specifications, equipment and similar
items relating to the business of the Company, whether prepared by Executive or
otherwise coming into his possession, shall remain the exclusive property of the
Company and shall not be removed from the premises of the Company under any
circumstances whatsoever without the prior written consent of the Company,
except when (and only for the period) necessary to carry out Executive's duties
hereunder, and if removed shall be immediately returned to the Company upon any
termination of his employment and no copies thereof shall be kept by Executive;
PROVIDED, HOWEVER, that Executive shall be entitled to retain documents
reasonably related to his interest as a shareholder and any documents that were
personally owned or acquired.
7. NONINTERFERENCE. While employed by the Company and for a period of
one year thereafter, Executive agrees not to interfere with the business of the
Company by directly or indirectly soliciting, attempting to solicit, inducing,
or otherwise causing any employee of the Company to terminate his or her
employment in order to become an employee, consultant or independent contractor
to or for any other employer.
8. NONCOMPETITION. Executive agrees that during the term of this
Agreement and for a period of five (5) years after the termination hereof, he
will not, without the prior consent of the Company, directly or indirectly, have
an interest in, be employed by, be connected with, or have an interest in, as an
employee, consultant, officer, director, partner, stockholder or joint venturer,
in any person or entity owning, managing, controlling, operating or otherwise
participating or assisting in any business which is similar to or in competition
with the business of the Company (i) during the term of this Agreement, in any
location, and (ii) for the five year period following the termination of this
Agreement, in any state in which the Company was conducting business at the date
of termination of Executive's employment and continues to do so thereafter;
PROVIDED, HOWEVER, that the foregoing shall not prevent the Executive from being
a stockholder of less than 1% of the issued and outstanding securities of any
class of a corporation listed on a national securities exchange or designated as
national market system securities on an interdealer quotation system by the
National Association of Securities Dealers, Inc.
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<PAGE>
9. MISCELLANEOUS.
(a) NOTICES. Any notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telecopy or telex) or the third day after mailing by first
class mail to the recipient at the address indicated below:
To the Company:
Aftermarket Technology Corp.
33309 First Way South
Suite A-206
Federal Way, Washington 98003
Attention: William A. Smith
Facsimile: (206) 838-1841
To Executive:
John C. Kent
Aftermarket Technology Corp.
33309 First Way South
Suite A-206
Federal Way, Washington 98003
Facsimile: (206) 838-1841
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(b) SEVERABILITY. If any term or provision (or any portion thereof)
of this Agreement is determined by a court to be invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other terms and
provisions (or other portions thereof) of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or provision (or
any portion thereof) is invalid, illegal or incapable of being enforced, this
Agreement shall be deemed to be modified so as to effect the original intent of
the parties as closely as possible to the end that the transactions contemplated
hereby and the terms and provisions hereof are fulfilled to the greatest extent
possible.
(c) ENTIRE AGREEMENT. This document constitutes the final, complete,
and exclusive embodiment of the entire agreement and understanding between the
parties related to the subject matter hereof and supersedes and preempts any
prior or contemporaneous understandings, agreements, or representations by or
between the parties, written or oral.
(d) COUNTERPARTS. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
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(e) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors and assigns, except that Executive may not assign
any of his duties hereunder and he may not assign any of his rights hereunder
without the prior written consent of the Company.
(f) ATTORNEYS FEES. If any legal proceeding is necessary to enforce
or interpret the terms of this Agreement, or to recover damages for breach
therefore, the prevailing party shall be entitled to reasonable attorneys' fees,
as well as costs and disbursements, in addition to any other relief to which he
or it may be entitled.
(g) AMENDMENTS. No amendments or other modifications to this
Agreement may be made except by a writing signed by both parties. No amendment
or waiver of this Agreement requires the consent of any individual, partnership,
corporation or other entity not a party to this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any third person any
rights or remedies under or by reason of this Agreement.
(h) CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of California.
IN WITNESS WHEREOF, the parties have executed this agreement effective as
of the date it is last executed below by either party.
--------------------------
John C. Kent
AFTERMARKET TECHNOLOGY CORP.
- ----------------------------
Stephen J. Perkins
Chief Executive Officer
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into on April 2, 1996 by
and between J. Peter Donoghue, an Individual ("Executive"), and Tranzparts,
Inc., a Wisconsin corporation (the "Company").
1. EMPLOYMENT BY THE COMPANY AND TERM.
(a) FULL TIME AND BEST EFFORTS. Subject to the terms set forth
herein, the Company agrees to employ Executive as President and General Manager
and Executive hereby accept such employment. During the term of his employment
with the Company, Executive will devote his full time, best efforts and
attention to the performance of his duties hereunder and to the business and
affairs of the Company.
(b) DUTIES. Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board") and the officers to whom the
Executive reports, including William A. Smith as Chairman and Chief Executive
Officer of Aftermarket Technology Corp., a Delaware corporation and the sole
stockholder of the Company ("ATC"), participating as a member of the
Company's management team in developing and implementing strategic and
operating plans, executing day-to-day general management of the Company,
maintaining and solidifying relationships with the Company's key customers
and supporting the distribution growth, process and efficiency at existing
and future entities affiliated with the Company. Executive will initially
manage and optimize ATC's Chicago and Janesville operations and will be
responsible for integrating Tranzparts into the operations of ATC's other
subsidiaries.
(c) COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
the Company, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies and practices, this Agreement shall control.
(d) TERM. The initial term of employment of Executive under this
Agreement shall begin as of the date hereof and end on the third anniversary
hereof (such three year period, the "Initial Term"), subject to the provisions
for termination set forth herein and renewal as provided in Section 1(e) below.
(e) RENEWAL. Unless the Company shall have given the Executive
notice that this Agreement shall not be renewed at least two (2) months prior to
the end of the Initial Term, the term of this Agreement shall be automatically
extended for a period of one year, such procedure to be followed in each such
successive period.
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2. COMPENSATION AND BENEFITS.
(a) SALARY. Executive shall receive for services to be rendered
hereunder an annual base salary of One Hundred Twenty-Eight Thousand Four
Hundred Eighty Dollars ($128,480) payable on a weekly basis, subject to increase
at the sole discretion of the Board, and subject to standard withholdings for
taxes and social security and the like. The Board of Directors shall review
Executive's salary on an annual basis and may, in their sole discretion,
increase Executive's salary.
(b) PARTICIPATION IN BENEFIT PLANS. During the term hereof,
Executive shall be entitled to participate in any group insurance,
hospitalization, medical, dental, health and accident, disability or similar
plan or program of the Company now existing or established hereafter to the
extent that he is eligible under the general provisions thereof. The Company,
may, in its sole discretion and from time to time, establish additional senior
management benefit programs as it deems appropriate. Executive understands that
any such plans may be modified or eliminated in the Company's discretion in
accordance with applicable law.
(c) VACATION. Executive shall be entitled to a period of annual
vacation time equal to that provided to managers of equal position by the
Company's policies and procedures regarding vacation, but in any event not less
than three weeks per year. The days selected for Executive's vacation must be
mutually agreeable to Company and Executive.
3. BONUSES. If, among other matters, the Company achieves the business
and financial objectives for a full fiscal year and throughout such fiscal year
Executive is employed pursuant to this Agreement, the Board may, at its sole
discretion, grant Executive a bonus during the term of this Agreement up to
fifty percent (50%) of his then annual base salary. Additional performance
awards may be considered at the sole discretion of the Board for outstanding
leadership, integration support, superior business growth, organizational
development and overall contribution to ATC and its subsidiaries.
Notwithstanding the foregoing, Executive shall be eligible for a bonus at the
end of the Company's first fiscal year during the term of this Agreement whether
or not such fiscal year is a full fiscal year.
4. REASONABLE BUSINESS EXPENSES AND SUPPORT. Executive shall be
reimbursed for documented and reasonable business expenses in connection with
the performance of his duties hereunder. Executive shall be furnished
reasonable office space, assistance and facilities.
5. TERMINATION OF EMPLOYMENT. The date on which Executive's employment
by the Company ceases, under any of the following circumstances, shall be
defined herein as the "Termination Date."
(a) TERMINATION FOR CAUSE.
(i) TERMINATION; PAYMENT OF ACCRUED SALARY AND VACATION. The
Board may terminate Executive's employment with the Company at any time for
cause, immediately upon notice to Executive of the circumstances leading to such
termination for cause. In the event that Executive's employment is terminated
for cause, Executive shall receive payment for all
2
<PAGE>
accrued salary and vacation time through the Termination Date, which in this
event shall be the date upon which notice of termination is given. The Company
shall have no obligation to pay severance of any kind nor to make any payment in
lieu of notice.
(ii) DEFINITION OF CAUSE. "CAUSE" means the occurrence or
existence of any of the following with respect to Executive, as determined by
the Board in its sole discretion: (a) a material breach by the Executive of his
duty not to engage in any transaction that represents, directly or indirectly,
self-dealing with the Company or any of its Affiliates which has not been
approved by the Board or of the terms of his employment, if in any such case
such material breach remains uncured after the lapse of 30 days following the
date that the Company has given the Executive written notice thereof; (b) the
repeated material breach by the Executive of any duty referred to in clause (a)
above as to which at least one written notice has been given pursuant to such
clause (a); (c) any act of dishonesty, misappropriation, embezzlement,
intentional fraud or similar conduct involving the Company or any of its
Affiliates; (d) the conviction or the plea of nolo contendere or the equivalent
in respect of a felony involving moral turpitude; (e) any intentional damage of
a material nature to any property of the Company or any of its Affiliates; (f)
the repeated non-prescription use of any controlled substance or the repeated
use of alcohol or any other non-controlled substance which, in the reasonable
determination of the Board, in any case described in this clause (f), renders
the Executive unfit to serve in his capacity as an officer or employee of the
Company or its Affiliates; or (g) conduct by the Executive which in the
reasonable determination of the Board demonstrates gross unfitness to serve in
his capacity as an officer or employee of the Company or its Affiliates.
(b) VOLUNTARY TERMINATION. Executive may voluntarily terminate his
employment with the Company at any time upon ninety (90) days prior written
notice, after which termination no further compensation of any kind or severance
payment will be payable under this Agreement.
(c) TERMINATION UPON DISABILITY. Company may terminate Executive's
employment in the event Executive suffers a disability that renders Executive
unable to perform the essential functions of his position, even with reasonable
accommodation, for three (3) consecutive months within any six (6) month period.
After the Termination Date, which in this event shall be the date upon which
notice of termination is given, no further compensation will be payable under
this Agreement.
(d) TERMINATION WITHOUT CAUSE.
(i) Termination Payment. In the event Executive's employment
is terminated without "cause," as defined above, or due to disability, as
defined above, the Company shall pay Executive as severance an amount equivalent
to his then base salary for six months, less standard withholdings for tax and
social security purposes, payable over such term in weekly PRO RATA payments
commencing as of the Termination Date.
(ii) Fundamental Changes. In the event that Company makes a
substantial change which results in diminution in the Executive's duties,
authority, responsibility or compensation without performance or market
justification, he may terminate his employment;
3
<PAGE>
PROVIDED, HOWEVER, that Executive shall provide the Company 15 days' notice
prior to any such termination and the Company shall have until the end of such
15-day period to cure such diminution. A termination in such circumstances
shall be treated as a Company termination without cause and Executive shall be
entitled to his same severance payments provided in paragraph 5(d)(i).
(e) BENEFITS UPON TERMINATION. All benefits provided under paragraph
2(b) hereof shall be extended, at Executive's election and cost, to the extent
permitted by the Company's insurance policies and benefit plans, for one year
after Executive's Termination Date, except (a) as required by law (e.g., COBRA
health insurance continuation election) or (b) in the event of a termination
described in paragraphs 5(a).
(f) TERMINATION UPON DEATH. If Executive dies prior to the
expiration of the term of this Agreement, the Company shall continue coverage of
Executive's dependents (if any) under all benefit plans or programs of the type
listed above in paragraph 2(b) herein for a period of three (3) months.
6. PROPRIETARY INFORMATION OBLIGATIONS. During the term of employment
under this Agreement, Executive will have access to and become acquainted with
the Company's confidential and proprietary information, including but not
limited to confidential and proprietary information or plans regarding the
Company's customer relationships, personnel, or sales, marketing, and financial
operations and methods; trade secrets; formulas; devices; secret inventions;
processes and other compilations of information, records, and specifications
(collectively "Proprietary Information"). Executive shall not disclose any of
the Company's Proprietary Information directly or indirectly, or use it in any
way, either during the term of this Agreement, or at any time thereafter, except
as required in the course of his employment for the Company or as authorized in
writing by the Company. All files, records, documents, computer-recorded
information, drawings, specifications, equipment and similar items relating to
the business of the Company, whether prepared by Executive or otherwise coming
into his possession, shall remain the exclusive property of the Company and
shall not be removed from the premises of the Company under any circumstances
whatsoever without the prior written consent of the Company, except when (and
only for the period) necessary to carry out Executive's duties hereunder, and if
removed shall be immediately returned to the Company upon any termination of his
employment and no copies thereof shall be kept by Executive; PROVIDED, HOWEVER,
that Executive shall be entitled to retain documents reasonably related to his
interest as a shareholder and any documents that were personally owned or
acquired.
7. NONINTERFERENCE. While employed by the Company and for a period of
one year thereafter, Executive agrees not to interfere with the business of the
Company by directly or indirectly soliciting, attempting to solicit, inducing,
or otherwise causing any employee who is an employee of the Company at the time
of such solicitation to terminate his or her employment in order to become an
employee, consultant or independent contractor to or for any other employer.
4
<PAGE>
8. MISCELLANEOUS.
(a) NOTICES. Any Notices provided hereunder must be in writing and
shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telecopy or telex) or the third day after mailing by first
class mail to the recipient at the address indicated below:
To the Company:
Tranzparts, Inc.
c/o Aurora Capital Partners L.P.
1800 Century Park East
Suite 1000
Los Angeles, California 90067
Attention; Richard K. Roeder, Esq.
Facsimile: (310) 277-5591
To Executive:
J. Peter Donoghue
Tranzparts, Inc.
2921 Kennedy Road
P.O. Box 1103
Janesville, WI 53547
Facsimile: (608) 754-5391
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(b) SEVERABILITY. If any term or provision (or any portion thereof)
of this Agreement is determined by a court to be invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other terms and
provisions (or other portions thereof) of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or provision (or
any portion thereof), is invalid, illegal or incapable of being enforced, this
Agreement shall be deemed to be modified so as to effect the original intent of
the parties as closely as possible to the end that the transactions contemplated
hereby and the terms and provisions hereof are fulfilled to the greatest extent
possible.
(c) ENTIRE AGREEMENT. This document constitutes the final, complete,
and exclusive embodiment of the entire agreement, and understanding between the
parties related to the subject matter hereof and supersedes and preempts any
prior or contemporaneous understandings, agreements, or representations by or
between the parties, written or oral.
5
<PAGE>
(d) COUNTERPARTS. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
(e) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind and
inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors and assigns, except that Executive may not assign
any of his duties hereunder and he may not assign any of his rights hereunder
without the prior written consent of the Company.
(f) ATTORNEY'S FEES. If any legal proceeding is necessary to enforce
or interpret the terms of this Agreement, or to recover damages for breach
therefore, the prevailing party shall be entitled to reasonable attorney's fees,
as well as costs and disbursements, in addition to any other relief to which he
or it may be entitled.
(g) AMENDMENTS. No amendments or other modifications to this
Agreement may be made except by a writing signed by both parties. No amendment
or waiver of this Agreement requires the consent of any individual, partnership,
corporation or other entity not a party to this Agreement. Nothing in this
Agreement, express or implied, is intended to confer upon any third person any
rights or remedies under or by reason of this Agreement.
(h) CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Wisconsin.
6
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as
of the date first above written.
-------------------------------
J. Peter Donoghue
TRANZPARTS, INC.
- -----------------------------
William A. Smith
Chief Executive Officer
7
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
CHARLES T. AND JEAN F. GORHAM
CHARITABLE REMAINDER TRUST
DATED MARCH 27, 1996
MR. CHARLES T. GORHAM
MR. J. PETER DONOGHUE
TRANZPARTS, INC.
AND
TRANZPARTS ACQUISITION CORP.
DATED APRIL 2, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . 1
2.01 Purchase of Shares . . . . . . . . . . . . . . . . . . . . . 1
2.02 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.03 Closing Payments . . . . . . . . . . . . . . . . . . . . . . 2
2.04 Closing Balance Sheet. . . . . . . . . . . . . . . . . . . . 2
2.05 Post-Closing Purchase Price Adjustments. . . . . . . . . . . 3
ARTICLE III REPRESENTATIONS REGARDING SHARES . . . . . . . . . . . . . . 3
3.01 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3.02 Authority Enforceability . . . . . . . . . . . . . . . . . . 4
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING
TRANZPARTS AND ITS SUBSIDIARIES. . . . . . . . . . . . . . . 4
4.01 Existence and Power . . . . . . . . . . . . . . . . . . . . 4
4.02 Authorization. . . . . . . . . . . . . . . . . . . . . . . . 4
4.03 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . 5
4.04 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 5
4.05 Governmental Authorization . . . . . . . . . . . . . . . . . 5
4.06 Non-Contravention. . . . . . . . . . . . . . . . . . . . . . 5
4.07 Financial Statements; Undisclosed Liabilities. . . . . . . . 6
4.08 Absence of Certain Changes . . . . . . . . . . . . . . . . . 6
4.09 Properties; Material Leases; Tangible Assets . . . . . . . . 7
4.10 Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.11 Litigation; Warranty Claims. . . . . . . . . . . . . . . . . 8
4.12 Material Contracts . . . . . . . . . . . . . . . . . . . . . 9
4.13 Permits; Required Consents . . . . . . . . . . . . . . . . . 9
4.14 Compliance with Applicable Laws. . . . . . . . . . . . . . .10
4.15 Employment Agreements; Change in Control; and Employee
Benefits . . . . . . . . . . . . . . . . . . . . . . . . . .10
4.16 Labor and Employment Matters . . . . . . . . . . . . . . . .11
4.17 Intellectual Property. . . . . . . . . . . . . . . . . . . .12
4.18 Advisory Fees. . . . . . . . . . . . . . . . . . . . . . . .12
4.19 Environmental Compliance . . . . . . . . . . . . . . . . . .12
4.20 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . .13
4.21 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE V BUYER'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . .14
5.01 Organization and Existence . . . . . . . . . . . . . . . . .14
5.02 Corporate Authorization. . . . . . . . . . . . . . . . . . .14
5.03 Governmental Authorization . . . . . . . . . . . . . . . . .14
5.04 Non-Contravention. . . . . . . . . . . . . . . . . . . . . .14
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5.05 Litigation . . . . . . . . . . . . . . . . . . . . . . . . .14
5.06 Investment Representations . . . . . . . . . . . . . . . . .14
ARTICLE VI COVENANTS THAT SURVIVE THE CLOSING DATE . . . . . . . . . . 15
6.01 Confidentiality. . . . . . . . . . . . . . . . . . . . . . .15
6.02 Further Assurances . . . . . . . . . . . . . . . . . . . . .15
6.03 Public Announcements . . . . . . . . . . . . . . . . . . . .16
6.04 Administration of Accounts . . . . . . . . . . . . . . . . .16
6.05 Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . .16
ARTICLE VII CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . .17
7.01 Conditions to Obligation of the Buyer. . . . . . . . . . . .17
7.02 Conditions to Obligation of Shareholders . . . . . . . . . .18
ARTICLE VIII INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . .19
8.01 Conditions to Obligation of Shareholders . . . . . . . . . .19
8.02 Survival of Representation, Warranties and Covenants . . . .20
8.03 Claims for Indemnification . . . . . . . . . . . . . . . . .21
8.04 Defense of Claims. . . . . . . . . . . . . . . . . . . . . .21
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . .22
9.01 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . .22
9.02 Amendments; No Waivers . . . . . . . . . . . . . . . . . . .23
9.03 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .23
9.04 Successors and Assigns . . . . . . . . . . . . . . . . . . .24
9.05 Governing Law. . . . . . . . . . . . . . . . . . . . . . . .24
9.06 Counterparts; Effectiveness. . . . . . . . . . . . . . . . .24
9.07 Entire Agreement . . . . . . . . . . . . . . . . . . . . . .24
9.08 Captions . . . . . . . . . . . . . . . . . . . . . . . . . .24
9.09 Severability . . . . . . . . . . . . . . . . . . . . . . . .24
9.10 Construction . . . . . . . . . . . . . . . . . . . . . . . .24
9.11 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . .24
9.12 Cumulative Remedies. . . . . . . . . . . . . . . . . . . . .25
9.13 Third Party Beneficiaries. . . . . . . . . . . . . . . . . .25
ii
<PAGE>
EXHIBITS
--------
EXHIBIT A Ownership of Shares
EXHIBIT B Tranzparts' Financial Statements
EXHIBIT C Agreements to be Terminated
SCHEDULES
---------
Schedule 1 Permitted Liens
Schedule 2.04 Inventory Valuation
Schedule 3.01 Share Encumbrances and Restrictions
Schedule 3.02 Shareholder Approvals Required
Schedule 4.01 Foreign Qualifications
Schedule 4.03(c) Prior Dividends
Schedule 4.06 Non-Contravention
Schedule 4.07(c) Undisclosed Liabilities
Schedule 4.08 Absence of Certain Changes
Schedule 4.09(d) Personal Property Leases
Schedule 4.10 Affiliates
Schedule 4.11(a) Litigation
Schedule 4.11(b) Warranty Claims
Schedule 4.12(a) Scheduled Contracts
Schedule 4.12(b) Nonbinding Obligations
Schedule 4.12(c) Suppliers and Customers
Schedule 4.13(a) Permits
Schedule 4.13(b) Required Governmental Approvals
Schedule 4.14 Compliance with Applicable Laws
Schedule 4.15(a) Employment Agreements
Schedule 4.15(b) Employee Benefit Plans
Schedule 4.16(a) Collective Bargaining Agreements
Schedule 4.16(b) Labor and Employment Matters
Schedule 4.17(a) Intellectual Property Rights
Schedule 4.17(b) Proceedings Applicable to Intellectual Property Rights
Schedule 4.17(c) Ownership of Intellectual Property Rights
Schedule 4.19(a)(i) Unobtained Environmental Permits
Schedule 4.19(a)(ii) Existing Environmental Permits
Schedule 4.19(b) Environmental Law Compliance Exceptions
Schedule 4.20 Insurance Policies
Schedule 4.21 Tax Matters
iii
<PAGE>
INDEX OF OTHER DEFINED TERMS
----------------------------
DEFINED TERM SECTION
------------ -------
1995 Balance Sheet. . . . . . . . . 4.07(a)
Additional Closing Payments . . . . 2.03(d)
Allocation Statement. . . . . . . . 6.05(e)
Annual Statements . . . . . . . . . 4.07
Article III Claims. . . . . . . . . 8.01(a)
Basket. . . . . . . . . . . . . . . 8.01(e)
Breach of Warranty. . . . . . . . . 4.11(b)
Buyer . . . . . . . . . . . . . . . Preamble
Buyer Indemnifiable Claims. . . . . 8.01(b)
Buyer Indemnitees . . . . . . . . . 8.01(a)
Buyer's Auditors. . . . . . . . . . 2.04
CTG . . . . . . . . . . . . . . . . Preamble
Shareholders Real Property. . . . . Recitals
Closing . . . . . . . . . . . . . . 2.02
Closing Balance Sheet . . . . . . . 2.04
Closing Calculation . . . . . . . . 2.04
Closing Date. . . . . . . . . . . . 2.02
Employment Agreements . . . . . . . 4.15(a)
Environmental Claims. . . . . . . . 8.01(f)
Equity Securities . . . . . . . . . 4.03(b)
Financial Statements. . . . . . . . 4.07(b)
Fully Covered Claims. . . . . . . . 8.01(e)
Insurance Policies. . . . . . . . . 4.20
Intellectual Property Rights. . . . 4.17(a)
Interim Statements. . . . . . . . . 4.07(a)
JPD . . . . . . . . . . . . . . . . Preamble
Labor Laws. . . . . . . . . . . . . 4.16(d)
Leases. . . . . . . . . . . . . . . 4.09(d)
Milwaukee Lease . . . . . . . . . . 4.10(b)
Outside Date. . . . . . . . . . . . 11.01(g)
Overpayment . . . . . . . . . . . . 2.05(b)
Permits . . . . . . . . . . . . . . 4.13(a)
Post-Closing Tax Periods. . . . . . 8.05(b)
Pre-Closing Tax Periods . . . . . . 8.05(b)
Proceedings . . . . . . . . . . . . 4.11(a)
Proposed Closing Balance Sheet. . . 2.04
Real Property Distribution. . . . . Recitals
Required Consents . . . . . . . . . 4.13(b)
Required Contractual Consent. . . . 4.13(b)
Required Governmental Approval. . . 4.13(b)
S Corporation Claims. . . . . . . . 8.01(e)
Scheduled Contracts . . . . . . . . 4.12(a)
Securities Act. . . . . . . . . . . 5.03
Selected Firm . . . . . . . . . . . 2.04
Share Encumbrances. . . . . . . . . 3.01
Shareholders. . . . . . . . . . . . Preamble
Shareholder Indemnitees . . . . . . 8.01(c)
Shares. . . . . . . . . . . . . . . Recitals
iv
<PAGE>
Tranzparts. . . . . . . . . . . . . Preamble
Tranzparts Common Stock . . . . . . Recitals
Tranzparts' Auditors. . . . . . . . 2.04
Unpaid Balance. . . . . . . . . . . 2.05(a)
Workpapers. . . . . . . . . . . . . 2.04
v
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT dated as of April 2, 1996 is by and
among the Charles T. and Jean F. Gorham Charitable Remainder Trust dated March
27, 1996 (the "Trust"), Charles T. Gorham ("CTG"), J. Peter Donoghue ("JPD" and
with the Trust and CTG collectively, the "Shareholders" and individually, each a
"Shareholder"), Tranzparts, Inc., a Wisconsin corporation ("Tranzparts"), and
Tranzparts Acquisition Corp., a Delaware corporation ("Buyer").
W I T N E S S E T H:
WHEREAS, Tranzparts is engaged in the business of remanufacturing,
sourcing and distributing drive train and other automotive components;
WHEREAS, each Shareholder owns the number of the issued and
outstanding shares (collectively the "Shares") of Tranzparts' voting Common
Stock, $.01 par value per share (the "Tranzparts Common Stock"), set opposite
such Shareholder's name on EXHIBIT A hereto, which Shares in the aggregate
represent all of the issued and outstanding shares of Tranzparts' capital stock;
WHEREAS, Buyer desires to purchase and Shareholders desire to sell the
Shares indicated on EXHIBIT A hereto as being owned by Shareholders on the terms
and conditions set forth herein; and
WHEREAS, prior to the date hereof, Tranzparts owned real property
located at 2921 Kennedy Road, Janesville, Wisconsin (the "Shareholders Real
Property") and distributed such real property to Gorham Donoghue, LLC, a
Wisconsin limited liability company (the "Real Property Distribution").
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
ARTICLE I DEFINITIONS
1.01 DEFINITIONS. Capitalized terms, as used herein, shall have the
meanings given to them in the attached Appendix A.
ARTICLE II EXCHANGE OF STOCK; PURCHASE AND SALE
2.01 PURCHASE OF SHARES. On the terms and subject to the conditions
set forth herein, at the Closing Shareholders shall sell, transfer, convey,
assign and deliver to Buyer, free and clear of all Share Encumbrances, and Buyer
shall purchase, acquire and accept from Shareholders, the number of Shares set
forth opposite each Shareholder's name on EXHIBIT A hereto for the purchase
price of an amount in cash equal to the sum of the Total Consideration. At the
Closing, Shareholders shall deliver to Buyer certificates evidencing the Shares
owned by Shareholders duly endorsed for transfer and with all transfer stamps
attached and such other instruments as may be reasonably requested by Buyer to
transfer full legal and beneficial ownership of such Shares to Buyer, free and
clear of all Share Encumbrances.
2.02 CLOSING. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Godfrey &
Kahn, S.C., 780 North Water Street, Milwaukee, Wisconsin 53202, on April 2, 1996
or such other date as to which Buyer and Shareholders may agree in writing (the
"Closing Date").
1
<PAGE>
2.03 CLOSING PAYMENTS.
(a) At the Closing, Buyer shall pay to the Trust in cash by wire
transfer of immediately available funds to a bank account or bank accounts
designated in writing by the Trust at least three (3) Business Days prior to the
Closing the sum of One Million Seventy Thousand Seven Hundred Forty-Four and
57/100 Dollars ($1,070,744.57).
(b) At the Closing, Buyer shall pay to CTG in cash by wire
transfer of immediately available funds to a bank account or bank accounts
designated in writing by CTG at least three (3) Business Days prior to the
Closing the sum of Seven Hundred Thirty-Eight Thousand Eight Hundred Twenty-Nine
and 06/100 Dollars ($738,829.06).
(c) At the Closing, Buyer shall pay to JPD in cash by wire
transfer of immediately available funds to a bank account or bank accounts
designated in writing by JPD at least three (3) Business Days prior to the
Closing the sum of Three Hundred Seventy-Six Thousand Nine Hundred Fifty-Eight
and 06/100 Dollars ($376,958.06).
(d) At the Closing, Buyer shall pay the amounts listed on
SCHEDULE 2.03(d) (the "Additional Closing Payments").
2.04 CLOSING BALANCE SHEET. Within sixty (60) days after the Closing
Date, Buyer will prepare with the assistance of its independent certified public
accountants ("Buyer's Auditors") and present to Shareholders the balance sheet
of Tranzparts as of the Closing Date (the "Proposed Closing Balance Sheet"),
together with the calculation of the Adjusted Shareholders' Equity (the "Closing
Calculation"). The Proposed Closing Balance Sheet shall present fairly the
financial position of Tranzparts as of the Closing Date using practices and
procedures consistent with the preparation of the Financial Statements.
Inventory shall be valued on the Proposed Closing Balance Sheet and the Closing
Balance Sheet in accordance with the procedures outlined on SCHEDULE 2.04.
Shareholders and Tranzparts' independent certified public accountants
("Tranzparts' Auditors") shall have the right to review the workpapers of
Buyer's Auditors (the "Workpapers") utilized in preparing the Proposed Closing
Balance Sheet and calculating the Closing Calculation for purposes of verifying
the accuracy of the Proposed Closing Balance Sheet and the Closing Calculation.
The Proposed Closing Balance Sheet and the Closing Calculation shall be binding
upon the parties to this Agreement unless Shareholders holding a majority of the
Shares outstanding immediately prior to Closing give written notice of
disagreement with any of said values or amounts to Buyer within fifteen (15)
days after their receipt of the Proposed Closing Balance sheet and the
Workpapers, specifying in reasonable detail the nature and extent of such
disagreement. If Buyer and Shareholders holding a majority of the Shares
outstanding immediately prior to Closing mutually agree upon the balance sheet
and/or the Adjusted Shareholders' Equity of Tranzparts, such agreement shall be
binding upon the parties to this Agreement. If Buyer and Shareholders holding a
majority of the Shares outstanding immediately prior to Closing are unable to
resolve any such disagreement within fifteen (15) days after Buyer's receipt of
such notice from Shareholders, the disagreement shall be referred for final
determination to Deloitte & Touche LLP or, if such firm is not available, such
other independent accounting firm of national reputation selected by the mutual
agreement of Buyer and Shareholders (the "Selected Firm"), and the resolution of
that disagreement and the calculation of the Total Consideration resulting
therefrom shall be final and binding upon the parties hereto for purposes of
this Agreement. If Buyer and Shareholders cannot agree on the Selected Firm, it
shall be chosen by Buyer's Auditors and Tranzparts' Auditors, by mutual
agreement. The Proposed Closing Balance Sheet as finally determined is the
"Closing Balance Sheet." The fees and disbursements of Buyer's Auditors
incurred in the preparation of the Proposed Closing Balance Sheet and the audit
thereof shall be paid by Buyer. Shareholders shall pay the fees and
disbursements of Tranzparts' Auditors in proportion to their ownership of Shares
on the date hereof. The fees and disbursements of the Selected Firm shall be
paid by Buyer and Shareholders as the Selected Firm shall determine based upon
its assessment of the relative merits of the positions taken by each in any
disagreement presented to such firm.
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2.05 POST-CLOSING PURCHASE PRICE ADJUSTMENTS.
(a) If the Total Consideration is GREATER than the aggregate of
the Preliminary Purchase Price and the Additional Closing Payments (such excess
being referred to herein as an "Unpaid Balance"), then within five (5) Business
Days after the final determination of the Closing Balance Sheet Buyer shall
deliver:
(i) to the Trust, an amount equal to the product of the
Unpaid Balance times .4897 (together with interest on such product at the
Reference Rate in effect from time to time from the Closing Date until the date
of such payment) in cash in immediately available funds by wire transfer to a
bank account or bank accounts designated in writing by CTG prior to the due date
thereof;
(ii) to CTG, an amount equal to the product of the Unpaid
Balance times .3379 (together with interest on such product at the Reference
Rate in effect from time to time from the Closing Date until the date of such
payment) in cash in immediately available funds by wire transfer to a bank
account or bank accounts designated in writing by CTG prior to the due date
thereof; and
(iii) to JPD, an amount equal to the product of the
Unpaid Balance times .1724 (together with interest on such product at the
Reference Rate in effect from time to time from the Closing Date until the date
of such payment) in cash in immediately available funds by wire transfer to a
bank account or bank accounts designated in writing by JPD prior to the due date
thereof.
(b) If the Total Consideration is LESS than the aggregate of the
Preliminary Purchase Price and the Additional Closing Payments (such deficiency
being referred to herein as an "Overpayment"), then within five (5) Business
Days of the final determination of the Closing Balance Sheet:
(i) the Trust shall reimburse to Buyer an amount equal to
the product of the Overpayment times .4897 (together with interest on such
product at the Reference Rate in effect from time to time from the Closing Date
until the date of such reimbursement) in cash in immediately available funds by
wire transfer to a bank account designated in writing by Buyer prior to the due
date thereof; and
(ii) CTG shall reimburse to Buyer an amount equal to the
product of the Overpayment times .3379 (together with interest on such product
at the Reference Rate in effect from time to time from the Closing Date until
the date of such reimbursement) in cash in immediately available funds by wire
transfer to a bank account designated in writing by Buyer prior to the due date
thereof; and
(iii) JPD shall reimburse to Buyer an amount equal to
the product of the Overpayment multiplied times .1724 (together with interest on
such product at the Reference Rate in effect from time to time from the Closing
Date until the date of such reimbursement) in cash in immediately available
funds by wire transfer to a bank account designated in writing by Buyer prior to
the due date thereof.
ARTICLE IIIREPRESENTATIONS REGARDING SHARES
Each Shareholder hereby represents and warrants to Buyer as follows
with respect to himself and the Shares indicated on EXHIBIT A as being owned by
him:
3.01 TITLE. Such Shareholder is the sole owner of record and
beneficial owner of the Shares indicated in EXHIBIT A as being owned by such
Shareholder; except as disclosed on SCHEDULE 3.01, such Shares are free and
clear of all liens, equities, charges, claims, options, pledges, rights of other
parties, voting trusts, proxies, stockholder or similar agreements, encumbrances
or restrictions of any nature whatsoever (collectively "Share Encumbrances");
and such Shareholder has the full and
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unrestricted right, power and authority to sell and transfer such Shares to
Buyer. Upon delivery of such Shares to Buyer and payment by Buyer to Seller of
the consideration therefor, Buyer will acquire good and marketable title to and
complete ownership of such Shares, free and clear of any Share Encumbrance.
3.02 AUTHORITY ENFORCEABILITY. Such Shareholder now has, and at the
Closing will have, full right and power and all authorizations and approvals
required by Applicable Law, and by any agreement or instrument to which such
Shareholder is a party, to sell, transfer and deliver the Shares indicated in
EXHIBIT A as being owned by such Shareholder free and clear of any Share
Encumbrance. This Agreement is legally binding on and enforceable against such
Shareholder in accordance with its terms except (i) as rights to indemnity
hereunder may be limited by federal or state securities laws or the public
policies embodied therein, (ii) as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally, and (iii) as the remedy of specific
performance and other forms of injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought. The execution, delivery and performance of this Agreement by
such Shareholder and the consummation by such Shareholder of the transactions
contemplated hereby (x) do not require the consent, waiver, approval, license or
other authorization of any Person, except those which have been or will be prior
to the Closing duly obtained and which are listed on SCHEDULE 3.02, (y) do not
violate, with or without the giving of notice or the passage of time or both,
any provision of law applicable to such Shareholder which violation would in any
way adversely affect such Shareholder's conveyance to Buyer pursuant hereto of
good and marketable title to such Shares, free and clear of any Share
Encumbrance or would have a Material Adverse Effect, and (z) do not conflict
with, result in the termination of any provisions of, or constitute a default
under, or accelerate any obligations arising under, or result in the creation of
any Share Encumbrance upon any property or assets of such Shareholder pursuant
to, or otherwise adversely affect, any lease, mortgage, deed of trust, indenture
or other agreement or instrument, or any order, judgment, decree, statute,
regulation or any other restriction of any kind or character to which such
Shareholder is a party or by which such Shareholder or any of his assets is
bound, which conflict, termination, default, acceleration, Share Encumbrance or
other event would in any way adversely affect such Shareholder's conveyance to
Buyer pursuant hereto of good and marketable title to such Shares, free and
clear of any Share Encumbrance, or would have a Material Adverse Effect.
ARTICLE IV REPRESENTATIONS AND WARRANTIES REGARDING
TRANZPARTS AND ITS SUBSIDIARIES
As an inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated herein, Tranzparts and each
Shareholder, represent and warrant to Buyer as follows:
4.01 EXISTENCE AND POWER. Tranzparts is a corporation duly organized
and validly existing under the laws of the State of Wisconsin and has all
corporate power and all governmental licenses, authorizations, consents and
approvals required to carry on the Business as now conducted by Tranzparts and
to own and operate the Business as now owned and operated. Tranzparts is not
required to be qualified to conduct business in any state other than: (a) the
states set forth in SCHEDULE 4.01, in which states Tranzparts is duly qualified
to do business and in good standing, and (b) such states where the failure to be
so qualified, whether singly or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
4.02 AUTHORIZATION. The execution, delivery and performance by
Tranzparts of this Agreement and the consummation of the transactions
contemplated hereby are within Tranzparts' corporate powers and have been duly
authorized by all necessary action on its part. This Agreement has been duly
and validly executed by Tranzparts and constitutes the legal, valid and binding
agreement of Tranzparts enforceable against it in accordance with its terms,
except (i) as rights to
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indemnity hereunder may be limited by federal or state securities laws or the
public policies embodied therein, (ii) as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally, and (iii) as the remedy of specific
performance and other forms of injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
4.03 CAPITAL STOCK. (a) The authorized capital stock of Tranzparts
consists solely of Nine Thousand (9,000) shares of Tranzparts Common Stock, $.01
par value, Three Thousand Six Hundred Twenty-Five (3,625) shares of which are
issued and outstanding on the date hereof.
(b) All such issued and outstanding shares of Tranzparts Common
Stock have been validly authorized and issued and are validly outstanding, fully
paid and nonassessable except as provided in Section 180.0622(2)(b) of the
Wisconsin statutes and cases decided thereunder and were not issued in violation
of any preemptive rights. The Shares represent all of the issued and
outstanding shares of Tranzparts' capital stock and are held as set forth on
EXHIBIT A. Tranzparts does not hold any of the issued and outstanding shares of
Common Stock in the treasury of Tranzparts, and there are not, and on the
Closing Date there will not be, outstanding (i) any options, warrants, rights of
first refusal or other rights to purchase from Tranzparts or either of
Shareholders any capital stock of Tranzparts, (ii) any securities convertible
into or exchangeable for shares of such stock or (iii) any other commitments of
any kind for the issuance of additional shares of capital stock or options,
warrants or other securities of Tranzparts (such options, warrants, rights of
first refusal or other rights, convertible securities, exchangeable securities
or other commitments are referred to herein collectively as "Equity
Securities"). Other than the Stockholders Agreement dated May 1, 1992 by and
among Tranzparts, CTG and JPD, a true and correct copy of which has been
provided to Buyer, there is no contract, right or option outstanding to require
Tranzparts to redeem, purchase or otherwise reacquire any Equity Securities of
Tranzparts, and there are no preemptive rights with respect to any Equity
Securities of Tranzparts.
(c) Except as set forth in SCHEDULE 4.03(c), since December 31,
1995, Tranzparts has not declared or paid any dividend or made any distribution
in respect of any of its Equity Securities or directly or indirectly redeemed,
purchased or otherwise acquired any of its Equity Securities or the Equity
Securities of any of its Affiliates, or issued or in any way disposed of any of
its Equity Securities or the Equity Securities of any of its Affiliates or made
any other payments of any kind to the holders of any of its Equity Securities in
respect thereof or the holders of any Equity Securities of any of its Affiliates
in respect thereof.
4.04 SUBSIDIARIES. Tranzparts currently does not have any direct or
indirect Subsidiaries and has not had any direct or indirect Subsidiaries for
the past five years.
4.05 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Tranzparts and Shareholders of this Agreement require no action
by, consent or approval of, or filing with, any Governmental Authority other
than any actions, consents, approvals or filings expressly referred to in this
Agreement.
4.06 NON-CONTRAVENTION. Except as set forth on SCHEDULE 4.06, the
execution, delivery and performance of this Agreement by Tranzparts and
Shareholders do not and will not (a) contravene or conflict with the Articles of
Incorporation or Bylaws of Tranzparts; (b) assuming receipt or waiver of the
Required Consents, contravene or conflict with or constitute a material
violation of any provision of any Applicable Law or Environmental Law binding
upon or applicable to Tranzparts, the Business or the Shares; (c) assuming
receipt or waiver of the Required Consents, constitute a default under or give
rise to any right of termination, cancellation or acceleration of, or to a loss
of any benefit to which Tranzparts is entitled, under any Scheduled Contract or
any Permit relating to Tranzparts, the Business or the Shares by which
Tranzparts, the Business or the Shares are bound or affected; or (d) result in
the creation or imposition of any Lien other than Permitted Liens.
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4.07 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Attached hereto as EXHIBIT B are true and complete copies of
the balance sheets and related statements of operations and retained earnings
and of cash flows for Tranzparts for the years ended December 31, 1993, 1994 and
1995, in each case reviewed by Virchow, Krause & Company, LLP (formerly known as
McNally & Company, S.C.) ("Annual Statements") and the balance sheets and
statements of operations for the months ended January 31, 1996 and February 29,
1996 (the "Interim Statements" and, together with the Annual Statements, the
"Financial Statements"). The balance sheet of December 31, 1995 is referred to
herein as the "1995 Balance Sheet."
(b) The Financial Statements (i) have been prepared based on the
books and records of Tranzparts in accordance with Tranzparts' normal accounting
practices, consistent with past practice and with each other, and present fairly
the financial condition, results of operations and statements of cash flow of
Tranzparts as of the dates indicated or the periods indicated; (ii) contain and
reflect all necessary adjustments and accruals for a fair presentation of its
financial condition and the results of its operations for the periods covered by
said financial statements except, in the case of the Interim Statements, year-
end adjustments and omitted disclosures customarily placed in footnotes; and
(iii) contain and reflect adequate provisions for all reasonably anticipated
liabilities for all taxes, federal, state, local or foreign, with respect to the
periods then ended and all prior periods covered by the Financial Statements.
(c) Except as set forth on SCHEDULE 4.07(c), there are no
Liabilities of Tranzparts other than: (i) any Liability properly reflected on
the 1995 Balance Sheet; (ii) Liabilities specifically disclosed and identified
as such in the schedules to this Agreement; (iii) Liabilities incurred since the
date of the 1995 Balance Sheet that do not, and may not reasonably be expected
to, individually or in the aggregate have a Material Adverse Effect; and (iv)
Liabilities associated with Permitted Liens.
4.08 ABSENCE OF CERTAIN CHANGES. Except as set forth on
SCHEDULE 4.08, since the date of the 1995 Balance Sheet, the Business has been
conducted in the ordinary course, and there has not been:
(a) any event, occurrence, state of circumstances or facts or
change in Tranzparts or in the Business that has had or that may be reasonably
expected to have, either alone or together, a Material Adverse Effect;
(b) (i) any change in any Liabilities of Tranzparts arising
under the contracts listed on Schedule 4.12(a) or contracts not required to be
disclosed pursuant to Section 4.12(a)(ii) that has had, or may not reasonably be
expected to have, a Material Adverse Effect; or (ii) any incurrence, assumption
or guarantee of any indebtedness for borrowed money by Tranzparts in connection
with the Business or otherwise;
(c) any (i) payments by Tranzparts in respect of indebtedness of
Tranzparts for borrowed money or in satisfaction of any Liabilities of
Tranzparts related to the Business, other than in the ordinary course of
business, or the guarantee by Tranzparts of the indebtedness of any other
Person; or (ii) creation, assumption or sufferance of the existence of (whether
by action or omission) any Lien on any assets reflected on the 1995 Balance
Sheet, other than Permitted Liens;
(d) any transaction or commitment made, or any Contract entered
into, by Tranzparts, or any waiver, amendment, termination or cancellation of
any Contract by Tranzparts, or any relinquishment of any rights thereunder by
Tranzparts or of any other right or debt owed to Tranzparts, other than, in each
such case, actions taken in the ordinary course of business consistent with past
practice;
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(e) any (i) grant of any severance, continuation or termination
pay to any director, officer, stockholder or employee of Tranzparts or any
Associate of any of the foregoing, (ii) entry into any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer, stockholder or employee of Tranzparts or
any Associate of any of the foregoing, (iii) increase in benefits payable or
potentially payable under any severance, continuation or termination pay
policies or employment agreements with any director, officer, stockholder or
employee of Tranzparts or any Associate of any of the foregoing, (iv) increase
in compensation, bonus or other benefits payable or potentially payable to
directors, officers, stockholders or employees of Tranzparts or any Associate of
any of the foregoing, (v) change in the terms of any bonus, pension, insurance,
health or other Benefit Plan of Tranzparts, or (vi) representation of Tranzparts
to any employee or former employee of Tranzparts that Buyer would assume,
continue to maintain or implement any Benefit Plan after the Closing Date;
(f) any change by Tranzparts in its accounting principles,
methods or practices or in the manner it keeps its books and records;
(g) any distribution, dividend, bonus or other payment by
Tranzparts, other than the Real Property Distribution, to any officer, director,
stockholder or Affiliate of Tranzparts or any of their respective Affiliates or
Associates except for salary, benefit or lease payments in the ordinary course
and due or to become due under arrangements in existence prior to January 1,
1995;
(h) any (i) single capital expenditure or commitment in excess
of Five Thousand Dollars ($5,000) for additions to property, plant, equipment or
intangible capital assets or aggregate capital expenditures and commitments or
(ii) sale, assignment, transfer, lease or other disposition of or agreement to
sell, assign, transfer, lease or otherwise dispose of any asset or property
having a value of Five Thousand Dollars ($5,000) in the aggregate other than in
the ordinary course of business;
(i) any loan to or guarantee or assumption of any loan or
obligation on behalf of any director, officer, stockholder or employee of
Tranzparts, except travel or entertainment advances occurring in the ordinary
course of business;
(j) any labor dispute (other than routine individual grievances)
or any activity or proceeding by a labor union or representative thereof to
organize any employees of Tranzparts, who were not subject to a collective
bargaining agreement at December 31, 1995, or any lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to any such employees; or
(k) any payment, discharge or satisfaction of any Liabilities of
Tranzparts, other than payments, discharges or satisfactions in the ordinary
course of business.
4.09 PROPERTIES; MATERIAL LEASES; TANGIBLE ASSETS.
(a) Tranzparts has a good, valid and marketable license interest
in leased properties or properties held under license, including all such
properties (real, personal or mixed, tangible or intangible (including the
Intellectual Property Rights)) reflected in the 1995 Balance Sheet, except those
properties disposed of in the ordinary course of business after the date
thereof. Tranzparts holds title to each such property and asset free and clear
of all Liens, except Permitted Liens and Liens which will be released at the
Closing.
(b) All tangible properties and assets reflected on the 1995
Balance Sheet are in all material respects structurally sound, in good operating
condition and repair and adequate for the uses to which they are put.
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(c) After giving effect to the Real Property Distribution,
Tranzparts neither owns nor leases any real property except for the lease to be
entered into pursuant to Section 7.01(g) relating to the Shareholders Real
Property.
(d) SCHEDULE 4.09(d) sets forth all material personal property
leases to which Tranzparts is a party or by which any of the foregoing is bound
and that are necessary for the conduct of the Business in substantially the same
manner as the Business has heretofore been conducted and all real property
leases and those leases relating to personal property and indicating where
appropriate those leases which have been recorded for tax, protection of title
or interest, or other purposes) entered into by any of the foregoing (the
"Leases"). With respect to the Leases, there exist no material defaults by
Tranzparts, or, to the knowledge of Tranzparts and Shareholders, any material
default or threatened default by any third party thereunder, that has affected
or could reasonably be expected to affect the rights and privileges thereunder
of Tranzparts. The transfer of the Shares contemplated by this Agreement will
not result in any default, penalty or modification to any Lease to which
Tranzparts is a party.
4.10 AFFILIATES. Except as set forth in SCHEDULE 4.10, neither
Tranzparts nor, to the knowledge of Tranzparts and Shareholders, any stockholder
of Tranzparts nor any of its officers or directors (or any immediate family
member of any such officer or director), now or at any time subsequent to
December 31, 1992, either directly or indirectly:
(a) has or had an equity or debt interest in any Person which
furnishes or sells or during such period furnished or sold services or products
to Tranzparts or purchases or during such period purchased from Tranzparts any
goods or services, or otherwise does or during such period did business with
Tranzparts; PROVIDED, HOWEVER, that neither Tranzparts, any stockholders of
Tranzparts nor any of their respective officers, directors or other Affiliates
shall be deemed to have such an interest solely by virtue of the ownership of
less than five percent (5%) of the outstanding voting stock or debt securities
of any publicly held company, the stock or debt securities of which are traded
on a national stock exchange or quoted on the National Association of Securities
Dealers Automated Quotation System; or
(b) was or is a party to any contract, commitment or agreement
to which Tranzparts is or during such period was a party or under which any of
them is or was obligated or bound or to which any of their respective properties
may be or may have been subject other than the office space lease in Milwaukee
(the "Milwaukee Lease") which will be cancelled upon Closing.
4.11 LITIGATION; WARRANTY CLAIMS.
(a) Except as disclosed on SCHEDULE 4.11(a), (i) there are no
actions, suits, claims, hearings, arbitrations, proceedings (public or private)
or governmental investigations that have been brought by or against any
Governmental Authority or any other Person (collectively, "Proceedings") pending
or, to the knowledge of Tranzparts and Shareholders, threatened, against or
affecting Tranzparts, the Business or the Shares or which seeks to enjoin or
rescind the transactions contemplated by this Agreement; and (ii) there are no
existing orders, judgments or decrees of any Governmental Authority naming
Tranzparts or either Shareholder as an affected party.
(b) SCHEDULE 4.11(b) sets forth copies of the product warranties
and guaranties extended by Tranzparts currently in effect. Except as set forth
in SCHEDULE 4.11(b), there have not been any material deviations from such
warranties and guaranties, and salesmen, employees and agents of Tranzparts are
not authorized to undertake obligations to any customer or other third parties
in excess of such written warranties or guaranties. Except as set forth on
SCHEDULE 4.11(b), there are no claims against Tranzparts for breach of any
express or implied warranty (including, without limitation, the implied warranty
of merchantability and fitness for a particular purpose) in connection with
sales by Tranzparts of products manufactured and sold by Tranzparts or finished
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goods in Inventory ("Breach of Warranty") and there is no existing or, to the
knowledge of Tranzparts and Shareholders, threatened claim, demand or cause of
action asserted or brought by any Person (including those in direct contractual
relationship with Tranzparts) for physical injury to or death of or property
damage suffered by such Person or any other Person which was proximately caused
by any products manufactured or sold by Tranzparts at any time prior to the
Closing Date.
4.12 MATERIAL CONTRACTS.
(a) SCHEDULE 4.12(a) sets forth a complete list of all
contracts, commitments and obligations (whether written or oral) of Tranzparts
that are material to Tranzparts, or the Business, including without limitation
the following (collectively with the Material Leases and the Employment
Agreements, the "Scheduled Contracts"):
(i) each agreement of Tranzparts that requires payment or
incurrence of Liabilities, or the rendering of services, by Tranzparts,
subsequent to the date of this Agreement of more than Fifty Thousand Dollars
($50,000);
(ii) all Contracts relating to, or evidences of, or
guarantees of, or providing security for, indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed or
secured by any asset);
(iii) all license, sale, distribution, commission,
marketing, agent, franchise, technical assistance or similar agreements relating
to or providing for the marketing and/or sale of the products or services to
which Tranzparts is a party or by which Tranzparts is otherwise bound; and
(iv) all partnership, joint venture, teaming arrangements or
other similar Contracts, arrangements or agreements.
(b) Tranzparts and Shareholders have made true and correct
copies of all such Scheduled Contracts available to Buyer. Except as disclosed
in SCHEDULE 4.12(B), each Scheduled Contract is a legal, valid and binding
obligation of Tranzparts, and, to the best knowledge of Tranzparts and
Shareholders, each other party thereto, enforceable against each such party
thereto in accordance with its terms except (i) as rights to indemnity hereunder
may be limited by federal or state securities laws or the public policies
embodied therein, (ii) as such enforceability may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally, and (iii) as the remedy of specific performance
and other forms of injunctive relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought,
and neither Tranzparts nor any other party thereto is in material default
thereunder.
(c) SCHEDULE 4.12(c) sets forth a list (by name, address and
persons to contact) of the 10 largest customers and 10 largest suppliers of
Tranzparts for the 12-month period ended December 31, 1995 together with the
approximate dollar amount of sales to or purchases from such Persons during said
period and a summary description of the products purchased.
4.13 PERMITS; REQUIRED CONSENTS.
(a) SCHEDULE 4.13(a) sets forth all material approvals,
authorizations, certificates, consents, licenses, orders and permits and other
similar authorizations of all Governmental Authorities (and all other Persons)
necessary for the operation of the Business in substantially the same manner as
currently operated or, to the knowledge of Tranzparts and Shareholders,
otherwise directly affecting or relating in any way to the Business (the
"Permits").
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(b) SCHEDULE 4.13(b) lists (i) each governmental or other
registration, filing, application, notice, transfer, consent, approval, order,
qualification and waiver (each, a "Required Governmental Approval") required
under Applicable Law to be obtained by Tranzparts or any of the Shareholders by
virtue of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby to avoid the loss of any material Permit,
and (ii) each Scheduled Contract with respect to which the consent of the other
party or parties thereto must be obtained by Tranzparts or any of the
Shareholders by virtue of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby (each, a "Required
Contractual Consent" and collectively with the Required Governmental Approvals,
the "Required Consents"). Except as set forth in SCHEDULE 4.13(b), to the
knowledge of Shareholders, each Permit is valid and in full force and effect in
all material respects, and none of the Permits will be terminated or become
terminable or impaired in any material respect as a result of the transactions
contemplated hereby.
4.14 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in
SCHEDULE 4.14, Tranzparts has not violated or infringed, nor is either in
violation or infringement of, any Applicable Law or any order, writ, injunction
or decree of any Governmental Authority.
4.15 EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL; AND EMPLOYEE BENEFITS.
(a) Except as set forth on SCHEDULE 4.15(a), there are no
employment, consulting, severance pay, continuation pay, termination pay or
indemnification agreements or other similar agreements of any nature whatsoever
(collectively, "Employment Agreements") between Tranzparts on the one hand, and
any current or former stockholder, officer, director, employee or Affiliate of
Tranzparts or any of their respective Associates or any consultant or agent of
Tranzparts on the other hand, that are currently in effect. Except as set forth
on SCHEDULE 4.15(a), there are no Employment Agreements or any other similar
agreements to which Tranzparts is a party under which the transactions
contemplated by this Agreement (i) will require any payment by Tranzparts or
Buyer, or any consent or waiver from any stockholder, officer, director,
employee or Affiliate of Tranzparts or any of their respective Associates or any
consultant or agent of Tranzparts or Buyer, or (ii) will result in any change in
the nature of any rights of any stockholder, officer, director, employee or
Affiliate of Tranzparts or any of their respective Associates or any consultant
or agent of Tranzparts under any such Employment Agreement or other similar
agreement.
(b) SCHEDULE 4.15(b) sets forth all Benefit Plans of Tranzparts.
Tranzparts and Shareholders have made true and correct copies of all governing
instruments and related agreements pertaining to such Benefit Plans available to
Buyer.
(c) Neither Tranzparts nor any of its ERISA Affiliates sponsors
has ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan.
(d) Neither Tranzparts nor any of its ERISA Affiliates sponsors
has ever sponsored, maintained, contributed to, or incurred an obligation to
contribute to any Multiemployer Plan.
(e) No individual shall accrue or receive additional benefits,
service or accelerated rights to payments of benefits under any Benefit Plan,
including the right to receive any parachute payment, as defined in Section 280G
of the Code, or become entitled to severance, termination allowance or similar
payments as a direct result of the transactions contemplated by this Agreement
other than those previously disclosed to Buyer in writing or accrued on the
Closing Balance Sheet.
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(f) Except with respect to any Prohibited Transaction relating
to any Multiemployer Plan where such Prohibited Transaction has no relation to
Tranzparts or any ERISA Affiliate, none of the Employee Benefit Plans has
participated in, engaged in or been a party to any Prohibited Transaction, and
neither Tranzparts nor any of its ERISA Affiliates has had asserted against it
any claim for taxes under Chapter 43 of Subtitle A of the Code and Section 5000
of the Code, or for penalties under ERISA Section 502(c), (i) or (l), with
respect to any Employee Benefit Plan nor, to the knowledge of Shareholders, is
there a basis for any such claim. No officer, director or employee of
Tranzparts or any of its ERISA Affiliates has committed a material breach of any
responsibility or obligation imposed upon fiduciaries by Title I of ERISA with
respect to any Employee Benefit Plan.
(g) Other than routine claims for benefits, there is no claim
pending or to the knowledge of Tranzparts and Shareholders threatened, involving
any Benefit Plan by any Person against such plan or Tranzparts or any ERISA
Affiliate. There is no pending or to the knowledge of Tranzparts and
Shareholders threatened proceeding involving any Employee Benefit Plan before
the IRS, the United States Department of Labor or any other Governmental
Authority.
(h) There is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code with respect to any Benefit
Plan.
(i) Tranzparts and each Benefit Plan has at all times prior
hereto been maintained in all material respects, by its terms and in operation,
in accordance with ERISA and the Code. Tranzparts and its ERISA Affiliates have
made full and timely payment of all amounts required to be contributed under the
terms of each Benefit Plan and Applicable Law or required to be paid as expenses
under such Benefit Plan, and Tranzparts and its ERISA Affiliates shall continue
to do so through the Closing.
(j) With respect to any Group Health Plans maintained by
Tranzparts or its ERISA Affiliates, whether or not for the benefit of
Tranzparts' employees, Tranzparts and its ERISA Affiliate have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and 4980B of
the Code. Tranzparts is not obligated to provide health care benefits of any
kind to its retired employees pursuant to any Employee Benefit Plan, including
without limitation any Group Health Plan, or pursuant to any agreement or
understanding.
(k) Tranzparts has made available to Buyer a copy of (i) the
three (3) most recently filed Federal Form 5500 series and accountant's opinion,
if applicable, for each Employee Benefit Plan.
4.16 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on SCHEDULE 4.16(a), no collective
bargaining agreement exists that is binding on Tranzparts and, except as
described on SCHEDULE 4.16(a), no petition has been filed or proceedings
instituted by an employee or group of employees with any labor relations board
seeking recognition of a bargaining representative. SCHEDULE 4.16(a) describes
any organizational effort currently being made or threatened by or on behalf of
any labor union to organize any employees of Tranzparts.
(b) Except as set forth on SCHEDULE 4.16(b), (i) there is no
labor strike, dispute, slow down or stoppage pending or, to Shareholders'
knowledge, threatened, against or directly affecting Tranzparts; (ii) no
grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is pending, and no claims therefor exist; and (iii) neither
Tranzparts nor any Shareholder nor any of their respective Affiliates has
received any notice or has any knowledge of any threatened labor or civil rights
dispute, controversy or grievance or any other unfair labor practice proceeding
or breach of contract claim or action with respect to claims of, or obligations
to, any employee or group of employees of Tranzparts.
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(c) Tranzparts has complied and is currently complying, in
respect of all employees of Tranzparts, with all Applicable Laws respecting
employment and employment practices and the protection of the health and safety
of employees, from whatever source such law may be derived, including, without
limitation, statutes, ordinances, laws, rules, regulations, judicial or
administrative precedents, judgments issued to or against Tranzparts, orders
issued to or against Tranzparts, decrees issued to or against Tranzparts, and
licenses ("Labor Laws"), except for such instances which are not, in the
aggregate, material.
(d) All individuals who are performing or have performed
services for Tranzparts and are or were classified by Tranzparts as "independent
contractors" qualify for such classification under Section 530 of the Revenue
Act of 1978 or Section 1706 of the Tax Reform Act of 1986, as applicable, except
for such instances which are not, in the aggregate, material.
4.17 INTELLECTUAL PROPERTY.
(a) SCHEDULE 4.17(a) sets forth a complete and correct list of
each patent, patent application and docketed invention, trademark, trade name,
trademark or tradename registration or application, copyright or copyright
registration or application for copyright registration, and each license or
licensing agreement, for any of the foregoing relating to the Business or held
by Tranzparts (the "Intellectual Property Rights").
(b) Except as disclosed in SCHEDULE 4.17(b), Tranzparts has not
during the three years preceding the date of this Agreement been a party to any
Proceeding, nor to the knowledge of Tranzparts and Shareholders is any
Proceeding threatened as to which there is a reasonable possibility of a
determination materially adverse to Tranzparts that involved or may involve a
claim of infringement by any Person (including any Governmental Authority) of
any Intellectual Property Right. Except as disclosed in SCHEDULE 4.17(b), no
Intellectual Property Right is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use thereof by Tranzparts, or
restricting the licensing thereof by Tranzparts to any Person. To the knowledge
of Tranzparts and Shareholders, the use of the Intellectual Property Rights does
not conflict with, infringe upon or violate any patent, patent license, patent
application, trademark, tradename, trademark or tradename registration,
copyright, copyright registration, service mark, brand mark or brand name or any
pending application relating thereto, or any trade secret, know-how, programs or
processes, or any similar rights, of any Person.
(c) Except as set forth in SCHEDULE 4.17(c), Tranzparts either
owns the entire right, title and interest in, to and under, or has acquired in
connection with the acquisition of Equipment or Inventory an implied license to
use, any and all patents, trademarks, tradenames, brand names and copyrights
which are material to the conduct of the Business in the manner that the
Business has heretofore been conducted.
4.18 ADVISORY FEES. There is no investment banker, broker, finder or
other intermediary or advisor that has been retained by or is authorized to act
on behalf of Tranzparts or any Shareholder who might be entitled to any fee,
commission or reimbursement of expenses from Tranzparts or Buyer or any of its
Affiliates or any of their respective Associates upon consummation of the
transactions contemplated by this Agreement or otherwise other than Godfrey &
Kahn, S.C. and Virchow, Krause & Company, LLP (formerly known as McNally &
Company, S.C.), whose fees and expenses in their entirety will be either accrued
on the Closing Balance Sheet or paid separately by Shareholders.
4.19 ENVIRONMENTAL COMPLIANCE.
(a) Except as disclosed in Schedule 4.19(a)(i), Tranzparts has
obtained all material approvals, authorizations, certificates, consents,
licenses and permits or other similar
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authorizations of all Governmental Authorities that are required under any
Environmental Law. Schedule 4.19(a)(ii) sets forth all material permits,
licenses and other authorizations issued under any Environmental Law to
Tranzparts relating to Tranzparts or the Business.
(b) Except as set forth in Schedule 4.19(b), Tranzparts is in
compliance with all material terms and conditions of all Permits of all
Governmental Authorities required under all Environmental Laws and used in the
Business or that relate to Tranzparts. Tranzparts is also in material
compliance with all Environmental Laws.
(c) Except for such instances as would not in the aggregate have
a Material Adverse Effect, there are no past or present conditions,
circumstances, incidents, actions or omissions relating to or in any way
affecting Tranzparts or the Business that, after the Closing and before the
expiration of the survival period for this representation established by
Paragraph 8.02 of this Agreement, will violate any Environmental Law, give rise
to any Environmental Liability, or otherwise form the basis of any claim,
action, demand, suit, proceeding, hearing, study or investigation (i) under any
Environmental Law, or (ii) based on or related to the manufacture, processing,
distribution, use, treatment, storage (including without limitation underground
storage tanks), disposal, transport or handling, or the emission, discharge,
release or threatened release of any Hazardous Substance.
4.20 INSURANCE. Set forth in SCHEDULE 4.20 is a complete and correct
list of all material insurance policies of any kind currently in force or in
force at any time subsequent to December 31, 1993 with respect to the Business
(the "Insurance Policies"), including all "occurrence based" liability policies
regardless of the periods to which they relate. SCHEDULE 4.20 also sets forth
for each Insurance Policy the type of coverage, the name of the insureds, the
insurer, the premium, the expiration date, the period to which it relates, the
deductibles and loss retention amounts and the amounts of coverage.
4.21 TAX MATTERS.
Except as set forth on SCHEDULE 4.21:
(a) Tranzparts has timely filed all Tax Returns required to have
been filed by it, and has paid or accrued all Taxes due to any taxing authority
with respect to all taxable periods ending on or prior to the Closing Date, or
otherwise attributable to all periods prior to the Closing Date; and all such
Tax Returns are true, correct and complete in all respects. Tranzparts is not
currently the beneficiary of any extension of time within which to file any Tax
Return.
(b) Tranzparts has not received notice that the IRS or any other
taxing authority has asserted against Tranzparts any deficiency in Taxes or
claim for additional Taxes in connection with any tax period. Except for liens
arising from Taxes which are due but not yet payable, there are no liens for
Taxes on any of Tranzparts' assets.
(c) Tranzparts has withheld and paid over all Taxes required to
have been withheld and paid over in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party;
(d) Tranzparts has not been included in any consolidated,
combined or unitary Tax Return provided for under the laws of the United States,
any state or locality with respect to Taxes for any taxable period for which the
statute of limitations has not expired.
(e) Tranzparts made and had in effect a valid and timely
election to be treated as an S corporation under Section 1361 ET. SEQ. of the
Code (and any corresponding provisions of all applicable state and local income
tax laws) for taxable years beginning on or after December 1,
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1991 and ending on March 26, 1996, and Tranzparts was treated as an
"S corporation" under the Code and all such state and local tax laws for all
such taxable years or portions thereof ending on March 26, 1996.
(f) Tranzparts does not have any unpaid liability for Taxes
under Sections 1363(d), 1374, or 1375 of the Code (or any successor or
predecessor provision) or any similar provision of state or local law for any
period on or prior to or including the Closing Date.
ARTICLE VBUYER'S REPRESENTATIONS AND WARRANTIES
As an inducement to Shareholders to enter into this Agreement and to
consummate the transactions contemplated herein, Buyer hereby represents and
warrants to Shareholders that:
5.01 ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power and authority to enter into this
Agreement and consummate the transactions contemplated hereby. Buyer is duly
qualified to do business as a foreign corporation in each jurisdiction where the
character of the property owned or leased by it or the nature of its activities
makes such qualification necessary to carry on its business as now conducted,
except for those jurisdictions where in the aggregate the failure to be so
qualified is not, and is not reasonably expected to become, material.
5.02 CORPORATE AUTHORIZATION. The execution, delivery and performance
by Buyer of this Agreement and the consummation by Buyer of the transactions
contemplated hereby are within the corporate powers of Buyer and have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement constitutes a legal, valid and binding agreement of Buyer, enforceable
in accordance with its terms, except (i) as rights to indemnity hereunder may be
limited by federal or state securities laws or the public policies embodied
therein, (ii) as such enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally, and (iii) as the remedy of specific performance and
other forms of injunctive relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance of this Agreement by Buyer require no action by, consent or approval
of, or filing with, any Governmental Authority other than filings required to be
made after the Closing under the Securities Act or state securities laws and any
actions, consents, approvals or filings otherwise expressly referred to in this
Agreement.
5.04 NON-CONTRAVENTION. The execution, delivery and performance by
Buyer of this Agreement does not and will not (a) contravene or conflict with
the Bylaws of Buyer, a true, correct and complete copy of each of which has been
delivered to Shareholders by Buyer, (b) contravene or constitute a default under
any material agreement to which Buyer is a party, or (c) assuming compliance
with the matters referred to in Section 5.03, contravene or conflict with or
constitute a violation of any provision of any Applicable Law or Environmental
Law binding upon or applicable to Buyer.
5.05 LITIGATION. There is no Proceeding pending against, or to the
best knowledge of Buyer, threatened against or affecting, Buyer before any court
or arbitrator or any governmental body, agency or official that challenges or
seeks to prevent, enjoin, alter or materially delay the transactions
contemplated by this Agreement.
5.06 INVESTMENT REPRESENTATIONS. Buyer is acquiring the Shares for
investment solely for its own account and not with a view to, or for resale in
connection with, any distribution thereof and is aware that each Shareholder is
relying upon the bona fide nature of Buyer's investment
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intent as expressed herein. Buyer further understands that the Shares to be
acquired have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") and have not been qualified under California law and that
any subsequent disposition thereof must be registered under the Securities Act
and qualified under California law or be exempt from such registration and
qualification. Buyer is aware that no market may exist for the resale of the
Shares. Buyer has the ability to bear the economic risks of investment in the
Shares including a complete loss of the investment.
ARTICLE VICOVENANTS THAT SURVIVE THE CLOSING DATE
The parties hereto agree that:
6.01 CONFIDENTIALITY.
(a) Tranzparts and Shareholders will, and Shareholders will
cause Tranzparts to, and each will cause their respective employees, officers,
directors, shareholders, outside advisors, agents, Affiliates and
representatives to, treat any data and information obtained with respect to
Buyer or any of its Affiliates from any representative, officer, director, or
employee of Buyer, or from any books or records of Buyer in connection with this
Agreement, confidentially and with commercially reasonable care and discretion,
and will not disclose any such information to third parties; PROVIDED, HOWEVER,
that the foregoing shall not apply to (i) information in the public domain or
that becomes public through disclosure by any party other than Tranzparts or
Shareholders or their Affiliates or representatives, so long as such other party
is not in breach of a confidentiality obligation, (ii) information that is
required to be disclosed by Applicable Law, (iii) any information that is
disclosed by Shareholders, Tranzparts or their respective Affiliates, on a
confidential basis, to any of their respective agents, accountants or attorneys
in connection with or related to the consummation of the transactions
contemplated hereby or (iv) information required to be disclosed to obtain any
Required Consents.
(b) During the two-year period after Closing, Shareholders will
not disclose any confidential data or information with respect to Tranzparts or
any of its Affiliates to third parties; PROVIDED, HOWEVER, that the foregoing
shall not apply to (i) information in the public domain or that becomes public
through disclosure by any party other than Shareholders or their Affiliates or
representatives, so long as such other party is not in breach of a
confidentiality obligation, (ii) information that may be required to be
disclosed by Applicable Law, or (iii) information required to be disclosed to
obtain any Required Consents.
(c) The parties hereto recognize and agree that in the event of
a breach by Tranzparts or Shareholders of this section, money damages would not
be an adequate remedy to Buyer or its Affiliates for such breach and, even if
money damages were adequate, it would be impossible to ascertain or measure with
any degree of accuracy the damages sustained by Buyer or its Affiliates
therefrom. Accordingly, if there should be a breach or threatened breach by
Tranzparts or Shareholders of the provisions of this section, Buyer and its
Affiliates shall be entitled to an injunction restraining Tranzparts and
Shareholders from any breach without showing or proving actual damage sustained
by Buyer or its Affiliates, as the case may be. Nothing in the preceding
sentence shall limit or otherwise affect any remedies that Buyer may otherwise
have under Applicable Law.
6.02 FURTHER ASSURANCES. Buyer, Tranzparts and Shareholders agree to
execute and deliver such other documents, certificates, agreements and other
writings and to take such other actions as may be reasonably necessary or
desirable (including, without limitation, obtaining the Required Consents) in
order to consummate or implement expeditiously the transactions contemplated by
this Agreement. Notwithstanding the foregoing, no party hereto shall have any
obligation to expend any funds or to incur any other obligation in connection
with the consummation of the transactions contemplated hereby (including, by way
of illustration only, any payment in connection
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with obtaining the Required Consents) other than normal out-of-pocket expenses
(such as fees and expenses of counsel and accountants) reasonably necessary to
consummate such transactions.
6.03 PUBLIC ANNOUNCEMENTS. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by Applicable Law, will not issue any such public statement
without the prior written consent of the other parties hereto. Notwithstanding
the foregoing, the parties may, on a confidential basis, advise and release
information regarding the existence and content of this Agreement or the
transactions contemplated hereby to their respective Affiliates or any of their
agents, accountants, attorneys and prospective lenders or investors in
connection with or related to the transactions contemplated by this Agreement,
including without limitation the financing of such transactions.
6.04 ADMINISTRATION OF ACCOUNTS. All payments and reimbursements
received by either Shareholder after the Closing Date from any third party in
the name of or to Tranzparts or any Affiliate thereof in connection with or
arising out of any business of Tranzparts, including without limitation the
Business, shall be held by Shareholders or such Affiliate in trust for the
benefit of Buyer and, immediately upon receipt by either Shareholder or any such
Affiliate of any such payment or reimbursement, such Shareholder shall pay, or
cause to be paid, over to Buyer the amount of such payment or reimbursement.
6.05 TAX MATTERS.
(a) All sales, value added, use, registration, stamp, transfer
and similar Taxes imposed in connection with the sale of the Shares shall be
borne by Shareholders.
(b) (i) Shareholders shall have the exclusive authority and
obligation and shall be responsible for the correct and timely filing of all Tax
Returns of Tranzparts with respect to all Taxes for all periods ending on or
prior to the Closing Date ("Pre-Closing Tax Periods"), and, after the Closing
Date, Tranzparts shall, and Buyer shall cause Tranzparts to, provide reasonable
access to such books and records of Tranzparts as necessary to prepare such Tax
Returns. Shareholders shall prepare the Tax Returns in a manner consistent with
prior years and shall provide copies of such Tax Returns to Buyer at least ten
(10) days prior to filing.
(ii) Buyer shall have the exclusive authority and obligation
and shall be responsible for the correct and timely filing of all Tax Returns of
Tranzparts for all periods other than Pre-Closing Tax Periods ("Post-Closing Tax
Periods").
(c) If there is an adjustment for any Pre-Closing Tax Period
which results in an increase or decrease in Taxes for such period then all
refunds of and deficiencies in Taxes arising from such adjustments shall be for
the account of Shareholders in their respective Pro Rata Portions.
Shareholders, severally in their respective Pro Rata Portions, shall reimburse
Tranzparts for Taxes which Tranzparts must pay as a result of such Pre-Closing
Tax Period adjustments within fifteen (15) days of written notice to the extent
such Taxes are not reflected in a reserve for Tax liabilities (rather than any
reserve for deferred Taxes established to reflect timing differences between
book and Tax income) shown on the Closing Balance Sheet and within fifteen (15)
days of receipt Tranzparts shall pay over to Shareholders, severally in their
respective Pro Rata Portions, any refunds of taxes attributable to Pre-Closing
Tax Period adjustments received by Tranzparts. Buyer shall be responsible and
liable for the timely payment of all Taxes imposed on or with respect to the
properties, income and operations of Tranzparts for all Post-Closing Tax
Periods.
(d) (i) Shareholders, at their sole expense, shall have the
exclusive authority to represent Tranzparts before any taxing authority or any
court regarding any Tax consequences relating to the Pre-Closing Tax Periods,
including initiating any claim for refund for any
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Tax, and Buyer shall give Shareholders timely notice of the pendency of any such
proceeding and shall give Shareholders or Shareholders' designated
representatives all necessary and appropriate powers of attorney to represent
Tranzparts in such proceedings; PROVIDED, HOWEVER, that Shareholders shall not
enter into any settlement of any contest or otherwise compromise any issue that
affects or may affect the Tax Liability of Tranzparts for any Post-Closing Tax
Period without the prior written consent of Buyer which shall not be
unreasonably withheld. Shareholders shall keep Buyer fully and timely informed
with respect to the commencement, status and nature of any administrative or
judicial proceedings involving any Tax Liability of Tranzparts for all Pre-
Closing Tax Periods.
(ii) Except as provided in Section 6.05(d)(i), Buyer shall
have the sole right to control any audit or examination by any taxing authority,
initiate any claim for refund or amend any Tax Return, and contest, resolve and
defend against any assessment for additional Taxes, notice of Tax deficiency or
other adjustment of Taxes of, or relating to, Tranzparts; PROVIDED, HOWEVER,
that the Buyer shall not enter into any settlement of any contest or otherwise
compromise any issue that, in the opinion of Buyer, may have an adverse effect
on the Tax Liability of Shareholders or Tranzparts for any Pre-Closing Tax
Period without providing prior written notice to Shareholders.
ARTICLE VII CONDITIONS TO CLOSING
7.01 CONDITIONS TO OBLIGATION OF BUYER. The obligations of Buyer to
consummate the Closing are subject to the satisfaction of each of the following
conditions:
(a) (i) Tranzparts and Shareholders shall each have performed
and satisfied each of their respective obligations hereunder required to be
performed and satisfied by either of them on or prior to the Closing Date,
(ii) each of the representations and warranties of Tranzparts and Shareholders
contained herein shall be true and correct as of the Closing.
(b) All Required Governmental Approvals for the transactions
contemplated by this Agreement shall have been obtained without the imposition
of any conditions that are or would become applicable to Tranzparts, the
Business, the Shares or Buyer (or any of its Affiliates) after the Closing that
would be materially burdensome upon Tranzparts, the Business, the Shares or
Buyer or Buyer's business substantially as such business has been conducted
prior to the Closing Date. All such Required Governmental Approvals shall be in
effect, and no Proceedings shall have been instituted or threatened by any
Governmental Authority with respect thereto as to which there is a material risk
of a determination that would terminate the effectiveness of, or otherwise
materially and adversely modify the terms of, any such Required Governmental
Approval; all applicable waiting periods with respect to such Required
Governmental Approvals shall have expired; and all conditions and requirements
prescribed by Applicable Law or by such Required Governmental Approvals to be
satisfied on or prior to the Closing Date shall have been satisfied to the
extent necessary such that all such Required Governmental Approvals are, and
will remain, in full force and effect assuming continued compliance with the
terms thereof after the Closing.
(c) All Required Contractual Consents shall have been obtained
without the imposition of any conditions that are or would become applicable to
Tranzparts, the Business, the Shares, Buyer or any of its Affiliates after the
Closing that would be materially burdensome upon Tranzparts, the Business, the
Shares, Buyer or Buyer's business substantially as such business has been
conducted prior to the Closing Date. All such Required Contractual Consents
shall be in effect. All conditions and requirements prescribed by any Required
Contractual Consent to be satisfied on or prior to the Closing Date shall have
been satisfied to the extent necessary such that all such Required Contractual
Consents are effective and enforceable, and will remain effective and
enforceable against the Persons giving such Required Contractual Consents
assuming continued compliance with the terms thereof.
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(d) The transactions contemplated by this Agreement and the
consummation of the Closing shall not violate any Applicable Law. No temporary
restraining order, preliminary or permanent injunction, cease and desist order
or other order issued by any court of competent jurisdiction or any competent
Governmental Authority or any other legal restraint or prohibition preventing
the transfer and exchange contemplated hereby or the consummation of the
Closing, or imposing Damages in respect thereto, shall be in effect, and there
shall be no pending or threatened actions or proceedings by any Governmental
Authority (or determinations by any Governmental Authority) or by any other
Person challenging or in any manner seeking to restrict or prohibit the sale,
transfer and exchange contemplated hereby or the consummation of the Closing, or
to impose conditions or the same that would be materially burdensome upon
Tranzparts, the Business, the Shares or Buyer substantially as such business has
been conducted prior to the Closing Date.
(e) Each of CTG and JPD will enter into a Noncompetition
Agreement in a form reasonably acceptable to Buyer and JPD shall have executed
and delivered to Buyer an Employment Agreement substantially in a form
reasonably acceptable to Buyer.
(f) Buyer shall have received an opinion of counsel from
Godfrey & Kahn, S.C., counsel to Tranzparts and Shareholders, dated the Closing
Date, in a form reasonably acceptable to Buyer.
(g) Gorham Donoghue, LLC shall have entered into a lease with
Tranzparts relating to the Shareholders Real Property in a form reasonably
acceptable to Buyer.
7.02 CONDITIONS TO OBLIGATION OF SHAREHOLDERS. The obligations of
Shareholders to consummate the Closing are subject to the satisfaction of each
of the following conditions:
(a) (i) Buyer shall have performed and satisfied each of its
obligations hereunder required to be performed and satisfied by it on or prior
to the Closing Date; and (ii) each of the representations and warranties of
Buyer contained herein shall be true and correct as of the Closing.
(b) All Required Governmental Approvals for the transactions
contemplated by this Agreement shall have been obtained without the imposition
of any conditions that are or would become applicable to Shareholders or any of
their respective Affiliates after the Closing that would be materially
burdensome upon such Person. All such Required Governmental Approvals shall be
in effect, and no Proceedings shall have been instituted or threatened by any
Governmental Authority with respect thereto as to which there is a material risk
of a determination that would terminate the effectiveness of, or otherwise
materially and adversely modify the terms of, any such Required Governmental
Approval. All applicable waiting periods with respect to such Required
Governmental Approvals shall have expired, and all conditions and requirements
prescribed by Applicable Law or by such Required Governmental Approvals to be
satisfied on or prior to the Closing Date shall have been satisfied to the
extent necessary such that all such Required Governmental Approvals are, and
will remain, in full force and effect assuming continued compliance with the
terms thereof after the Closing.
(c) All Required Contractual Consents shall have been obtained
without the imposition of any conditions that are or would become applicable to
Shareholders or any of their respective Affiliates after the Closing that would
be materially burdensome upon such Person. All such Required Contractual
Consents shall be in effect, and no Proceeding shall have been instituted or
threatened with respect thereto that creates a material risk that any material
Liability will be imposed on either Shareholder. All conditions and requirement
prescribed by any required Contractual Consent to be satisfied on or prior to
the Closing Date shall have been satisfied to the extent necessary such that no
material Liability will be imposed on either Shareholder.
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(d) The sale and transfer and exchange contemplated by this
Agreement and the consummation of the Closing shall not violate any Applicable
Law. No temporary restraining order, preliminary or permanent injunction, cease
and desist order or other order issued by any court of competent jurisdiction or
any competent Governmental Authority or any other legal restraint or prohibition
preventing the transfer and exchange contemplated hereby or the consummation of
the Closing, or imposing Damages in respect thereto, shall be in effect, and
there shall be no pending actions or proceedings by any Governmental Authority
(or determinations by any Governmental Authority) or by any other Person
challenging or seeking to materially restrict, prohibit or condition the
transfer and exchange contemplated hereby or the consummation of the Closing.
(e) Shareholders shall have received an opinion of counsel from
Gibson, Dunn & Crutcher, counsel to Buyer, dated the Closing Date in a form
reasonably acceptable to Shareholders.
(f) Tranzparts shall have executed and delivered to JPD an
Employment Agreement in a form reasonably acceptable to JPD.
(g) Tranzparts shall have entered into a lease with Gorham
Donoghue, LLC relating to the Shareholders Real Property in a form reasonably
acceptable to Gorham Donoghue, LLC.
(h) Each of the agreements and instruments listed on EXHIBIT C
hereto shall have been terminated and shall be of no further force and effect.
(i) Aftermarket Technology Corp. shall have entered into a
guarantee of Buyer's obligations under this Agreement.
ARTICLE VIII INDEMNIFICATION
8.01 AGREEMENT TO INDEMNIFY.
(a) Buyer and its Affiliates (collectively, the "Buyer
Indemnitees") shall each be indemnified and held harmless to the extent set
forth in this Article VIII by each Shareholder in respect of any and all Damages
reasonably and proximately incurred by any Buyer Indemnitee as a result of any
breach of any representation or warranty made by such Shareholder in Article III
hereof (collectively, "Article III Claims").
(b) Each Buyer Indemnitee shall be indemnified and held harmless
to the extent set forth in this Article VIII by Shareholders severally in their
respective Pro Rata Portions in respect of any and all Damages reasonably and
proximately incurred by any Buyer Indemnitee as a result of: (1) any breach of
any representation, warranty, covenant or agreement made in this Agreement
(other than in Article III) by Tranzparts prior to the Closing or Shareholders
at any time or (2) any of the items set forth on SCHEDULE 4.19(a)(i)
(collectively with Article III Claims, "Buyer Indemnifiable Claims").
(c) Shareholders and their respective Affiliates (collectively,
the "Shareholder Indemnitees") shall each be indemnified and held harmless to
the extent set forth in this Article VIII by Buyer in respect of any and all
Damages reasonably and proximately incurred by any Shareholder Indemnitee as a
result of any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made by Buyer in this Agreement.
(d) Except as set forth in Sections 8.01(a), (b) and (c), no
Person shall have any claim or cause of action as a result of any inaccuracy or
misrepresentation in or breach of or failure to perform any representation,
warranty, covenant, agreement or obligation of any
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Indemnifying Party referred to in this Section 8.01 against any Affiliate,
stockholder, director, officer, employee, consultant or agent of such
Indemnifying Party. Nothing set forth in this Article VIII shall be deemed to
prohibit or limit any Buyer Indemnitee's or Shareholder Indemnitee's right at
any time before, on or after the Closing Date, to seek injunctive or other
equitable relief for the failure of any Indemnifying Party to perform any
covenant or agreement contained herein.
(e) Notwithstanding the foregoing, Buyer Indemnitees may not
seek indemnification hereunder from Shareholders unless and until the Buyer
Indemnifiable Claims in the aggregate exceed Fifty Thousand Dollars ($50,000)
(the "Basket") and then only for amounts in excess of the Basket. This Section
8.01(e) shall not apply to the Article III Claims, indemnification claims
relating to Sections 4.03 or 4.18 (the "Fully Covered Claims"), or
indemnification claims relating to Section 4.21 of Article IV so long as such
claims relate to the status and taxation of the Company as an S corporation
under Section 1361 ET. SEQ. of the Code (and any corresponding provisions of all
applicable state and local income tax laws) (the "S Corporation Claims"), which
will be fully indemnified by Shareholders.
(f) The maximum aggregate liability of each Shareholder to
indemnify the Buyer Indemnitees under this Article VIII shall not exceed
(i) thirty-five percent (35%) of such Shareholder's Pro Rata Portion of the
Total Consideration with respect to those claims other than Article III Claims,
Fully Covered Claims, S Corporation Claims and indemnification claims relating
to Section 4.19 ("Environmental Claims") (ii) one hundred percent (100%) of such
Shareholder's Pro Rata Portion of the Total Consideration with respect to
Article III Claims, Fully Covered Claims and Environmental Claims; PROVIDED,
HOWEVER, that the sum of (i) and (ii) of this Section 8.01(f) shall not exceed
such Shareholder's Pro Rata Portion of the Total Consideration. There shall be
no maximum aggregate liability of Shareholders to indemnify the Buyer
Indemnitees under this Article VIII with respect to S Corporation Claims.
8.02 SURVIVAL OF REPRESENTATION, WARRANTIES AND COVENANTS.
(a) Except as herein after provided in this Section 8.02, all
representations, warranties, covenants, agreements and obligations of each
Indemnifying Party contained herein and all claims of any Buyer Indemnitee or
Shareholder Indemnitee in respect of any breach of any representation, warranty,
covenant, agreement or obligation of any Indemnifying Party contained in this
Agreement, shall survive the Closing and shall expire on April 2, 1998;
(b) Notwithstanding Section 8.02(a), each of the following
representations, warranties, covenants, agreements and obligations of Tranzparts
and Shareholders as Indemnifying Parties shall survive the Closing Date until
the expiration of sixty (60) days following any applicable statute of
limitations, including extensions thereof: (i) any breach of any
representation, warranty, covenant or agreement made by Tranzparts prior to the
Closing or Shareholders at any time in this Agreement arising out of fraud or
willful misconduct; (ii) any breach of any representation or warranty made in
Article III or in Sections 4.01, 4.02, 4.03, 4.04, 4.18 or 4.21 or breach of any
covenant contained in Section 6.05 or 9.03 regardless of whether such breach
arises out of fraud or willful misconduct; and (iii) the breach or failure to
perform by Shareholders after the Closing Date of any of the covenants or
agreements of such Person contained in this Agreement or in the Exhibits
attached hereto.
(c) Notwithstanding Section 8.02(a), all representations,
warranties, covenants, agreements and obligations of each Indemnifying Party
contained in Section 4.19 and all claims of any Buyer Indemnitee or Shareholder
Indemnitee in respect of any breach of any representation, warranty, covenant,
agreement or obligation of any Indemnifying Party contained in Section 4.19,
regardless of whether such breach arises out of fraud or willful misconduct,
shall survive the Closing and shall expire on April 2, 2002;
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(d) Notwithstanding Section 8.02(a), each of the following
representations, warranties, covenants, agreements and obligations of Buyer as
an Indemnifying Party shall survive the Closing Date until the expiration of
sixty (60) days following the applicable statute of limitations, including
extensions thereof: (i) any breach of any representation, warranty, covenant or
agreement made by Buyer in this Agreement arising out of fraud or willful
misconduct; (ii) any breach of any representation or warranty made in
Sections 5.01, 5.02 and 5.06 regardless of whether such breach arises out of
fraud or willful misconduct; and (iii) the breach or failure to perform by Buyer
after the Closing Date of any of the covenants or obligations of Buyer contained
in this Agreement or in the Exhibits attached hereto.
8.03 CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall believe that
such Indemnitee is entitled to indemnification pursuant to this Article VIII in
respect of any Damages, such Indemnitee shall give the appropriate Indemnifying
Parties prompt written notice thereof. Any such notice shall set forth in
reasonable detail and to the extent then known the basis for such claim for
indemnification. The failure of such Indemnitee to give notice of any claim for
indemnification promptly, but within the periods specified by Section 8.02(a) or
(b), as the case may be, shall not adversely affect such Indemnitee's right to
indemnity hereunder except to the extent that such failure adversely affects the
right of the Indemnifying Parties to assert a reasonable defense to such claim.
Each such claim for indemnity shall expressly state that the Indemnifying
Parties shall have only the twenty (20) Business Day period referred to in the
next sentence to dispute or deny such claim. The Indemnifying Parties shall
have twenty (20) Business Days following its receipt of such notice either
(y) to acquiesce in such claim by giving such Indemnitee written notice of such
acquiescence or (z) to object to the claim by giving such Indemnitee written
notice of the objection. If the Indemnifying Parties do not object thereto
within such twenty (20) Business Day period, such Indemnitee shall be entitled
to be indemnified for all Damages reasonably and proximately incurred by such
Indemnitee in respect of such claim. If the Indemnifying Parties object to such
claim in a timely manner, and such Indemnitee and the Indemnifying Parties are
unable to resolve their dispute within ten (10) Business Days following such
objection (or such additional period of time as may be mutually agreed to by
such parties), the claim shall be submitted immediately to arbitration pursuant
to Section 9.11.
8.04 DEFENSE OF CLAIMS. In connection with any claim which may give
rise to indemnity under this Article VIII resulting from or arising out of any
claim or Proceeding against an Indemnitee by a Person that is not a party
hereto, the Indemnifying Parties may (unless such Indemnitee elects not to seek
indemnity hereunder for such claim), upon written notice to the relevant
Indemnitee, assume the defense of any such claim or Proceeding if all
Indemnifying Parties with respect to such claim or Proceeding jointly
acknowledge to the Indemnitee that such Indemnitee may have a right of indemnity
pursuant hereto based on the outcome of the Proceeding (as such claim may have
been modified through written agreement of the parties or arbitration
hereunder). If the Indemnifying Parties assume the defense of any such claim or
Proceeding, the Indemnifying Parties shall select counsel reasonably acceptable
to such Indemnitee to conduct the defense of such claim or Proceeding, shall
take all steps necessary in the defense or settlement thereof and shall at all
times diligently and promptly pursue the resolution thereof. If the
Indemnifying Parties shall have assumed the defense of any claim or Proceeding
in accordance with this Section 8.04, the Indemnifying Parties shall be
authorized to consent to a settlement of, or the entry of any judgment arising
from, any such claim or Proceeding, without the prior written consent of such
Indemnitee; PROVIDED, HOWEVER, that the Indemnifying Parties shall pay or cause
to be paid all amounts arising out of such settlement or judgment concurrently
with the effectiveness thereof to the extent required pursuant to Section 8.01;
PROVIDED, FURTHER, that the Indemnifying Parties shall not be authorized to
encumber any of the assets of any Indemnitee or to agree to any restriction that
would apply to any Indemnitee or to its conduct of business; and PROVIDED,
FURTHER, that a condition to any such settlement shall be a complete release of
such Indemnitee and its Affiliates, officers, employees, consultants and agents
with respect to such claim. Such Indemnitee shall be entitled to participate in
(but not control) the defense of any such action, with its own counsel and at
its own expense. Each Indemnitee shall, and shall cause each of its Affiliates,
officers, employees, consultants and agents to, cooperate fully with the
Indemnifying Parties
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in the defense of any claim or Proceeding being defended by the Indemnifying
Parties pursuant to this Section 8.04. If the Indemnifying Parties do not
assume the defense of any claim or Proceeding resulting therefrom in accordance
with the terms of this Section 8.04, such Indemnitee may defend against such
claim or Proceeding in such manner as it may deem appropriate, including
settling such claim or Proceeding after giving notice of the same to the
Indemnifying Parties, on such terms as such Indemnitee may deem appropriate. If
the Indemnifying Parties seek to question the manner in which such Indemnitee
defended such claim or Proceeding or the amount of or nature of any such
settlement, the Indemnifying Parties shall have the burden to prove by a
preponderance of the evidence that such Indemnitee did not defend such claim or
Proceeding in a reasonably prudent manner.
ARTICLE IX MISCELLANEOUS
9.01 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) if
personally delivered, when so delivered, (ii) if mailed, two Business Days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid and addressed to the intended recipient as set forth below,
(iii) if given by telex or telecopier, once such notice or other communication
is transmitted to the telex or telecopier number specified below and the
appropriate answer back or telephonic confirmation is received, provided that
such notice or other communication is promptly thereafter mailed in accordance
with the provisions of clause (ii) above or (iv) if sent through a reputable
overnight delivery service in circumstances to which such service guarantees
next day delivery, the day following being so sent:
If to Tranzparts:
Tranzparts, Inc.
2921 Kennedy Road
P.O. Box 1103
Janesville, WI 53547
Attention: J. Peter Donoghue
Telecopier No.: (608) 754-5391
If to Trust:
c/o Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
Attention: Henry Fuldner, Esq.
Telecopier No.: (414) 273-5198
If to CTG:
2525 N. 124th Street
Brookfield, WI 53005
Telecopier No.: (414) 827-3920
If to JPD:
Tranzparts, Inc.
2921 Kennedy Road
P.O. Box 1103
Janesville, WI 53547
Telecopier No.: (608) 754-5391
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in each such case, with a copy to:
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202
Attention: Richard J. Bliss, Esq.
Telecopier No.: (414) 273-5198
If to Buyer:
Tranzparts Acquisition Corp.
1800 Century Park East, Suite 1000
Los Angeles, California 90067
Attn: Richard K. Roeder, Esq.
Telecopier No.: (310) 277-5591
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue, Suite 5018
Los Angeles, California 90071
Attn: Bruce D. Meyer, Esq.
Telecopier No.: (213) 229-7520
Any party may give any notice, request, demand, claim or other
communication hereunder using any other means (including ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
9.02 AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived if,
and only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent occurrence. No failure or delay by a party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies herein provided shall be cumulative and not exclusive of
any rights or remedies provided by law.
9.03 EXPENSES. All costs and expenses incurred in connection with
this Agreement and in closing and carrying out the transactions contemplated
hereby shall be paid by the party incurring such cost or expense. Without
limiting the generality of the immediately preceding sentence, the fees, costs
and expenses of the accountants, attorneys and other financial advisors to
Tranzparts or Shareholders in connection with the preparation, negotiation or
consummation of the transactions contemplated by this Agreement shall be borne
by Shareholders severally in their respective Pro Rata Portions and none of such
fees, costs or expenses shall be paid by Tranzparts. This section shall survive
the termination of this Agreement.
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9.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. No party hereto may assign either this Agreement or any of
its rights, interests or obligations hereunder without the prior written
approval of each other party, which approval shall not be unreasonably withheld.
9.05 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed by the internal laws (without reference to choice or conflict
of laws) of the State of Delaware.
9.06 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts and the signatures delivered by telecopy, each of which
shall be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument and delivered in person. This Agreement
shall become effective when each party hereto shall have received a counterpart
hereof signed by the other parties hereto.
9.07 ENTIRE AGREEMENT. This Agreement (including the Appendices,
Schedules and Exhibits referred to herein which are hereby incorporated by
reference) constitutes the entire agreement between the parties with respect to
the subject matter hereof and supersedes all prior agreements, understandings
and negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
9.08 CAPTIONS. The captions herein are included for convenience of
reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
9.09 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended.
9.10 CONSTRUCTION. The parties hereto intend that each
representation, warranty, and covenant contained herein shall have independent
significance. If any party has breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) that the party has not
breached shall not detract from or mitigate the fact that the party is in breach
of the first representation, warranty or covenant.
9.11 ARBITRATION.
(a) Any disputes or differences between the parties arising out
of this Agreement or the transactions contemplated hereby, including without
limitation any dispute between any Indemnitee and any Indemnifying Party under
Article VIII, which the parties are unable to resolve themselves shall be
submitted to and resolved by arbitration as herein provided. Within ten (10)
Business Days after expiration of the ten (10) Business Day period referred to
in Section 8.03, as the case may be, the Indemnifying Party and the Indemnitee
shall each designate one arbitrator. Within ten (10) Business Days after the
appointment of the two arbitrators, the two arbitrators shall designate a third
arbitrator mutually acceptable to them, who shall be a business oriented person
who is not affiliated with any party in interest to such arbitration and who has
substantial professional experience with regard to business matters. If the
arbitrator chosen by the Indemnifying Party and the arbitrator chosen by the
Indemnitee fail to agree upon the third arbitrator within such ten (10) Business
Day
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period, the third arbitrator shall be appointed by the American Arbitration
Association as soon as practicable and shall be a business oriented person who
is not affiliated with any party in interest to such arbitration and who has
substantial professional experience with regard to business matters.
(b) The three arbitrators shall consider the dispute at issue at
Chicago, Illinois at a mutually agreed upon time within thirty (30) days (or
such longer period as may be acceptable to the Indemnifying Party and the
Indemnitee) of the designation of the arbitrators. The arbitration proceeding
shall be held in accordance with the rules for commercial arbitration of the
American Arbitration Association in effect on the date of the initial request by
the relevant Indemnitee or the Indemnifying Party, as the case may be, that gave
rise to the dispute to be arbitrated (as such rules are modified by the terms of
this Agreement or may be further modified by mutual agreement of the relevant
Indemnifying Party and the Indemnitee) and shall include an opportunity for the
parties to conduct discovery in advance of the proceeding. Notwithstanding the
foregoing, the relevant Indemnifying Party and the Indemnitee agree that they
will attempt, and they intend that they and the arbitrators should use their
best efforts in that attempt, to conclude the arbitration proceeding and have a
final decision from the arbitrators within ninety (90) days from the date of
selection of the arbitrators; PROVIDED, HOWEVER, that the arbitrators shall be
entitled to extend such 90-day period one or more times to the extent necessary
for such arbitrators to place a dollar value on any claim that may be
unliquidated. The arbitrators shall promptly deliver a decision with respect to
the dispute to each of the parties, who shall promptly act in accordance
therewith. Each Indemnifying Party and the Indemnitee party to such arbitration
agrees that any decision of the arbitrators shall be final, conclusive and
binding and that they will not contest any action by any other party thereto in
accordance with a decision of the arbitrators. It is specifically understood
and agreed that any party may enforce any award rendered pursuant to the
arbitration provisions of this Section 9.11 by bringing suit in any court of
competent jurisdiction.
(c) All fees, costs and expenses (including attorneys' fees and
expenses) incurred by the party that prevails in any such arbitration commenced
pursuant to this Section 9.11 or any judicial action or proceeding seeking to
enforce the agreement to arbitrate disputes as set forth in this Section 9.11 or
seeking to enforce any order or award of any arbitration commenced pursuant to
this Section 9.11 may be assessed against the party or parties that do not
prevail in such arbitration in such manner as the arbitrators or the court in
such judicial action, as the case may be, may determine to be appropriate under
the circumstances. All costs and expenses attributable to the arbitrators shall
be allocated among the parties to the arbitration in such manner as the
arbitrators shall determine to be appropriate under the circumstances.
9.12 CUMULATIVE REMEDIES. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
9.13 THIRD PARTY BENEFICIARIES. No provision of this Agreement shall
create any third party beneficiary rights in any Person, including any employee
of Buyer or employee or former employee of Tranzparts or any Affiliate thereof
(including any beneficiary or dependent thereof).
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IN WITNESS WHEREOF, the parties hereto here caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
TRUST: CHARLES T. AND JEAN F. GORHAM
CHARITABLE REMAINDER TRUST DATED
MARCH 27, 1996
By:
-------------------------------
Charles T. Gorham, Co-Trustee
By:
-------------------------------
Henry Fuldner, Co-Trustee
CTG:
-------------------------------
Charles T. Gorham
JPD:
-------------------------------
J. Peter Donoghue
Tranzparts: TRANZPARTS, INC., a Wisconsin
corporation
By:
-------------------------------
Name:
Title:
BUYER: TRANZPARTS ACQUISITION CORP.,
a Delaware corporation
By:
-------------------------------
Mark C. Hardy, Vice President
26
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APPENDIX A
DEFINED TERMS
"ADJUSTED SHAREHOLDERS' EQUITY" means the shareholders' equity at the
Closing Date plus the amount, if any, by which the book value of the
Shareholders Real Property exceeds the outstanding principal amount of, and any
interest or other amounts accrued with respect to any outstanding mortgages on,
the Shareholders Real Property, in each such case as of the date of the Real
Property Distribution.
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person.
"APPLICABLE LAW" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, binding
administrative interpretation, regulation, order, writ, injunction, directive,
judgment, decree or other requirement, all as in effect as of the Closing, of
any Governmental Authority (other than Environmental Law) applicable to such
Person or any of its Affiliates or Plan Affiliates or any of their respective
properties, assets, officers, directors, employees, consultants or agents (in
connection with such officer's, director's, employee's, consultant's or agent's
activities on behalf of such Person or any of its Affiliates or Plan
Affiliates).
"ASSOCIATE" or "ASSOCIATED WITH" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent (10%) or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a similar
fiduciary capacity, and (c) any relative or spouse of such Person, or any
relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.
"BENEFIT ARRANGEMENT" means any material benefit arrangement that is
not an Employee Benefit Plan, including, without limitation, (i) each employment
or consulting agreement, (ii) each arrangement providing for insurance coverage
or workers' compensation benefits, (iii) each incentive bonus or deferred bonus
arrangement, (iv) each arrangement providing termination allowance, severance or
similar benefits, (v) each equity compensation plan, (vi) each deferred
compensation plan and (vii) each compensation policy and practice maintained by
Tranzparts or any ERISA Affiliate covering the employees, former employees,
directors and former directors of Tranzparts, and the beneficiaries of any of
them.
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit Arrangement.
"BUSINESS" means the business as currently conducted by Tranzparts,
including without limitation the business of remanufacturing, sourcing and
distributing drive train and other automotive components.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in Milwaukee, Wisconsin are authorized or required by
law to close.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" means all contracts, agreements, options, leases,
licenses, sales and purchase order, commitments and other instruments of any
kind, whether written or oral, to which Tranzparts is a party on the Closing
Date, including the Scheduled Contracts.
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"DAMAGES" means all assessments, losses, damages, costs, expenses,
liabilities, judgments, awards, fines, sanctions, penalties, charges and amounts
paid in settlement (net of insurance proceeds actually received), including
(i) interest on cash disbursements in respect of any of the foregoing at the
Reference Rate in effect from time to time, compounded quarterly, from the date
each such cash disbursement is made until the Person incurring the same shall
have been indemnified in respect thereof and (ii) reasonable costs, fees and
expenses directly incurred by such Person for attorneys, accountants and other
agents in relation to any of the foregoing.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as defined in
Section 3(3) of ERISA, that is sponsored or contributed to by Tranzparts or any
ERISA Affiliate covering employees or former employees of Tranzparts.
"EMPLOYEE PENSION BENEFIT PLAN" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
other than a Multiemployer Plan.
"ENVIRONMENTAL LAWS" means any applicable domestic or foreign,
federal, state or local statute, law, ordinance, rule, binding administrative
interpretation, regulation, order, writ, injunction, directive, judgment, decree
or other requirement of any Governmental Authority (or any standard, schedule or
timetable imposed thereunder) relating to the protection of the environment
including, without limitation, all requirements pertaining to reporting,
licensing, permitting, controlling, investigating or remediating emissions,
discharges, releases or threatened releases of Hazardous Substances, chemical
substances, pollutants, contaminants or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature, into the air, surface water,
groundwater or land, or relating to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances, chemical substances, pollutants, contaminants or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature.
"ENVIRONMENTAL LIABILITIES" means all Liabilities of a Person (whether
such Liabilities are owed by such Person to Governmental Authorities, third
parties or otherwise) whether currently in existence or arising hereafter which
arise under or relate to any Environmental Law.
"EQUIPMENT" means all machinery, equipment, furniture, office
equipment, communications equipment, vehicles, storage tanks, spare and
replacement parts, fuel and other tangible property (and interests in any of the
foregoing), other than Inventory, of Tranzparts.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414 of the Code.
"GAAP" means generally accepted accounting principles in the
United States as in effect on the date hereof and applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" means any applicable foreign, domestic,
federal, territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"GROUP HEALTH PLAN" means any group health plan, as defined in Section
5000(b)(1) of the Code.
"HAZARDOUS SUBSTANCE" means any substance or material: (i) the
presence of which in, at or about the air, surface water, groundwater, soil,
land, or any facility requires investigation or
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remediation under any Environmental Law; or (ii) that is defined as a "hazardous
waste" or "hazardous substance" under any Environmental Law; or (iii) that is
toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic or
mutagenic or otherwise hazardous and is regulated by any Governmental Authority
having or asserting legal, regulatory, judicial, administrative or other
authority over Tranzparts; or (iv) the presence of which causes a nuisance under
any Applicable Law or any Environmental Law to adjacent properties or poses a
hazard to the health or safety of Persons; or (v) the presence of which on
adjacent properties constitutes a trespass by Tranzparts; or (vi) without
limitation, that contains gasoline, diesel fuel or other petroleum hydrocarbons,
polychlorinated biphenols (PCBs) or asbestos (except that under no circumstances
shall engine or drive line components be deemed a "Hazardous Substance" by
operation of this provision).
"INDEMNIFYING PARTY" means: (1) with respect to any Buyer Indemnitee
asserting a claim under Sections 8.01 or 9.11, each of the Shareholders; and
(2) with respect to any Shareholders' Indemnitee asserting a claim under
Sections 8.01 or 9.11, Buyer.
"INDEMNITEE" means: (1) each of the Buyer and its Affiliates with
respect to any claim for which Shareholders are an Indemnifying Party under
Sections 8.01 or 9.11; and (2) each of the Shareholders and their respective
Affiliates with respect to claims for which Buyer is an Indemnifying Party under
Sections 8.01 or 9.11.
"INVENTORY" means all items of inventory notwithstanding how
classified in the financial records of Tranzparts, including all raw materials,
work-in-process, finished goods, supplies, spare parts, samples, cores and
stores of Tranzparts.
"IRS" means the Internal Revenue Service.
"LIABILITY" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person.
"LIEN" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance, adverse claim, easement, rights of way, servitude or charge of any
kind in respect of such asset or any other rights of others or other adverse
interests of any kind, including leases, chattel mortgages, conditional sales
contracts, collateral security arrangements and other title or interest
retention arrangements.
"MATERIAL ADVERSE EFFECT" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of Tranzparts or the Business
that results in a material adverse effect on, or a material adverse change in,
the Business taken as a whole or Tranzparts or a material adverse effect on
Buyer's ownership of the Shares after the Closing.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in Section
3(37) and 4001(a)(3) of ERISA.
"PERMITTED LIENS" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which is being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or
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to secure the performance of leases, trade contracts or other similar
agreements; (iv) Liens specifically identified in the 1995 Balance Sheet;
(v) Liens securing executory obligations under any Lease that constitutes an
"operating lease" under GAAP; and (vi) other Liens set forth on SCHEDULE 1
hereto; PROVIDED, HOWEVER, that, with respect to each of clauses (i) through
(v), to the extent that any such Lien arose prior to the date of the 1995
Balance Sheet and relates to, or secures the payment of, a Liability that is
required to be accrued under GAAP, such Lien shall not be a Permitted Lien
unless adequate accruals for such Liability have been established therefor on
the 1995 Balance Sheet in conformity with GAAP. Notwithstanding the foregoing,
no Lien arising under the Code or ERISA with respect to the operation,
termination, restoration or funding of any Benefit Plan sponsored by, maintained
by or contributed to by Tranzparts or any of its ERISA Affiliates or arising in
connection with any excise tax or penalty tax with respect to such Benefit Plan
shall be a Permitted Lien unless it is accrued for on the Closing Balance Sheet.
"PERSON" means an individual, corporation, partnership, association,
trust, estate or other entity or organization, including a Governmental
Authority.
"PLAN AFFILIATE" means, with respect to any Person, any employee
benefit plan or arrangement sponsored by, maintained by or contributed to by
such Person, and with respect to any employee benefit plan or arrangement, any
Person sponsoring, maintaining or contributing to such plan or arrangement.
"PRELIMINARY PURCHASE PRICE" means Three Million Seven Hundred Fifty
Thousand Dollars ($3,750,000.00).
"PROHIBITED TRANSACTION" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under Section
4975 of the Code or Section 408 of ERISA, respectively.
"PRO RATA PORTION" means 48.97% with respect to the Trust, 33.79% with
respect to CTG and 17.24% with respect to JPD.
"REFERENCE RATE" means the per annum rate of interest publicly
announced from time to time by Bank of America, N.T. & S.A. as its prime rate
(or reference rate). Any change in the Reference Rate shall take effect at the
opening of business on the day specified in the public announcement of such
change.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation as
to which more than 10% of the outstanding stock having ordinary voting rights or
power (and excluding stock having voting rights only upon the occurrence of a
contingency unless and until such contingency occurs and such rights may be
exercised) is owned or controlled, directly or indirectly, by such Person and/or
by one or more of such Person's Subsidiaries, and (ii) any partnership, joint
venture or other similar relationship between such Person (or any Subsidiary
thereof) and any other Person (whether pursuant to a written agreement or
otherwise).
"TAX" means all taxes imposed of any nature including federal, state,
local or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or gross
receipts tax, employment related tax (including employee withholding or employer
payroll tax, FICA or FUTA), real or personal property tax or ad valorem tax,
sales or use tax, excise tax, stamp tax or duty, any withholding or back up
withholding tax, value added tax, severance tax, prohibited transaction tax,
premiums tax, occupation tax, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax.
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"TAX RETURN" means all returns, reports, forms or other information
required to be filed with respect to any Tax.
"TOTAL CONSIDERATION" means (a) the sum of (i) $4,500,000.00 plus
(ii) the amount, if any, by which the Adjusted Shareholders' Equity is greater
than $1,136,984.01, minus (b) the sum of (iii) Tranzparts' long-term debt on the
Closing Date including the current portion thereof, minus (iv) the amount, if
any, by which the Adjusted Shareholders' Equity is less than $1,136,984.01.
A-5
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LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into effective this 31st day of
May, 1996, by and between PATRICIA L. BRIDGEFORTH, hereinafter referred to as
"Lessor", and AARON'S AUTOMOTIVE PRODUCTS, INC., hereinafter referred to as
"Lessee".
In consideration of the mutual convenants herein contained and agreed to be
kept, the Lessor does hereby lease to the Lessee and the Lessee does hereby
lease from the Lessor, the Premises on the following terms, conditions, and
agreements:
1. PREMISES. The Premises are land and a commercial structure for
manufacturing and warehouse/distribution use located in the 2600 BLOCK OF
NORTH AIRPORT COMMERCE AVENUE, SPRINGFIELD, MISSOURI which building has an
aggregate of approximately 200,000 square feet and the land has an aggregate of
approximately 573,088 square feet and said Premises being further delineated as
Exhibit "A".
2. TERM. The initial term of this Lease shall be for a period of one
hundred twenty (months) beginning on November 1, 1996 and terminating on October
31, 2006, unless terminated prior thereto as provided herein. The Lessee may
extend the term of this Lease for sixty (60) months by providing written notice
to Lessor at least six (6) months prior to expiration of the initial term,
provided the Lessee is in full compliance with the terms and conditions of this
Lease. The term of this Lease shall include the initial term and any exercised
renewal term. If the premises is not ready for occupancy by November 1, 1996,
then the lease term shall not commence until the premises is ready for
occupancy. At that time, rent will be prorated for any portion of a month, and
the commencement date of the lease term will be automatically changed to the
first day of the next calendar month.
3. RENTAL. The rental payments for the initial term hereof shall be the
monthly sum of Thirty-Five Thousand Eight Hundred Thirty-Three Dollars and no
cents ($35,833.00) from November 1, 1996 through October 31, 2000. From
November 1, 2000, through October 31, 2003, the monthly sum shall be determined
by multiplying the rate Thirty-Five Thousand Eight Hundred Thirty-Three Dollars
and no cents ($35,833.00) by a fraction, the numerator of which is the "Consumer
Price Index", published by the United States Department of Labor, Bureau of
Labor Statistics, All Consumers (CPI-U), all items, (1982-84=100) (or if that
Index is not available then an available Index published by the Bureau or its
successors, of if none, by any other instrumentality of the United States or the
State of Missouri), (hereinafter "CPI-U") for October, 2000, and the denominator
of which is the CPI-U for November, 1996. If there is no increase in the CPI-U
for this period, the monthly rent payments shall remain the same as the previous
period but at no time shall the maximum increase for the CPI-U be greater than
one (1) percent annually. From November 1, 2003, through October 31, 2006, the
monthly sum shall be
<PAGE>
determined by multiplying the rate Thirty-Five Thousand Eight Hundred Thirty-
Three Dollars and no cents ($35,833.00) by a fraction, the numerator of which is
the CPI-U for October, 2003, and the denominator of which is the CPI-U for
November, 1996. If there is no increase in the CPI-U for this period, the
monthly rent payments shall remain the same as the previous period but at no
time shall the maximum increase for the CPI-U be greater than one (1) percent
annually, for the period from November, 1996, through October, 2000, and three
(3) percent annually, for the period from November, 2000, through October, 2003.
If the Lessee exercises the option to extend the lease term a period of sixty
(60) months, from November 1, 2006, through October 31, 2009, the monthly sum
shall be determined by multiplying the rate Thirty-Five Thousand Eight Hundred
Thirty-Three Dollars and no cents ($35,833.00) by a fraction, the numerator of
which is the CPI-U for October, 2006, and the denominator of which is the CPI-U
for November, 1996. If there is no increase in the CPI-U for this period, the
monthly rent payments shall remain the same as the previous period but at no
time shall the maximum increase for the CPI-U be greater than one (1) percent
annually, for the period from November, 1996, through October, 2000, and three
(3) percent annually, for the period from November, 2000, through October, 2006.
From November 1, 2009, through October 31, 2011, the monthly sum shall be
determined by multiplying the rate Thirty-Five Thousand Eight Hundred Thirty-
Three Dollars and no cents ($35,833.00) by a fraction, the numerator of which is
the CPI-U for October, 2009, and the denominator of which is the CPI-U for
November, 1996. If there is no increase in the CPI-U for this period, the
monthly rent payments shall remain the same as the previous period but at no
time shall the maximum increase for the CPI-U be greater than one (1) percent
annually, for the period from November, 1996, through October, 2000, and three
(3) percent annually, for the period from November, 2000, through October, 2009.
All installments of rent shall be payable in advance on the first day of each
month of this Lease and all payments shall be made to Lessor at 1915 W.
Sunshine, Springfield, Missouri 65807. Additional rent shall include other
charges and expenses to be paid or reimbursed by Lessee as provided for herein.
Any rent or additional rent not paid within five (5) days of due date shall bear
a late charge equal to ten percent (10%) of the amount due.
4. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution of
this Lease a sum equal to Thirty-Five Thousand Eight Hundred Thirty-Three
Dollars and no cents ($35,833.00), as security for Lessee's faithful performance
of Lessee's obligations under this Lease. If Lessee fails to pay the Rent or
any other charges due hereunder, or otherwise defaults under this Lease, Lessor
may use, apply or retain all or any portion of the Security Deposit for the
payment of any amount due Lessor or to reimburse or compensate Lessor for any
liability, cost, expense, loss or damage (including attorneys' fees) which
Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or
any portion of the Security Deposit, Lessee shall within ten (10) days after
written request therefor deposit moneys with Lessor sufficient to restore the
Security Deposit to the amount required above.
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5. TRIPLE NET LEASE. It is the intent of the parties that this be a
triple net lease with Lessee bearing all costs of occupancy, repair and
maintenance of the Premises, including but not limited to taxes, insurance,
utilities, repairs, maintenance, and structural repairs, excluding only Lessor's
obligation to (i) make payments on Notes payable by Lessor secured by Deeds of
Trust on the Premises, (ii) restore the Premises as provided in Paragraph 17,
(iii) pay those costs related to a breach by Lessor of its representations and
warranties herein, and (iv) pay for those capital improvements which Lessor
elects at its sole discretion to make to the Premises, subject to full or
partial reimbursement by Lessee as provided in Section 12(c).
6. LESSOR'S REPRESENTATIONS. The Lessor represents and warrants the
following:
(a) Lessor holds absolute and indefeasible title in fee simple to the
Premises;
(b) Lessor is lawfully seized of the Premises and during all of the
term hereof, Lessee's possession of the Premises shall not be disturbed by
lawful acts of third parties claiming title to or a right to the possession
of the Premises;
(c) The Premises is properly zoned for the operation of Lessee's
current use of the Premises as a manufacturing and storage facility and
has legal access to and from a publicly dedicated street; and
(d) The Premises has access to adequate utility services for Lessee's
proposed use of the Premises as a manufacturing plant or
warehouse/distribution center.
(e) The final construction of the new building will be in adequate
physical condition to allow manufacturing or distribution by the Lessee.
7. TAXES. Lessee shall pay before delinquency thereof any and all
personal and real property taxes assessed against the Premises and the property
of Lessee contained in or on the Premises.
8. UTILITIES. Lessee agrees to promptly pay all gas, electric, telephone,
sewer, trash, water, and any other utility charges which may become payable
during the continuation of this Lease for such utilities used in or on the
Premises.
9. USE AND OCCUPANCY.
(a) The Premises are to be used in Lessee's business for
remanufacturing of automobile parts including transaxles and engines and or for
any other lawful purpose.
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(b) Lessee covenants that no waste or damage shall be committed upon
or to the Premises; that the Premises; shall not be used for any unlawful
purpose nor in a manner creating a nuisance for adjoining tenants; and that
no violation of any city, county, state or federal law, rule or regulation
shall be permitted or committed thereon, including without limitation any
Environmental Laws (as hereinafter defined). Lessee shall not allow any
rubbish or refuse to accumulate or any fire hazard to exist on the
Premises. Lessee agrees to obey and conform to all laws, ordinances,
rules, regulations or orders of the city, county, state and federal
governments and all public utilities.
10. HAZARDOUS SUBSTANCES.
(a) Lessee shall not generate, use or store any substances designated
as, or containing components designated by any governmental agency as
hazardous, dangerous, toxic or harmful, and/or subject to regulations under
federal, state or local law, regulations or ordinance on or around the
Premises, except to the extent used (i) in normal quantities and (ii) in
compliance with all Environmental Laws. Lessee shall not install any
underground storage tanks on the Premises without prior written consent of
Lessor, which may be withheld in Lessor's sole discretion. Lessee shall be
fully and completely liable to Lessor and shall indemnify, defend and hold
Lessor harmless from any and all cleanup costs and any and all other
charges, fees (including attorneys' and consultants' fees) or penalties
relating to the use, disposal, transportation, generation or sale by Lessee
of hazardous substances on the Premises.
(b) Lessee further agrees to indemnify, defend and hold harmless
Lessor its employees, officers and directors, and Lessor's successors,
assigns and successors in interest to the Premises or any part thereof,
from and against any and all liability, losses, expenses (including
attorneys' and consultants' fees), damages, penalties, costs, actions,
claims, judgments, fines, response costs, cleanup costs and oversight costs
which may be imposed upon, incurred by, or asserted against Lessor, its
employees, officers and directors, and Lessor's successors, assigns and
successors in interest to the Premises or any part thereof, by any person
or entity (including, but not limited to, a governmental entity), arising
out of or in connection with any Environmental Conditions on or off the
Premises, caused or created by Lessee and/or arising out of or in
connection with Lessee's violation or failure to comply with any
Environmental Laws (as hereinafter defined) at any time throughout Lessee's
occupancy of the Premises whether before or after the date of this Lease,
except to the extent caused by Lessor or relating to an existing condition.
Such indemnification applies whether or not such liability, damages,
losses, expenses (including attorneys' and consultants' fees), penalties,
costs, actions, claims, judgments fines, response costs, cleanup costs and
oversight costs arise under any theory of strict liability, whether under
common law or under any federal, state or local law and whether arising
from the actions of Lessee or any of
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its employees, agents, contractors or licensees, except to the extent
caused by Lessor or relating to an existing condition.
(c) "Environmental Conditions" means any and all conditions in, on,
under or resulting from the soil, surface water, air, ground water and
stream sediments on, under or above the Premises that could require
remedial action or result in claims, demands or liabilities by third
parties against the owner or operator of the Premises.
(d) "Environmental Laws" shall mean all federal, state or local
environmental laws, ordinances, rules, regulations, requirements, licenses,
permits, and acts, and all regulations promulgated thereunder, whether now
existing or hereafter enacted, including, but not limited to: the Federal
Water Pollution Control Act, 33 U.S.C. Sections 1251 ET SEQ., as amended
("FWPCA"); the Clean Air Act, 42 U.S.C. Sections 741 ET SEQ., as amended
("CAA"); the Resource Conservation and Recovery Act, 42 U.S.C. Sections
6901 ET SEQ., as amended ("RCRA"); The Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601 ET seq.,
as amended ("CERCLA") The Superfund Amendments and Reauthorization Act, as
amended ("SARA"); the Clean Water Act, as mended ("CWA"); the Toxic
Substances Control Act, 15 U.S.C. Sections 2601 ET SEQ., as amended
("TSCA"); the Occupational Safety and Health Act, 29 U.S.C. Sections 651 ET
SEQ., as amended ("OSHA"); the Safe Drinking Water Act, 42 U.S.C. Section
300(f) ET SEQ., as amended; the Federal Insecticide, Fungicide and
Rodentcide Act, 7 U.S.C. Sections 136, ET SEQ., as amended ("FIFRA"); the
Hazardous Material Transportation Act; and the Marine Protection, Research
and Sanctuaries Act.
(e) Lessor represents and warrants that to the best of its knowledge
and belief the Premises have never been used for the treatment, handling,
storage, or disposal of any hazardous waste or substance or other toxic
chemicals or hazardous conditions; and no such hazardous dangerous
conditions, wastes, chemicals or products now exist on the Premises.
(f) Lessor further represents and warrants that in the event any of
the above are ever discovered to exist on the Premises which predate
closing, that they shall indemnify and hold Lessee and its successors and
assigns harmless and shall correct and cure some as soon as reasonably
possible after written notice, and pursuant to all governmental agency
requirements.
11. ASSIGNMENT AND SUBLETTING. The Lessee shall not assign or sublet the
Premises, or any part thereof, without obtaining the prior written approval of
the Lessor which consent shall not be reasonably withheld; and, should such
consent be given, the Lessee shall remain liable for the performance of the
terms and conditions and agreements under this Lease during the term of this
Lease (including any renewal term) as though such assignment or subletting had
not been made. Lessee shall reimburse Lessor for Lessor's reasonable costs of
approving documents said transfer, not to exceed One
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Thousand Dollars ($1,000) per requested assignment or subletting. Lessor may
assign this Lease to any subsequent owner of the Premises without consent of
Lessee.
12. CONDITION OF PREMISES, REPAIRS, ALTERATIONS AND CAPITAL IMPROVEMENTS.
(a) Prior to the term of this Lease as defined in Section 2, the
Lessor shall improve the premises at its own expense in accordance with the
LETTER OF INTENT dated April 22, 1996, a copy of which is signed by the
parties and attached hereto and made a part thereof as Exhibit "B". The
improvements shall be made in conformance with all the laws, ordinances,
rules and regulations of all public authorities having jurisdiction over
the premises. Lessor shall furnish to Lessee as soon as possible after
preparation, copies of all architectural drawings and specifications
covering said improvement.
(b) Lessee reserves the right to request additional items as defined
in Exhibit "B" to be added by the Lessor to the premises prior to the
Lessee taking possession, and because such additional items are an added
capital expense to the Lessor, the Lessee understands and agrees that the
lease rate will increase as a result of these expenses. Lessee must
exercise this right to request any additional items by September 1, 1996,
and the request shall be in writing. Lessor shall not increase the initial
monthly lease rate by an amount greater than twelve (12) percent of the
cost of the additional items divided by twelve (12) and the increase shall
be done as an amendment pursuant to Section 30 of this Agreement.
(c) Lessee acknowledges that the improvements for the premises to be
made by the Lessor as defined in Exhibit "B" only include an allowance of
five thousand dollars ($5,000) for rock excavation. Should additional rock
be required to be excavated, Lessee agrees that there will be an increase
in the initial monthly lease rate. The Lessor agrees that the increase
shall not be in an amount greater than twelve (12) percent of the cost of
the rock excavation divided by twelve (12) and the increase shall be done
as an amendment pursuant to Section 30 of this Agreement.
(d) Lessee's taking possession shall be conclusive evidence against
it that the Premises were in good order and in satisfactory condition when
Lessee took possession hereunder. Lessee agrees to make ALL interior,
exterior and structural repairs to the buildings and land comprising the
Premises, including without limitation all necessary repairs to (i) gas,
electrical, plumbing, air conditioning, heating, lighting, ventilating,
fire sprinkler, fire alarm, smoke alarm, and other safety alarm equipment
and/or systems as are installed or as may be installed in or on the
Premises, (ii) all connections from existing utilities to the buildings on
the Premises, and (iii) the roof, ceilings, interior and exterior walls,
floors, foundations, windows, doors, skylights, signs, driveways, parking
lots, fences,
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retaining walls, sidewalks, and landscaping in, on, about or adjacent to
the Premises. Lessee agrees to replace all broken glass, damaged or
destroyed in any manner whatsoever in the Premises.
(e) Lessee agrees not to make, or cause to have made, any alterations
or improvements upon the Premises in excess of ten thousand dollars
($10,000) without first having submitted plans and specifications for such
proposed alterations or improvements to Lessor and having obtained Lessor's
prior written approval of same. All repairs, alterations, additions, and
improvements to the leasehold, except trade fixtures installed by the
Lessee which may be removed without damage to the Premises, shall become
the property of Lessor and shall remain upon and be surrendered with the
Premises at the expiration of this Lease or a sooner termination thereof,
unless otherwise agreed to by the parties in writing.
(f) Lessor shall make, in its sole discretion, capital improvements
to the Premises which are both essential to Lessee's operations and
appropriate for the continued use of the Premises as it is proposed to be
operated, such as the installation of a new roof at the expiration of its
useful life (the costs and expenses incurred by Lessor in connection
therewith shall be referred to herein as "Capital Expenditures"). Promptly
after the completion of any such capital improvements, Lessee shall be
responsible for paying to Lessor, within twenty (20) days after receiving
written notice from Lessor, a portion of the Capital Expenditures equal to
the total Capital Expenditures multiplied by the remaining period of time
in the term of this Lease divided by the useful life of the improvement at
issue (using the Internal Revenue Code guidelines as a basis for
determining such useful life if the parties are not able to agree
otherwise). The Lessee shall also pay upon the subsequent exercise of each
renewal term a portion of the Capital Expenditures multiplied by the number
of years in such renewal term divided by the useful life of the
improvement.
(g) Lessor represents that upon completion of the new building and
prior to occupancy by the Lessee that the building is in compliance with
all city, county, and state building codes.
13. SIGNS. Lessee shall have the right to erect and maintain customary
and ordinary signs upon the walls of the Premises for advertising, except that
Lessee may not paint signs on walls, roofs, or other area of the Premises
without Lessor's prior written consent. The Lessee shall indemnify and hold
harmless the Lessor from all liability arising to any and all persons
whomsoever, whether for personal injuries or otherwise, by reason of the
erection, maintenance, operation or condition of any sign or signs or any part
thereof, or any device or appliance used in connection therewith, and from any
damage or injury resulting to any persons whomsoever from defects in or
defective condition of that portion of the Premises upon which said signs may be
installed. Any signs placed upon the
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Premises by Lessee may be removed at the termination of this Lease and all
damage done thereby shall be repaired at Lessee's expense.
14. LESSOR'S NON-LIABILITY FOR DAMAGE BY FIRE OR WATER, LIABILITY OF
LESSEE AND INSURANCE.
(a) The Lessor shall not be liable or responsible to any person or
persons whomsoever for any damage to person, goods, wares, merchandise or
other property in or about the Premises which is caused or occasioned by
fire or by the breaking, overflowing or leaking of roofs, pipes or walls of
the building, or for any damage suffered by any acts whatsoever, except for
those damages caused by Lessor's willful acts or gross negligence.
(b) The Lessee agrees to be responsible for any damage to the
property of Lessor which may result from any use of the Premises or any act
done thereon by the Lessee, or any person coming or being upon the Premises
by the license of the Lessee, express or implied, and also to save the
Lessor harmless from any liability to any person, for damage to person or
property resulting from such cases, and to protect against such liability
by purchasing and maintaining Public Liability Insurance for the benefit of
Lessee and the Lessor in coverage of not less than $1,000,000 per
occurrence/$3,000,000 aggregate. Lessee agrees to furnish Lessor a
certificate issued by a insurance carrier or carriers listed in the "Best
Guide" with a "B" rating or above, showing such insurance in force and to
provide Lessor with a copy of said policies. The policy or policies shall
name Lessor as an "additional insured" and shall include coverage for
liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this Lease and, at
Lessor's request, shall include the "Amendment of the Pollution Exception"
for damages caused by heat, smoke or fumes from a hostile fire. The limits
of said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
under this Lease.
(c) Lessee agrees to purchase property and casualty insurance at
replacement cost of the Premises, including extended risk. Lessee agrees
to furnish Lessor a certificate issued by an insurance carrier or carriers,
acceptable to Lessor, showing such insurance in force and non-cancelable
without at least ten (10) days advance written notice to Lessor, and to
provide Lessor with a copy of said policies upon request. The policy or
policies shall name Lessor as an insured party.
15. LESSEE TO INDEMNIFY LESSOR. The Lessee agrees to hold the Lessor free
and harmless from any liens, judgments or encumbrances created or suffered by
the Lessee, and from any and all liability, penalties, losses, damages, costs
and expenses, causes of action, claims or judgments arising from injury during
said term to persons or property of any nature occasioned by an act or omission
of the Lessee, or its employees, agents, or servants, subtenants, or
contractors, and growing out of the occupancy of the
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Premises by Lessee, and also against all legal costs and charges, including
attorney fees, reasonably incurred in and about such matters, and the defense of
any action arising out of the same, or in discharging the Premises or any part
thereof from any and all liens that may be placed thereon for charges incurred
by Lessee.
16. LESSOR'S RIGHT TO INSPECT, RESERVED RIGHTS. Lessor expressly reserves
the following rights: (a) to enter the Premises at any reasonable time during
business hours to examine the Premises, to observe the manner of Lessee's
operations on the premises, or to make such repairs, additions or alterations as
the Lessor may deem necessary for the improvement or preservation of the
Premises, as long as Lessor does not unreasonably interfere with the business
operations of the Lessee, but Lessor assumes no obligation to make examinations
or repairs to the Premises; and (b) to enter the Premises and display a sign,
"For Rent", at any time within one hundred eighty (180) days before the
expiration of this Lease, or any extension thereof, and to maintain the same as
placed; and (c) during or after the time Lessee abandons or vacates the Premises
for reoccupancy. The exercise of any reserved right herein stated by Lessor,
shall never be deemed an eviction or disturbance of Lessee's use and possession
of the Premises and shall never render Lessor liable in any manner to Lessee or
to any other person.
17. FIRE CLAUSE.
(a) If the Premises are partially damaged by fire or other casualty,
not occurring through Lessee's fault, and such damage can be repaired
within one hundred eighty (180) days after the date of such occurrence, the
Lease shall remain in full force and effect, and the Lessor shall promptly
repair such damage at Lessor's expense, and in that event there shall be
proportionate abatement of rent for so much of the Premises and may be
untenantable during the period of repair or restoration unless the Premises
were damages through Lessee's fault.
(b) If in the opinion of a registered architect or engineer appointed
by the Lessor, the Premises are damaged by fire or other casualty to such
an extent as to make them untenantable for a period of one hundred eighty
(180) days or more from the date of such occurrence, and such damage cannot
be repaired or the Premises restored within said time, this Lease shall
terminate at the option of either the Lessor or Lessee upon written notice
given within thirty (30) days after receiving said architect's or
engineer's opinion. If damage is caused by Lessee's fault, then Lessee
shall be responsible for all repairs and rent for the remaining term of the
Lease.
18. DAMAGE NEAR END OF TERM. Notwithstanding Paragraph 17(a), if at any
time during the last six (6) months of the initial term or any renewal term of
this Lease there is damage to the Premises for which the cost to repair exceeds
one (1) months' rent, whether or not an insured loss, either Lessor or Lessee
may option, terminate this Lease effective sixty (60) days following the
occurrence of such damage by giving written notice to the other party within ten
(10) days after the date of the occurrence of such damages
9
<PAGE>
unless Lessee has prior thereto exercised any option Lessee may have to extend
this Lease.
19. CONDEMNATION. It is mutually agreed by the parties that in case the
whole or any part of the Premises shall be taken by the City, State or other
public authority for any public use and which renders the Premises reasonably
unusable by Lessee, then this Lease shall terminate from the time when
possession of the whole or of the part so taken shall be required for such
public use, and Lessee shall pay all rents prorated to the date when possession
is taken; and, the Lessee shall not claim or be entitled to any part o the award
to be made for damages for such taking for public use; and, such taking shall
not be deemed a breach of any covenant for quiet enjoyment by Lessor herein;
provided, further, that if only a portion of the Premises is taken which does
not materially interfere with Lessee's use of the Premises, then the Lease shall
continue as to the remaining portion of the Premises not so taken, in which case
the obligations and liabilities of the Lease shall continue in all respects
notwithstanding such partial taking for public use.
20. ABANDONMENT AND SURRENDER OF PREMISES. If Lessee shall abandon or
vacate the Premises before the end of the term without an intent to return, or
any other event shall happen entitling Lessor to take possession thereof, Lessor
may take possession of the Premises and relet the same without any action being
deemed an acceptance of a surrender of this Lease, or in any way terminating the
Lessee's liability hereunder and the Lessee shall remain liable for payment of
the rent herein reserved, less the net amount received by the Lessor from
reletting (after the deduction of any expenses incident to such possession and
reletting). The Lessee shall, upon the expiration or termination of this Lease
for any reason whatsoever, surrender to the Lessor the building and building
equipment then upon the Premises, together with all alterations and replacements
thereof then on the Premise, in good order, condition and repair, except for
damage due to reasonable wear and tear, casualty other than a casualty caused by
Lessee, or condemnation. Except as provided in Paragraph 12, title to all of
the Lessee's trade fixtures, furniture and equipment shall remain in the Lessee,
and, upon expiration on other termination of this Lease, the same shall be
removed and any resultant damage to the Premises shall be repaired by and at the
expense of the Lessee; provided, however, that if, upon any expiration or
termination of this Lease, the Lessee shall be delinquent or in default under
any provisions hereof, the Lessee shall not, without the Lessor's consent
expressly given in writing, be entitled to remove any such trade, fixtures,
furniture or equipment unless and until such delinquency or default shall have
been cured, and if such delinquency or default shall have been cured, and if
such delinquency or default shall not have been cured by the Lessee in thirty
(30) days after the date of such expiration or termination, all such trade
fixtures, furniture and equipment of the Lessee shall, at the Lessor's option be
and become the absolute property of the Lessor. Lessor shall, upon Lessee's
request and subject to Lessee being in full compliance with all terms,
conditions and agreements in this Lease, execute such landlord waivers as Lessee
may reasonably request regarding Lessee's trade fixtures and personal property
which are consistent with the terms of this Lease.
10
<PAGE>
21. TENURE AT EXPIRATION. If the Lessee shall occupy Premises with the
consent of the Lessor after the expiration of the Lease, or any extension
thereof, and the rent is accepted from said Lessee, such occupancy and payment
shall be construed as an extension of this Lease for the term of one (1) month
only from the date of such expiration, and occupation thereafter shall operate
to extend the term of this Lease for one (1) month at a time, unless other terms
of such extension are endorsed hereon in writing and signed by the parties
hereto. If such occupancy continues without the consent of the Lessor, Lessee
shall pay to Lessor as liquidated damages one hundred fifty percent (150%) of
the amount of rent specified in this Lease for the first sixty (60) days which
Lessee retains possession of the Premises, or any part thereof, after
termination of the term by lapse of time or otherwise, and thereafter the
liquidated damages shall be double of the rent specified in the Lease. Lessor's
receipt of such liquidated damages shall not be construed as a consent to
Lessee's holdover.
22. LESSOR'S REMEDIES, SECURITY AND COSTS IN ACTION. Upon Lessee's
failure to pay any installment of rent or other charges when due or if Lessee
shall fail to observe and perform any of the other conditions, agreements, or
provisions of this Lease, it shall be lawful, upon compliance with the
applicable notice requirements (which shall be 10 days for monetary defaults and
30 days for nonmonetary defaults) and without legal process, for Lessor to
accelerate Lessee's obligations under the Lease, re-enter and repossess
Premises, to remove all persons therefrom and to take exclusive possession of
and remove all property therefrom,, and any and all rights of Lessee as a tenant
shall immediately cease and terminate. All property of Lessee which may be at
any time during the term of this Lease in or upon Premises, whether exempt from
execution or not, shall be bound by and subject to a lien for the payment of the
rent herein reserved and for any damages arising from any breach by Lessee of
any of the covenants or agreements of this Lease to be performed by Lessee. In
case default be made in the payment of any installment of rent or other charges,
or any part or parts thereof, when the same becomes due, and if said default
continues for ten (10) days after written notice thereof be given by Lessor to
Lessee, Lessor may take possession of said property or any parts or parts
thereof and sell or cause the same to be sold at public or private sale, with or
without notice, to the highest bidder for cash, and apply the proceeds of said
sale toward the costs thereof and then toward the debt and/or damages as
aforesaid. The remedies set forth in this article shall be in addition to any
and all other rights and remedies of Lessor, either under the terms of this
Lease or otherwise. The provisions hereof shall not, however, be construed so
as to prevent Lessee from conducting his business in a normal way prior to
default hereunder. The failure on the part of the Lessor to re-enter or
repossess the Premises or to exercise any of his rights hereunder upon any
default, shall not be deem a waiver of any of the terms and conditions of this
Lease and shall not preclude the Lessor from exercise of any such rights upon
any subsequent occurring default or defaults. Lessor shall be entitled to all
rights at law or in equity, including rights of sale under the Missouri Uniform
Commercial Code, and to recover damages for failure to pay on any breach of this
Agreement, including court costs and reasonable attorneys' fees. Lessee
expressly waives any common law requirements of notices and procedures as to
forfeitures of leasehold interests, and agrees that the terms of this agreement
shall govern.
11
<PAGE>
23. DECLARATION OF FORFEITURE. Any failure to pay each month's rent or
other charges when due, or to keep and perform any of the covenants or
agreements herein by Lessee shall produce a forfeiture of this Lease, provided
Lessor must give Lessee at least ten (10) days' prior written notice of a
monetary default or thirty (30) days' prior written notice of a nonmonetary
default and opportunity to cure, unless the nature of the alleged nonmonetary
default requires more than thirty (30) days to cure, in which case Lessee shall
be granted such reasonable time as is necessary to cure as long as Lessee has
undertaken and diligently proceeded to cure the default. If at the expiration
of said time Lessee is still in default, said forfeiture shall be in full force
and effect. No waiver of any forfeiture by acceptance of rent or otherwise
shall waive any subsequent cause of forfeiture or breach of the terms and
conditions of this Lease, nor shall any consent by said Lessor to any assignment
of the Premises, or any part thereof, or if Lessee shall sublet Premises or any
part thereof, be held waived or release said Lessee or any assignee or sublessee
from any of the foregoing conditions or convenants as against it or them, but
said Lessee or any assignee or sublessee shall be expressly subject thereto.
Before Lessee may declare Lessor in default in its obligations hereunder, it
must give Lessor thirty (30) days' prior written notice and opportunity to cure,
unless the nature of the alleged default requires more than thirty (30) days to
cure, in which case Lessor shall be granted such reasonable time as is necessary
to cure as long as Lessor has undertaken and diligently proceeded to cure the
default.
24. WAIVER OF BREACH NOT WAIVER OF SUBSEQUENT BREACHES. To be valid a
waiver must be in writing and executed by the party making the waiver. Any
waiver by the Lessor or the Lessee of any breach of this Lease or any terms,
conditions or promises herein contained shall not be or be construed to be a
waiver of any subsequent breach of the same or any other term, condition or
promise herein, and the payment of rent hereunder by the Lessee and acceptance
by the Lessor shall not be or be construed to be a waiver of any breach of the
terms, conditions or promises herein, except as to the particular installment
of rent so paid and accepted.
25. BANKRUPTCY AND FORFEITURE. To more effectually secure the Lessor
against loss of the rent and other payment herein provided to be made by Lessee,
it is agreed as a further condition of this Lease that the filing of any
petition in bankruptcy or insolvency by or against the Lessee, or the
adjudication in bankruptcy of the Lessee or the appointment of a receiver for
Lessee by any court shall be deemed a breach of this Lease, and thereupon,
without entry or other action by the Lessor, this Lease shall become and be
terminated; and notwithstanding any other provisions of this Lease, the Lessor
shall forthwith upon such termination be entitled to recover the rent reserved
in this Lease for the term hereof, less the fair rental value of the Premises
for the remainder of the term.
26. NON-LIABILITY OF LESSOR. It is agreed that Lessor shall not be liable
to Lessee or any other person on the Premises for any damage either to person or
property, except for Lessor's willful conduct or gross negligence. Lessor shall
not be under any responsibility or liability in any way whatsoever for the
quality, quantity, impairment,
12
<PAGE>
interruption, stoppage, or other interference with the services involving water,
heat, gas, electric current, sewer telephone or other services by any public
utility.
27. SUBORDINATION, ATTORNMENT, NON-DISTURBANCE. This Lease shall be
subject and subordinate to any mortgage, deed of trust or other security devise
now or hereafter placed by Lessor upon the real property of which the Premises
are a part and to all renewals, modification, consolidations, replacements and
extensions thereof ("Security Devises"), provided that Lessee obtains from the
holder and beneficiary of any such Security Devise a Non-Disturbance Agreement
in form and substance reasonably satisfactory to Lessee. Upon Lessor's written
request, Lessee shall within five (5) days, execute, acknowledge and deliver to
Lessor a written statement certifying that the Lease is unmodified (or if
modified, describing same) and in full force and effect, the date to which rents
are paid and setting forth any alleged defaults of Lessor. Said statement may
be relied upon by Lessor, its agents, lenders and purchasers. Upon Lessee's
written request, Lessor shall within five (5) days, execute, acknowledge and
deliver to Lessee a written statement certifying that the Lease is unmodified
(or if modified, describing same) and in full force and effect, the date to
which rents are paid and setting forth any alleged defaults of Lessee. Said
statement may be relied upon by Lessee , its agents, lenders and purchasers.
Subject to Lessee's receipt of a Non-Disturbance Agreement, Lessee agrees to
attorn to Lender or any other party who acquires ownership of the Premises by
reason of a foreclosure of a Security Device, and that in the event of such
foreclosure, such new owner shall not be liable for any act of omission of any
prior lessor or with respect to events occurring prior to acquisition of
ownership, or be subject to any offsets or defenses which Lessee might have
against any prior lessor.
28. NOTICE. All notices for which provision is made under the Lease shall
be in writing. Any notice from the Lessor to the Lessee shall be deemed to have
been given in a proper manner if such notice is in writing addressed to the
Lessee at the Premises, deposited in the United States mail, with postage
prepaid, and sent by Registered or Certified mail, return receipt requested.
Any notice from the Lessee to the Lessor shall be deemed to have been given in
proper manner if such notice is in writing addressed to the Lessor at the
address of Lessor to which rent is paid, or at such other address as Lessor may
have designated by written notice to the Lessee, with postage prepaid, deposited
in the United States mail, and sent by Registered or Certified mail, return
receipt requested.
29. HEIRS AND ASSIGNS. The words "Lessor" and "Lessee" as used herein,
include, apply to and bind and benefit the heirs, executors, administrators,
successors and assigns of the Lessor and Lessee, subject to the provisions of
Paragraph 11.
30. AMENDMENTS. This Agreement may be amended only by written instrument
by all of the parties hereto.
31. ATTORNEYS' FEES. In the event that litigation or arbitration arises
involving this Lease, the prevailing party shall be entitled to recover
reasonable attorneys' fees and expenses. In addition, if the Lessee breaches a
term, condition or agreement
13
<PAGE>
under this Lease, Lessor shall be entitled to attorneys' fees and expenses
incurred in the preparation and service of notices of breach and consultation
with Lessor regarding the breach, whether or not a legal action is subsequently
commenced in connection with such breach.
32. GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the state in which the Premises are located.
33. HEADINGS. The headings used herein are for reference purposes only
and shall not be used to construe or interpret the meaning of this Lease.
34. SURVIVAL OF INDEMNIFICATION. The obligations of either party to
indemnify the other party as provided in this Lease shall survive the
termination or expiration of this Lease.
IN WITNESS WHEREOF, the parties have hereunto affixed their respective names
intending to be legally bound.
LESSOR:
Patricia L. Bridgeforth
-----------------------
LESSEE:
ATTEST: AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
- ----------------------- -------------------------------
Secretary Kenneth A. Bear, Vice-President
14
<PAGE>
STATE OF ________)
)ss.
COUNTY OF _______)
BEFORE ME, the undersigned, a notary public in and for the aforesaid county
and state, personally appeared Patricia L. Bridgeforth, known to be the Lessor
and the same person who executed the foregoing Lease Agreement as her free act
and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal this _______ day of ________, 1996.
----------------------------
NOTARY PUBLIC
My appointment expires:
- --------------------------
STATE OF ________)
)ss.
COUNTY OF _______)
BEFORE ME, the undersigned, a notary public in and for the aforesaid
county and state, personally appeared Kenneth A. Bear, known to me to be the
Vice President of AARON'S AUTOMOTIVE PRODUCTS, INCORPORATED and the same
person who executed the foregoing Lease Agreement as his free act and deed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my notarial
seal this _________ day of ______________, 1996.
----------------------------
NOTARY PUBLIC
My appointment expires:
- ----------------------------
15
<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of May 23, 1995 (this "AMENDMENT"), to the
Credit Agreement, dated as of July 19, 1994 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among AFTERMARKET
TECHNOLOGY CORP., a Delaware corporation (the "BORROWER"), the several banks and
other financial institutions from time to time parties thereto (the "LENDERS")
and CHEMICAL BANK, a New York banking corporation, as agent (in such capacity,
the "AGENT").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company, the Lenders and the Agent are parties to the
Credit Agreement; and
WHEREAS, the Company has requested that the Lenders and the Agent
agree to amend certain provisions of the Credit Agreement, and the Lenders and
the Agent are agreeable to such request upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the Company, the Lenders and the Agent hereby agree as
follows:
1. DEFINITIONS. All terms defined in the Credit
Agreement shall have such defined meanings when used herein unless otherwise
defined herein.
2. AMENDMENT OF SUBSECTION 1.1. (a) Subsection 1.1 of the Credit
Agreement is hereby amended by deleting therefrom the definition of "Senior
Subordinated Notes" and "Senior Subordinated Note Indenture" and inserting in
lieu thereof the following new definitions:
`"SENIOR SUBORDINATED NOTES": the collective reference to the 1994
Senior Subordinated Notes and the 1995 Senior Subordinated Notes.'
`"SENIOR SUBORDINATED NOTE INDENTURE": each of the respective
Indentures described in the definitions of "1994 Senior Subordinated Notes"
and "1995 Senior Subordinated Notes".'
(b) Subsection 1.1 of the Credit Agreement is hereby amended by
adding, in proper alphabetical order, the following new definitions:
`"ACQUISITION": each of the CRS Acquisition, the King-O-Matic
Acquisition and the Mascot Acquisition.'
<PAGE>
2
`"CRS ACQUISITION": the acquisition of Component Remanufacturing
Specialists, Inc. pursuant to the CRS Merger Agreement.'
`"CRS MERGER AGREEMENT": the Merger Agreement, dated as of May 10,
1995, among Component Remanufacturing Specialists, Inc., James R. Crane,
Michael LePore, CRS Holdings Corp., CRS Acquisition Corp. and Aftermarket
Technology Corp.'
`"KING-O-MATIC ACQUISITION": the acquisition by the Borrower or one
of its Subsidiaries of all of the capital stock or assets of King-O-Matic
Industries Limited.'
`"MASCOT ACQUISITION": the acquisition by the Borrower or one of its
Subsidiaries of all or substantially all of the capital stock or assets of
Mascot Truck Parts, Inc.'
`"1994 SENIOR SUBORDINATED NOTES": the senior subordinated notes due
2004, in aggregate principal amount at any time outstanding not exceeding
$120,000,000, issued by the Borrower pursuant to the Indenture dated as of
August 2, 1994.
`"1995 SENIOR SUBORDINATED NOTES": the senior subordinated notes due
2004, in aggregate principal amount at any time outstanding not exceeding
$40,000,000, issued by the Borrower pursuant to the Indenture dated as of
June 1, 1995, containing substantially the terms and conditions set forth
on Exhibit I and containing such other terms and conditions as are
reasonably satisfactory to the Agent and the Required Lenders.'
3. AMENDMENT OF SUBSECTION 8.1. Subsection 8.1 of the Credit
Agreement is hereby amended by (i) deleting the ratio "4.50 to 1.0" set forth
opposite June 30, 1995 in paragraph (a) thereof and inserting in lieu thereof
the following new ratio of "5.50 to 1.0" and (ii) deleting the ratio "4.50 to
1.0" set forth opposite September 30, 1995 in paragraph (a) thereof and
inserting in lieu thereof the following new ratio of "5.00 to 1.0".
4. AMENDMENT OF SUBSECTION 8.2. Subsection 8.2 of the Credit
Agreement is hereby amended by deleting paragraph (e) thereof in its entirety
and inserting in lieu thereof the following new paragraph (e):
"(e) (i) Indebtedness under the 1994 Senior Subordinated Notes
(including any 1994 Senior Subordinated Notes exchanged for other 1994
Senior Subordinated Notes) and (ii) Indebtedness under the 1995 Senior
Subordinated Notes (including any 1995 Senior Subordinated Notes exchanged
for other 1995 Senior Subordinated Notes); PROVIDED that, in the case of
the Indebtedness under 1995 Senior Subordinated incurred pursuant to clause
(ii) above, the requirements of subsection 8.1 would be satisfied on a pro
forma basis as at the end of the fiscal quarter of the Borrower most
recently ended prior to such incurrence with respect to which financial
statements have been delivered
<PAGE>
3
pursuant to subsection 7.1 if such incurrence and any Acquisition
consummated concurrently with such incurrence had occurred on or prior to
the first day of the four fiscal quarter period ended with such most
recently ended fiscal quarter; and PROVIDED that, in the case of both
clause (i) and (ii) above, the Borrower shall not, directly or indirectly,
without the consent of the Required Lenders, permit the modification,
waiver or amendment of any of the terms (including, without limitation, the
subordination provisions) of the Senior Subordinated Notes (other than any
such amendment, modification or change which (i) would extend the maturity
or mandatory redemption date thereof or reduce the amount of any principal
or redemption payments in respect thereof, (ii) would reduce the rate or
extend the date for payment of interest or (iii) would not adversely affect
the interests of the Agent or any Lender under any Loan Document, or (iv)
is of a technical or clarifying nature and can be made without the consent
of any holder of such Senior Subordinated Notes);"
5. AMENDMENT OF SUBSECTION 8.10. Subsection 8.10 of the Credit
Agreement is hereby amended by removing the word "and" at the end of paragraph
(h), removing the period at the end of paragraph (i) and adding thereafter the
following:
"; and
(j) upon and after the issuance of the 1995 Senior Subordinated Notes
in an aggregate principal amount of not less than $40,000,000, investments
by the Borrower or one or more of its Subsidiaries which constitute any or
all of the CRS Acquisition, the King-O-Matic Acquisition and the Mascot
Acquisition by the Borrower or its Subsidiaries, for cash or other
consideration not exceeding $40,000,000 in the aggregate for all such
acquisitions; PROVIDED that (i) the requirements of subsection 8.1 would be
satisfied on a pro forma basis as at the end of the fiscal quarter of the
Borrower most recently ended prior to such acquisition with respect to
which financial statements have been delivered pursuant to subsection 7.1
if each such acquisition and the issuance of the 1995 Senior Subordinated
Notes had occurred on or prior to the first day of the four fiscal quarter
period ended with such most recently ended fiscal quarter and (ii)
immediately after the consummation of each such acquisition, there shall be
at least $10,000,000 available hereunder for extensions of credit to be
made in accordance with the terms hereof (including the restrictions of the
Borrowing Base after giving effect to such acquisition)."
6. AMENDMENT OF SCHEDULE 5.14. Upon each of the Acquisitions,
Schedule 5.14 of the Credit Agreement will be amended by notice to the Agent to
include the new Subsidiary formed or acquired thereby.
7. AMENDMENT OF ANNEX A. Annex A of the Credit Agreement is hereby
amended by adding to the end of clause (iii) of the definition of Ineligible
Accounts Receivable therein the following:
<PAGE>
4
"and other than foreign sales giving rise to Accounts that are payable
by Canadian account debtors which such Accounts constitute Collateral under
(and as defined in) a Security Agreement PROVIDED that foreign sales
payable by Canadian account debtors do not at any time constitute more than
10% of total Eligible Accounts Receivable"
8. AMENDMENT OF EXHIBIT I. Exhibit I of the Credit Agreement is
hereby amended by deleting such Exhibit I in its entirety and inserting in lieu
thereof the new Exhibit I attached hereto as Exhibit I.
9. REPRESENTATIONS; NO DEFAULT. On and as of the date hereof, and
after giving effect to this Amendment, the Company confirms, reaffirms and
restates that the representations and warranties set forth in Section 5 of the
Credit Agreement and in the other Loan Documents are true and correct in all
material respects, PROVIDED that the references to the Credit Agreement therein
shall be deemed to be references to this Amendment and to the Credit Agreement
as amended by this Amendment.
10. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on and as of the date (the "AMENDMENT EFFECTIVE DATE") that the Agent
shall have received counterparts of this Amendment, duly executed and delivered
by a duly authorized officer of each of the Borrower, the Agent, and the
Required Lenders, along with the written consent of each Subsidiary Guarantor in
the form attached hereto.
11. CONDITIONS TO ACQUISITIONS. The parties hereto affirm and agree
that pursuant to subsection 8.16(b) of the Credit Agreement, the Borrower shall
cause each new Subsidiary created or acquired in connection with the CRS
Acquisition, the King-O-Matic Acquisition and the Mascot Acquisition to enter
into a Security Agreement and a Guarantee concurrently with the consummation of
such acquisition. In connection with each such acquisition and the delivery of
Security Agreements and Guarantees, the Borrower agrees to deliver or cause to
be delivered (i) such legal opinions of special local counsel as the Agent shall
reasonably require, (ii) filings, recordings and registrations, including,
without limitation, duly executed financing statements on form UCC-1, necessary
or, in the opinion of the Agent, desirable to perfect the liens created by such
additional Security Agreements, in each case in proper form for filing, (iii)
copies of the results of recent lien searches in the jurisdictions applicable
thereto with respect to personal property of each such new Subsidiary, the
results of which such searches shall be satisfactory to the Agent and (iv) such
merger agreements, stock purchase agreements or other documentation pursuant to
which such acquisitions are to be consummated as the Agent shall reasonably
request.
12. LIMITED AMENDMENT. Except as expressly waived and amended
herein, the Credit Agreement shall continue to be, and shall remain, in full
force and effect. This Amendment shall not be deemed to be a waiver of, or
consent to, or a modification or amendment
<PAGE>
5
of, any other term or condition of the Credit Agreement or any other Loan
Document or to prejudice any other right or rights which the Lenders may now
have or may have in the future under or in connection with the Credit Agreement
or any of the instruments or agreements referred to therein, as the same may be
amended from time to time.
13. COSTS AND EXPENSES. The Company agrees to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of this
Amendment, and the consummation of the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of its
counsel.
14. COUNTERPARTS. This Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
15. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
AFTERMARKET TECHNOLOGY CORP.
By:
-------------------------
Title:
CHEMICAL BANK, as Agent and as a Lender
By:
-------------------------
Title:
HELLER FINANCIAL, INC.
By:
-------------------------
Title:
THE CIT GROUP/BUSINESS CREDIT,
INC.
By:
-------------------------
Title:
<PAGE>
7
CONSENT
Each of the undersigned Parent and Subsidiary Guarantors hereby consents
and agrees to the provisions of the foregoing Amendment, and hereby affirms that
upon the effectiveness of the foregoing Amendment, each Loan Document to which
it is a party shall continue to be, and shall remain, in full force and effect.
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
By:
-------------------------
Title:
RPM MERIT, INC.
By:
-------------------------
Title:
AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
-------------------------
Title:
MAMCO CONVERTERS, INC.
By:
-------------------------
Title:
<PAGE>
8
H.T.P., INC.
By:
-------------------------
Title:
HTP CHARLOTTE INC.
By:
-------------------------
Title:
HTP MICHIGAN, INC.
By:
-------------------------
Title:
<PAGE>
SECOND AMENDMENT
SECOND AMENDMENT, dated as of June 7, 1996 (this "AMENDMENT"), to the
Credit Agreement, dated as of July 19, 1994 (as amended, supplemented or
otherwise modified from time to time, the "CREDIT AGREEMENT"), among AFTERMARKET
TECHNOLOGY CORP., a Delaware corporation (the "BORROWER"), the several banks and
other financial institutions from time to time parties thereto (the "LENDERS")
and CHEMICAL BANK, a New York banking corporation, as agent (in such capacity,
the "AGENT").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement;
WHEREAS, King-O-Matic Industries Limited ("KING-O-MATIC") and Mascot
Truck Parts, Inc. ("MASCOT; together with King-O-Matic, the "CANADIAN
SUBSIDIARIES") are Subsidiaries of the Borrower; and
WHEREAS, the Borrower has requested that the Lenders and the Agent
agree to amend certain provisions of the Credit Agreement, and the Lenders and
the Agent are agreeable to such request upon the terms and subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the Company, the Lenders and the Agent hereby agree as
follows:
1. DEFINITIONS. All terms defined in the Credit
Agreement shall have such defined meanings when used herein unless otherwise
defined herein. Subsection 1.1 of the Credit Agreement is hereby amended to add
thereto the following definition: "`CANADIAN SUBSIDIARIES': the collective
reference to Mascot Truck Parts, Inc. and King-O-Matic Industries Limited."
2. AMENDMENT OF SUBSECTION 8.2. (a) Subsection 8.2 of the Credit
Agreement is hereby amended by inserting the words "and the Canadian
Subsidiaries" after the word "Borrower" in clause (g) thereof and adding at the
end of such clause (g) the following:
", PROVIDED, that the portion thereof constituting Indebtedness of the
Canadian Subsidiaries shall not at any time exceed an aggregate principal
amount outstanding equivalent at such time to $2,750,000 (U.S. Dollars)."
3. AMENDMENT OF SUBSECTION 8.3. (a) Subsection 8.3 of the Credit
Agreement is hereby amended by removing the word "and" at the end of paragraph
(i), removing the period at the end of paragraph (j), and adding thereafter the
following:
<PAGE>
"and
(k) Liens on accounts and inventory of the Canadian Subsidiaries
securing Indebtedness of the Canadian Subsidiaries incurred under paragraph
(g) of subsection 8.2 in an aggregate principal amount outstanding at any
time not to exceed an amount equivalent at such time to $2,500,000 (U.S.
Dollars)."
4. RESTRICTIONS ON INVESTMENTS, MERGERS, ETC.. Notwithstanding any
other provision in the Credit Agreement to the contrary, (a) the Borrower and
its Subsidiaries (except the Canadian Subsidiaries) shall not be permitted to
make any advance, loan, extension of credit or capital contribution to, or make
any other investment in, or assume or suffer to exist any Guarantee Obligation
in favor or for the benefit of, either Canadian Subsidiary, PROVIDED that the
Borrower and its Subsidiaries shall be permitted to make any of the foregoing
that, but for the provisions of this Amendment, they otherwise would have been
permitted to make if and to the extent that the aggregate principal amount of
all such advances, loans, investments and other such obligations does not exceed
at any time an amount equivalent at such time to $2,500,000 (U.S. Dollars)
outstanding (excluding any investment made prior to the date hereof and
evidenced by the capital stock of any Canadian Subsidiary held by the Borrower
on the date hereof); and (b) references in clauses (i) and (ii) of subsection
8.5 of the Credit Agreement to any Subsidiary of the Borrower shall be deemed to
be references to Subsidiaries of the Borrower other than the Canadian
Subsidiaries.
5. RELEASE OF PLEDGED COLLATERAL. The Agent hereby releases the
security interests in the assets covered or to be covered by the Liens permitted
under subsection 8.3(k), and agrees to execute such filings as may reasonably be
requested by the Borrower to terminate any filings evidencing such Liens, all at
the expense of the Borrower, and the Lenders hereby authorize the Agent to do
all of the foregoing.
6. REPRESENTATIONS; NO DEFAULT. On and as of the date hereof, and
after giving effect to this Amendment, the Company confirms, reaffirms and
restates that the representations and warranties set forth in Section 5 of the
Credit Agreement and in the other Loan Documents are true and correct in all
material respects, PROVIDED that the references to the Credit Agreement therein
shall be deemed to be references to this Amendment and to the Credit Agreement
as amended by this Amendment.
7. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on and as of the date (the "AMENDMENT EFFECTIVE DATE") that the Agent
shall have received counterparts of this Amendment, duly executed and delivered
by a duly authorized officer of each of the Borrower, the Agent, and the
Required Lenders, along with the written consent of each Subsidiary Guarantor in
the form attached hereto.
8. LIMITED AMENDMENT. Except as expressly waived and amended
herein, the Credit Agreement shall continue to be, and shall remain, in full
force and effect. This Amendment shall not be deemed to be a waiver of, or
consent to, or a modification or amendment of, any other term or condition of
the Credit Agreement or any other Loan Document or to prejudice any other right
or rights which the Lenders may now have or may have in the future
2
<PAGE>
under or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein, as the same may be amended from time to time.
9. COSTS AND EXPENSES. The Company agrees to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of this
Amendment, and the consummation of the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of its
counsel.
10. COUNTERPARTS. This Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
11. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
AFTERMARKET TECHNOLOGY CORP.
By:
-------------------------
Title:
CHEMICAL BANK, as Agent and as a Lender
By:
-------------------------
Title:
HELLER FINANCIAL, INC.
By:
-------------------------
Title:
THE CIT GROUP/BUSINESS CREDIT, INC.
By:
-------------------------
Title:
3
<PAGE>
CONSENT
Each of the undersigned Parent and Subsidiary Guarantors hereby consents
and agrees to the provisions of the foregoing Amendment, and hereby affirms that
upon the effectiveness of the foregoing Amendment, each Loan Document to which
it is a party shall continue to be, and shall remain, in full force and effect.
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
By:
-------------------------
Title:
RPM MERIT, INC.
By:
-------------------------
Title:
AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
-------------------------
Title:
MAMCO CONVERTERS, INC.
By:
-------------------------
Title:
H.T.P., INC.
By:
-------------------------
Title:
4
<PAGE>
KING-O-MATIC INDUSTRIES LIMITED
By:
-------------------------
Title:
MASCOT TRUCK PARTS, INC.
By:
-------------------------
Title:
CRS HOLDINGS CORP.
By:
-------------------------
Title:
COMPONENT REMANUFACTURING
SPECIALISTS, INC.
By:
-------------------------
Title:
5
<PAGE>
EXHIBIT 10.32
EXECUTION COPY
WAIVER AND THIRD AMENDMENT
WAIVER AND THIRD AMENDMENT, dated as of July 31, 1996 (this
"AMENDMENT"), to the Credit Agreement, dated as of July 19, 1994 (as amended,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
among AFTERMARKET TECHNOLOGY CORP., a Delaware corporation (the "BORROWER"), the
several banks and other financial institutions from time to time parties thereto
(the "LENDERS") and THE CHASE MANHATTAN BANK (formerly known as Chemical Bank),
a New York banking corporation, as agent (in such capacity, the "AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement;
WHEREAS, the Borrower has requested that the Lenders and the Agent
agree to amend or waive certain provisions of the Credit Agreement, and the
Lenders and the Agent are agreeable to such request upon the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which is
hereby acknowledged, the Company, the Lenders and the Agent hereby agree as
follows:
1. DEFINITIONS. All terms defined in the Credit
Agreement shall have such defined meanings when used herein unless otherwise
defined herein.
2. AMENDMENT OF SUBSECTION 1.1. Subsection 1.1 of the Credit
Agreement is hereby amended by deleting the definition of "Applicable Margin"
therefrom and inserting in lieu thereof the following new definition:
"APPLICABLE MARGIN": for each Type of Loan, the rate per annum set
forth under the relevant column heading below:
Eurodollar
ABR Loans Loans
--------- ----------
1.25% 2.25%
3. AMENDMENT OF SUBSECTION 4.1. Subsection 4.1 of the Credit
Agreement is hereby amended by deleting the first sentence of clause (b) of such
subsection 4.1 and inserting in lieu thereof the following new sentence:
<PAGE>
2
"The Borrower shall pay to the Agent, for the account of the Issuing Lender
a fronting fee with respect to each Letter of Credit computed at a rate per
annum equal to 1/4 of 1% on the daily average undrawn amount of such Letter
of Credit."
4. WAIVER OF SUBSECTION 8.9. The requirements of Subsection 8.9 of
the Credit Agreement are hereby waived to the extent, and only to the extent,
that the amount of expenditures subject thereto exceed $3,600,000 during the
1996 fiscal year, PROVIDED that (i) the aggregate amount of such expenditures
during such year do not exceed $10,000,000 and (ii) no amount may be carried
over from such fiscal year to any subsequent fiscal year for the purposes of the
proviso to subsection 8.9.
5. REPRESENTATIONS; NO DEFAULT. On and as of the date hereof, and
after giving effect to this Amendment, the Company confirms, reaffirms and
restates that the representations and warranties set forth in Section 5 of the
Credit Agreement and in the other Loan Documents are true and correct in all
material respects, PROVIDED that the references to the Credit Agreement therein
shall be deemed to be references to this Amendment and to the Credit Agreement
as amended by this Amendment.
6. CONDITIONS TO EFFECTIVENESS. This Amendment shall become
effective on and as of the date (the "AMENDMENT EFFECTIVE DATE") that the Agent
shall have received counterparts of this Amendment, duly executed and delivered
by a duly authorized officer of each of the Borrower, the Agent, and the
Required Lenders, along with the written consent of each Subsidiary Guarantor in
the form attached hereto.
7. LIMITED WAIVER AND AMENDMENT. Except as expressly waived and
amended herein, the Credit Agreement shall continue to be, and shall remain, in
full force and effect. This Amendment shall not be deemed to be a waiver of, or
consent to, or a modification or amendment of, any other term or condition of
the Credit Agreement or any other Loan Document or to prejudice any other right
or rights which the Lenders may now have or may have in the future under or in
connection with the Credit Agreement or any of the instruments or agreements
referred to therein, as the same may be amended from time to time.
8. COSTS AND EXPENSES. The Company agrees to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of this
Amendment, and the consummation of the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of its
counsel.
<PAGE>
3
9. COUNTERPARTS. This Amendment may be executed by one or more of
the parties hereto in any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed and delivered by their respective duly authorized officers as of the
date first above written.
AFTERMARKET TECHNOLOGY CORP.
By:
---------------------------------------
Title:
THE CHASE MANHATTAN BANK, as Agent and as a
Lender
By:
---------------------------------------
Title:
HELLER FINANCIAL, INC.
By:
---------------------------------------
Title:
<PAGE>
4
THE CIT GROUP/BUSINESS CREDIT, INC.
By:
---------------------------------------
Title:
<PAGE>
5
CONSENT
Each of the undersigned Parent and Subsidiary Guarantors hereby
consents and agrees to the provisions of the foregoing Amendment, and hereby
affirms that upon the effectiveness of the foregoing Amendment, each Loan
Document to which it is a party shall continue to be, and shall remain, in full
force and effect.
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
By:
---------------------------------------
Title:
RPM MERIT, INC.
By:
---------------------------------------
Title:
AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
---------------------------------------
Title:
MAMCO CONVERTERS, INC.
By:
---------------------------------------
Title:
<PAGE>
6
H.T.P., INC.
By:
---------------------------------------
Title:
KING-O-MATIC INDUSTRIES LIMITED
By:
---------------------------------------
Title:
MASCOT TRUCK PARTS, INC.
By:
---------------------------------------
Title:
CRS HOLDINGS CORP.
By:
---------------------------------------
Title:
COMPONENT REMANUFACTURING SPECIALISTS, INC.
By:
---------------------------------------
Title:
<PAGE>
EXHIBIT 10.33
BANK OF MONTREAL FIRSTBANK OVERDRAFT LENDING AGREEMENT
To: Bank of Montreal
- --------------------------------------------------------------------------------
Commercial Banking Unit
Mississauga Main Branch
- --------------------------------------------------------------------------------
Branch of Account Date
One Robert Speck Parkway, Mississauga, Ontario June 12, 1996
- --------------------------------------------------------------------------------
The undersigned hereby requests the Bank of Montreal (the "Bank") to
provide a credit facility to the undersigned, subject to the following terms and
conditions:
1. DEFINED TERMS
In this Agreement, unless the subject matter or context otherwise require:
1.01 "ACCOUNT" shall mean Account No. 1009217-3858 at the branch designated
above.
1.02 "LOAN" shall mean at any time the aggregate of all amounts debited to the
Account (including without limitation cheques, transfers, withdrawals,
interest, costs, charges and fees) in excess of the aggregate of all
amounts credited to the Account.
1.03 "LOAN LIMIT" shall mean THREE MILLION-----------------------------------
---------------------------------------------------- Canadian Dollars
($3,000,000.00) or such lesser amount as may be calculated by the Bank from
time to time under the Lending Margin Calculation, if any, set out in the
Addendum hereto.
1.04 "LOAN RATE" shall mean a rate equal to the Bank's Prime Rate plus six per
cent (6.0%) per annum.
1.05 "PRIME RATE" shall mean the floating annual rate of interest established
from time to time by the Bank as the base rate it will use to determine the
rate of interest payable to the Bank by borrowers from the Bank in Canadian
dollars in Canada and designated by the Bank as its Prime Rate. The Prime
Rate on the date hereof is six and one-half per cent (6.5%) per annum.
1.06 "OVERDRAFT RATE" shall mean the annual rate of interest established from
time to time by the Bank as the interest rate it will use to calculate the
interest payable on overdrawn accounts and designated by the Bank as the
"Overdraft Rate on the date hereof is twenty-one per cent (21.0%) per
annum.
2. ACCOUNT
2.01 The undersigned may from time to time draw cheques on the Account, subject
to the terms hereof.
2.02 The undersigned shall not at any time permit the Loan to exceed the Loan
Limit and shall use the Account for business purposes only.
2.03 The Bank is authorized to debit the Account for all fees and interest
required hereunder and for all costs, charges and expenses referred to in
paragraph 6.01 and in any other Agreement(s) the undersigned has entered
into with the Bank.
3. LOAN INTEREST
3.01 The undersigned shall, both before and after demand or judgment, pay
interest at the Loan Rate on the daily closing balance of the Loan up to
the Loan Limit, such interest to be calculated and payable monthly on the
last day of each month.
3.02 The undersigned shall, both before and after demand or judgment, pay
interest at the Overdraft Rate on the amount of any daily closing balance
of the Loan in excess of the Loan Limit, such interest to be calculated and
payable monthly on the last day of each month, but nothing herein shall
oblige the Bank to permit the Loan to exceed the Loan Limit.
<PAGE>
4. DEMAND AND TERMINATION
4.01 The undersigned shall pay the Loan to the Bank ON DEMAND. The Bank may at
any time terminate the credit facility provided hereunder and demand
payment of the Loan by notice as herein provided.
4.02 THE BANK MAY REFUSE TO HONOR ANY CHEQUE OR PERMIT ANY TRANSFER OR
WITHDRAWAL FROM THE ACCOUNT UPON (A) FAILURE OF THE UNDERSIGNED TO PERFORM
OR SATISFY ANY TERM OR CONDITION HEREOF, (B) ANY DEFAULT BY THE UNDERSIGNED
IN THE PERFORMANCE OF ANY OBLIGATION OF THE UNDERSIGNED TO THE BANK WHETHER
CONTAINED HEREIN OR OTHERWISE, OR (C) ANY DEMAND FOR PAYMENT OF THE LOAN,
WHETHER OR NOT ANY TIME PERIOD HAS LAPSED AFTER THE TIME OF THE DEMAND.
5. DOCUMENTATION
5.01 The undersigned shall deliver to the Bank from time to time, promptly on
request, in form and substance satisfactory to the Bank:
(a) a promissory note or other acknowledgment of debt evidencing the Loan;
(b) any security required by the Bank; and
(c) all other documents and information required by the Bank including, if
applicable, all documentation and information listed in the Addendum.
5.02 Any promissory note or security document delivered hereunder shall be held
as additional security for the indebtedness of the undersigned for the
Loan, and not in substitution or in satisfaction thereof.
5.03 The Bank's statement for the Account at any time shall constitute prima
facie evidence of the Loan.
6. COSTS
6.01 The undersigned shall pay all reasonable costs, charges and expenses
incurred by the Bank in the preparation or enforcement of this Agreement or
any security required hereunder.
7. NOTICES
7.01 The Bank shall not be required to notify the undersigned of changes to the
Prime Rate or the Overdraft Rate or in the Bank's Calculations of the
Lending Margin Calculation, if any.
7.02 Any request for any document or information, notice of termination, demand
for payment or other notice to be sent by the Bank to the undersigned in
connection with this Agreement or the Account may be delivered to the
undersigned (or any one of them, if more than one), or mailed by prepaid
ordinary mail to the undersigned (or any one of them, if more than one) at
the last known address for the undersigned (or any one of them, if more
than one) in the Bank's records, and the undersigned shall be deemed to
have received such request or notice on the date of delivery, if delivered,
and four (4) days after mailing, if mailed.
8. GENERAL
8.01 The provisions of the Addendum, if any, shall be incorporated into this
Agreement and form part hereof.
8.02 This Agreement shall be binding upon the undersigned and the respective
executors, administrator, successors and assigns of the undersigned, but
the undersigned shall not assign any of the rights or obligations of the
undersigned hereunder without the prior written consent of the Bank.
8.03 The failure of either the undersigned or the Bank to require performance by
the other of any provision hereof shall in no way affect the right
thereafter to enforce such provision; nor shall the waiver by either party
of any breach of any covenant, condition or proviso of this Agreement or
any other agreement between the Bank and the undersigned be taken or held
to be a waiver of any further breach of the same covenant, condition or
proviso.
8.04 This Agreement shall be in addition to and not in substitution for any
other agreement between the undersigned and the Bank, with the exception of
all previous FirstBank Overdraft Lending Agreements which this document
supersedes.
8.05 The undersigned will execute the Bank's standard form of Operation of
Account Agreement or appropriate form of current account authority.
Without limiting the generality of the foregoing, the undersigned agrees
that the
<PAGE>
balance shown in any statement of the account provided to the
undersigned shall be deemed to be a correct and accurate statement of the
Loan as at the date of the statement, unless the undersigned has notified
the Bank of errors, irregularities or omissions within the thirty day
period specified in the Operation of Account Agreement or current account
authority.
8.06 Time shall be of the essence of this Agreement.
8.07 If more than one person signs this Agreement, the obligations of the
undersigned are joint and several and the Bank is authorized to honour any
cheque drawn on the Account or pay any withdrawal from the Account to
create or increase the Loan if any such cheque or withdrawal request is
signed by one of the undersigned.
8.08 It is the express wish of the parties that this Agreement and any related
documents be drawn up and executed in English. Les parties conviennent que
la presente convention et tous les documents s'y rattachant soient rediges
et signes en anglais. [Applicable to Province of Quebec only]
Per:
- -------------------------------------- -------------------------------
- -------------------------------------- -------------------------------
- -------------------------------------- -------------------------------
(To be signed by Account Holder(s), or by authorized signing officer(s) in the
case of corporations, societies, lodges, etc. In the case of corporations affix
seat where applicable. Please type name of signatories below signature(s).)
<PAGE>
ADDENDUM
TO THE FIRSTBANK OVERDRAFT LENDING AGREEMENT
LENDING MARGIN CALCULATION
The following Lending Margin Calculation is applicable to the attached
FirstBank Overdraft Lending Agreement. The calculation and the amount of the
Lending Margin Calculation is in the sole and complete discretion of the Bank,
and in cases of dispute, the Lending Margin Calculation calculated by the Bank
shall prevail.
The Lending Margin Calculation shall be an amount equal to:
As per attached Schedule
DOCUMENTATION
As per attached Schedule
<PAGE>
ADDENDUM TO THE FIRSTBANK
OVERDRAFT LENDING AGREEMENT (CONTINUED)
SENIOR DEBT
The Loan made pursuant to this FirstBank Overdraft Lending Agreement and all
other indebtedness arising hereunder or in connection herewith constitute
"Senior Debt" as defined under Aftermarket Technology Corp.'s Senior
Subordinated Note Indentures dated as of August 2, 1994 and dated as of June 1,
1995.
<PAGE>
MARGIN: Maximum advances under Facility 1 (to be used in any combination by
either borrower) will be governed by the following margin requirement
and are not to exceed:
75% of the aggregate value of the Bank's estimated worth of eligible,
good quality accounts receivable from both Borrowers, domiciled in
Canada, subject to exclusions listed below.
plus
50% against the Bank's valuation of assigned aggregate inventory
from both Borrowers, which is free and clear.
Inventory margin value to be less than or equal to 50% of total margin
value.
ACCOUNTS RECEIVABLE EXCLUSIONS:
All Accounts Receivable 91 days or older, related company accounts,
foreign accounts, all holdbacks, contra accounts, accounts in dispute
and/or any other accounts considered unacceptable by the Bank;
A/R from any one entity not to exceed 25% of total A/R of that
Borrower. Exceptions must receive prior Bank approval.
PRICING: IF INTEREST IS PAID MONTHLY.
FCMA: Bank of Montreal Prime Lending Rate + 1/4% calculated and
payable monthly in arrears.
IF INTEREST IS PAID QUARTERLY.
FCMA: Bank of Montreal Prime Lending Rate + 1/2% calculated and
payable quarterly in arrears.
IN THE EVENT THAT ATC'S D/EQUITY IS less than OR equal to TO 1.25:1
THEN:
IF INTEREST IS PAID MONTHLY.
FCMA: Bank of Montreal Prime Lending Rate calculated and payable
monthly in arrears.
IF INTEREST IS PAID QUARTERLY.
FCMA: Bank of Montreal Prime Lending Rate + 1/4% calculated and
payable quarterly in arrears.
C/L/Cs
and LGs: Commission rate of 0.1% per month or part thereof, collected
quarterly in advance, non-refundable. $50 minimum charge per
quarter, if utilized.
FEES: Monthly loan administration fee is waived for the duration of the
Banking Services contract. Extension of waiver will be considered at
time of contract renewal.
Fixed Monthly Fees: (2 year contract - Waived for first 3 months)
Mascot $325.00 CDN Acct only.
King-O-Matic $340.00 CDN Acct; $35.00 US Acct.
Mascot Truck Parts Inc. and/or
King-O-Matic Industries Ltd.
Commitment Letter
<PAGE>
BANKING
SERVICES: Each Borrower will maintain their bank accounts solely with bank
of Montreal, at its Mississauga Main Office, and further, the
Bank shall provide all auxiliary non-credit, treasury, trade
finance and cash management services to the borrower with ADP
to provide payroll services.
EXPENSES: All legal and other direct out of pocket costs incurred with
respect to due diligence and preparation of loan documents shall
be for the account of each Borrower. Each Borrower agrees to
guarantee payment of all such legal fees and other direct out of
pocket costs.
FEES: Application fee of $5000.00 fully refundable at drawdown.
REPORTING
REQUIREMENTS: The following reports/certificates, from each Borrower, are
proposed to assist the Bank in monitoring financial trends:
Monthly: Monthly, aged list of Accounts Receivables, Accounts payable,
and listing of inventory, of each Borrower, to be received within
30 days following each month end;
Quarterly: Quarterly management prepared financial statements of each
Borrower, complete with fiscal year to date totals, to be
received by the Bank within 45 days after each fiscal quarter
end;
Affidavit on ATC letterhead, signed by a duly authorized officer,
confirming compliance to all existing financial covenants, with
all lenders.
Form 10-Q from Aftermarket Technology Corp. ("ATC") within 45
days of each fiscal quarter end.
Annually: Management prepared financial statements of each Borrower, within
90 days of fiscal year end.
Form 10-K from ATC within 90 days of fiscal year end.
Annual business plan of each Borrower and ATC for next fiscal
year.
COVENANTS: Standard legal and keep-well covenants are to be included in
security documentation as prescribed by the Bank's solicitors.
The following additional covenants are proposed:
Each Borrower shall not, without the prior written consent
of the Bank;
(a) merge or amalgamate with any other corporation.
(b) change ownership.
(c) incur/issue any additional debt or provide guarantees of any
kind except as in the normal course of business, without
the Bank's prior approval.
The Borrower, on a combined basis, shall at all times maintain
the following financial covenant which will be tested on an
annual basis based on management prepared year end financial
statements.
Mascot Truck Parts Inc. and/or
King-O-Matic Industries Ltd.
Commitment Letter
<PAGE>
Maintain the total debt to tangible net worth ratio ("D:TNW
ratio") less than 2.0:1.
CROSS DEFAULT: ATC agrees that default in any of its loans or a breach in any of
its existing financial covenants will constitute default of
our loan agreement.
Evidence of compliance will be in the form of a certificate,
on company letterhead, outlining the calculation of said
covenants, duly executed by an authorized signing officer.
DEFINITIONS: All definitions are in accordance with Canadian GAAP with
specific inclusions/exclusions as indicated below:
Debt: All Liabilities less all Deferred Taxes, and any senior
subordinated notes;
TNW: The Shareholders Equity account,
plus
any senior subordinated notes
less
the sum of deferred charges, goodwill, other intangibles (i.e.,
Leasehold improvements) and any loans, advances and any other
receivables due from any shareholder, employee, associated or
affiliated company;
FOR THE ATC D/EQUITY PRICING ISSUE:
Debt: All Liabilities as shown on Balance Sheet.
Equity: Total Stockholders Equity.
SCHEDULE OF SECURITY:
TO BE OBTAINED FROM MASCOT TRUCK PARTS INC.:
LF32 GENERAL ASSIGNMENT OF BOOK DEBTS, ETC. (P.P.S.A.)
- -------------------------------------------------------
ENABLING RESOLUTION DATED:
DESCRIPTION OF SECURITY:
First charge over Accounts Receivable
SECTION 427 SECURITY
- ----------------------
DESCRIPTION OF SECURITY:
First charge over Inventory
LF 44 GUARANTEE FOR INDEBTEDNESS OF A CORPORATION
- -------------------------------------------------------
IN THE AMOUNT OF: $3,100M
IN FAVOUR OF: Aftermarket Technology Corp.
Complete with Enabling Resolution & Solvency Certificate.
<PAGE>
ASSIGNMENT OF FIRE INSURANCE-POLICY
- -----------------------------------
POLICY ISSUED BY:
EXPIRY DATE:
LOSS PAYABLE TO: B of M 1st loss payee
TO BE OBTAINED FROM KING-O-MATIC INDUSTRIES INC.:
LF32 GENERAL ASSIGNMENT OF BOOK DEBTS, ETC, (P.P.S.A.)
- -------------------------------------------------------
ENABLING RESOLUTION DATED:
DESCRIPTION OF SECURITY:
First charge over Accounts Receivable
SECTION 427 SECURITY
- ---------------------
DESCRIPTION OF SECURITY:
First charge over Inventory
LF 44 GUARANTEE FOR INDEBTEDNESS OF A CORPORATION
- -------------------------------------------------------
IN THE AMOUNT OF: $3,100M
IN FAVOUR OF: Aftermarket Technology Corp.
Complete with Enabling Resolution & Solvency Certificate.
ASSIGNMENT OF FIRE INSURANCE POLICY
- -------------------------------------------------------
POLICY ISSUED BY:
EXPIRY DATE:
LOSS PAYABLE TO: B of M 1st loss payee
LF320 FIRSTBANK LENDING AGREEMENT
- -------------------------------------------------------
DATED:
ACCOUNT NUMBER:
LOAN LIMIT: $3,000,000.00
SIGNED: Jointly by Mascot and King-O-Matic
TO BE OBTAINED FROM AFTERMARKET TECHNOLOGY CORP.:
GUARANTEE FOR INDEBTEDNESS OF A CORPORATION
- -------------------------------------------------------
Bank's Standard Form for Foreign Guarantees supported by:
Corporate Documentation, resolutions etc as required
IN THE AMOUNT OF: $3,100M
IN FAVOUR OF: Mascot Truck Parts Inc. and King-O-Matic Industries Ltd.
OTHER SECURITY ITEMS:
INTERBANK AGREEMENT FROM CHEMICAL BANK:
- ----------------------------------------
SOLICITORS LETTER OF OPINION: from Bank solicitor as to the validity and
- ----------------------------- enforceability of our security.
ENVIRONMENTAL CHECKLIST from each of the Borrowers.
- -----------------------
LA961910.210/4+
Mascot Truck Parts Inc. and/or
King-O-Matic Industries Ltd.
Commitment Letter
<PAGE>
EXHIBIT 10.34
STOCK PURCHASE AGREEMENT
BY AND AMONG
ROBERT T. CARREN QUALIFIED ANNUITY TRUST,
ROBERT T. CARREN,
DIVERCO, INC.,
AND
DIVERCO ACQUISITION CORP.
DATED AS OF OCTOBER 1, 1996
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TABLE OF CONTENTS
PAGE
----
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . .1
1.01. Definitions. . . . . . . . . . . . . .1
ARTICLE II. PURCHASE AND SALE. . . . . . . . . . .6
2.01. Purchase of Shares from
Shareholders . . . . . . . . . . . . .6
2.02. Closing. . . . . . . . . . . . . . . .6
2.03. Determination of Adjusted
EBITDA . . . . . . . . . . . . . . . .6
2.04. Post-Closing Purchase Price
Adjustments. . . . . . . . . . . . . .7
ARTICLE III. REPRESENTATIONS AND
WARRANTIES OF SHAREHOLDERS . . . . . .8
3.01. Representations Regarding
the Shares . . . . . . . . . . . . . .8
3.02. Corporate Existence and
Power. . . . . . . . . . . . . . . . .8
3.03. Existence and Power. . . . . . . . . .8
3.04. Authorization. . . . . . . . . . . . .9
3.05. Subsidiaries . . . . . . . . . . . . .9
3.06. Capital Stock. . . . . . . . . . . . .9
3.07. Governmental Authorization . . . . . .9
3.08. Non-Contravention. . . . . . . . . . 10
3.09. Financial Statements;
Undisclosed Liabilities. . . . . . . 10
3.10. Absence of Certain Changes . . . . . 10
3.11. Properties; Leases; Tangible
Assets . . . . . . . . . . . . . . . 11
3.12. Affiliates . . . . . . . . . . . . . 12
3.13. Inventories. . . . . . . . . . . . . 13
3.14. Litigation . . . . . . . . . . . . . 13
3.15. Contracts. . . . . . . . . . . . . . 13
3.16. Permits; Required Consents . . . . . 14
3.17. Compliance with Applicable
Laws . . . . . . . . . . . . . . . . 14
3.18. Employment Agreements;
Change in Control; and
Employee Benefits. . . . . . . . . . 15
3.19. Labor and Employment Matters . . . . 16
3.20. Intellectual Property. . . . . . . . 16
3.21. Advisory Fees. . . . . . . . . . . . 17
3.22. Environmental Compliance . . . . . . 17
3.23. Insurance. . . . . . . . . . . . . . 18
3.24. Tax Matters. . . . . . . . . . . . . 18
3.25. Material Disclosures . . . . . . . . 19
3.26. Sufficiency of and Title to
Assets . . . . . . . . . . . . . . . 19
3.27. Long-Term Debt . . . . . . . . . . . 19
ARTICLE IV. REPRESENTATIONS AND
WARRANTIES OF BUYER. . . . . . . . . 20
4.01. Organization and Existence . . . . . 20
4.02. Corporate Authorization. . . . . . . 20
4.03. Governmental Authorization . . . . . 20
4.04. Non-Contravention. . . . . . . . . . 20
4.05. Advisory Fees. . . . . . . . . . . . 20
4.06. Litigation . . . . . . . . . . . . . 20
ARTICLE V. COVENANTS OF SHAREHOLDERS AND
DIVERCO. . . . . . . . . . . . . . . 21
5.01. Conduct of the Business;
Distributions. . . . . . . . . . . . 21
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5.02. Access to Information. . . . . . . . 22
5.03. Compliance with Terms of
Required Governmental
Approvals and Required
Contractual Consents . . . . . . . . 23
5.04. Maintenance of Insurance
Policies . . . . . . . . . . . . . . 23
5.05. Confidentiality. . . . . . . . . . . 23
5.06. Transactions Affecting the
Shares . . . . . . . . . . . . . . . 24
5.07. Waste Stream Analysis. . . . . . . . 24
5.08. Agreements With Respect to
Certain Indebtedness . . . . . . . . 24
ARTICLE VI. COVENANTS OF BUYER . . . . . . . . . 25
6.01. Confidentiality. . . . . . . . . . . 25
6.02. Access to Information. . . . . . . . 25
6.03. Payment of Long-Term Debt. . . . . . 26
ARTICLE VII. COVENANTS OF ALL PARTIES . . . . . . 26
7.01. Further Assurances . . . . . . . . . 26
7.02. Certain Filings. . . . . . . . . . . 26
7.03. Public Announcements . . . . . . . . 26
7.04. Administration of Accounts . . . . . 27
7.05. Taxes and Section 338(h)(10)
Election . . . . . . . . . . . . . . 27
ARTICLE VIII. CONDITIONS TO CLOSING . . . . . . . 29
8.01. Conditions to Obligation of
Buyer. . . . . . . . . . . . . . . . 29
8.02. Conditions to Obligation of
Diverco. . . . . . . . . . . . . . . 31
ARTICLE IX. INDEMNIFICATION . . . . . . . . . . . 32
9.01. Agreement to Indemnify . . . . . . . 32
9.02. Survival of Representation,
Warranties and Covenants . . . . . . 32
9.03. Claims for Indemnification . . . . . 33
9.04. Defense of Claims. . . . . . . . . . 33
ARTICLE X. TERMINATION. . . . . . . . . . . . . 35
10.01. Grounds for Termination . . . . . . 35
10.02. Effect of Termination . . . . . . . 36
ARTICLE XI. MISCELLANEOUS . . . . . . . . . . . 36
11.01. Notices . . . . . . . . . . . . . . 36
11.02. Amendments; No Waivers. . . . . . . 37
11.03. Expenses. . . . . . . . . . . . . . 38
11.04. Successors and Assigns. . . . . . . 38
11.05. Governing Law . . . . . . . . . . . 38
11.06. Counterparts; Effectiveness . . . . 38
11.07. Entire Agreement. . . . . . . . . . 38
11.08. Captions. . . . . . . . . . . . . . 38
11.09. Severability. . . . . . . . . . . . 38
11.10. Construction. . . . . . . . . . . . 39
11.11. Arbitration of Claims . . . . . . . 39
11.12. Cumulative Remedies . . . . . . . . 40
11.13. Third Party Beneficiaries . . . . . 40
11.14. Trustee's Exculpation . . . . . . . 40
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<PAGE>
DEFINED TERMS
"1995 Balance Sheet". . . . . . . . .Section 3.08 9
"AAA Rules" . . . . . . . . . . Section 11.11(a) 37
"Agreement" . . . . . . . . . . . . . . Preamble 1
"Allocation Statement". . . Section 7.05(b)(iii) 26
"Annual Statements" . . . . . . . . .Section 3.08 9
"Business". . . . . . . . . . . . . . . .Recitals 1
"Buyer Indemnitees" . . . . . . .Section 9.01(a) 30
"Buyer" . . . . . . . . . . . . . . . . .Preamble 1
"Buyer's Auditors". . . . . . . . . .Section 2.03 6
"Closing Date". . . . . . . . . . Section 2.02(a) 6
"Closing" . . . . . . . . . . . . Section 2.02(a) 6
"Distributions" . . . . . . . . .Section 3.09(h) 11
"Diverco" . . . . . . . . . . . . . . . .Preamble 1
"EBITDA Calculation". . . . . . . . .Section 2.03 6
"Encumbrances". . . . . . . . . .Section 3.10(a) 11
"Financial Statements". . . . . . . .Section 3.08 9
"Insurance Policies". . . . . . . . Section 3.23 17
"Intellectual Property Rights". .Section 3.20(a) 15
"Interim Statements". . . . . . . . .Section 3.08 9
"Leased Real Property". . . . . .Section 3.11(a) 11
"Leases". . . . . . . . . . . . .Section 3.10(b) 11
"Non-Voting Common Stock" . . . . . . . .Recitals 1
"Other Trustee Documents" . . . Section 11.14(a) 38
"Outside Date". . . . . . . . . Section 10.01(f) 34
"Overpayment" . . . . . . . . . . Section 2.04(b) 7
"Permits" . . . . . . . . . . . .Section 3.15(a) 13
"Personal Property Leases". . . .Section 3.10(b) 11
"Proceedings" . . . . . . . . . . . Section 3.13 12
"Real Property Leases". . . . . .Section 3.10(b) 11
"Required Consents" . . . . . . .Section 3.15(b) 14
"Required Contractual Consent". .Section 3.15(b) 14
"Required Governmental Approval".Section 3.15(b) 13
"RTC" . . . . . . . . . . . . . . . . . .Preamble 1
"S corporation" . . . . . . . . .Section 3.23(k) 18
"Scheduled Contracts" . . . . . .Section 3.14(a) 12
"Section 338(h)(10) Elections"Section 7.05(b)(i) 25
"Selected Firm" . . . . . . . . . . .Section 2.03 7
"Share Encumbrances". . . . . . . Section 3.01(a) 7
"Shareholder Indemnitees" . . . .Section 9.01(b) 30
"Shareholders". . . . . . . . . . . . . .Preamble 1
"Shareholders' Auditors". . . . . . .Section 2.03 6
"Shares". . . . . . . . . . . . . . . . .Recitals 1
"Subsequent Material Contract"Section 5.01(b)(iv) 20
"Trust" . . . . . . . . . . . . . . . . .Preamble 1
"Trustee" . . . . . . . . . . . . .Section 11.14 38
"Unpaid Balance". . . . . . . . . Section 2.04(a) 7
"Voting Common Stock" . . . . . . . . . .Recitals 1
"Workpapers". . . . . . . . . . . . .Section 2.03 6
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EXHIBITS
Exhibit A . . . . . . . . . . . . . . . . . .Ownership of Shares 1, 6, 7, 9
Exhibit B . . . . . . . . . . . . . . . . . . .Annual Statements 9
SCHEDULES
Schedule 1.01(a). . . . . . . . . . . . . . . . . Adjusted EBITDA 1
Schedule 1.01(b). . . . . . . . . . . . . . . . . Permitted Liens 5
Schedule 3.01(a). . . . . . . . . . . . . . . .Share Encumbrances 7, 22
Schedule 3.01(c). . . . . . . . . . . . . . . . . . . .Agreements 8
Schedule 3.03(b). . . . . . . . . . .Qualification to do Business 8
Schedule 3.05 . . . . . . . . . . . . . . . . . . . .Subsidiaries 9
Schedule 3.06(b). . . . . . . . . . . . . Shares Held in Treasury 9
Schedule 3.07 . . . . . . . . . . . . Governmental Authorizations 9
Schedule 3.10 . . . . . . . . . . . . .Absence of Certain Changes 10
Schedule 3.11(a). . . . . . . . . . . . . . .Leased Real Property 11
Schedule 3.11(b). . . . . . . . . . . . .Personal Property Leases 11
Schedule 3.11(c). . . . . . . . . . . . . . . Land-Use Regulation 11
Schedule 3.12 . . . . . . . . . . . . . . . . . . . . .Affiliates 12
Schedule 3.13(i). . . . . . . . . . . . . . . . . . . Inventories 12
Schedule 3.13(ii) . . . . . . . . . . . . . . Inventories by Days 12
Schedule 3.14 . . . . . . . . . . . . . . . . . . . . .Litigation 12, 20
Schedule 3.15(a). . . . . . . . . . . . . . . Scheduled Contracts 12
Schedule 3.15(b). . . . . . . . . Non-Binding Scheduled Contracts 13, 14
Schedule 3.15(c). . . . . . . . . Primary Customers and Suppliers 13
Schedule 3.16(a). . . . . . . . . . . . . . . . . . . . . Permits 13, 14
Schedule 3.16(b). . . . . . . . . . . . . . . . Required Consents 13
Schedule 3.17 . . . . . . . . . . Compliance with Applicable Laws 14, 21
Schedule 3.18(a). . . . . . . . . .Benefit Plans and Arrangements 14
Schedule 3.18(f). . . . . . . . . . . . . . . . .Accrued Benefits 14
Schedule 3.19 . . . . . . . . . . . .Labor and Employment Matters 15
Schedule 3.20(a). . . . . . . . . . . . . . Intellectual Property 15
Schedule 3.20(b). Proceedings Applicable to Intellectual Property 16
Schedule 3.20(c). . . . Ownership of Intellectual Property Rights 16
Schedule 3.22(a). . . . . . . . . . . . . . Environmental Permits 16
Schedule 3.22(b). . . . . . . . . . . . .Environmental Compliance 16
Schedule 3.22(c). . Continuing Compliance with Environmental Laws 16
Schedule 3.23 . . . . . . . . . . . . . . . . .Insurance Policies 17
Schedule 3.24(k). . . . . . . . . . . S Corporation Election Date 18
Schedule 3.24 . . . . . . . . . . . . . . . . . . . . Tax Matters 17
Schedule 3.27 . . . . . . . . . . . . . . . . . . .Long-Term Debt 18
Schedule 5.01(b)(v) . . . . . . . . . . . . .Capital Expenditures 20
Schedule 5.01(b)(vii) . . . . . . . . . . . . . . . Distributions 20
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<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") dated as of
October 1, 1996 is by and among ROBERT T. CARREN QUALIFIED ANNUITY TRUST (the
"Trust"), ROBERT T. CARREN, an individual ("RTC" and collectively with the
Trust, "Shareholders" and individually, each a "Shareholder"), DIVERCO, INC.,
an Illinois corporation ("Diverco"), and DIVERCO ACQUISITION CORP., a
Delaware corporation ("Buyer").
R E C I T A L S
WHEREAS, Diverco is engaged in the production, sourcing,
distribution and sale of automotive, light truck and heavy duty truck
component parts (the "Business");
WHEREAS, each Shareholder owns the number of the issued and
outstanding shares (collectively the "Shares") of Diverco's Voting Common
Stock, no par value per share, (the "Voting Common Stock"), and Non-Voting
Common Stock, no par value per share (the "Non-Voting Common Stock"), set
forth opposite such Shareholder's name on EXHIBIT A hereto, which Shares in
the aggregate represent all of the issued and outstanding shares of Diverco's
capital stock; and
WHEREAS, Buyer desires to purchase and Shareholders desire to sell
the Shares on the terms and conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth,
the parties hereto agree as follows.
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"ADJUSTED EBITDA" means the sum of (i) the operating income of
Diverco for the period from and including January 1, 1996 through and
including December 31, 1996 plus (ii) the aggregate of the following items of
Diverco for such period: (A) building rental in excess of $120,000.00; (B)
RTC's salary in excess of $125,000.00 in the aggregate; (C) depreciation and
amortization; (D) taxes (including, without limitation, officer Medicare
taxes in excess of $1,812.15 and state replacement taxes; (E) officers'
401(k) matching payments in excess of $1,875.00; (F) bonuses paid or payable
to RTC in the amount of $611,500.00; (G) bonuses paid or payable to Gregory
Wilson in the amount of $100,000.00; and (H) to the extent deducted in
determining operating income of Diverco under clause (i) preceding, the
amount of any finder's fees or other fees paid or payable to Niederhoffer,
Henkel & Co. L.L.C. or expenses of Buyer. The foregoing shall be calculated
according to GAAP and on the same basis as the calculation set forth on
SCHEDULE 1.01(A).
"AFFILIATE" means, with respect to any Person, any Person directly
or indirectly controlling, controlled by or under direct or indirect common
control with such other Person. Without limiting the generality of the
foregoing, after the Closing Date the Affiliates of Buyer shall include
Diverco.
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"APPLICABLE LAW" means, with respect to any Person, any
domestic or foreign, federal, state or local statute, law, ordinance, rule,
administrative interpretation, regulation, policy, guidance, order, writ,
injunction, directive, judgment, decree or other requirement of any
Governmental Authority (including any Environmental Law) applicable to such
Person or any of its Affiliates or Plan Affiliates or any of their respective
properties, assets, officers, directors, employees, consultants or agents (in
connection with such officer's, director's, employee's, consultant's or
agent's activities on behalf of such Person or any of its Affiliates or Plan
Affiliates).
"ASSOCIATE" or "ASSOCIATED WITH" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of ten
percent or more of any class of equity securities issued by such other
Person, (b) any trust or other estate in which such Person has a substantial
beneficial interest or as to which such Person serves as trustee or in a
similar fiduciary capacity, and (c) any relative or spouse of such Person, or
any relative of such spouse who has the same home as such Person or who is a
director or officer of such Person or any Affiliate thereof.
"BENEFIT ARRANGEMENT" means any material benefit arrangement that
is not an Employee Benefit Plan, including, without limitation, (i) each
material employment or consulting agreement, (ii) each arrangement providing
for material insurance coverage for employees or workers' compensation
benefits, (iii) each material incentive bonus or deferred bonus arrangement,
(iv) each arrangement providing material termination allowance, severance or
similar benefits, (v) each material equity compensation plan, (vi) each
material deferred compensation plan and (vii) each material compensation
policy and practice maintained by Diverco or any ERISA Affiliate of Diverco
covering the employees, former employees, directors and former directors of
Diverco and the beneficiaries of any of them.
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit
Arrangement.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other
day on which commercial banks in Los Angeles, California are authorized or
required by law to close.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" means all contracts, agreements, options, leases,
licenses, sales and purchase order, commitments and other instruments of any
kind, whether written or oral, to which Diverco is a party on the Closing
Date, including the Scheduled Contracts and the Subsequent Material Contracts.
"DAMAGES" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments,
awards, fines, sanctions, penalties, charges and amounts paid in settlement
net of insurance proceeds actually received, including without limitation (i)
interest on cash disbursements in respect of any of the foregoing at the
Reference Rate in effect from time to time, compounded quarterly, from the
date each such cash disbursement is made until the Person incurring the same
shall have been indemnified in respect thereof and (ii) reasonable costs,
fees and expenses of attorneys, accountants and other agents of such Person.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as defined
in Section 3(3) of ERISA, that is sponsored or contributed to by Diverco or
any ERISA Affiliate thereof covering employees or former employees of Diverco.
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"EMPLOYEE PENSION BENEFIT PLAN" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of
ERISA, including a Multiemployer Plan.
"ENVIRONMENTAL LAWS" means all Applicable Laws relating to the
protection of human health or the environment including, without limitation,
(i) all requirements pertaining to reporting, licensing, permitting,
controlling, investigating or remediating emissions, discharges, releases or
threatened releases of Hazardous Substances, chemical substances, pollutants,
contaminants or toxic substances, materials or wastes, whether solid, liquid
or gaseous in nature, into the air, surface water, groundwater or land, (ii)
all requirements relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
chemical substances, pollutants, contaminants or toxic substances, materials
or wastes, whether solid, liquid or gaseous in nature; and (iii) the Resource
Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), the Clean Air Act, the
Water Pollution Control Act, the Safe Drinking Water Act, the Toxic Substance
Control Act ("TSCA") and all requirements promulgated pursuant to any of
these or analogous state or local statutes.
"ENVIRONMENTAL LIABILITIES" means Liabilities of a Person that
arise under any Environmental Law and that relate to facts, circumstances,
events or conditions in existence as of, or occurring on or before, the
Closing Date (including, without limitation, those relating to the issues
discussed in Section 5.07 of this Agreement).
"EQUIPMENT" means all machinery, equipment, furniture, office
equipment, communications equipment, vehicles, storage tanks, spare and
replacement parts, fuel and other tangible property (and interests in any of
the foregoing) of Diverco.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA AFFILIATE" of any Person means any other Person that,
together with such Person as of the relevant measuring date under ERISA, was
or is required to be treated as a single employer under Section 414(b), (c),
(m) or (o) of the Code.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis.
"GOVERNMENTAL AUTHORITY" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory
organization, commission, tribunal or organization or any regulatory,
administrative or other agency, or any political or other subdivision,
department or branch of any of the foregoing.
"GROUP HEALTH PLAN" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
"HAZARDOUS SUBSTANCE" means any substance or material: (i) the
presence of which in, at or about the air, surface water, groundwater, soil,
land, or any facility requires investigation or remediation under any
Environmental Law; or (ii) that is defined as a "hazardous waste" or
"hazardous substance" under any Environmental Law; or (iii) that is toxic,
explosive, corrosive, flammable, infectious, radioactive, carcinogenic or
mutagenic or otherwise hazardous and is regulated by any Governmental
Authority having or asserting legal, regulatory, judicial, administrative or
other authority over Diverco; or (iv) the presence of which causes a nuisance
or other tortious condition
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under any Applicable Law or any Environmental Law to adjacent properties or
poses a hazard to the health or safety of Persons; or (v) the presence of
which on adjacent properties constitutes a trespass or other tortious
condition by Diverco; or (vi) without limitation, that contains gasoline,
diesel fuel or other petroleum hydrocarbons, polychlorinated biphenols (PCBs)
or asbestos.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFYING PARTY" means: (1) Shareholders when any Buyer
Indemnitee is asserting a claim under Sections 9.01(a) or 11.11 or (2) Buyer
when any Shareholder Indemnitee is asserting a claim under Sections 9.01(b)
or 11.11.
"INDEMNITEE" means: (1) each of Buyer and its Affiliates with
respect to any claim for which any Shareholder is an Indemnifying Party under
Sections 9.01(a) or 11.11; or (2) Shareholders and their Affiliates with
respect to claims for which Buyer is an Indemnifying Party under Sections
9.01(b) or 11.11.
"INVENTORY" means all items of inventory notwithstanding how
classified in the financial records of Diverco, including all raw materials,
work-in-process, finished goods, supplies, spare parts, samples, cores and
stores of Diverco.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means, with respect to any corporation, all things
known to the executive officers of such corporation.
"LIABILITY" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether
known or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, whether
or not the same is required to be accrued on the financial statements of such
Person and whether or not the same is disclosed on any schedule to this
Agreement.
"LIEN" means, with respect to any asset, any mortgage, title defect
or objection, lien, pledge, charge, security interest, hypothecation,
restriction, encumbrance or charge of any kind in respect of such asset.
"MATERIAL ADVERSE EFFECT" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of Diverco or the Business
that results in a material adverse effect on, or a material adverse change
in, the Business taken as a whole.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 3(37) and 4001(a)(3) of ERISA.
"PERMITTED LIENS" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for
Taxes the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other
Liens imposed by Applicable Law incurred in the ordinary course of business
for sums not yet delinquent or being contested in good faith; (iii) Liens
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relating to deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security or to secure the performance of leases, trade contracts or other
similar agreements; (iv) Liens and Encumbrances specifically identified in
the 1995 Balance Sheet; (v) Liens securing executory obligations under any
Lease that constitutes an "operating lease" under GAAP; and (vi) other Liens
set forth on SCHEDULE 1.01(b) hereto; PROVIDED, HOWEVER, that, with respect
to each of clauses (i) through (v), to the extent that any such Encumbrance
or Lien arose prior to the date of the 1995 Balance Sheet and relates to, or
secures the payment of, a Liability that is required to be accrued under
GAAP, such Encumbrance or Lien shall not be a Permitted Lien unless adequate
accruals for such Liability have been established therefor on such 1995
Balance Sheet in conformity with GAAP. Notwithstanding the foregoing, no Lien
arising under the Code or ERISA with respect to the operation, termination,
restoration or funding of any Benefit Plan sponsored by, maintained by or
contributed to by Diverco or any of its ERISA Affiliates or arising in
connection with any excise tax or penalty tax with respect to such Benefit
Plan shall be a Permitted Lien.
"PERSON" means an individual, corporation, partnership,
association, trust, estate or other entity or organization, including a
Governmental Authority.
"PLAN AFFILIATE" means, with respect to any Person, any Benefit
Plan sponsored by, maintained by or contributed to by such Person, and with
respect to any Benefit Plan, any Person sponsoring, maintaining or
contributing to such Benefit Plan.
"PRELIMINARY PURCHASE PRICE" means $8,500,000 minus long-term debt
of Diverco (including the current portion thereof), which will consist of
$995,000.00 owing to LaSalle National Bank under a note payable to such bank,
together with $2,933.33 of accrued and unpaid interest thereon to but not
including the Closing Date, and $200,014.27 owing to RTC under a Stock
Redemption Note payable to RTC, together with accrued unpaid interest thereon
to but not including the Closing Date.
"PROHIBITED TRANSACTION" means a transaction that is prohibited
under Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA, respectively.
"PURCHASE PRICE" means the Preliminary Purchase Price, plus, if
Adjusted EBITDA is greater than $1,700,000, 5.0 times the amount, if any, by
which Adjusted EBITDA is greater than $1,700,000, or, if Adjusted EBITDA is
less than $1,700,000, minus 5.0 times the amount by which Adjusted EBITDA is
less than $1,700,000.
"REFERENCE RATE" means the per annum rate of interest publicly
announced from time to time by Bank of America, N.T. & S.A. as its prime rate
(or reference rate). Any change in the Reference Rate shall take effect at
the opening of business on the day specified in the public announcement of
such change.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation
as to which more than 10% of the outstanding stock having ordinary voting
rights or power (and excluding stock having voting rights only upon the
occurrence of a contingency unless and until such contingency occurs and such
rights may be exercised) is owned or controlled, directly or indirectly, by
such Person and/or by one or more of such Person's Subsidiaries, and (ii) any
partnership, joint venture or other similar relationship between such Person
(or any Subsidiary thereof) and any other Person (whether pursuant to a
written agreement or otherwise).
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"TAX" means all taxes imposed of any nature including federal,
state, local or foreign net income tax, alternative or add-on minimum tax,
profits or excess profits tax, franchise tax, gross income, adjusted gross
income or gross receipts tax, employment related tax (including employee
withholding or employer payroll tax, FICA or FUTA), real or personal property
tax or ad valorem tax, sales or use tax, excise tax, stamp tax or duty, any
withholding or back up withholding tax, value added tax, severance tax,
prohibited transaction tax, premiums tax, occupation tax, together with any
interest or any penalty, addition to tax or additional amount imposed by any
governmental authority (domestic or foreign) responsible for the imposition
of any such tax.
"TAX RETURN" means all returns, reports, forms or other information
required to be filed with respect to any Tax.
ARTICLE II
PURCHASE AND SALE
2.01 PURCHASE OF SHARES FROM SHAREHOLDERS. On the terms and
subject to the conditions set forth herein, at the Closing each Shareholder
shall sell, transfer, convey, assign and deliver to Buyer, free and clear of
all Share Encumbrances, and Buyer shall purchase, acquire and accept from
each Shareholder, all the Shares owned by such Shareholder. At the Closing,
each Shareholder shall deliver to Buyer certificates evidencing the Shares
owned by such Shareholder duly endorsed for transfer and such other
instruments as may be reasonably requested by Buyer to transfer full legal
and beneficial ownership of the Shares to Buyer, free and clear of all Share
Encumbrances. Buyer shall pay the purchase price for the Shares in
accordance with the terms of Sections 2.02 through 2.05 of this Agreement.
2.02 CLOSING.
(a) The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Laner,
Muchin, Dombrow, Becker, Levin & Tominberg, Ltd., 515 North State Street,
28th Floor, Chicago, Illinois, 60610 on the date on which the last of the
conditions to Closing set forth in Sections 8.01 and 8.02 have been satisfied
or waived by the party or parties entitled to waive the same or such other
date as to which Buyer and Diverco may agree (the "Closing Date"); PROVIDED,
HOWEVER, that, as provided in Section 10.01(f), Shareholders or Buyer may
terminate this Agreement if the Closing shall not have been consummated by
the Outside Date.
(b) At the Closing, Buyer shall pay the Preliminary Purchase
Price to Shareholders in cash by wire transfer of immediately available funds
to a bank account or bank accounts designated in writing by Shareholders.
The payment shall be allocated between Shareholders as set forth in EXHIBIT A.
2.03 DETERMINATION OF ADJUSTED EBITDA. On or before February 28,
1997, Buyer will prepare with the assistance of its independent certified
public accountants ("Buyer's Auditors") and present to Shareholders the
calculation (the "EBITDA Calculation") of the Adjusted EBITDA. Shareholders
shall have the right to select independent certified public accountants
("Shareholders' Auditors") to review the workpapers of Buyer's Auditors (the
"Workpapers") utilized in calculating the EBITDA Calculation for purposes of
verifying the accuracy of the EBITDA Calculation. The EBITDA Calculation
shall be binding upon the parties to this Agreement unless Shareholders give
written notice of disagreement to Buyer within 15 days after their receipt of
the EBITDA Calculation and the Workpapers, specifying in reasonable detail
the nature and extent of such disagreement. If Shareholders and Buyer are
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unable to resolve any such disagreement within 15 days after Buyer's receipt
of such notice from Shareholders, the disagreement shall be referred for
final determination to Deloitte & Touche LLP or, if such firm is not
available, such other independent accounting firm of national reputation
selected by the mutual agreement of Shareholders and Buyer (the "Selected
Firm"), and the resolution of that disagreement and the calculation of the
Adjusted EBITDA resulting therefrom shall be final and binding upon the
parties hereto for purposes of this Agreement. If Shareholders and Buyer
cannot agree on the Selected Firm, it shall be chosen by Shareholders'
Auditors and Buyer's Auditors, by mutual agreement. The fees and
disbursements of Buyer's Auditors incurred in the calculation of the Adjusted
EBITDA and the audit thereof shall be paid by Buyer. The fees and
disbursements of Shareholders' Auditors shall be paid by Shareholders. The
fees and disbursements of the Selected Firm shall be paid by Shareholders and
Buyer as the Selected Firm shall determine based upon its assessment of the
relative merits of the positions taken by each in any disagreement presented
to such firm.
2.04 POST-CLOSING PURCHASE PRICE ADJUSTMENTS.
(a) If the Preliminary Purchase Price is less than the
Purchase Price (such deficiency being referred to herein as the "Unpaid
Balance"), then within five Business Days after the final determination of
the Adjusted EBITDA Buyer shall deliver to Shareholders an amount equal to
the Unpaid Balance (together with interest on such amount at the Reference
Rate in effect from time to time from the fifth Business Day after the final
determination of the Adjusted EBITDA until the date of such payment, if
applicable) in cash in immediately available funds by wire transfer to a bank
account or bank accounts designated in writing by Shareholders prior to the
due date thereof. The payment of the Unpaid Balance shall be allocated
between Shareholders as set forth in EXHIBIT A.
(b) If the Preliminary Purchase Price is greater than the
Purchase Price (such excess being referred to herein as the "Overpayment"),
then within five Business Days of the final determination of the Adjusted
EBITDA Shareholders shall reimburse to Buyer an amount equal to the
Overpayment (together with interest on such amount at the Reference Rate in
effect from time to time from the fifth Business Day after the final
determination of the Adjusted EBITDA until the date of such payment, if
applicable) in cash in immediately available funds by wire transfer to a bank
account designated in writing by Buyer prior to the due date thereof. The
payment of the Overpayment shall be allocated between Shareholders as set
forth in EXHIBIT A.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
As an inducement to Buyer to enter into this Agreement and to consummate the
transactions contemplated herein, Diverco and Shareholders jointly and
severally represents and warrants to Buyer as follows:
3.01 REPRESENTATIONS REGARDING THE SHARES.
(a) Each Shareholder has good and marketable title to the
Shares which are to be transferred to Buyer by such Shareholder pursuant
hereto as set forth in EXHIBIT A free and clear of any and all covenants,
conditions, restrictions, voting trust arrangements, rights of first refusal,
options, Liens and adverse claims or rights whatsoever (collectively, "Share
Encumbrances"), except as set forth in SCHEDULE 3.01(a); and on the Closing
Date, each Shareholder will have, and will deliver to Buyer, good and
marketable title to the Shares free and clear of any and all Share
Encumbrances (including without limitation those set forth in SCHEDULE
3.01(a)).
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(b) Each Shareholder has the full right, power and authority
to enter into this Agreement and to transfer, convey and sell to Buyer at the
Closing the Shares to be sold to Buyer by such Shareholder hereunder, and
upon consummation of the purchase contemplated hereby, Buyer will acquire
from such Shareholder good and marketable title to the Shares to be sold to
Buyer by such Shareholder, free and clear of all Share Encumbrances.
(c) Each Shareholder is not a party to, subject to or bound
by any judgment, order, writ, prohibition, injunction or decree of any court
or other governmental body, or, except as set forth on SCHEDULE 3.01(c), any
agreement, which would prevent the execution or delivery of this Agreement by
such Shareholder to Buyer or the transfer, conveyance and sale of the Shares
to be sold by such Shareholder to Buyer pursuant to the terms hereof.
3.02. CORPORATE EXISTENCE AND POWER. Diverco is a corporation duly
organized and validly existing and in good standing under the laws of the
state of its incorporation, and has all corporate power and all governmental
licenses, authorizations, consents and approvals required to carry on the
Business as now conducted and to own and operate its assets as now owned and
operated.
3.03 EXISTENCE AND POWER.
(a) Diverco is a corporation duly organized and validly
existing and in good standing under the laws of the State of Illinois and has
all corporate power and all governmental licenses, authorizations, consents
and approvals required to carry on the Business as now conducted and to own
and operate its assets as now owned and operated except where, in the
aggregate, the failure to have such licenses, authorizations, consents and
approvals would not have a Material Adverse Effect.
(b) Diverco has all corporate power and all governmental
licenses, authorizations, consents and approvals required to carry on the
Business as now conducted outside the State of Illinois and to own and
operate the Business as now owned and operated outside the State of Illinois
except for those instances where, in the aggregate, the failure to have such
licenses, authorizations, consents and approvals is not, and is not
reasonably expected to become, material. Diverco is not required to be
qualified to conduct the Business in any state other than the states set
forth in SCHEDULE 3.03(b), in which states Diverco is duly qualified to do
business and in good standing, except for those jurisdictions where in the
aggregate the failure to be so qualified is not, and is not reasonably
expected to become, material.
(c) The Trust is a trust duly established and validly
existing under the laws of the State of Illinois.
3.04 AUTHORIZATION. The execution, delivery and performance by
Diverco and Shareholders of this Agreement and the consummation thereby of
the transactions contemplated hereby are within each of Diverco's and
Shareholders' powers and have been duly authorized by all necessary corporate
action on the part of Diverco, including the affirmative vote of the holders
of a majority of the outstanding capital stock of Diverco. This Agreement
has been duly and validly executed by Diverco and Shareholders and
constitutes the legal, valid and binding agreement of Diverco and
Shareholders, enforceable against each of them in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally and subject to general principles of equity.
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3.05 SUBSIDIARIES. Except as set forth on SCHEDULE 3.05,
Diverco does not have any Subsidiaries.
3.06 CAPITAL STOCK.
(a) The authorized capital stock of Diverco consists solely
of (i) 100,000 shares of Voting Common Stock, 50,000 shares of which are
issued and outstanding on the date hereof and (ii) 500,000 shares of
Non-Voting Common Stock, 280,000 shares of which are issued and outstanding
on the date hereof.
(b) All such issued and outstanding shares of Voting Common
Stock and Non-Voting Common Stock have been validly authorized and issued and
are validly outstanding, fully paid and nonassessable. The Shares represent
all of the issued and outstanding shares of Diverco's capital stock and are
held as set forth on EXHIBIT A. Except as set forth in SCHEDULE 3.06(b),
Diverco does not hold any of the issued and outstanding shares of Voting
Common Stock or Non-Voting Common Stock in the treasury of Diverco, and there
are not, and on the Closing Date there will not be, outstanding (i) any
options, warrants or other rights to purchase from Diverco or any of the
Shareholders any capital stock of Diverco, (ii) any securities convertible
into or exchangeable for shares of such stock or (iii) any other commitments
of any kind for the issuance of additional shares of capital stock or
options, warrants or other securities of Diverco.
3.07 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Diverco and Shareholders of this Agreement require no action
by, consent or approval of, or filing with, any Governmental Authority other
than any actions, consents, approvals or filings otherwise expressly referred
to in this Agreement or set forth on SCHEDULE 3.07 OR 3.16(b). To the
Knowledge of Diverco and Shareholders, there are no facts relating to the
identity or circumstances of Diverco or Shareholders that would prevent or
materially delay obtaining any of the Required Consents.
3.08 NON-CONTRAVENTION. The execution, delivery and performance by
Diverco and Shareholders of this Agreement do not and will not (a) contravene
or conflict with the Articles of Incorporation or Bylaws of Diverco, true and
correct copies of which have been delivered to Buyer by Diverco, (b) assuming
receipt of the Required Consents, contravene or conflict with or constitute a
violation of any provision of any Applicable Law binding upon or applicable
to Diverco, Shareholders, the Business or the Shares, (c) assuming receipt of
the Required Consents, constitute a default under or give rise to any right
of termination, cancellation or acceleration of, or to a loss of any benefit
to which Diverco is entitled, under any material Contract or any Permit or
similar authorization relating to Diverco, the Business or the Shares by
which Diverco, the Business or the Shares may be bound, or (d) result in the
creation or imposition of any Lien on any assets of Diverco, other than
Permitted Liens, or any Share Encumbrance.
3.09 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Attached
hereto as EXHIBIT B are true and complete copies of the balance sheet and
related statement of operations and retained earnings for Diverco for the
years ended December 31, 1993, 1994 and 1995 (the "Annual Statements") and
the balance sheets and statements of operations for each month of 1996 ending
prior to September 1, 1996 (collectively, the "Interim Statements" and,
together with the Annual Statements, the "Financial Statements"). The
December 31, 1995 balance sheet is referred to herein as the "1995 Balance
Sheet." Each of the Financial Statements (i) has been prepared based on the
books and records of Diverco in accordance with GAAP (except for the omission
of footnote disclosure required by GAAP in the case of Interim Financials and
except that the Interim Financials omit and are subject to normal year-end
accruals)
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and Diverco's normal accounting practices, consistent with past practice and
with each other, and present fairly the financial condition and results of
operations of Diverco as of the dates indicated or the periods indicated.
3.10 ABSENCE OF CERTAIN CHANGES. Except as set forth on SCHEDULE
3.10, since the date of the 1995 Balance Sheet, the Business has been
conducted in the ordinary course, and there has not been:
(a) any event, occurrence, development or state of
circumstances or facts or change in Diverco or the Business (including any
damage, destruction or other casualty loss, but excluding any event,
occurrence, development or state of circumstances or facts or change
resulting from changes in general economic conditions) affecting Diverco or
the Business that has had or that may be reasonably expected to have, either
alone or together with all such events, occurrences, developments, states of
circumstances or facts or changes, a Material Adverse Effect;
(b) (i) any incurrence, assumption or guarantee of any
indebtedness for borrowed money by Diverco, (ii) any incurrence of any
Liability relating to a documentary or standby letter of credit by Diverco or
(iii) any change in any Liability other than in the ordinary course of
business, or (iv) any incurrence of any other Liability by Diverco, other
than in the ordinary course of business;
(c) any creation, assumption or sufferance of the existence
of any Lien on any of Diverco's assets, other than Permitted Liens;
(d) any transaction or commitment made, or any Contract
entered into, by Diverco, or any waiver, amendment, termination or
cancellation of any Contract by Diverco, or any relinquishment of any rights
thereunder by Diverco, or of any other right or debt owed to Diverco, other
than in each such case actions taken in the ordinary course of business
consistent with past practice;
(e) except for actions taken in the ordinary course of
business consistent with the past practice of Diverco that are not, in the
aggregate, material, any (i) grant of any severance, continuation or
termination pay to any director, officer, stockholder or employee of Diverco
or any Associate of any of the foregoing, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer,
stockholder or employee of Diverco or any Associate of any of the foregoing,
(iii) increase in benefits payable or potentially payable under any
severance, continuation or termination pay policies or employment agreements
with any director, officer, stockholder or employee of Diverco or any
Associate of any of the foregoing, (iv) except as required by Applicable Law,
increase in compensation, bonus or other benefits payable or potentially
payable to directors, officers, stockholders or employees of Diverco or any
Associate of any of the foregoing, (v) except as required by Applicable Law,
change in the terms of any bonus, pension, insurance, health or other Benefit
Plan of Diverco, or (vi) representation of Diverco to any employee or former
employee of Diverco that Buyer would assume, continue to maintain or
implement any Benefit Plan after the Closing Date;
(f) any loan to or guarantee or assumption of any loan or
obligation on behalf of any stockholder, director, officer or employee of
Diverco or to any Associate of any of the foregoing, except travel advances
occurring in the ordinary course of business consistent with past practice;
(g) any material change by Diverco in its accounting
principles, methods or practices or in the manner it keeps its books and
records or any material change by Diverco of its current
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practices with regards to sales, receivables, payables or accrued expenses
that would affect the timing of collection of receivables or the payment of
payables;
(h) any distribution, dividend, bonus or other payment by
Diverco to any officer, director, stockholder or Affiliate of Diverco or any
of their respective Affiliates or Associates, (collectively, "Distributions");
(i) the entering into of any Contract or other arrangement
between Diverco and any officer, director, stockholder or Affiliate of
Diverco of any of their respective Affiliates or Associates; or
(j) any payment, discharge or satisfaction of any Liabilities
of Diverco, other than payments, discharges or satisfactions in the ordinary
course of business.
3.11 PROPERTIES; LEASES; TANGIBLE ASSETS.
(a) Diverco does not own any real property and does not have
a leasehold interest in any real property other than the real property
identified on SCHEDULE 3.11(a) (the "Leased Real Property"), which
constitutes all of the real property used in the Business. Diverco has a
good and valid leasehold interest in the Leased Real Property and the
property subject to the Personal Property Leases and has good and valid title
to its other tangible assets. Diverco holds title to each such property and
asset free and clear of all Liens, adverse claims, easements, rights of way,
servitudes, zoning or building restrictions, or any other rights of others or
other adverse interests of any kind, including chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or interest
retention arrangements (collectively, "Encumbrances"), except the Leases and
Permitted Liens, which Liens shall be released at Closing.
(b) SCHEDULE 3.11(b) sets forth a true and complete list of
all personal property leases or licenses (i) to which Diverco is a party or
by which Diverco is bound and (ii) that provide for annual payments by
Diverco in excess of $10,000 or that contain other affirmative material
obligations that cannot be terminated by Diverco within 30 days (the
"Personal Property Leases") and all leases or licenses of Leased Real
Property that provide for annual payments by Diverco in excess of $10,000 or
that cannot be terminated by Diverco within 30 days (the "Real Property
Leases" and collectively with the Personal Property Leases, the "Leases")
entered into in connection with the Business. With respect to the Leases,
except as set forth on SCHEDULE 3.11(b), there exist no defaults by Diverco,
or, to the Knowledge of Diverco, any default or threatened default by any
lessor or third party thereunder, that has affected or could reasonably be
expected to materially affect the rights and privileges thereunder of
Diverco. Assuming the Required Consents are obtained, all Leases to which a
Diverco is a party with non-Affiliates or by which it is bound may be
assigned, transferred and conveyed to Buyer without default, penalty or
modification thereof.
(c) Except as disclosed in SCHEDULE 3.11(c) or SCHEDULE
3.22(c), Diverco has not received notice of any pending zoning or other
land-use regulation proceedings or any proposed change in any Applicable Laws
that could reasonably be expected to detrimentally affect the use or
operation of any Leased Real Property, nor has Diverco received notice of any
special assessment proceedings affecting the Leased Real Property, or applied
for any change to the zoning or land use status of the Leased Real Property.
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3.12 AFFILIATES. Except as set forth in SCHEDULE 3.12, neither
Diverco nor any Shareholder or any officers or directors of Diverco (or any
immediate family member of any such officer or director):
(a) now has or at any time subsequent to December 31, 1993,
had, either directly or indirectly, an equity or debt interest in any Person
which furnishes or sells or during such period furnished or sold services or
products to Diverco or purchases or during such period purchased from Diverco
any goods or services, or otherwise does or during such period did business
with Diverco of a material nature or amount; PROVIDED, HOWEVER, that neither
Diverco, nor any stockholder of Diverco nor any of Diverco's officers and
directors or other Affiliates shall be deemed to have such an interest solely
by virtue of the ownership of less than five percent of the outstanding
voting stock or debt securities of any publicly held company, the stock or
debt securities of which are traded on a national stock exchange or quoted on
the National Association of Securities Dealers Automated Quotation System; or
(b) now is or at any time subsequent to December 31, 1993,
was, a party to any contract, commitment or agreement to which Diverco is or
during such period was a party or under which Diverco is or was obligated or
bound or to which any of their respective properties may be or may have been
subject, other than through Diverco.
3.13 INVENTORIES. Subject to any reserve therefor that is included
in the 1995 Balance Sheet and except as disclosed in SCHEDULE 3.13(i); all
Inventories of Diverco (a) have been acquired or manufactured in the ordinary
course of business, in accordance with Diverco's normal inventory practices;
(b) are of a quality usable (including processing into merchantable finished
inventories for sale in the ordinary course of business), free of any
material defect or deficiency; and (c) are in merchantable and undamaged
condition and meet customer specifications. Attached hereto as SCHEDULE
3.13(ii) is an accurate list of the number of days' worth of all Inventories
of Diverco (based on sales during the year to date) by part number as of
September 15, 1996.
3.14 LITIGATION. Except as disclosed on SCHEDULE 3.14, (i) there
are no actions, suits, hearings, arbitrations, proceedings (public or
private) or governmental investigations that have been brought by or against
any Governmental Authority or any other Person (collectively, "Proceedings")
pending or, to the Knowledge of Diverco or Shareholders, threatened, against
or affecting Diverco, the Business, Shareholders or the Shares or which seek
to enjoin or rescind the transactions contemplated by this Agreement or
otherwise prevent Diverco or Shareholders from complying with the terms and
provisions of this Agreement; and (ii) there are no existing orders,
judgments or decrees of any Governmental Authority affecting any of Diverco,
the Business, Shareholders or the Shares.
3.15 CONTRACTS.
(a) SCHEDULE 3.15(a) sets forth a complete list of the
following contracts, commitments and obligations (whether written or oral) of
Diverco that are in connection with the Business (collectively with the
Leases and the Employment Agreements, the "Scheduled Contracts"):
(i) each Contract between Diverco and (A) each present
or former director, officer or other member of management or other personnel
of Diverco, (B) any supplier of services or products to Diverco whose dollar
volume of sales to Diverco exceeded $10,000 in 1995, and (C) any Person in
which the aggregate payments made to Diverco under such Contract exceeded
$10,000 in 1995;
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(ii) each other agreement or arrangement of Diverco that
(y) requires the payment or incurrence of Liabilities or the rendering of
services by Diverco, subsequent to the date of this Agreement of more than
$10,000 and (z) cannot be terminated by Diverco within 30 days;
(iii) all Contracts relating to, and evidences of or
guarantees of, or providing security for, indebtedness for borrowed money or
the deferred purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset);
(iv) all partnership, joint venture or other similar
Contracts, arrangements or agreements;
(v) to the extent that any of the following provide for
annual payments by Diverco in excess of $10,000 and cannot be terminated by
Diverco within 30 days, all license, distribution, commission, marketing,
agent, franchise, technical assistance or similar agreements relating to or
providing for the marketing and/or sale of the products or services to which
Diverco is a party or by which Diverco is otherwise bound; and
(vi) all other contracts, commitments and obligations
that are not in the ordinary course of the Business.
(b) Except as disclosed in SCHEDULE 3.15(b), each Scheduled
Contract and Subsequent Material Contract is a legal, valid and binding
obligation of Diverco and, to the Knowledge of Diverco and Shareholders, each
other party thereto, enforceable (except to the extent such enforceability
may be limited by bankruptcy, equity and creditors' rights generally) against
Diverco and, to the Knowledge of Diverco and Shareholders, each such other
party in accordance with its terms, and neither Diverco nor, to the Knowledge
of Diverco and Shareholders, any other party thereto is in material default
or has failed to perform any material obligation thereunder. Complete and
correct copies of each Scheduled Contract have been delivered to Buyer.
(c) SCHEDULE 3.15(C) sets forth a list (by name, address and
persons to contact) of the 10 largest customers of and the five primary
vendors providing services to Diverco for each of the 12-month periods ended
December 31, 1994 and 1995 together with the approximate dollar amount of
sales or services provided to Diverco during said period and a summary
description of the services provided by such vendors.
3.16 PERMITS; REQUIRED CONSENTS.
(a) SCHEDULE 3.16(a) sets forth all material approvals,
authorizations, certificates, consents, licenses, orders and permits or other
similar authorizations of all Governmental Authorities (and all other
Persons) necessary for the operation of the Business or Diverco's assets in
substantially the same manner as currently operated or affecting or relating
in any way to the Business or such assets (the "Permits").
(b) SCHEDULE 3.16(b) lists (i) each governmental or other
registration, filing, application, notice, transfer, consent, approval,
order, qualification and waiver (each, a "Required Governmental Approval")
required under Applicable Law to be obtained by Diverco or Shareholders by
virtue of the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby to avoid the loss of any material Permit
or otherwise, and (ii) each Scheduled Contract with respect to which the
consent of the other party or parties thereto must be obtained by Diverco or
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Shareholders by virtue of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby to avoid the invalidity
of the transfer of such Contract, the termination thereof, a breach or
default thereunder or any other change or modification to the terms thereof
(each, a "Required Contractual Consent" and collectively with the Required
Governmental Approvals, the "Required Consents"). Except as set forth in
SCHEDULE 3.16(a) OR (b) each Permit is valid and in full force and effect in
all material respects and, assuming the related Required Consents have been
obtained prior to the Closing Date, are or will be transferable by Diverco,
and assuming the related Required Consents have been obtained prior to the
Closing Date, none of the Permits will be terminated or become terminable or
impaired in any material respect as a result of the transactions contemplated
hereby.
3.17 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in
SCHEDULE 3.17, the operation of the Business has not violated or infringed,
and does not violate or infringe, any material Applicable Law, or any order,
writ, injunction or decree of any Governmental Authority.
3.18. EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL; AND EMPLOYEE
BENEFITS.
(a) SCHEDULE 3.18(a) sets forth all Benefit Plans
and Benefit Arrangements of Diverco used in connection with the Business.
Diverco has made true and correct copies of all governing instruments and
related agreements pertaining to such Benefit Plans and Benefit Arrangements
available to Buyer. Diverco has made available to Buyer a copy of the three
(3) most recently filed Federal Form 5500 series and accountant's opinion, if
applicable, for each Employee Benefit Plan.
(b) Neither Diverco nor any ERISA Affiliates of Diverco
sponsors or has within the last five years sponsored, maintained, contributed
to, or incurred an obligation to contribute to, any Employee Pension Benefit
Plan.
(c) Except as set forth in SCHEDULE 3.18(f), no individual
shall accrue or receive additional benefits, service or accelerated rights to
payments of benefits under any Benefit Plan, including the right to receive
any parachute payment, as defined in Section 280G of the Code, or become
entitled to severance, termination allowance or similar payments as a direct
result of the transactions contemplated by this Agreement.
(d) No Employee Benefit Plan has participated in, engaged in
or been a party to any non-exempt Prohibited Transaction, and neither Diverco
nor any ERISA Affiliates of Diverco has had asserted against it any claim for
taxes under Chapter 43 of Subtitle D of the Code and Sections 5000 of the
Code, or for penalties under ERISA Section 502(c), (i) or (l), with respect
to any Employee Benefit Plan nor, to the Knowledge of Diverco or
Shareholders, is there a basis for any such claim. No officer, director or
employee of Diverco has committed a material breach of any responsibility or
obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan.
(e) Other than routine claims for benefits, there is no claim
pending or to the Knowledge of Diverco threatened, involving any Benefit Plan
by any Person against such plan or Diverco or any ERISA Affiliate. There is
no pending or to the Knowledge of Diverco or Shareholders threatened
proceeding involving any Employee Benefit Plan before the IRS, the United
States Department of Labor or any other Governmental Authority.
(f) Except as set forth on SCHEDULE 3.18(f), each Benefit
Plan has at all times prior hereto been maintained in all material respects,
by its terms and in operation, in accordance with ERISA and the Code
including, but not limited to, all applicable reporting and disclosure
requirements.
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Diverco and each ERISA Affiliate have made full and timely
payment of all amounts required to be contributed under the terms of each
Benefit Plan and Applicable Law or required to be paid as expenses under such
Benefit Plan, and Diverco and each ERISA Affiliate shall continue to do so
through the Closing.
(g) With respect to any Group Health Plans maintained by
Diverco or its ERISA Affiliate, whether or not for the benefit of Diverco and
its ERISA Affiliate, Diverco and its ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and
Section 4980B of the Code. Diverco is not obligated to provide health care
benefits of any kind to its retired employees pursuant to any Employee
Benefit Plan, including without limitation any Group Health Plan, or pursuant
to any agreement or understanding.
(h) The Company's money purchase pension plan previously in
effect was terminated and its assets transferred or merged into the Company's
profit sharing plan in a manner consistent with Sections 411(d)(6) and 414(1)
of the Code.
3.19 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on SCHEDULE 3.19, no collective
bargaining agreement exists that is binding on Diverco and, except as
described on SCHEDULE 3.19, no petition has been filed or proceedings
instituted by an employee or group of employees with any labor relations
board seeking recognition of a bargaining representative. SCHEDULE 3.19
describes any organizational effort currently being made or, to the Knowledge
of Diverco or Shareholders, threatened by or on behalf of any labor union to
organize any employees of Diverco.
(b) Except as set forth on SCHEDULE 3.19, (i) there is no
labor strike, dispute, slow down or stoppage pending or, to the Knowledge of
Diverco or Shareholders, threatened against or directly affecting the
Business, (ii) no grievance or arbitration proceeding arising out of or under
any collective bargaining agreement is pending, and no claims therefor exist;
and (iii) neither Diverco nor Shareholders, nor any of their Affiliates has
received any notice or has any Knowledge of any threatened labor or civil
rights dispute, controversy or grievance or any other unfair labor practice
proceeding or breach of contract claim or action with respect to claims of,
or obligations to, any employee or group of employees of Diverco.
(c) Diverco and its Affiliates have complied and are
currently complying, in all material respects, in respect of all employees of
Diverco, with all Applicable Laws respecting employment and employment
practices and the protection of the health and safety of employees, from
whatever source such law may be derived, including, without limitation,
statutes, ordinances, laws, rules, regulations, policies, standards, judicial
or administrative precedents, judgments, orders, decrees, awards, citations,
licenses, official interpretations and guidelines.
(d) All individuals who are performing or have performed
services for Diverco, or any Affiliate thereof and are or were classified by
Diverco or any Affiliate as "independent contractors" qualify for such
classification under Section 530 of the Revenue Act of 1978 or Section 1706
of the Tax Reform Act of 1986, as applicable, except for such instances which
are not, in the aggregate, material.
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3.20 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.20(a) sets forth a complete and correct list
of each patent, patent application and docketed invention, trademark, trade
name, trademark or tradename registration or application, copyright or
copyright registration or application for copyright registration, and each
license or licensing agreement for any of the foregoing relating to the
Business or held by Diverco (the "Intellectual Property Rights").
(b) Except as disclosed in SCHEDULE 3.20(b), Diverco has not
during the three years preceding the date of this Agreement been a party to
any Proceeding, nor to the Knowledge of Diverco is any Proceeding threatened
as to which there is a reasonable possibility of a determination adverse to
Diverco that involved or may involve a claim of infringement by any Person
(including any Governmental Authority) of any Intellectual Property Right.
Except as disclosed in SCHEDULE 3.20(b), no Intellectual Property Right is
subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by Diverco, or restricting the licensing thereof
by Diverco to any Person. The use of the Intellectual Property Rights does
not conflict with, infringe upon or violate any patent, patent license,
patent application, trademark, tradename, trademark or tradename
registration, copyright, copyright registration, service mark, brand mark or
brand name or any pending application relating thereto, or any trade secret,
know-how, programs or processes, or any similar rights, of any Person.
(c) Except as set forth in SCHEDULE 3.20(c), Diverco either
owns the entire right, title and interest in, to and under, or has acquired
in connection with the acquisition of Equipment or Inventory an implied
license to use, any and all inventions, processes, computer programs,
know-how, formulae, trade secrets, patents, chip designs, mask works,
trademarks, tradenames, brand names and copyrights which are necessary for
the conduct of the Business in the manner that the Business has heretofore
been conducted. No other inventions, processes, computer programs, know-how,
formulae, trade secrets, patents, chip designs, mask works, trademarks,
tradenames, brand names, copyrights, licenses or applications for any of the
foregoing are necessary for the unimpaired continued operation of the
Business in the manner that the Business has heretofore been conducted.
3.21 ADVISORY FEES. Except for Niederhoffer, Henkel & Co. L.L.C.
(whose fees and expenses will be paid by Shareholders), there is no
investment banker, broker, finder or other intermediary or advisor that has
been retained by or is authorized to act on behalf of Diverco, Shareholders
or their Affiliates who might be entitled to any fee, commission or
reimbursement of expenses from Buyer or any of its Affiliates or any of their
respective Associates upon consummation of the transactions contemplated by
this Agreement.
3.22 ENVIRONMENTAL COMPLIANCE.
(a) Except as disclosed in SCHEDULE 3.22(a), Diverco has
obtained all approvals, authorizations, certificates, consents, licenses,
orders and permits or other similar authorizations of all Governmental
Authorities, or from any other Person, that are required under any
Environmental Law. SCHEDULE 3.22(a) sets forth all permits, licenses and
other authorizations issued under any Environmental Law to Diverco.
(b) Except as disclosed in SCHEDULE 3.22(b), Diverco is in
compliance in all respects with all terms and conditions of all approvals,
authorizations, certificates, consents, licenses, orders and permits or other
similar authorizations of all Governmental Authorities (and all other
Persons) required under all Environmental Laws and is also in compliance in
all respects with all other limitations,
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restrictions, conditions, standards, requirements, schedules and timetables
required or imposed under all Environmental Laws.
(c) Except as disclosed in SCHEDULE 3.22(c), there are no
past or present events, conditions, circumstances, activities, practices,
incidents, actions, omissions or plans relating to or in any way affecting
Diverco or the Business that could reasonably be expected to prevent, or make
more expensive, continued compliance with any Environmental Law by Buyer or
Diverco after the Closing, or that may give rise to any Environmental
Liability, or otherwise form the basis of any claim, action, demand, suit,
Proceeding, hearing, study or investigation (i) under any Environmental Law,
(ii) based on or related to the manufacture, processing, distribution, use,
treatment, storage (including without limitation underground storage tanks),
disposal, transport or handling, or the emission, discharge, release or
threatened release of any Hazardous Substance, or (iii) resulting from
exposure to workplace hazards.
3.23 INSURANCE. SCHEDULE 3.23 sets forth a complete and correct
list of all material insurance policies of any kind currently in force with
respect to the Business (the "Insurance Policies"), including all "occurrence
based" liability policies regardless of the periods to which they relate.
SCHEDULE 3.23 sets forth for each Insurance Policy the type of coverage, the
name of the insureds, the insurer, the premium, the expiration date, the
period to which it relates, the deductibles and loss retention amounts and
the amounts of coverage.
3.24 TAX MATTERS. Except as set forth on SCHEDULE 3.24:
(a) Diverco has timely filed all Tax Returns required to have
been filed by it, and has paid or accrued all Taxes due to any taxing
authority (whether or not shown on any Tax Return) with respect to all
taxable periods ending on or prior to the Closing Date, or otherwise
attributable to all periods prior to the Closing Date; and all such Tax
Returns are true, correct and complete in all respects. Diverco is not
currently the beneficiary of any extension of time within which to file any
Tax Return.
(b) Diverco has not received notice that the IRS or any other
taxing authority has asserted against Diverco any deficiency in Taxes or
claim for additional Taxes in connection with any tax period. Except for
liens arising from Taxes which are due but not yet payable, there are no
liens for Taxes on any of Diverco' assets.
(c) Diverco is not a party to an agreement extending the time
within which to file any Tax Return or extending the statute of limitations
for any period with respect to any Tax to which Diverco may be subject. No
claim has ever been made by any Taxing Authority in a jurisdiction in which
Diverco does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction.
(d) Diverco has withheld and paid over all Taxes required to
have been withheld and paid over in connection with amounts paid or owing to
any employee, independent contractor, creditor, stockholder, or other third
party;
(e) Diverco has not been included in any consolidated,
combined or unitary Tax Return provided for under the laws of the United
States, any state or locality with respect to Taxes for any taxable period
for which the statute of limitations has not expired.
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(f) Diverco has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Code.
(g) None of the assets of Diverco constitutes tax-exempt bond
financed property or tax-exempt use property, with the meaning of Section 168
of the Code. Diverco is not a party to any "safe harbor lease" that is
subject to the provisions of Section 168(f)(8) of the Internal Revenue Code
as in effect prior to the Tax Reform Act of 1986.
(h) Diverco is not a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income Tax
purposes.
(i) Diverco does not have any liability for Taxes of any
person (1) under Section 1.1502-6 of the Treasury Regulations (or any similar
provision of state, local or foreign law), (2) as a transferee or successor,
(3) by contract or (4) otherwise.
(j) Diverco is not a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during any
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(k) Diverco made and continues to have in effect a valid and
timely election to be treated as an "S corporation" under Section 1361 ET.
SEQ. of the Code (and any corresponding provisions of all applicable state
and local income tax laws) for all taxable years since the date set forth in
SCHEDULE 3.24(k) (which is the date Diverco elected to be treated as an S
corporation), and Diverco will be treated as an S corporation under the Code
and all such state and local tax laws for all taxable years or portions
thereof ending on or prior to the Closing Date.
(l) Diverco does not have any unpaid liability for Taxes
under Sections 1363(d), 1374, or 1375 of the Code (or any successor or
predecessor provision) or any similar provision of state or local law for any
period on or prior to or including the Closing Date.
3.25 MATERIAL DISCLOSURES. No statement, representation or
warranty made by Diverco or Shareholders in this Agreement or in any
certificate, statement, list, schedule or other document furnished or to be
furnished to Buyer hereunder contains, or when so furnished will contain, any
untrue statement of a material fact, or fails to state, or when so furnished
will fail to state, a material fact necessary to make the statements
contained herein or therein, in light of the circumstances in which they are
made, not misleading.
3.26 SUFFICIENCY OF AND TITLE TO ASSETS. Diverco has, and as of
the Closing Date will have, title to, or the right to use, all assets,
whether tangible or intangible, necessary to operate the Business as a going
concern with all operations of the Business unimpaired in any material
respect immediately after the Closing Date.
3.27 LONG-TERM DEBT. Except as set forth on SCHEDULE 3.27, Diverco
has, and as of the Closing Date will have, no long-term debt.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Shareholders to enter into this Agreement and
to consummate the transactions contemplated herein, Buyer hereby represents and
warrants to Shareholders that:
4.01 ORGANIZATION AND EXISTENCE. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Delaware and has all corporate power and authority to enter into
this Agreement and consummate the transactions contemplated hereby. Buyer is
duly qualified to do business as a foreign corporation in each jurisdiction
where the character of the property owned or leased by it or the nature of
its activities makes such qualification necessary to carry on its business as
now conducted, except for those jurisdictions where the failure to be so
qualified has not been, and may not reasonably be expected to be, material.
4.02 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Buyer of this Agreement and the consummation by Buyer of the
transactions contemplated hereby are within the corporate powers of Buyer and
have been duly authorized by all necessary corporate action on the part of
Buyer. This Agreement constitutes a legal, valid and binding agreement of
Buyer, enforceable in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and subject to general principles of
equity.
4.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer of this Agreement require no action by, consent or
approval of, or filing with, any Governmental Authority other than as set
forth in this Agreement.
4.04 NON-CONTRAVENTION. The execution, delivery and performance by
Buyer of this Agreement does not (a) contravene or conflict with the
Certificate of Incorporation or Bylaws of Buyer, or (b) assuming compliance
with the matters referred to in Section 4.03, contravene or conflict with or
constitute a violation of any provision of any Applicable Law binding upon or
applicable to Buyer.
4.05 ADVISORY FEES. Except for Aurora Capital Partners L.P. (whose
fees and expenses will be paid by Buyer), there is no investment banker,
broker, finder or other intermediary or advisor that has been retained by or
is authorized to act on behalf of Buyer who might be entitled to any fee,
commission or reimbursement of expenses from Diverco or any of its Affiliates
upon consummation of the transactions contemplated by this Agreement.
4.06 LITIGATION. There is no Proceeding pending against, or to the
Knowledge of Buyer, threatened against or affecting, Buyer before any court
or arbitrators or any governmental body, agency or official that in any
matter challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF SHAREHOLDERS AND DIVERCO
5.01 CONDUCT OF THE BUSINESS; DISTRIBUTIONS. From the date hereof
until the Closing Date, Diverco shall, and Shareholders shall cause Diverco
to, conduct the Business in the ordinary course and in substantially in the
same manner as it has prior to the date of this Agreement and agrees, with
respect to the Business and other than in the ordinary course of business,
not to enter into any material
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agreements or take any other significant actions without the prior written
consent of Buyer, which shall not be unreasonably withheld. Diverco shall
use its reasonable efforts to preserve intact the Business and the business
organizations and relationships and goodwill of Diverco with third parties
and keep available the services of the present officers, employees, agents
and other personnel of Diverco. Without limiting the generality of the
foregoing and except as otherwise expressly provided in this Agreement, from
the date hereof until the Closing Date:
(a) Diverco will, and Shareholders will cause Diverco to:
(i) (A) maintain the assets of Diverco in the ordinary
course of business consistent with past practice in good operating order and
condition, reasonable wear and tear excepted, (B) promptly repair, restore or
replace any assets of Diverco in the ordinary course of business consistent
with past practice, (C) upon any damage, destruction or loss to any of the
assets of Diverco, apply any and all insurance proceeds received with respect
thereto to the prompt repair, replacement and restoration thereof to the
condition of the assets of Diverco before such event, (D) use its best
efforts to obtain, prior to the Closing Date, all Required Consents, and (E)
take all actions necessary to be in compliance with, and to maintain the
effectiveness of, all material Permits;
(ii) comply with all material Applicable Laws;
(iii) promptly notify Buyer in writing of (A) any action,
event, condition or circumstance, or group of actions, events, conditions or
circumstances, that results in, or could reasonably be expected to result in,
a Material Adverse Effect, other than changes in general economic conditions,
(B) the commencement of any Proceeding by or against Diverco or Shareholders,
or Diverco or Shareholders becoming aware of any threat, claim, action, suit,
inquiry, proceeding, notice of violation, demand letter, subpoena, government
audit or disallowance that could reasonably be expected to result in a
Proceeding, and (C) the occurrence of any breach by Diverco or Shareholders
of any representation or warranty, or any covenant or agreement, contained in
this Agreement.
(b) without Buyer's prior consent, Diverco will not, and
Shareholders shall not permit Diverco to, do any of the following and will
not agree to:
(i) purchase or otherwise acquire assets from any other
Person other than in the ordinary course of the Business;
(ii) sell, assign, lease, license, transfer or otherwise
dispose of, or mortgage, pledge or encumber (other than with Permitted
Liens), any of the assets of Diverco, including Leased Real Property, except
in the ordinary course of the Business;
(iii) enter any agreement or arrangement that requires or
allows payment, acceleration of payment or incurrence of Liabilities, or the
rendering of services by Diverco outside the ordinary course of the Business;
(iv) amend or modify in any material respect or terminate
any Scheduled Contract or any other Contract entered into by Diverco after
the date hereof which, if in existence on the date hereof, would be required
to be set forth in the SCHEDULE 3.14 as a Scheduled Contract (each, a
"Subsequent Material Contract");
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(v) make or commit to make any capital expenditure, or
group of related capital expenditures, in excess of $25,000, other than (A)
capital expenditures set forth on SCHEDULE 5.01(b)(V) and (B) capital
expenditures expressly required under any Scheduled Contract;
(vi) enter into or commit or propose to enter into any
Subsequent Material Contract;
(vii) except as set forth on SCHEDULE 5.01(b)(vii), make
any distribution, dividend, bonus or other payment to any officer, director,
stockholder or Affiliate of Diverco or any of their respective Affiliates or
Associates except for salary, benefit or lease payments in the ordinary
course and due or to become due under arrangements in existence prior to
January 1, 1996;
(viii) (A) create, incur, assume, or guarantee any
indebtedness for borrowed money or (B) incur any Liability relating to a
documentary or standby letter of credit, other than in each such case
referred to in this clause (viii) (Y) in the ordinary course of the Business
where the aggregate dollar amount of all of the foregoing by Diverco does not
exceed $10,000 or (Z) indebtedness in the amount of $595,000 incurred to pay
bonuses to RTC; and
(ix) (A) increase the rate or terms of compensation
payable or to become payable to its employees except in the ordinary course
of business, (B) pay or agree to pay any pension, retirement allowance or
other employee benefit not provided for by any Employee Plan, Benefit
Arrangement or Employment Agreement set forth in the Schedules hereto, (C)
commit itself to any additional pension, profit sharing, bonus, incentive,
deferred compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay, continuation pay, termination pay,
retirement or other employee benefit plan, agreement or arrangement, or
increase the rate or terms of any Employee Plan or Benefit Arrangement, (D)
enter into any employment agreement with or for the benefit of any Person, or
(E) increase the rate of compensation under or otherwise change the terms of
any Employment Agreement set forth in SCHEDULE 3.17(a); and
(x) repay any long-term debt other than scheduled
payments that are required to be made during such period so as not to be in
default with respect to such indebtedness. ' 5.02 ACCESS TO
INFORMATION. Subject to compliance with Applicable Laws, from the date
hereof until the Closing Date, Diverco will, and Shareholders will cause
Diverco to, and Shareholders will, promptly: (a) give Buyer and its counsel,
financial advisors, auditors and other authorized representatives reasonable
access to the offices, properties, books and records relating to Diverco or
the Business upon reasonable prior notice, (b) furnish to Buyer and its
counsel, financial advisors, auditors and other authorized representatives
such information relating to Diverco or the Business as Buyer may reasonably
request and (c) instruct the directors, officers, employees, counsel,
auditors and financial advisors of Diverco and Shareholders to cooperate with
Buyer and its counsel, financial advisors, auditors and other authorized
representatives in their investigation of Diverco or the Business. Such
investigation shall include, but shall not be limited to:
(i) A business and financial performance review of the
Business;
(ii) A review of the financial statements and tax
returns of Diverco;
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(iii) An environmental review as to the presence and
nature of any hazardous materials in or on any real property owned
or leased by Diverco; and
(iv) A standard legal due diligence examination
relating to Diverco and the Business.
5.03 COMPLIANCE WITH TERMS OF REQUIRED GOVERNMENTAL APPROVALS AND
REQUIRED CONTRACTUAL CONSENTS. On and after the Closing Date, Shareholders
shall comply at their own expense with all conditions and requirements
affecting Diverco set forth in (a) all Required Governmental Approvals as
necessary to keep the same in full force and effect assuming continued
compliance with the terms thereof by Buyer and Diverco and (b) all Required
Contractual Consents as necessary to keep the same effective and enforceable
against the Persons giving such Required Contractual Consents assuming
continued compliance with the terms thereof by Buyer and Diverco.
5.04 MAINTENANCE OF INSURANCE POLICIES. Between the date hereof
and the Closing Date, Diverco shall not, and Shareholders shall cause Diverco
to not, and Shareholders shall not, take or fail to take any action if such
action or inaction, as the case may be, would adversely affect the
applicability of any insurance in effect on the date hereof that covers all
or any part of the assets of Diverco or the Business with respect to the
period of time ending on the Closing Date.
5.05 CONFIDENTIALITY.
(a) Diverco and Shareholders will, and will cause their
representatives to, treat any data and information obtained with respect to
Buyer or any of its Affiliates from any representative, officer, director, or
employee of Buyer, or from any books or records of Buyer in connection with
this Agreement, confidentially and with commercially reasonable care and
discretion, and will not disclose any such information to third parties;
PROVIDED, HOWEVER, that the foregoing shall not apply to (i) information in
the public domain or that becomes public through disclosure by any party
other than Diverco, Shareholders or their Affiliates or representatives, so
long as such other party is not in breach of a confidentiality obligation,
(ii) information that is required to be disclosed by Applicable Law or (iii)
information required to be disclosed to obtain any Required Consents, or (iv)
any disclosure of such information in litigation between the parties hereto
in the course of such litigation.
(b) In the event that the Closing fails to take place and
this Agreement is terminated, Diverco and Shareholders, upon the written
request of Buyer, will, and will cause their representatives to, promptly
deliver to Buyer any and all documents or other materials furnished by Buyer
or any of its Affiliates to Diverco or Shareholders in connection with this
Agreement without retaining any copy thereof. In the event of such request,
all other documents, whether analyses, compilations or studies, that contain
or otherwise reflect the information furnished by Buyer to Diverco or
Shareholders, shall be destroyed by Diverco and Shareholders or shall be
returned to Buyer, and Diverco and Shareholders shall confirm to Buyer in
writing that all such materials have been returned or destroyed. No failure
or delay by Buyer in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any right,
power or privilege hereunder.
(c) The parties hereto recognize and agree that in the event
of a breach of this Section 5.05, money damages would not be an adequate
remedy to Buyer or its Affiliates for such breach and, even if money damages
were adequate, it would be impossible to ascertain or measure with any degree
of accuracy the damages sustained therefrom. Accordingly, if there should be
a breach or threatened
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breach of provisions of this Section 5.05, Buyer and its Affiliates shall be
entitled to an injunction restraining Diverco and Shareholders from any
breach without showing or proving actual damage sustained by Buyer or its
Affiliates, as the case may be. Nothing in the preceding sentence shall
limit or otherwise affect any remedies that Buyer and its Affiliates may
otherwise have under Applicable Law.
5.06 TRANSACTIONS AFFECTING THE SHARES. From the date hereof
until the Closing Date, Shareholders will:
(a) take all action necessary so that the Share Encumbrances
set forth in SCHEDULE 3.01(a) and the agreements set forth in SCHEDULE
3.01(C) are eliminated prior to the Closing Date; and
(b) not (whether voluntarily or involuntarily, and whether
currently or prospectively) sell, transfer or otherwise dispose of any of the
Shares, or create (or permit the creation of) any Share Encumbrance on any of
the Shares.
5.07 WASTE STREAM ANALYSIS.Shareholders will undertake an analysis
pursuant to Illinois Administrative Code, Title 35, Part 721, of the waste
streams generated during the disassembly and cleaning of heavy truck
component parts remanufactured at the Leased Real Property to determine
whether any of these waste streams must be managed as hazardous waste. The
cost of this analysis shall be borne equally by the Shareholders on one hand
and the Buyer on the other hand.
5.08 AGREEMENTS WITH RESPECT TO CERTAIN INDEBTEDNESS.
(a) From and after the Closing Date, RTC shall pay when due,
whether at maturity or upon acceleration, all principal of, accrued interest
on, and penalties relating to, any indebtedness for borrowed money incurred
by RTC prior to the Closing Date where Diverco is a co-signer or guarantor
of, or otherwise liable for, such indebtedness.
(b) If not paid by the obligor thereof when due, whether at
maturity or upon acceleration, RTC shall pay to Diverco all principal of, and
accrued interest on, those certain loans made by Diverco to Christina Lloyd
on January 26, 1996 in the original principal amount of $20,000 and Al
Brummerstedt on November 30, 1995 in the original principal amount of $23,665.
ARTICLE VI
COVENANTS OF BUYER
6.01 CONFIDENTIALITY.
(a) Buyer will, and will cause its representatives to, treat
any data and information obtained with respect to Diverco or Shareholders
from any representative, officer, director or employee of Diverco or
Shareholders, or from any books or records of Diverco or Shareholders in
connection with this Agreement, confidentially and with commercially
reasonable care and discretion, and will not disclose any such information to
third parties; PROVIDED, HOWEVER, that the foregoing shall not apply to (i)
information in the public domain or that becomes public through disclosure by
any party other than Buyer or its Affiliates or representatives, so long as
such other party is not in breach of a confidentiality obligation, (ii)
information that is required to be disclosed by Applicable Law, (iii)
information required to be disclosed to obtain any Required Consents; (iv)
any information that is disclosed by Buyer or its Affiliates to any of their
actual or prospective lenders or investors in connection
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with financing the transactions contemplated by this Agreement; or (v) any
information that is disclosed by Buyer after the Closing shall have occurred;
PROVIDED, HOWEVER, that in the event the Closing has occurred, this Section
6.01(a) shall cease to be effective with respect to any data and information
obtained with respect to Diverco.
(b) In the event that the Closing fails to take place and
this Agreement is terminated, Buyer, upon the written request of Diverco,
will, and will cause their representatives to, promptly deliver to Diverco
any and all documents or other materials furnished by Diverco or Shareholders
to Buyer in connection with this Agreement without retaining any copy
thereof. In event of such request, all other documents, whether analyses,
compilations or studies, that contain or otherwise reflect the information
furnished by Diverco or Shareholders to Buyer, shall be destroyed by Buyer or
shall be returned to Diverco, and Buyer shall confirm to Diverco and
Shareholders in writing that all such materials have been returned or
destroyed. No failure or delay by Diverco and Shareholders in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any right, power or privilege hereunder.
(c) The parties hereto recognize and agree that in the event
of a breach of this Section 6.01, money damages would not be an adequate
remedy to Diverco and Shareholders for such breach and, even if money damages
were adequate, it would be impossible to ascertain or measure with any degree
of accuracy the damages sustained by Diverco and Shareholders therefrom.
Accordingly, if there should be a breach or threatened breach of provisions
of this Section 6.01, Diverco and Shareholders shall be entitled to an
injunction restraining Buyer from any breach without showing or proving
actual damage sustained by Diverco and Shareholders. Nothing in the
preceding sentence shall limit or otherwise affect any remedies that Diverco
and Shareholders may otherwise have under Applicable Law.
6.02 ACCESS TO INFORMATION. Subject to compliance with Applicable
Laws, from the Closing Date until December 31, 2001, Diverco will, and Buyer
will cause Diverco to, and Buyer will, promptly: (a) furnish to Shareholders
and their counsel, financial advisors, auditors and other authorized
representatives such information relating to Diverco or the Business as
Shareholders may reasonably request in connection with the preparation of Tax
Returns and (b) instruct the directors, officers, employees, counsel,
auditors and financial advisors of Diverco and Buyer to cooperate in all
reasonable respects with Shareholders and their counsel, financial advisors,
auditors and other authorized representatives in connection with the
preparation of Tax Returns. After the Closing Date, in the event that
Diverco intends to destroy any documents that contain or otherwise reflect
information in connection with the Business for any period prior to the
Closing Date, Diverco will provide written notice to Shareholders of its
intention to destroy such documents and provide Shareholders with the
opportunity to request that such documents instead be delivered to
Shareholders. Any documents delivered to Shareholders pursuant to the
preceding sentence shall be held by Shareholders pursuant to Section 5.05.
6.03 PAYMENT OF LONG-TERM DEBT. At the Closing, all long-term debt
of Diverco referred to in clause (i) of the definition of Preliminary
Purchase Price (including the current portions thereof) will be paid in full
by Diverco or Buyer, together with accrued unpaid interest thereon to but not
including the Closing Date.
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ARTICLE VII
COVENANTS OF ALL PARTIES
7.01 FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each party will use all reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary
or desirable under Applicable Law to consummate the transactions contemplated
by this Agreement. Buyers, Diverco and Shareholders agree to execute and
deliver such other documents, certificates, agreements and other writings and
to take such other actions as may be reasonably necessary or desirable in
order to consummate or implement expeditiously the transactions contemplated
by this Agreement. Following the Closing, Buyer shall cause Diverco to make
the employees and records of Diverco reasonably available to Shareholders, at
no charge to Shareholders other than for out of pocket expenses incurred by
Buyer or Diverco for items such as photocopying or travel, for the purposes
of providing accounting information reasonably required by Shareholders,
providing testimony or information in connection with any legal proceeding or
for any other appropriate purpose arising out of Shareholders' ownership of
the Shares.
7.02 CERTAIN FILINGS. The parties hereto shall cooperate with one
another in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required or reasonably appropriate, or
any action, consent, approval or waiver from any party to any Contract is
required or reasonably appropriate, in connection with the consummation of
the transactions contemplated by this Agreement. Subject to the terms and
conditions of this Agreement, in taking such actions or making any such
filings, the parties hereto shall furnish information required in connection
therewith and seek timely to obtain any such actions, consents, approvals or
waivers. Without limiting the foregoing, the parties hereto shall each
promptly complete and file all reports and forms, and respond to all requests
or further requests for additional information, if any, as may be required or
authorized under the HSR Act.
7.03 PUBLIC ANNOUNCEMENTS. Up to (and including) the Closing Date,
the parties agree to consult with each other before issuing any press release
or making any public statement with respect to this Agreement or the
transactions contemplated hereby and, except as may be required by Applicable
Law, will not issue any such public statement prior to such consultation.
Notwithstanding the foregoing, the parties may, on a confidential basis,
advise and release information regarding the existence and content of this
Agreement or the transactions contemplated hereby to their respective
Affiliates or any of their agents, accountants, attorneys and prospective
lenders or investors in connection with or related to the transactions
contemplated by this Agreement, including without limitation the financing of
such transactions.
7.04 ADMINISTRATION OF ACCOUNTS. All payments and reimbursements
received by Shareholders after the Closing Date from any third party in the
name of or to Diverco shall be held by Shareholders in trust for the benefit
of Diverco and, immediately upon receipt by Shareholders of any such payment
or reimbursement, Shareholders shall pay, or cause to be paid, over to
Diverco the amount of such payment or reimbursement without right of set off.
7.05 TAXES AND SECTION 338(h)(10) ELECTION.
(a) All sales, value added, use, registration, stamp and
similar Taxes imposed in connection with the sale of the Shares shall be
borne by Buyer and all transfer and similar Taxes imposed in connection with
the sale of the Shares shall be borne by Shareholders.
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(b)(i) If Buyer, in Buyer's sole discretion, shall request,
Shareholders shall (A) join Buyer in making the election permitted to be made
under Section 338(h)(10) of the Code and any corresponding or similar
provisions of state or local law (the "Section 338(h)(10) Elections"), (B)
cooperate with Buyer to take all actions necessary to effect and preserve
timely such Section 338(h)(10) Elections in accordance with Treasury
Regulation Section 1.338(h)(10) (and any comparable provisions of state and
local law and any successor provisions thereto) and (C) take no position
inconsistent with treating the purchase of the capital stock of Diverco as a
Section 338(h)(10) Election. Shareholders shall assist Buyer in the
preparation of Form 8023-A and any accompanying schedules required under
Section 338(h)(10) of the Code and any corresponding or similar provisions of
state or local law and Shareholders agree that Buyer may make any
determination or election required or permitted to be made in connection with
the Section 338(h)(10) Elections. Shareholders shall execute Form 8023-A and
any accompanying schedules and such other documents or forms at the Closing
or at such other time as Buyer may request or as required by the Code in
order to effectuate the Section 338(h)(10) Elections. Buyer and Shareholders
shall file all Tax Returns in a manner consistent with the Section 338(h)(10)
Elections, Form 8023-A and any accompanying schedules and such other
documents and forms as are requested by Buyer to effectuate the Section
338(h)(10) Elections.
(ii) Shareholders will severally pay any federal Tax
attributable to the making of the Section 338(h)(10) Elections and will
severally indemnify Buyer and Diverco for any Damages arising out of the
failure to pay such Tax. Shareholders will also pay any state, local or
foreign Tax (and severally indemnify Buyer and Diverco against any Damages
arising out of any failure to pay such Tax) attributable to the Section
338(h)(10) Elections or to an election or deemed election under state, local
or foreign law similar to the election under Section 338(g) of the Code which
results from the making of the Section 338(h)(10) Elections. Shareholders
shall severally indemnify and hold harmless Buyer and its Affiliates in
respect of Damages resulting from the Section 338(h)(10) Elections being
finally determined, or agreed by the parties, to be invalid or unavailable
due to Diverco not being treated as an S corporation. All payments pursuant
to this Section 7.05(b)(ii) shall be allocated between Shareholders as set
forth in EXHIBIT A.
(iii) Prior to the Closing or as soon thereafter as
practicable, Buyer and Shareholders shall agree upon the allocation of the
purchase price among the assets of Diverco for purposes of preparing a
properly completed Form 8023-A and any comparable form required under state
or local law and shall set forth such allocation on a statement (the
"Allocation Statement"). Buyer and Shareholders shall report the tax
consequences of the transactions contemplated by this Agreement in a manner
consistent with the Allocation Statement, and shall not take any position
inconsistent therewith.
(c) (i) Shareholders shall have the exclusive authority and
obligation and shall be responsible for the correct and timely filing of all
Tax Returns of Diverco with respect to income taxes imposed by the Federal
government or any state or political subdivision thereof for all periods
ending on or prior to the Closing Date, and, after the Closing Date, Diverco
shall, and Buyer shall cause Diverco to, provide reasonable access to such
books and records of Diverco as necessary to prepare such Tax Returns which
may be reviewed and copied at Shareholders sole expense. Such authority
shall include, but not be limited to, the determination of the manner in
which any items of income, gain, deduction, loss or credit arising out of the
income, properties and operations of Diverco shall be reported or disclosed
on such Tax Returns; PROVIDED, HOWEVER, that Shareholders shall provide
Buyers with draft Tax Returns of Diverco with respect to income taxes
imposed by the Federal government or any state or any political subdivison
thereof for the short taxable year ending on the Closing Date at least 20
days prior to the due date for filing such Tax Returns. In the event Buyer
has any objection to any items set forth on such draft Tax Returns, Buyer and
Shareholders agree to consult and resolve in good faith any such objections,
it
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being understood and agreed that in the absence of any such resolution,
any and all such objections shall be resolved in a manner substantially
consistent with the past practices with respect to such items.
(ii) Buyer shall have the exclusive authority and
obligation and shall be responsible for the correct and timely filing of all
Tax Returns of Diverco for any taxable period beginning after the Closing
Date. Such authority shall include, but not be limited to, the determination
of the manner in which any items of income, gain, deduction, loss or credit
arising out of the income, properties and operations of Diverco shall be
reported or disclosed on such Tax Returns. (d) (i) After
giving effect to all payments in respect thereof which have been made prior
to the Closing Date, Shareholders shall be responsible and liable for the
timely payment of any unpaid Taxes imposed on or with respect to the
properties, income and operations of Diverco for all periods ending on or
prior to the Closing Date.
(ii) Buyer shall be responsible and liable for the timely
payment (y) of all Taxes imposed on or with respect to the properties, income
and operations of Diverco for all periods beginning after the Closing Date.
(e) (i) Shareholders, at their sole expense, shall have the
exclusive authority to represent Diverco before any taxing authority or any
court regarding the Tax consequences of the operations of Diverco for all
periods ending on or prior to the Closing Date; PROVIDED, HOWEVER, that
Shareholders shall not enter into any settlement of any contest or otherwise
compromise any issue that affects or may affect the Tax Liability of Diverco
for any period beginning after the Closing Date without the prior written
consent of Buyer which shall not be unreasonably withheld. Shareholders
shall keep Buyer fully and timely informed with respect to the commencement,
status and nature of any administrative or judicial proceedings involving any
Tax Liability of Diverco for all taxable periods.
(ii) Except as provided in Section 7.05(e)(i), Buyer
shall have the sole right to control any audit or examination by any taxing
authority, initial any claim for refund or amend any Tax Return, and contest,
resolve and defend against any assessment for additional Taxes, notice of Tax
deficiency or other adjustment of Taxes of, or relating to, Diverco;
PROVIDED, HOWEVER, that with respect to any audit or examination by any
taxing authority regarding the Tax consequences of the operations of Diverco
for all periods ending on or prior to the Closing Date, Diverco shall, and
Buyer shall cause Diverco to, notify Shareholders thereof and keep them
reasonably informed.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01 CONDITIONS TO OBLIGATION OF BUYER. The obligation of Buyer to
consummate the transactions contemplated hereby is subject to the
satisfaction of each of the following conditions:
(a) (i) Diverco and Shareholders shall each have performed
and satisfied in all material respects each of its material obligations
hereunder required to be performed and satisfied by any of them on or prior
to the Closing Date, (ii) each of the representations and warranties of
Diverco and Shareholders contained in this Agreement shall have been true and
correct in all material respects when made and shall contain no misstatement
or omission that would make any such representation or warranty materially
misleading when made and shall be true and correct in all material respects,
and shall not contain any misstatement or omission that would make any such
representation or warranty materially misleading, at and as of the Closing
Date with the same force and effect as if made as of the Closing Date and
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(iii) Buyer shall have received certificates signed by Shareholders and a
duly authorized executive officer of Diverco to the foregoing effect and to
the effect that to the Knowledge of such officer the conditions specified
within this Section 8.01 have been satisfied.
(b) All Required Governmental Approvals for the transactions
contemplated by this Agreement shall have been obtained without the
imposition of any conditions that are or would become applicable to Diverco,
the Business, the Shares or Buyer (or any of its Affiliates) after the
Closing that Buyer in good faith reasonably determines would be materially
burdensome upon Diverco, the Business, the Shares or Buyer (or any of its
Affiliates) or their respective businesses substantially as such businesses
have been conducted prior to the Closing Date or as said businesses, as of
the date hereof, would be reasonably expected to be conducted after the
Closing Date. All such Required Governmental Approvals shall be in effect,
and no Proceedings shall have been instituted or threatened by any
Governmental Authority with respect thereto as to which, in Buyer's good
faith opinion, there is a material risk of a determination that would
terminate the effectiveness of, or otherwise materially and adversely modify
the terms of, any such Required Governmental Approval; all applicable waiting
periods with respect to such Required Governmental Approvals shall have
expired; and all conditions and requirements prescribed by Applicable Law or
by such Required Governmental Approvals to be satisfied on or prior to the
Closing Date shall have been satisfied to the extent necessary such that all
such Required Governmental Approvals are, and will remain, in full force and
effect assuming continued compliance with the terms thereof after the Closing.
(c) All Required Contractual Consents shall have been
obtained without the imposition of any conditions that are or would become
applicable to Diverco, the Business, the Shares, Buyer or any of its
Affiliates after the Closing that Buyer in good faith determines would be
materially burdensome upon Diverco, the Business, the Shares, Buyer or any of
its Affiliates or their respective businesses substantially as such
businesses have been conducted prior to the Closing Date or as said
businesses, as of the date hereof, would be reasonably expected to be
conducted after the Closing Date. All such Required Contractual Consents
(and with respect to the Subsequent Material Contracts, such other consents
as may be required) shall be in effect. All conditions and requirements
prescribed by any Required Contractual Consent (or any such other consent) to
be satisfied on or prior to the Closing Date shall have been satisfied to the
extent necessary such that all such Required Contractual Consents (and all
such other consents) are effective and enforceable, and will remain effective
and enforceable against the Persons giving such Required Contractual Consents
(and such other consents) assuming continued compliance with the terms
thereof.
(d) The transactions contemplated by this Agreement and the
consummation of the Closing shall not violate any Applicable Law. No
temporary restraining order, preliminary or permanent injunction, cease and
desist order or other order issued by any court of competent jurisdiction or
any competent Governmental Authority or any other legal restraint or
prohibition preventing the transfer and exchange contemplated hereby or the
consummation of the Closing, or imposing Damages in respect thereto, shall be
in effect, and there shall be no pending or threatened actions or proceedings
by any Governmental Authority (or determinations by any Governmental
Authority) or by any other Person (i) challenging or in any manner seeking to
restrict or prohibit the transfer and exchange contemplated hereby or the
consummation of the Closing, or to impose conditions that Buyer in good faith
determines would be materially burdensome upon Diverco, the Business, the
Shares, Buyer or any of its Affiliates or their respective businesses
substantially as such businesses have been conducted prior to the Closing
Date or as said businesses, as of the date hereof, would be reasonably
expected to be conducted after the Closing Date.
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(e) Since the date hereof, there shall not have been any
event, occurrence, development or state of circumstances or facts or change
in Diverco or the Business (including any damage, destruction or other
casualty loss, but excluding any event, occurrence, development or state of
circumstances or facts or change resulting from changes in general economic
conditions) affecting Diverco or the Business that has had or that may be
reasonably expected to have, either alone or together with all such events,
occurrences, developments, states of circumstances or facts or changes, a
Material Adverse Effect.
(f) RTC shall have executed and delivered to Buyer a
Noncompetition Agreement in a form reasonably acceptable to Buyer.
(g) RTC shall have executed and delivered to Buyer an
Employment Agreement in a form reasonably acceptable to Buyer.
(h) Buyer shall have received an opinion of counsel to
Diverco and Shareholders in a form reasonably acceptable to Buyer.
(i) Buyer shall be reasonably satisfied that there has been
no material degradation of the assets of Diverco since the completion by
Buyer of its inspection of the assets of Diverco.
(j) RTC, as lessor, shall have entered into an operating
lease agreement in a form reasonably acceptable to Buyer.
(k) Buyer shall have completed its customary due diligence as
contemplated by Section 5.02(c) and Buyer shall be satisfied, in its
reasonable judgment, with both the quantity and the substance of the
information provided to it.
(l) As of the Closing Date, there shall exist no Liens on any
assets of Diverco, other than Permitted Liens, nor any Share Encumbrances.
8.02 CONDITIONS TO OBLIGATION OF SHAREHOLDERS. The obligation of
Shareholders to consummate the transactions contemplated hereby is subject to
the satisfaction of each of the following conditions:
(a) (i) Buyer shall have performed and satisfied in all
material respects each of its material obligations hereunder required to be
performed and satisfied by it on or prior to the Closing Date, and the
aggregate effect of all failures to perform or satisfy all obligations of
Buyer on or prior to the Closing Date shall not be materially adverse to
Shareholders; (ii) the representations and warranties of Buyer contained in
this Agreement shall be true, complete and accurate in all material respects
at and as of the Closing Date, as if made at and as of such date and (iii)
Shareholders shall have received a certificate signed by a duly authorized
executive officer of Buyer to the foregoing effect and to the effect that to
such officer's Knowledge the conditions specified within this Section 8.02
have been satisfied.
(b) All material Required Governmental Approvals for the
transactions contemplated by this Agreement shall have been obtained without
the imposition of any conditions that are or would become applicable to
Shareholders or any of their respective Affiliates after the Closing that
Shareholders in good faith reasonably determine would be materially
burdensome upon such Person. All such Required Governmental Approvals that
relate to Shareholders' sale of the Shares shall be in effect,
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and no Proceedings shall have been instituted or threatened by any
Governmental Authority with respect thereto as to which, in Shareholders'
good faith opinion, there is a material risk of a determination that would
terminate the effectiveness of, or otherwise materially and adversely modify
the terms of, any such Required Governmental Approval. All applicable
waiting periods with respect to such Required Governmental Approvals shall
have expired, and all conditions and requirements prescribed by Applicable
Law or by such Required Governmental Approvals to be satisfied on or prior to
the Closing Date shall have been satisfied to the extent necessary such that
all such Required Governmental Approvals are, and will remain, in full force
and effect assuming continued compliance with the terms thereof after the
Closing.
(c) All Required Contractual Consents shall have been
obtained without the imposition of any conditions that are or would become
applicable to Shareholders or any of their respective Affiliates after the
Closing that would be materially burdensome upon such Person. All such
Required Contractual Consents (and with respect to the Subsequent Material
Contracts, such other consents) shall be in effect to the extent that the
failure thereof to be in effect would in Shareholders' good faith opinion
impose material liability on Shareholders or their respective Affiliates, and
no Proceeding shall have been instituted or threatened with respect thereto.
All conditions and requirements prescribed by any Required Contractual
Consent (or any such other consent) to be satisfied on or prior to the
Closing Date shall have been satisfied to the extent necessary such that no
material Liability will be imposed on Shareholders or their respective
Affiliates.
(d) The sale and transfer contemplated by this Agreement and
the consummation of the Closing shall not violate any Applicable Law. No
temporary restraining order, preliminary or permanent injunction, cease and
desist order or other order issued by any court of competent jurisdiction or
any competent Governmental Authority or any other legal restraint or
prohibition preventing the transfer and exchange contemplated hereby or the
consummation of the Closing, or imposing Damages in respect thereto, shall be
in effect, and there shall be no pending or threatened actions or proceedings
by any Governmental Authority (or determinations by any Governmental
Authority) or by any other Person challenging or in any manner seeking to
restrict or prohibit the transfer and exchange contemplated hereby or the
consummation of the Closing.
(e) Shareholders shall have received an opinion of counsel
from Gibson, Dunn & Crutcher LLP in a form reasonably acceptable to
Shareholders.
(f) Buyer shall have executed and delivered to RTC an
Employment Agreement in a form reasonably acceptable to RTC.
(g) Buyer shall have executed and delivered to RTC an
operating lease in a form reasonably acceptable to RTC.
ARTICLE IX
INDEMNIFICATION
9.01 AGREEMENT TO INDEMNIFY.
(a) Subject to the limitations provided herein, Buyer and its
Affiliates (collectively, the "Buyer Indemnitees") shall each be indemnified
and held harmless to the extent set forth in this Article IX on a joint and
several basis by Shareholders in respect of any Damages reasonably and
proximately incurred by any Buyer Indemnitee (i) as a result of any
inaccuracy or misrepresentation in or breach of or failure to perform any
representation, warranty, covenant, agreement or obligation of Diverco
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or Shareholders in this Agreement or (ii) in connection with any
Environmental Liability. The aggregate liability of Shareholders
collectively under this Section 9.01(a) of this Agreement shall not exceed
the Purchase Price, except in the case of Damages due to Shareholders' fraud
or willful misconduct.
(b) Shareholders and their Affiliates (collectively the
"Shareholder Indemnitees") shall each be indemnified and held harmless to the
extent set forth in this Article IX by Buyer in respect of any and all
Damages reasonably and proximately incurred by any Shareholder Indemnitee as
a result of (i) any inaccuracy or misrepresentation in or breach of or
failure to perform any representation, warranty, covenant, agreement or
obligation of Buyer in this Agreement or (ii) Diverco's conduct of the
Business after the Closing.
(c) Notwithstanding the foregoing, Buyer Indemnitees may not
seek indemnification hereunder from Shareholders unless and until the claims
in the aggregate exceed $50,000, provided that if such threshold is exceeded,
Buyer Indemnitees may seek indemnification hereunder for any and all claims
subject to a one-time deductible in the amount of $10,000. This Section
9.01(c) shall not apply to indemnification claims relating to Sections 3.01,
3.06, 3.21, 5.07 or 5.08, which will be fully indemnified by Shareholders.
(d) From and after the Closing Date, Diverco shall have no
liability to Shareholders for contribution or reimbursement due to, or other
Damages arising out of, liability incurred by Shareholders pursuant to
Section 9.01(a) notwithstanding the fact that the representations and
warranties of Diverco and Shareholders in Article III and the covenants of
Diverco and Shareholders in Article V are joint and several.
9.02 SURVIVAL OF REPRESENTATION, WARRANTIES AND COVENANTS.
(a) Except as hereinafter provided in this Section 9.02, all
representations, warranties, covenants, agreements and obligations of each
Indemnifying Party contained herein and all claims of any Indemnitee in
respect of any breach of any representation, warranty, covenant, agreement or
obligation of any Indemnifying Party contained in this Agreement, shall
survive the Closing and shall expire on the third (3rd) anniversary of the
Closing Date.
(b) Notwithstanding Section 9.02(a) the representations,
warranties, covenants, agreements and obligations of Shareholders as
Indemnifying Parties shall survive the Closing Date until the expiration of
60 days following any applicable statute of limitations, including extensions
thereof with respect to: (i) the inaccuracy or misrepresentation in or
breach of any representation, warranty, covenant or agreement made by
Shareholders in this Agreement arising out of fraud or willful misconduct;
(ii) any inaccuracy or misrepresentation in or breach of any representation
or warranty made in Sections 3.16, 3.21 and 3.23 regardless of whether such
inaccuracy or misrepresentation or breach arises out of fraud or willful
misconduct; and (iii) the breach or failure to perform by Shareholders after
the Closing Date of any of the covenants, agreements or obligations of such
Person contained in this Agreement or in the Exhibits attached hereto.
(c) Notwithstanding Section 9.02(a), each of the following
representations, warranties, covenants, agreements and obligations of Buyer
as an Indemnifying Party shall survive the Closing Date until the expiration
of 60 days following the applicable statute of limitations, including
extensions thereof: (i) any inaccuracy or misrepresentation in or breach of
any representation, warranty, covenant or agreement made by Buyer in this
Agreement arising out of fraud or willful misconduct; and
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(ii) the breach or failure to perform by Buyer after the Closing Date of any
of the covenants, agreements or obligations of such Person contained in this
Agreement or in the Exhibits attached hereto.
9.03 CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall believe
that such Indemnitee is entitled to indemnification pursuant to this Article
IX in respect of any Damages, such Indemnitee shall give the appropriate
Indemnifying Party prompt written notice thereof. Any such notice shall set
forth in reasonable detail and to the extent then known the basis for such
claim for indemnification. The failure of such Indemnitee to give notice of
any claim for indemnification promptly shall not adversely affect such
Indemnitee's right to indemnity hereunder except to the extent that such
failure materially adversely affects the right of the Indemnifying Party to
assert any reasonable defense to such claim. Each such claim for indemnity
shall expressly state that the Indemnifying Party shall have only the 30-day
period referred to in the next sentence to dispute or deny such claim. The
Indemnifying Party shall have 30 days following its receipt of such notice
either (a) to acquiesce in such claim by giving such Indemnitee written
notice of such acquiescence or (b) to object to the claim by giving such
Indemnitee written notice of the objection. If the Indemnifying Party does
not object thereto within such 30-day period, such Indemnitee shall be
entitled to be indemnified for all Damages reasonably and proximately
incurred by such Indemnitee in respect of such claim. If the Indemnifying
Party objects to such claim in a timely manner, and such Indemnitee and the
Indemnifying Party are unable to resolve their dispute within 30 days
following such objection (or such additional period of time as may be
mutually agreed to by such Persons), the claim shall be submitted immediately
to arbitration pursuant to Section 11.11.
9.04 DEFENSE OF CLAIMS.
(a) In connection with any claim which may give rise to
indemnity under this Article IX resulting from or arising out of any claim or
Proceeding against an Indemnitee by a Person that is not a party hereto, the
Indemnifying Party may, subject to Section 9.04(b), assume the defense of any
such claim or Proceeding (unless such Indemnitee elects not to seek indemnity
hereunder for such claim), upon written notice to the relevant Indemnitee, if
all Indemnifying Parties with respect to such claim or Proceeding jointly
acknowledge to the Indemnitee its right to indemnity pursuant hereto in
respect of the entirety of such claim (as such claim may have been modified
through written agreement of the parties or arbitration hereunder) and
provides assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Parties will be financially able to satisfy such claim in full
if such claim or Proceeding is decided adversely. Prior to the assumption by
an Indemnifying Party of the defense of any claim or Proceeding, the
Indemnitee may make such appearances and filings with respect thereto as the
Indemnitee reasonably determines to be necessary or appropriate. If the
Indemnifying Parties assume the defense of any such claim or Proceeding, the
Indemnifying Parties shall select counsel reasonably acceptable to such
Indemnitee to conduct the defense of such claim or Proceeding, shall take all
steps necessary in the defense or settlement thereof and shall at all times
diligently and promptly pursue the resolution thereof. If the Indemnifying
Parties shall have assumed the defense of any claim or Proceeding in
accordance with this Section 9.04, the Indemnifying Parties shall be
authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, without the prior written consent
of such Indemnitee; PROVIDED, HOWEVER, that the Indemnifying Parties shall
pay or cause to be paid all amounts arising out of such settlement or
judgment concurrently with the effectiveness thereof; PROVIDED, FURTHER, that
the Indemnifying Parties shall not be authorized to encumber any of the
assets of any Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and PROVIDED, FURTHER, that a
condition to any such settlement shall be a complete release of such
Indemnitee and its Affiliates, officers, employees,
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consultants and agents with respect to such claim. Subject to Section
9.04(b), such Indemnitee shall be entitled to participate in (but not
control) the defense of any such action, with its own counsel and at its own
expense. Each Indemnitee shall, and shall cause each of its Affiliates,
officers, employees, consultants and agents to, cooperate fully with the
Indemnifying Parties in the defense of any claim or Proceeding being defended
by the Indemnifying Parties pursuant to this Section 9.04. If the
Indemnifying Parties do not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this Section 9.04(a),
such Indemnitee may defend against such claim or Proceeding.
(b) Notwithstanding Section 9.04(a), the Indemnifying Parties
may not assume the defense of any claim or Proceeding and the Indemnitee may
assume such defense if, in the reasonable opinion of the Indemnitee, (i) such
claim or Proceeding involves an issue or matter that, if determined adversely
to the Indemnitee, is likely to have a material adverse effect on the
business, operations, assets, properties or prospects of the Indemnitee, or
(ii) there is one or more legal defenses available to the Indemnitee that
conflict with those available to an Indemnifying Party. If the Indemnitee
assumes defense of any such claim or Proceeding, (A) the Indemnifying Parties
may participate in, but not control, the defense of such claim or Proceeding,
and (B) if the Indemnitee receives a settlement proposal from the Person
asserting such claim or instituting such Proceeding and is notified by an
Indemnifying Party that such Indemnifying Party wants to accept such
settlement proposal, the liability of the Indemnifying Parties with respect
to such claim or Proceeding shall equal the lesser of (x) the amount offered
in such settlement proposal, (y) the amount of actual Damages of the
Indemnitee with respect to such claim or Proceeding or (z) the maximum
liability of the Indemnifying Parties pursuant to Section 9.01(a).
(c) If the Indemnitee elects to defend any claim or
Proceeding pursuant to the last sentence of Section 9.04(a) or pursuant to
Section 9.04(b), the Indemnitee shall conduct such defense in such manner as
it shall deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Parties, on such terms as such
Indemnitee shall deem appropriate. If the Indemnifying Parties seek to
question the manner in which such Indemnitee defended such claim or
Proceeding or the amount of or nature of any such settlement, the
Indemnifying Parties shall have the burden to prove by a preponderance of the
evidence that such Indemnitee did not defend such claim or Proceeding in a
reasonably prudent manner.
ARTICLE X
TERMINATION
10.01 GROUNDS FOR TERMINATION. This Agreement may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of all of the parties hereto;
(b) by Buyer at any time following the expiration of 15 days
from the date that Buyer has given notice to Shareholders of any one or more
inaccuracies or misrepresentations in or breaches of the representations or
warranties made by Diverco or Shareholders contained herein that, if not
cured prior to the Closing Date, would give Buyer grounds not to close under
Section 8.01 when taken into account with all other uncured inaccuracies or
misrepresentations in or breaches of such representations or warranties as to
which Buyer shall have given notice to Shareholders as provided in this
clause (b); PROVIDED, HOWEVER, that no termination under this clause (b)
shall take effect if such inaccuracies, misrepresentations or breaches shall
have been cured in all material respects within such 15-day period;
(c) by Buyer at any time following the expiration of 15 days
from the date that Buyer has given written notice to Shareholders of the
failure by Diverco or Shareholders to perform
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and satisfy in any material respect any of their respective material
obligations under this Agreement required to be performed and satisfied by
Diverco or Shareholders on or prior to the Closing Date, or the failure to
perform and satisfy any other obligations of Diverco or Shareholders under
this Agreement if the aggregate of all such other failures shall be material;
PROVIDED, HOWEVER, that no termination under this clause (c) shall take
effect if such breaches or failures shall have been cured in all material
respects within such 15-day period;
(d) by Shareholders at any time following the expiration of
15 days from the date that Shareholders have given written notice to Buyer of
any one or more material inaccuracies or material misrepresentations in or
material breaches of the representations or warranties made by Buyer herein
which, if not cured prior to the Closing Date, have had or could be
reasonably expected to give Shareholders grounds not to close under Section
8.02 when taken into account with all other uncured inaccuracies or
misrepresentations in or breaches of such representations or warranties as to
which Shareholders shall have given notice to Buyer as provided in this
clause (d); PROVIDED, HOWEVER, that no termination under this clause (d)
shall take effect if such breaches shall have been cured in all material
respects within such 15-day period;
(e) by Shareholders at any time following the expiration of
15 days from the date that Shareholders have given written notice to Buyer of
Buyer's failure to perform and satisfy in any material respect any of its
material obligations under this Agreement required to be performed and
satisfied by Buyer on or prior to the Closing Date, or the failure to perform
and satisfy any other obligations of Buyer under this Agreement if the
aggregate of all such other failures shall be material; PROVIDED, HOWEVER,
that no termination under this clause (e) shall take effect if Buyer shall
have cured such breaches or failures in all material respects within such
15-day period;
(f) by any party hereto, if the Closing shall not have been
consummated by November 30, 1996 (the "Outside Date"); PROVIDED, HOWEVER,
that no party may terminate this Agreement pursuant to this clause (f) if the
Closing shall not have been consummated within such time period by reason of
the failure of such party or any of its Affiliates to perform in all material
respects any of its or their respective covenants or agreements contained in
this Agreement; and
(g) by any party hereto if any Federal, state or foreign law
or regulation thereunder shall hereafter be enacted or become applicable that
makes the transactions contemplated hereby or the consummation of the Closing
illegal or otherwise prohibited, or if any judgment, injunction, order or
decree enjoining either party hereto from consummating the transactions
contemplated hereby is entered, and such judgment, injunction, order or
decree shall become final and nonappealable.
The party desiring to terminate this Agreement pursuant to clauses
(b) through (g) shall give written notice of such termination to the other
party.
10.02 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 10.01, such termination shall be without liability of
any party to any other party to this Agreement; PROVIDED, HOWEVER, that if
such termination shall result from the breach by any party of its
representations, warranties or covenants contained in this Agreement, such
party shall be fully liable for any and all Damages incurred or suffered by
the other parties as a result of such failure or breach notwithstanding such
termination. The provisions of Sections 5.05, 6.01, 10.02, 11.03, 11.05
11.07, 11.08, 11.10, 11.11 and 11.12 shall survive any termination of this
Agreement pursuant to Article X.
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ARTICLE XI
MISCELLANEOUS
11.01 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given (i) if
personally delivered, when so delivered, (ii) if mailed, two Business Days
after having been sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set
forth below, (iii) if given by telex or telecopier, once such notice or other
communication is transmitted to the telex or telecopier number specified
below and the appropriate answer back or telephonic confirmation is received,
PROVIDED that such notice or other communication is promptly thereafter
mailed in accordance with the provisions of clause (ii) above or (iv) if sent
through an overnight delivery service in circumstances to which such service
guarantees next day delivery, the day following being so sent:
If to the Trust or RTC:
Robert T. Carren
6112 LaGrande Court
Oak Forest, Illinois 60452
with a copy to:
Laner, Muchin, Dombrow, Becker, Levin & Tominberg Ltd.
515 North State Street
28th Floor
Chicago, Illinois 60610
Attn: Jeffrey P. Carren, Esq.
Telecopier No.: (312) 467-9479
If to Diverco:
Diverco, Inc.
P.O. Box 1038
255 East 167th Street
Harvey, Illinois 60426
Attn: Mr. Robert T. Carren
Telecopier No.: (708) 333-9073
with a copy to:
Laner, Muchin, Dombrow, Becker, Levin & Tominberg Ltd.
515 North State Street
28th Floor
Chicago, Illinois 60610
Attn: Jeffrey P. Carren, Esq.
Telecopier No.: (312) 467-9479
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If to Buyer:
Diverco Acquisition Corp.
c/o Aurora Capital Partners L.P.
10th Floor
1800 Century Park East
Los Angeles, California 90067
Attn: Mark C. Hardy
Telecopier No: 310-277-5591
with a copy to:
Gibson, Dunn & Crutcher
333 South Grand Avenue, Suite 5018
Los Angeles, California 90071
Attn: Bruce D. Meyer, Esq.
Telecopier No: 213-229-7520
Any party may give any notice, request, demand, claim or other communication
hereunder using any other means (including ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by
the individual for whom it is intended. Any party may change the address to
which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other parties notice in the manner herein
set forth.
11.02 AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the
case of an amendment, by all parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent occurrence. No failure or delay
by a party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
11.03 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense. Without limiting the generality of the
foregoing, the Shareholders shall pay (i) the fees and expenses of
Niederhoffer, Henkel & Co. L.L.C. and (ii) all legal, accounting and other
fees and expenses incurred by the Shareholders and/or Diverco prior to the
Closing Date in connection with the negotiation, execution, delivery and
performance of this Agreement.
11.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party hereto may
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assign either this Agreement or any of its rights, interests or obligations
hereunder without the prior written approval of each other party, which
approval shall not be unreasonably withheld.
11.05 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal laws (without reference to
choice or conflict of laws) of the State of Illinois.
11.06 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have
received a counterpart hereof signed by the other parties hereto.
11.07 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits referred to herein which are hereby incorporated by reference)
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to the
subject matter of this Agreement. Neither this Agreement nor any provision
hereof is intended to confer upon any Person other than the parties hereto
any rights or remedies hereunder.
11.08 CAPTIONS. The captions herein are included for convenience
of reference only and shall be ignored in the construction or interpretation
hereof. All references to an Article or Section include all subparts thereof.
11.09 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the
date this Agreement was executed or last amended.
11.10 CONSTRUCTION.
(a) The language used in this Agreement will be deemed to be
the language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against either party. Any
reference to any Applicable Law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires
otherwise. Whenever required by the context, any gender shall include any
other gender, the singular shall include the plural and the plural shall
include the singular. The words "herein," "hereof," "hereunder," and words
of similar import refer to the Agreement as a whole and not to a particular
section. Whenever the word "including" is used in this Agreement, it shall
be deemed to mean "including, without limitation," "including, but not
limited to" or other words of similar import such that the items following
the word "including" shall be deemed to be a list by way of illustration only
and shall not be deemed to be an exhaustive list of applicable items in the
context thereof.
(b) The parties hereto intend that each representation,
warranty, and covenant contained herein shall have independent significance.
If any party has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) that
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the party has not breached shall not detract from or mitigate the fact that
the party is in breach of the first representation, warranty or covenant.
11.11 ARBITRATION OF CLAIMS.
(a) Except as otherwise specifically provided elsewhere in
this Agreement, any dispute or difference between or among the parties
arising out of this Agreement or the transactions contemplated hereby,
including, without limitation, any dispute between any Indemnitee and any
Indemnifying Party under Article IX which the parties are unable to resolve
themselves, shall be submitted to and resolved by arbitration pursuant to and
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association in effect on the date of the initial request that
gave rise to the dispute to be arbitrated (the "AAA Rules").
(b) Such arbitration shall be conducted by a panel of three
arbitrators, which shall be selected from a list of arbitrators pursuant to
and in accordance with the AAA Rules. Such arbitration proceeding shall be
conducted in Cook County, Illinois. The arbitrators shall not have the
authority to modify any term or provision of this Agreement. The arbitration
proceeding shall include an opportunity for the parties to conduct discovery
in advance of the proceeding, which discovery may be limited by rules
established by the arbitrators. Notwithstanding the foregoing, the parties
agree that they will attempt, and they intend that they and the arbitrators
should use their best efforts in that attempt, to conclude such arbitration
proceeding and have a final decision from the arbitrators within 90 days from
the date of selection of the arbitrators; provided, however, that the
arbitrators shall be entitled to extend such 90-day period one or more times
to the extent necessary for such arbitrators to place a dollar value on any
claim that may be unliquidated. The arbitrators shall promptly deliver a
written decision with respect to the dispute to each of the parties, which
shall promptly act in accordance therewith. Each party agrees that any
decision of the arbitrators shall be final, conclusive and binding, absent
fraud or manifest error, and that they will not contest any action by any
other party hereto in accordance with a decision of the arbitrators, except
on a basis of fraud or manifest error. It is specifically understood and
agreed that any party may enforce any award rendered pursuant to the
arbitration provisions of this Section 11.11 by bringing suit in any court of
competent jurisdiction.
(c) All fees, costs and expenses (including attorneys' fees
and expenses) incurred by the party that prevails in any such arbitration
commenced pursuant to this Section 11.11 or any judicial action or proceeding
seeking to enforce the agreement to arbitrate disputes as set forth in this
Section 11.11 or seeking to enforce any order or award of any arbitration
commenced pursuant to this Section 11.11 may be assessed against the party or
parties that do not prevail in such arbitration in such manner as the
arbitrators or the court in such judicial action, as the case may be, may
determine to be appropriate under the circumstances. All costs and expenses
attributable to the arbitrators shall be allocated among the parties to the
arbitration in such manner as the arbitrators shall determine to be
appropriate under the circumstances.
11.12 CUMULATIVE REMEDIES. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.13 THIRD PARTY BENEFICIARIES. No provision of this Agreement
shall create any third party beneficiary rights in any Person, including any
employee of Buyer or employee or former employee of Diverco or any Affiliate
thereof (including any beneficiary or dependent thereof).
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11.14 TRUSTEE'S EXCULPATION. This Agreement and any other
agreements, instruments and documents in connection herewith shall be
executed by Jeffrey P. Carren solely in his capacity as trustee (the
"Trustee") of the Trust in the exercise of the power and authority conferred
upon and vested in him, as the Trustee. It is expressly understood and
agreed by Buyer, for itself and its successors and assigns, and by each other
Person hereafter claiming an interest pursuant to this Agreement, that:
(a) the Trustee has executed this Agreement, and will execute
any other agreements, instruments and documents in connection herewith (such
other agreements, instruments and documents being collectively herein
referred to as "Other Trustee Documents"), solely for the purpose of
subjecting the trust estate under the Trust to the terms of this Agreement
and the Other Trustee Documents;
(b) except in the case of his willful misconduct or fraud, no
personal Liability or personal responsibility is (or will be) assumed by, nor
shall, at any time be asserted or enforceable against the Trustee personally,
on account of this Agreement or any Other Trustee Document or on account of
any representation, obligation, duty, covenant or agreement contained herein
or therein, either express or implied, all such personal Liability, if any,
being expressly waived and released by Buyer;
(c) no duty shall rest upon Trustee, either personally or as
Trustee, to sequester the Trust's assets; and
(d) no duty shall rest upon Jeffrey P. Carren personally,
apart from his capacity as the Trustee, to see to the fulfillment or
discharge of any obligation, express or implied, arising pursuant to the
terms of this Agreement of the Other Trustee Documents. In the event of any
conflict between the terms of this Section 11.14 and the remainder of this
Agreement or any of the Other Trustee Documents, or in the event of any
question of apparent Liability or obligation resting upon the Trustee, the
exculpatory provisions hereof shall be controlling.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed by their respective authorized officers as of the day and
year first above written.
SHAREHOLDERS:
ROBERT T. CARREN QUALIFIED ANNUITY TRUST
By:
--------------------------------------
Jeffrey P. Carren, Trustee
--------------------------------------
Robert T. Carren
DIVERCO:
DIVERCO, INC.
By:
--------------------------------------
Name:
Title:
BUYER:
DIVERCO ACQUISITION CORP.
By:
--------------------------------------
Name:
Title:
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EXHIBIT 10.35
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of October 7,
1996 by and between Stephen J. Perkins, an individual ("Executive"), and
Aftermarket Technology Corp., a Delaware corporation (the "Company" or "ATC").
1. EMPLOYMENT BY THE COMPANY AND TERM.
(a) FULL TIME AND BEST EFFORTS. Subject to the terms set forth
herein, the Company agrees to employ Executive as the President and Chief
Executive Officer of the Company and Executive hereby accepts such
employment. In addition, Executive shall serve as (i) President and Chief
Executive Officer of each of Aftermarket Technology Holdings Corp., RPM
Merit, Inc. and CRS Holdings Corp. and (ii) Chief Executive Officer of each
of ATC Components, Inc., Aaron's Automotive Products, Inc., H.T.P., Inc.,
Mamco Converters, Inc., Component Remanufacturing Specialists, Inc.,
King-O-Matic Industries Ltd., Tranzparts Acquisition Corp. and Tranzparts,
Inc. During the term of his employment with the Company, Executive shall
devote his full time, best efforts and attention to the performance of his
duties hereunder and to the business and affairs of the Company.
(b) DUTIES. Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with his then current
title, consistent with the Bylaws of the Company and as required by the
Company's Board of Directors (the "Board"). Executive agrees to devote his
entire professional time, energies and skills to his employment hereunder
while so employed (reasonable vacations and absences because of illness
excepted).
(c) COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
the Company, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with the Company's
general employment policies or practices, this Agreement shall control.
(d) TERM. The initial term of employment of Executive under
this Agreement shall begin as of October 7, 1996 and end on October 6, 1999
(such three year period, the "Initial Term"), subject to the provisions for
termination set forth in Section 5 below and renewal as provided in Section
1(e) below.
(e) RENEWAL. Unless the Company shall have given the Executive
notice that this Agreement shall not be renewed at least 90 days prior to the
end of the Initial Term, the term of this Agreement shall be automatically
extended for a period of one year, such procedure to be followed in each such
successive period. Each extended term shall continue to be subject to the
provisions for termination set forth herein.
2. COMPENSATION AND BENEFITS.
(a) SALARY. Executive shall receive for services to be
rendered hereunder an annual base salary (the "Base Salary") initially equal
to Three Hundred Thousand Dollars ($300,000) payable on a monthly basis,
subject to standard withholdings for taxes and social security and the like.
Executive's annual Base Salary will be reviewed annually by the Board and
adjusted when deemed appropriate by the Board to adequately reflect the scope
and success of the Company's operations.
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(b) PARTICIPATION IN BENEFIT PLANS. During the term hereof,
Executive shall be entitled to participate in any group insurance,
hospitalization, medical, dental, health and accident, disability or similar
plan or program of the Company now existing or established hereafter to the
extent that he is eligible under the general provisions thereof. The Company
may, in its sole discretion and from time to time, establish additional
senior management benefit programs as it deems appropriate. Until such time
as the Company establishes a medical, dental, health and accident or
disability plan or program of its own, Executive shall be entitled to the
extent legally permitted to obtain coverage therefor under, and pursuant to
the terms of, any such plans or programs of the Company's subsidiaries, as
may be designated by the Executive.
(c) VACATION. Executive shall be entitled to a period of
annual vacation time equal to that provided to senior managers by the
Company's policies and procedures regarding vacation, but in any event not
less than four weeks per year. The days selected for Executive's vacation
must be mutually agreeable to the Company and Executive.
(d) 401(K) PLAN. To the extent legally permitted, Executive
shall be entitled to place a portion of his Base Salary into a 401(K) or
other qualified deferred tax annuity plan of the Company or, if the Company
does not have such a plan, of any such plan of any of the Company's
subsidiaries, as may be designated by the Executive.
(e) DISABILITY INSURANCE. To the extent that Executive's
disability insurance coverage in effect immediately prior to the date hereof
may be continued after the date hereof, the Company shall pay the premiums
for such insurance to the extent that the annual coverage provided thereby
does not exceed the Base Salary.
3. OPTION AND BONUS PLANS.
(a) PARTICIPATION. During the term hereof, Executive shall be
entitled to participate in any stock option plan and any bonus or incentive
plan of the Company currently made available by the Company to executive
employees of the Company or which may be made available in the future to
executive employees of the Company, subject to and on a basis consistent with
the terms, conditions and administration of any such plan; PROVIDED, HOWEVER,
that Executive's annual cash bonus will be as provided in Section 3(c) below.
Executive understands that any such plan may be modified or eliminated in
the Company's discretion in accordance with applicable law.
(b) OPTIONS. Executive shall be entitled to receive stock
options ("Options") under the 1994 Stock Option Plan of Aftermarket
Technology Holdings Corp. ("Holdings"), which owns all of the shares of
capital stock of ATC, to purchase 83,000 shares of Holdings Common Stock.
The Options will be "incentive stock options" if and to the extent permitted
under the Internal Revenue Code and shall have the following terms:
(i) VESTING. The Options shall vest for so long as
Executive shall be employed under this Agreement as follows: (x) one-third
on the first anniversary of the date hereof; (y) one-third on the second
anniversary of the date hereof; and (z) one-third on the third anniversary of
the date hereof.
(ii) EXERCISE PRICE. The Options shall have an exercise
price of $28.00 per share.
(iii) DURATION. The Options shall expire ten (10) years
from the date hereof, subject to the terms of the 1994 Stock Option Plan.
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The common stock underlying the Options shall be subject to the terms
and conditions of the Stockholders Agreement currently in effect with respect
to the common stock of Holdings, a copy of which has been provided to
Executive. Executive agrees to execute a copy of such Stockholders Agreement
concurrently with the execution hereof.
(c) ANNUAL CASH BONUS. Executive shall receive a cash bonus of
$100,000 for the period ending December 31, 1996. For all subsequent annual
periods, Executive shall receive such cash bonus as the Board shall determine in
its sole discretion based upon the performance of the Company and its
subsidiaries, provided that the annual cash bonus payable to Executive shall not
exceed 75% of the Base Salary for such year. Such bonuses shall be paid at such
time as the Company pays cash bonuses to its executive employees.
4. REASONABLE BUSINESS EXPENSES AND SUPPORT. Executive shall be
reimbursed for documented and reasonable business expenses in connection with
the performance of his duties hereunder. Executive shall be furnished
reasonable office space, assistance and facilities.
5. TERMINATION OF EMPLOYMENT. The date on which Executive's employment
by the Company ceases, under any of the following circumstances, shall be
defined herein as the "Termination Date."
(a) TERMINATION FOR CAUSE.
(i) TERMINATION; PAYMENT OF ACCRUED SALARY AND VACATION.
The Board may terminate Executive's employment with the Company at any time
for cause, immediately upon notice to Executive of the circumstances leading
to such termination for cause. In the event that Executive's employment is
terminated for cause, Executive shall receive payment for all accrued salary
and vacation time through the Termination Date, which in this event shall be
the date upon which notice of termination is given. The Company shall have
no further obligation to pay further compensation or severance of any kind
nor to make any payment in lieu of notice.
(ii) DEFINITION OF CAUSE. "CAUSE" means the occurrence or
existence of any of the following with respect to Executive, as determined by
a majority of the disinterested directors of the Board; (a) a material breach
by the Executive of his duty not to engage in any transaction that
represents, directly or indirectly, self-dealing with the Company or any of
its Affiliates which has not been approved by a majority of the disinterested
directors of the Board or of the terms of his employment, if in any such case
such material breach remains uncured after the lapse of 30 days following the
date that the Company has given the Executive written notice thereof; (b) the
repeated material breach by the Executive of any duty referred to in clause
(a) above as to which at least one written notice has been given pursuant to
such clause (a); (c) any act of dishonesty, misappropriation, embezzlement,
intentional fraud or similar conduct involving the Company or any of its
Affiliates; (d) the conviction or the plea of nolo contendere or the
equivalent in respect of a felony involving moral turpitude; (e) the repeated
non-prescription use of any controlled substance or the repeated use of
alcohol or any other non-controlled substance which, in the reasonable
determination of the Board, in any case described in this clause (e), renders
the Executive unfit to serve in his capacity as an officer or employee of the
Company or its Affiliates; or (f) gross negligence or willful misconduct in
the performance of his duties hereunder, or a willful and material breach of
this Agreement, but not including any mistake of fact or opinion made in good
faith with respect to the business of the Company or any subsidiary of the
Company.
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(b) VOLUNTARY TERMINATION. Executive may voluntarily terminate
his employment with the Company at any time upon ninety (90) days prior
written notice, after which no further compensation of any kind or severance
payment will be payable under this Agreement.
(c) TERMINATION UPON DISABILITY. The Company may terminate
Executive's employment in the event Executive shall be unable to perform his
duties hereunder because of illness or other incapacity, and such illness or
other incapacity shall continue for a period of six (6) consecutive months.
After the Termination Date, which in this event shall be the date upon which
notice of termination is given, no further compensation of any kind or
severance payment will be payable under this Agreement except that (i)
Executive shall receive the accrued portion of any bonus through the
Termination Date, less standard withholdings for tax and social security
purposes, payable upon such date or over such period of time which is in
accordance with the applicable bonus plan, and (ii) Executive shall be
entitled to (x) continued health insurance coverage, at the Company's
expense, for twelve (12) months following the Termination Date and (y) such
other benefits as are provided under the Company's long-term disability plan,
if any, then in effect.
(d) TERMINATION WITHOUT CAUSE. In the event Executive's
employment is terminated without "cause," as defined above, the Company shall
pay Executive as severance the following:
(i) if the Termination Date occurs during the Initial
Term, an amount equivalent to the then Base Salary for the remainder of the
Initial Term or for a period of eighteen (18) months from the Termination
Date, whichever period is longer, or
(ii) if the Termination Date occurs after the end of the
Initial Term, an amount equivalent to the then Base Salary for a period of
eighteen (18) months from the Termination Date,
in either case less standard withholdings for tax and social security
purposes, payable over such period in monthly PRO RATA payments commencing as
of the Termination Date plus the accrued portion of any bonus through the
Termination Date, less standard withholdings for tax and social security
purposes, payable upon such date or over such period of time which is in
accordance with the applicable bonus plan. During the period that Executive
is entitled to receive payments under this Section 5(d) and to the extent
permissible under applicable law, Executive shall be entitled to (x)
continued health insurance coverage, at the Company's expense, and (y) such
other benefits as are provided under the Company's long-term disability plan,
if any, then in effect.
(e) TERMINATION UPON DEATH. If Executive dies prior to the
expiration of the term of this Agreement, the Company shall (i) continue, for a
period of twelve (12) months following Executive's death, health insurance
coverage of Executive's dependents (if any) under all benefit plans or programs
in which Executive participated at the time of his death, and (ii) pay to
Executive's estate the accrued portion of any bonus through the Termination
Date, less standard withholdings for tax and social security purposes, payable
upon such date or over such period of time which is in accordance with the
applicable bonus plan, and no further compensation of any kind or severance
payment will be payable under this Agreement.
6. PROPRIETARY INFORMATION OBLIGATIONS. During the term of employment
under this Agreement, Executive will have access to and become acquainted with
the Company's confidential and proprietary information, including but not
limited to information or plans regarding the Company's customer relationships,
personnel, or sales, marketing, and
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financial operations and methods; trade secrets; formulas; devices; secret
inventions; processes; and other compilations of information, records, and
specifications (collectively "Proprietary Information"). Executive shall not
disclose any of the Company's Proprietary Information directly or indirectly,
or use it in any way, either during the term of this Agreement or at any time
thereafter, except as required in the course of his employment for the
Company or as authorized in writing by the Company. All files, records,
documents, computer-recorded information, drawings, specifications, equipment
and similar items relating to the business of the Company, whether prepared
by Executive or otherwise coming into his possession, shall remain the
exclusive property of the Company and shall not be removed from the premises
of the Company under any circumstances whatsoever without the prior written
consent of the Company, except when (and only for the period) necessary to
carry out Executive's duties hereunder, and if removed shall be immediately
returned to the Company upon any termination of his employment and no copies
thereof shall be kept by Executive; PROVIDED, HOWEVER, that Executive shall
be entitled to retain documents reasonably related to his interest as a
shareholder and any documents that were personally owned or acquired.
7. NONINTERFERENCE. While employed by the Company, Executive agrees
not to interfere with the business of the Company by directly or indirectly
soliciting, attempting to solicit, inducing, or otherwise causing any
employee of the Company to terminate his or her employment in order to become
an employee, consultant or independent contractor to or for any other
employer.
8. NONCOMPETITION. Executive agrees that during his employment and, if
this Agreement is terminated pursuant to Section 5(a) or 5(b), for a period of
eighteen (18) months after the Termination Date, he will not, without the prior
consent of the Company, directly or indirectly, have an interest in, be employed
by, be connected with, or have an interest in, as an employee, consultant,
officer, director, partner, stockholder or joint venturer, in any person or
entity owning, managing, controlling, operating or otherwise participating or
assisting in any business which is similar to or in competition with the
business of the Company as it existed during the term of this Agreement in any
state in which the Company was conducting business on or before the Termination
Date and continues to do so thereafter; PROVIDED, HOWEVER, that the foregoing
shall not prevent the Executive from being a stockholder of less than 1% of the
issued and outstanding securities of any class of a corporation listed on a
national securities exchange or designated as national market system securities
on an interdealer quotation system by the National Association of Securities
Dealers, Inc.
9. MISCELLANEOUS.
(a) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by telecopy or telex) or the third day after
mailing by first class mail to the recipient at the address indicated below:
To the Company:
Aftermarket Technology Corp.
c/o Aurora Capital Partners L.P.
1800 Century Park East
Suite 1000
Los Angeles, California 90067
Attention: Richard K. Roeder, Esq.
Facsimile: (310) 227-5591
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To Executive:
Stephen J. Perkins
14517 Morningside Road
Orland Park, Illinois
Facsimile: (708) 349-0498
or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(b) SEVERABILITY. If any term or provision (or any portion
thereof) of this Agreement is determined by a court to be invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other
terms and provisions (or other portions thereof) of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such determination that any
term or provision (or any portion thereof) is invalid, illegal or incapable
of being enforced, this Agreement shall be deemed to be modified so as to
effect the original intent of the parties as closely as possible to the end
that the transactions contemplated hereby and the terms and provisions hereof
are fulfilled to the greatest extent possible.
(c) ENTIRE AGREEMENT. This document constitutes the final,
complete, and exclusive embodiment of the entire agreement and understanding
between the parties related to the subject matter hereof and supersedes and
preempts any prior or contemporaneous understandings, agreements, or
representations by or between the parties, written or oral.
(d) COUNTERPARTS. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
(e) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company,
and their respective successors and assigns, except that Executive may not
assign any of his duties hereunder and he may not assign any of his rights
hereunder without the prior written consent of the Company.
(f) ATTORNEYS FEES. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement, or to recover damages for
breach therefore, the prevailing party shall be entitled to reasonable
attorney's fees, as well as costs and disbursements, in addition to any other
relief to which he or it may be entitled.
(g) AMENDMENTS. No amendments or other modifications to this
Agreement may be made except by a writing signed by both parties. No
amendment or waiver of this Agreement requires the consent of any individual,
partnership, corporation or other entity not a party to this Agreement.
Nothing in this Agreement, express or implied, is intended to confer upon any
third person any rights or remedies under or by reason of this Agreement.
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(h) CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the
internal law, and not the law of conflicts, of the State of Delaware.
(i) INTERPRETATION. In interpreting this Agreement, all terms
shall be construed in accordance with their fair meaning and not strictly
against any party as the drafter hereof.
IN WITNESS WHEREOF, the parties have executed this agreement effective as
of the date it is last executed below by either party.
------------------------------------------
Stephen J. Perkins
Aftermarket Technology Corp.
By:
---------------------------------------
Name:
Title:
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AFTERMARKET TECHNOLOGY HOLDINGS CORP.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into
as of the Date of Grant indicated below by and between Aftermarket Technology
Holdings Corp., a Delaware corporation (the "Company"), and the person named
below as Employee.
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER THAT ACT OR THE COMPANY SHALL HAVE
RECEIVED AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE
SATISFACTORY TO THE COMPANY'S COUNSEL) THAT REGISTRATION OF SUCH
SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS IS NOT REQUIRED.
WHEREAS, Employee is an employee of the Company and/or one or more of
its subsidiaries; and
WHEREAS, pursuant to the Company's Amended and Restated 1994 Stock
Incentive Plan, as amended (the "Plan"), the committee of the Board of Directors
of the Company administering the Plan (the "Committee") has approved the grant
to Employee of an option to purchase shares of the common stock, par value $.01,
of the Company (the "Common Stock"), on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company
hereby grants to Employee, and Employee hereby accepts, as of the Date of Grant,
an option to purchase the number of shares of Common Stock indicated below (the
"Option Shares") at the Exercise Price per share indicated below, which option
shall expire at 5:00 o'clock p.m., California time, on the Expiration Date
indicated below and shall be subject to all of the terms and conditions set
forth in this Agreement (the "Option"). On ___________________________, the
Option shall become exercisable to purchase, and shall vest with respect to,
that number of Option Shares (rounded to the nearest whole share) equal to the
total number of Option Shares multiplied by the Vesting Rate indicated below.
Employee:
Date of Grant:
Number of shares purchasable:
Exercise Price per share:
Expiration Date:
Vesting Rate:
The Option is intended to qualify as an incentive stock option under Section 422
of the Internal Revenue Code (an "Incentive Stock Option") and consequently:
<PAGE>
(a) the Expiration Date shall not be more than 10 years after the
Date of Grant and the Exercise Price per share shall not be less than the Fair
Market Value (as defined in the Plan) per share on the Date of Grant; PROVIDED,
HOWEVER, that if, on the Date of Grant, Employee owns (after application of the
family and other attribution rules of Section 425(d) of the Internal Revenue
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or of its parent or subsidiary corporations, then the Expiration
Date shall not be more than five years after the Date of Grant and the Exercise
Price per share shall not be less than 110% of the Fair Market Value per share
on the Date of Grant; and
(b) the aggregate Fair Market Value (determined as of the date such
options are granted) of the shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by Employee during
any calendar year (under the Plan and all other stock option plans of the
Company and its parent and subsidiary corporations) shall not exceed $100,000.
2. ACCELERATION AND TERMINATION OF OPTION.
(a) Termination of Employment.
(i) TERMINATION WITHIN ONE YEAR AFTER CHANGE OF CONTROL.
In the event that Employee shall cease to be an employee of the Company or any
of its subsidiaries (such event shall be referred to herein as the "Termination"
of Employee's "Employment") for any reason, or for no reason, within one year
after a Change of Control (as hereinafter defined), then (A) the portion of the
Option that has not vested on or prior to the date of such Termination of
Employment shall fully vest on such date and (B) the Option shall terminate upon
the earlier of the Expiration Date or the first anniversary of the date of such
Termination of Employment. "Change of Control" shall mean the first to occur of
the following events:
(W) any sale or transfer or other conveyance, whether director
or indirect, of all or substantially all of the assets of the Company,
on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction,
any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Securities Exchange Act, as amended
(the "Exchange Act"), whether or not applicable) (other than an
Excluded Person, as defined herein) is or becomes the "beneficial
owner," directly or indirectly, of more than 35% of the total voting
power in the aggregate normally entitled to vote in the election of
directors, managers or trustees, as applicable, of the transferee;
(X) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) (other than an Excluded Person) is or becomes the
"beneficial owner," directly or indirectly, of more than 35% of the
total voting power in the aggregate of all classes of Capital Stock of
the Company then outstanding normally entitled to vote in elections of
directors, unless the percentage so owned by an Excluded Person is
greater;
(Y) during any period of 12 consecutive months after the Issue
Date, individuals who at the beginning of any such 12-month period
constituted the Board of Directors of the Company (together with any
new directors whose election by such Board or whose nomination for
election by the shareholders of the Company was approved by a vote of
a majority of the directors then still in office who were either
directors at the
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beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of
the Board of Directors of the Company then in office; or
(Z) a reorganization, merger or consolidation of the Company
(other than a reorganization, merger or consolidation the sole purpose
of which is to change the Company's domicile solely within the United
States) the consummation of which results in the outstanding
securities of any class then subject to the Option being exchanged for
or converted into cash, property and/or a different kind of
securities.
(ii) RETIREMENT. If Employee's Employment is Terminated by
reason of Employee's retirement in accordance with the Company's then-current
retirement policy ("Retirement"), and a Change of Control shall not have
occurred within one year prior thereto, then (A) the portion of the Option that
has not vested on or prior to the date of such Retirement shall terminate on
such date and (B) the remaining vested portion of the Option shall terminate
upon the Expiration Date.
(iii) DEATH OR PERMANENT DISABILITY. If Employee's Employment
is Terminated by reason of the death or Permanent Disability (as hereinafter
defined) of Employee, and a Change of Control shall not have occurred within one
year prior thereto, then (A) the portion of the Option that has not vested on or
prior to the date of such Termination of Employment shall terminate on such date
and (B) the remaining vested portion of the Option shall terminate upon the
earlier of the Expiration Date or the first anniversary of the date of such
Termination of Employment. "Permanent Disability" shall mean the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or that has lasted or can be expected to last for a continuous period of
not less than 12 months. Employee shall not be deemed to have a Permanent
Disability until proof of the existence thereof shall have been furnished to the
Board in such form and manner, and at such times, as the Board may require. Any
determination by the Board that Employee does or does not have a Permanent
Disability shall be final and binding upon the Company and Employee.
(iv) OTHER TERMINATION. If Employee's Employment is Terminated
for no reason, or for any reason other than Retirement, death or Permanent
Disability, and a Change of Control shall not have occurred within one year
prior thereto, then (A) the portion of the Option that has not vested on or
prior to the date of such Termination of Employment shall terminate on such date
and (B) the remaining vested portion of the Option shall terminate on the date
that is 30 days after the date of such Termination of Employment.
(b) DEATH FOLLOWING TERMINATION OF EMPLOYMENT. Notwithstanding
anything to the contrary in this Agreement, if Employee shall die at any time
after the Termination of his or her Employment and prior to the Expiration Date,
then (i) the portion of the Option that has not vested on or prior to the date
of such death shall terminate on such date and (ii) the remaining vested portion
of the Option shall terminate on the earlier of the Expiration Date or the first
anniversary of the date of such death.
(c) OTHER EVENTS CAUSING ACCELERATION OF OPTION. The Committee, in
its sole discretion, may accelerate the exercisability of the Option at any time
and for any reason.
(d) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding
anything to the contrary in this Agreement, the Option shall terminate upon
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the consummation of any of the following events, or, if later, the thirtieth day
following the first date upon which such event shall have been approved by both
the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company;
(ii) a sale of substantially all of the property and
assets of the Company, unless the terms of such sale shall provide otherwise; or
(iii) a Change of Control, if the Committee elects to
terminate the Option in connection therewith.
(e) EXCLUDED PERSON. For purposes of this Section 2, the term
"Excluded Person" has the meaning ascribed to such term in that certain
Indenture dated as of August 2, 1994 by and among Aftermarket Technology Corp.,
a wholly-owned subsidiary of the Company, the Guarantors named therein and
American Bank National Association.
3. ADJUSTMENTS. In the event that the outstanding securities of the
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless such event shall cause the
Option to terminate pursuant to Section 2(d) hereof (i) the terms of such
transaction provide otherwise or (ii) the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or other securities
or cash or other property that may thereafter be acquired upon the exercise of
the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be
made without changing the aggregate Exercise Price of the then unexercised
portion of the Option.
4. EXERCISE. The Option shall be exercisable during Employee's
lifetime only by Employee or by his or her guardian or legal representative, and
after Employee's death only by the person or entity entitled to do so under
Employee's last will and testament or applicable intestate law. The Option may
only be exercised by the delivery to the Company of a written notice of such
exercise, which notice shall specify the number of Option Shares to be purchased
(the "Purchased Shares") and the aggregate Exercise Price for such shares (the
"Exercise Notice"), together with payment in full of such aggregate Exercise
Price in cash or by check payable to the Company; PROVIDED, HOWEVER, that
payment of such aggregate Exercise Price may instead be made, in whole or in
part, by the delivery to the Company of a certificate or certificates
representing shares of Common Stock, duly endorsed or accompanied by a duly
executed stock powers, which delivery effectively transfers to the Company good
and valid title to such shares, free and clear of any pledge, commitment, lien,
claim or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value (as defined in the Plan) thereof on the date of such
exercise), provided that the Company is not then prohibited from purchasing or
acquiring such shares of Common Stock.
5. FIRST REFUSAL RIGHTS ON PURCHASED SHARES.
5.1 SALES BY EMPLOYEE. Employee agrees not to Transfer any
Purchased Shares (or any direct or indirect interest therein) or any stock
certificate representing the same, now or hereafter at any time owned by him,
except to a Permitted Transferee or as required or permitted by the provisions
of this Section 5.
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5.2 BONA FIDE OFFERS.
(a) If Employee desires to Transfer any Purchased Shares and such
Employee shall have received a bona fide arms' length written offer (a "Bona
Fide Offer") from a Person other than an Affiliate of Employee (the "Outside
Party") for the Transfer of such Purchased Shares, Employee shall give written
notice (the "Option Notice") to each of Aurora Equity Partners L.P., a Delaware
limited partnership ("AEP"), Aurora Overseas Equity Partners I, L.P., a Cayman
Islands exempted limited partnership ("AOEP" and, collectively with AEP, the
"Aurora Entities") and the Company setting forth such desire, which notice shall
set forth at least the name and address of the Outside Party and the price and
terms of the Bona Fide Offer and shall be accompanied by a copy of the Bona Fide
Offer and evidence demonstrating, to the reasonable satisfaction of the Aurora
Entities and the Company, the Outside Party's ability to consummate such offer.
Upon the giving of such Option Notice, the Aurora Entities shall have the option
to purchase, on a pro rata basis, at the price offered by the Outside Party in
the Bona Fide Offer, all or any portion of the Purchased Shares specified in the
Option Notice, said option to be exercised within ten Business Days following
the giving of such Option Notice, by giving a counter-notice (an "Aurora
Counter-Notice") to Employee (with a copy of such Aurora Counter-Notice to the
Company). In the event that a determination must be made (as described below)
as to the fair market value of non-cash consideration, the ten Business Day
period referred to in the immediately preceding sentence shall be extended to
such greater period of time, not to exceed 20 Business Days, specified in good
faith by a disinterested majority of the Board of Directors. In the event that
the Bona Fide Offer provides, in whole or in part, for non-cash consideration,
the "price" offered by the Outside Party shall be deemed to be the amount of
cash, if any, provided in the Bona Fide Offer plus the fair market value of the
non-cash consideration as determined in good faith by a disinterested majority
of the Board.
(b) Subject to paragraph (d) of this Section 5.2, if either or both
Aurora Entities elect to purchase such Purchased Shares, each such electing
Aurora Entity shall be obligated to purchase, and Employee shall be obligated to
sell, such Purchased Shares at a closing to be held on the 15th Business Day
after the giving of the Aurora Counter-Notice at the principal executive offices
of the Company, or at such other time and place as may be mutually acceptable to
each purchasing Aurora Entity and Employee. The closing of any such purchase by
an Aurora Entity may, at the election of the purchasing Aurora Entity, be
delayed up to 30 Business Days in order to permit such acquisition of such
Purchased Shares to be made in conformity with applicable laws, including the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
(c) Subject to paragraph (d) of this Section 5.2, if the Aurora
Entities do not elect to purchase all of such Purchased Shares proposed to be
sold by Employee within the time limits specified in paragraph (a) of this
Section 5.2, then the Company shall have the option, exercisable by the delivery
of a counter-notice to Employee no later than 15 Business Days following the
date of the Option Notice, to purchase, at the price offered by the Outside
Party in the Bona Fide Offer, all or any portion of the Shares specified in the
Option Notice and not purchased by the Aurora Entities. In the event that a
determination must be made as to the fair market value of non-cash
consideration, the 15 Business Day period referred to in the immediately
preceding sentence shall be extended to such greater period of time, not to
exceed 23 Business Days, specified in good faith by a disinterested majority of
the Board of Directors.
(d) If the Aurora Entities and the Company elect to purchase fewer
than all of the Purchased Shares subject to the Bona Fide Offer within the time
limits specified above, then Employee, at any time within a period of three
months from the giving of said Option Notice, may Transfer all (but not less
than all) of the remainder of
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such Shares to the Outside Party at the price and on the terms contained in the
Bona Fide Offer; PROVIDED, HOWEVER, that in the event Employee has not so
Transferred said Shares to the Outside Party within said three-month period,
then said Shares thereafter shall continue to be subject to all of the
restrictions contained in this Section 5 as though no Option Notice had ever
been given.
(e) At the closing of any purchase of Purchased Shares pursuant to
this Section 5.2, Employee shall deliver certificates representing such Shares
duly endorsed for transfer and accompanied by all requisite stock transfer
taxes, and such Purchased Shares shall be free and clear of any and all Liens
(other than those arising under this Agreement) and Employee shall represent and
warrant to such effect and to the effect that Employee is the beneficial owner
of such Purchased Shares. The Person making such purchase shall deliver at such
closing, by certified or bank check, payment in full for the Purchased Shares
being purchased by such Person. At such closing, all of the parties to the
transaction shall execute such additional documents as are otherwise necessary
or appropriate.
(f) If, in any instance, any Aurora Entity or the Company elects not
to exercise its rights hereunder or elects to waive such rights, such election
shall not constitute a waiver of such Person's rights to receive an Option
Notice in the case of any Transfer subsequently proposed by Employee.
5.3 INVOLUNTARY TRANSFERS. (a) Employee shall notify the
Company and the Aurora Entities promptly upon the occurrence of an Involuntary
Transfer. If an Involuntary Transfer of any of the Purchased Shares owned by
Employee shall occur, the Aurora Entities and the Company shall have the same
rights of first refusal under Section 5.2 above with respect thereto (the
"Transferred Shares") as if the Involuntary Transfer had been a proposed
voluntary Transfer by Employee, except that:
(i) the periods within which such rights must be exercised
shall run from the date notice of the Involuntary Transfer is received
from Employee or its legal representatives with respect to which such
Involuntary Transfer has occurred;
(ii) such rights shall be exercised by notice to the
involuntary transferee rather than to Employee with respect to which
such Involuntary Transfer has occurred; and
(iii) the purchase price of any Transferred Shares shall
be the Fair Market Value of such Transferred Shares on the date that
the rights of first refusal provided by this Section 5.3 are exercised
with respect to such Transferred Shares.
(b) At the closing of any purchase of Transferred Shares, the
involuntary transferee shall deliver certificates representing the Transferred
Shares being purchased by the relevant Aurora Entity or the Company, as the case
may be, duly endorsed for transfer and accompanied by all requisite stock
transfer taxes, and such Transferred Shares shall be free and clear of any and
all Liens arising through the action or inaction of the involuntary transferee
(other than those arising under this Agreement) and the involuntary transferee
shall represent and warrant to such effect and to the effect that such
involuntary transferee is the beneficial owner of such Shares. The Person
making such purchase shall deliver at closing, by a certified or bank check,
payment in full of the purchase price, for the Transferred Shares being
purchased by such Person. At such
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<PAGE>
closing, all of the parties to the transaction shall execute such
additional documents as are otherwise necessary or appropriate.
(c) In the event that the provisions of this Section 5.3 shall
be held to be unenforceable with respect to any particular Involuntary
Transfer of Purchased Shares, the Aurora Entities and the Company shall
have a right of first refusal as set forth in Section 5.2 hereof if the
involuntary transferee subsequently obtains a Bona Fide Offer for and
desires to Transfer such Purchased Shares.
5.4 APPLICATION OF FIRST REFUSAL RIGHTS. The first refusal
rights provided in Sections 5.2 and 5.3 shall not apply to any Transfer of
Purchased Shares:
(a) to the Company, to an Aurora Entity or to a Permitted Transferee,
or
(b) pursuant to an effective registration statement under the Act.
5.5 TERMINATION OF FIRST REFUSAL RIGHTS. Notwithstanding
anything herein to the contrary, the rights of first refusal provided in this
Section 5 shall terminate, with respect to all Purchased Shares held or
subsequently acquired by Employee, upon the occurrence of the effective date
(the "Qualified IPO Date") of the registration statement for the first
underwritten public offering of the Common Stock; PROVIDED that there are sales
pursuant to such registration statement of shares of Common Stock for an
aggregate offering price of not less than $20,000,000.
5.6 SURVIVAL. The provisions of this Section 5 shall survive
the exercise of all or any part of the Option and shall continue in effect for
so long as Employee or any Permitted Transferee thereof owns or controls any
Purchased Shares.
6. THIRD PARTY OFFER FOR ALL OUTSTANDING SHARES.
6.1 "DRAG-ALONG" OBLIGATIONS. If either Aurora Entity shall
receive an offer in writing from a third party which is not an Affiliate of such
Aurora Entity (a "Third Party Offeror") to purchase all of the issued and
outstanding Shares held by such Aurora Entity, to effect a business combination
of the Company with such Person or an Affiliate thereof or to purchase all or
substantially all the assets of the Company (each an "Acquisition Proposal"),
and the Aurora Entities desire to accept or cause the Company to accept such
Acquisition Proposal, either of the Aurora Entities shall deliver a notice (an
"Acquisition Notice") to the Company (which shall deliver a copy of such
Acquisition Notice to Employee), which Acquisition Notice shall contain a copy
of such Acquisition Proposal, including the name and address of the Third Party
Offeror and the terms of the Acquisition Proposal. If Employee receives any
Acquisition Proposal, Employee shall promptly transmit such Acquisition Proposal
to the Company and each Aurora Entity (which the Aurora Entities may elect not
to pursue without any liability or obligation to Employee or the Company).
Employee agrees that, upon receipt of such Acquisition Notice, Employee shall be
obligated to sell all of Employee's Purchased Shares to the Third Party Offeror
upon the terms and conditions set forth in the Acquisition Proposal, or, as the
case may be, to vote Employee's Purchased Shares in favor of the merger or sale
of all or substantially all the assets of the Company as described in the
Acquisition Proposal, and otherwise to take all actions necessary or appropriate
to cause the Company to consummate the proposed transaction. In any such
transaction, all Shares of Common Stock shall be purchased at, or be converted
into the right to receive, the same price per Share of Common Stock.
6.2 TERMINATION OF DRAG-ALONG OBLIGATIONS. Notwithstanding
anything herein to the contrary, the rights and obligations provided for in this
Section 6 shall terminate,
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with respect to all Purchased Shares held or subsequently acquired by Employee,
upon the occurrence of the Qualified IPO Date.
6.3 SURVIVAL. The provisions of this Section 6 shall survive
the exercise of all or any part of the Option and shall continue in effect for
so long as Employee or any Permitted Transferee thereof owns or controls any
Purchased Shares.
7. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Employee shall, on the first day upon which the Company becomes
obligated to pay such amount to the appropriate taxing authority, pay such
amount to the Company in cash or by check payable to the Company.
8. NOTICES. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
1800 Century Park East, Suite 1000, Los Angeles, California 90067, Attention:
Mark C. Hardy, or to Employee at the address set forth beneath his or her
signature on the signature page hereto, or at such other addresses as they may
designate by written notice in the manner aforesaid.
9. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
10. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be Transferred in any manner other than by will or the laws of descent and
distribution.
11. PLAN. The Option is granted pursuant to the Plan, as in effect
on the Date of Grant, and is subject to all the terms and conditions of the
Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no
such amendment shall deprive Employee, without his or her consent, of the Option
or of any of Employee's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement, the Option and such
rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan shall be final and binding upon Employee. Until the
Option shall expire, terminate or be exercised in full, the Company shall, upon
written request therefor, send a copy of the Plan, in its then-current form, to
Employee or any other person or entity then entitled to exercise the Option.
12. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
13. EMPLOYMENT RIGHTS. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Employee any right to continue in
the employ of the Company or any of its subsidiaries, (b) affect the right of
the Company and each of its subsidiaries to terminate the employment of
Employee, with or without cause, or (c) confer upon Employee any right to
participate in any employee welfare or benefit plan or other program of the
Company
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or any of its subsidiaries other than the Plan. EMPLOYEE HEREBY ACKNOWLEDGES
AND AGREES THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES MAY TERMINATE THE
EMPLOYMENT OF EMPLOYEE AT ANY TIME AND FOR ANY REASON, OR FOR NO REASON, UNLESS
EMPLOYEE AND THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT
AGREEMENT THAT EXPRESSLY PROVIDES OTHERWISE.
14. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware without reference to choice or conflict of law principles.
15. DEFINITIONS.
"AFFILIATE," when used with reference to any Person, means any other
Person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with such first Person and, when used with
reference to any natural person, shall also include such person's spouse,
parents and descendants (whether by blood or adoption, and including
stepchildren) and the spouses of such persons. "Affiliated with" shall have a
correlative meaning to the term "Affiliate."
"BUSINESS DAY" shall mean any day on which banking institutions in Los
Angeles, California are not authorized or obligated by law to close.
"INVOLUNTARY TRANSFER" means any transfer, proceeding or action (other
than to a Permitted Transferee) by or in which Employee shall be deprived or
divested of any right, title or interest in or to any Purchased Shares,
including, without limitation, any seizure under levy of attachment or
execution, any foreclosure upon a pledge of such Purchased Shares, any transfer
in connection with bankruptcy (whether pursuant to the filing of a voluntary or
an involuntary petition under the Federal Bankruptcy Code of 1978, or any
modifications or revisions thereto) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or agency, or any
transfer to a state or to a public officer or agency pursuant to any statute
pertaining to escheat or abandoned property.
"LIENS" means any and all liens, claims, options, charges,
encumbrances, voting trusts, irrevocable proxies or other rights of any kind or
nature.
"PERMITTED TRANSFEREE" means, as to Employee, (i) the successors in
interest to such Employee, in the case of a Transfer upon the death of Employee,
(ii) Employee's spouse, parents and descendants (whether by blood or adoption,
and including stepchildren) and the spouses of such persons, (iii) any
transferee pursuant to a divorce or separation agreement or a final decree of a
court in a divorce action or upon or occasioned by the incompetence of such
Employee and (iv) in the case of a Transfer during such Employee's lifetime, any
Person in which no Person has any interest (directly or indirectly) except for
any of such Employee, such Employee's spouse, parents and descendants (whether
by blood or adoption, and including stepchildren) and the spouses of such
persons; PROVIDED that in respect of any Transfer by any Employee during such
Employee's lifetime pursuant to clause (ii) or (iv), Employee shall retain
voting power over all of the outstanding Shares being Transferred; and PROVIDED
FURTHER, that, in the case of a Transfer to a Person (such as a partnership or a
trust) as to which a governing instrument exists, (x) Employee shall furnish a
copy of such governing instrument to the Company in advance, (y) the Company
shall be reasonably satisfied that the terms of such governing instrument shall
not be inconsistent with the terms of this Agreement and (z) during the period
that such Common Stock is held by such Person, the Employee shall ensure that
the terms of such governing instrument shall not be amended in any manner that
results in such governing instrument being inconsistent with the terms of this
Agreement; PROVIDED, that prior written notice of any such Transfer is given to
the Company by Employee and that the Permitted Transferee
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<PAGE>
shall agree in advance of such Transfer to be bound by the terms of Section 5
hereof pursuant to a written agreement reasonably satisfactory to the Company
and the Aurora Entities.
"PERSON" means a company, a corporation, an association, a
partnership, a limited liability company, an organization, a joint venture, a
trust or other legal entity, an individual, a government or political
subdivision thereof or a governmental agency.
"TRANSFER" means any sale, exchange, assignment, transfer, pledge,
mortgage, hypothecation, gift, grant, encumbrance or other disposition of any
kind, whether voluntary, involuntary or by operation of law and whether direct
or indirect by transfer of any interest in the subject property or otherwise.
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<PAGE>
IN WITNESS WHEREOF, the Company and Employee have duly executed this
Agreement as of the Date of Grant.
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
By________________________________
Name:
Title:
EMPLOYEE
__________________________________
Signature
__________________________________
Street Address
__________________________________
City, State and Zip Code
__________________________________
Social Security Number
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<PAGE>
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement ("Agreement") is made and
entered into as of the Date of Grant indicated below by and between Aftermarket
Technology Holdings Corp., a Delaware corporation (the "Company"), and the
person named below as Participant.
THE SECURITIES REPRESENTED BY THIS AGREEMENT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER THE SECURITIES LAWS OF ANY STATE AND MAY
NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS
REGISTERED UNDER THAT ACT OR THE COMPANY SHALL HAVE RECEIVED
AN OPINION OF COUNSEL (WHICH COUNSEL AND OPINION SHALL BE
SATISFACTORY TO THE COMPANY'S COUNSEL) THAT REGISTRATION OF
SUCH SECURITIES UNDER THAT ACT AND UNDER THE PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
THE SECURITIES REPRESENTED BY THIS AGREEMENT MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER COMPLIES WITH THE
PROVISIONS OF A STOCKHOLDERS AGREEMENT DATED AS OF AUGUST 2,
1994 AMONG THE COMPANY AND THE STOCKHOLDERS, OPTIONHOLDERS
AND WARRANTHOLDERS SIGNATORY THERETO, A COPY OF WHICH
AGREEMENT IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE COMPANY. SUCH AGREEMENT PROVIDES THAT ALL PERSONS WHO
ACQUIRE THESE SECURITIES ARE BOUND BY THE TERMS OF SUCH
AGREEMENT.
WHEREAS, Participant is an employee or consultant of the Company
and/or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's Amended and Restated 1994 Stock
Incentive Plan (the "Plan"), the committee of the Board of Directors of the
Company administering the Plan (the "Committee") has approved the grant to
Participant of an option to purchase shares of the common stock, par value $.01,
of the Company (the "Common Stock"), on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company
hereby grants to Participant, and Participant hereby accepts, as of the Date of
Grant, an option to purchase the number of shares of Common Stock indicated
below (the "Option Shares") at the Exercise Price per share indicated below,
which option shall expire at 5:00 o'clock p.m., California time, on the
Expiration Date indicated below and shall be subject to all of the terms and
conditions set forth in this Agreement (the "Option"). On ___________________,
the Option shall become exercisable to purchase, and shall vest with respect to,
that number of Option Shares
<PAGE>
(rounded to the nearest whole share) equal to the total number of Option Shares
multiplied by the Vesting Rate indicated below.
Participant:
Date of Grant:
Number of shares purchasable:
Exercise Price per share:
Expiration Date:
Vesting Rate:
The Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code (an "Incentive Stock Option").
2. ACCELERATION AND TERMINATION OF OPTION.
(a) Termination of Employment or Consulting Arrangement.
(i) TERMINATION WITHIN ONE YEAR AFTER CHANGE OF CONTROL.
In the event that Participant shall cease to be an employee or consultant
to the Company or any of its subsidiaries (such event shall be referred to
herein as the "Termination" of Participant's "Employment") for any reason,
or for no reason, within one year after a Change of Control (as hereinafter
defined), then (A) the portion of the Option that has not vested on or
prior to the date of such Termination of Employment shall fully vest on
such date and (B) the Option shall terminate upon the earlier of the
Expiration Date or the first anniversary of the date of such Termination of
Employment. "Change of Control" shall mean the first to occur of the
following events:
(W) any sale or transfer or other conveyance, whether
director or indirect, of all or substantially all of the assets
of the Company, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving
effect to such transaction, any "person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the
Securities Exchange Act, as amended (the "Exchange Act"), whether
or not applicable) (other than an Excluded Person, as defined
herein) is or becomes the "beneficial owner," directly or
indirectly, of more than 35% of the total voting power in the
aggregate normally entitled to vote in the election of directors,
managers or trustees, as applicable, of the transferee;
(X) any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable) (other than an Excluded Person) is or becomes
the "beneficial owner," directly or indirectly, of more than 35%
of the total voting power in the aggregate of all classes of
Capital Stock of the Company then outstanding normally entitled
to vote in elections of directors, unless the percentage so owned
by an Excluded Person is greater;
(Y) during any period of 12 consecutive months after the
Issue Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board or
whose nomination for election
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<PAGE>
by the shareholders of the Company was approved by a vote of a
majority of the directors then still in office who were either
directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office; or
(Z) a reorganization, merger or consolidation of the
Company (other than a reorganization, merger or consolidation the
sole purpose of which is to change the Company's domicile solely
within the United States) the consummation of which results in
the outstanding securities of any class then subject to the
Option being exchanged for or converted into cash, property
and/or a different kind of securities.
(ii) DEATH OR PERMANENT DISABILITY. If Participant's
Employment is Terminated by reason of the death or Permanent Disability (as
hereinafter defined) of Participant, and a Change of Control shall not have
occurred within one year prior thereto, then (A) the portion of the Option
that has not vested on or prior to the date of such Termination of
Employment shall terminate on such date and (B) the remaining vested
portion of the Option shall terminate upon the earlier of the Expiration
Date or the first anniversary of the date of such Termination of
Employment. "Permanent Disability" shall mean the inability to engage in
any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or
that has lasted or can be expected to last for a continuous period of not
less than 12 months. Participant shall not be deemed to have a Permanent
Disability until proof of the existence thereof shall have been furnished
to the Board in such form and manner, and at such times, as the Board may
require. Any determination by the Board that Participant does or does not
have a Permanent Disability shall be final and binding upon the Company and
Participant.
(iii) RETIREMENT. If Participant's Employment is
Terminated by reason of Participant's retirement in accordance with the
Company's then-current retirement policy applicable to employees of the
Company ("Retirement"), and a Change of Control shall not have occurred
within one year prior thereto, then (A) the portion of the Option that has
not vested on or prior to the date of such Retirement shall terminate on
such date and (B) the remaining vested portion of the Option shall
terminate upon the Expiration Date.
(iv) OTHER TERMINATION. If Participant's Employment is
Terminated for no reason, or for any reason other than Retirement, death or
Permanent Disability, and a Change of Control shall not have occurred
within one year prior thereto, then (A) the portion of the Option that has
not vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option
shall terminate on the date that is 30 days after the date of such
Termination of Employment.
(b) DEATH FOLLOWING TERMINATION OF EMPLOYMENT. Notwithstanding
anything to the contrary in this Agreement, if Participant shall die at any
time after the Termination of his or her Employment and prior to the
Expiration Date, then (i) the portion of the Option that has not vested on
or prior to the date of such death shall terminate on such date and
(ii) the remaining vested portion of the Option shall terminate on the
earlier of the Expiration Date or the first anniversary of the date of such
death.
(c) OTHER EVENTS CAUSING ACCELERATION OF OPTION. The Committee,
in its sole discretion, may accelerate the exercisability of the Option at
any time and for any reason.
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<PAGE>
(d) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding
anything to the contrary in this Agreement, the Option shall terminate upon
the consummation of any of the following events, or, if later, the
thirtieth day following the first date upon which such event shall have
been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company;
(ii) a sale of substantially all of the property and assets
of the Company, unless the terms of such sale shall provide otherwise; or
(iii) a Change of Control, if the Committee elects to
terminate the Option in connection therewith.
(e) EXCLUDED PERSON. For purposes of this Section 2, the term
"Excluded Person" has the meaning ascribed to such term in that certain
Indenture dated as of August 2, 1994 by and among Aftermarket Technology
Corp., a wholly-owned subsidiary of the Company, the Guarantors named
therein and American Bank National Association.
3. ADJUSTMENTS. In the event that the outstanding securities of the
class then subject to the Option are increased, decreased or exchanged for or
converted into cash, property and/or a different number or kind of securities,
or cash, property and/or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular, quarterly cash dividend) or other distribution, stock split, reverse
stock split or the like, or in the event that substantially all of the property
and assets of the Company are sold, then, unless such event shall cause the
Option to terminate pursuant to Section 2(b) hereof (i) the terms of such
transaction provide otherwise or (ii) the Committee shall make appropriate and
proportionate adjustments in the number and type of shares or other securities
or cash or other property that may thereafter be acquired upon the exercise of
the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be
made without changing the aggregate Exercise Price of the then unexercised
portion of the Option.
4. EXERCISE. The Option shall be exercisable during Participant's
lifetime only by Participant or by his or her guardian or legal representative,
and after Participant's death only by the person or entity entitled to do so
under Participant's last will and testament or applicable intestate law. The
Option may only be exercised by the delivery to the Company of a written notice
of such exercise, which notice shall specify the number of Option Shares to be
purchased (the "Purchased Shares") and the aggregate Exercise Price for such
shares (the "Exercise Notice"), together with payment in full of such aggregate
Exercise Price in cash or by check payable to the Company; PROVIDED, HOWEVER,
that payment of such aggregate Exercise Price may instead be made, in whole or
in part, by the delivery to the Company of a certificate or certificates
representing shares of Common Stock, duly endorsed or accompanied by a duly
executed stock powers, which delivery effectively transfers to the Company good
and valid title to such shares, free and clear of any pledge, commitment, lien,
claim or other encumbrance (such shares to be valued on the basis of the
aggregate Fair Market Value (as defined in the Plan) thereof on the date of such
exercise), provided that the Company is not then prohibited from purchasing or
acquiring such shares of Common Stock.
5. FIRST REFUSAL RIGHTS ON PURCHASED SHARES.
5.1 SALES BY PARTICIPANT. Participant agrees not to Transfer
any Purchased Shares (or any direct or indirect interest therein) or any stock
certificate representing
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<PAGE>
the same, now or hereafter at any time owned by him, except to a Permitted
Transferee or as required or permitted by the provisions of this Section 5.
5.2 BONA FIDE OFFERS.
(a) If Participant desires to Transfer any Purchased Shares and
such Participant shall have received a bona fide arms' length written offer
(a "Bona Fide Offer") from a Person other than an Affiliate of Participant
(the "Outside Party") for the Transfer of such Purchased Shares,
Participant shall give written notice (the "Option Notice") to each of
Aurora Equity Partners L.P., a Delaware limited partnership ("AEP"), Aurora
Overseas Equity Partners I, L.P., a Cayman Islands exempted limited
partnership ("AOEP" and, collectively with AEP, the "Aurora Entities") and
the Company setting forth such desire, which notice shall set forth at
least the name and address of the Outside Party and the price and terms of
the Bona Fide Offer and shall be accompanied by a copy of the Bona Fide
Offer and evidence demonstrating, to the reasonable satisfaction of the
Aurora Entities and the Company, the Outside Party's ability to consummate
such offer. Upon the giving of such Option Notice, the Aurora Entities
shall have the option to purchase, on a pro rata basis, at the price
offered by the Outside Party in the Bona Fide Offer, all or any portion of
the Purchased Shares specified in the Option Notice, said option to be
exercised within ten Business Days following the giving of such Option
Notice, by giving a counter-notice (an "Aurora Counter-Notice") to
Participant (with a copy of such Aurora Counter-Notice to the Company). In
the event that a determination must be made (as described below) as to the
fair market value of non-cash consideration, the ten Business Day period
referred to in the immediately preceding sentence shall be extended to such
greater period of time, not to exceed 20 Business Days, specified in good
faith by a disinterested majority of the Board of Directors. In the event
that the Bona Fide Offer provides, in whole or in part, for non-cash
consideration, the "price" offered by the Outside Party shall be deemed to
be the amount of cash, if any, provided in the Bona Fide Offer plus the
fair market value of the non-cash consideration as determined in good faith
by a disinterested majority of the Board.
(b) Subject to paragraph (d) of this Section 5.2, if either or
both Aurora Entities elect to purchase such Purchased Shares, each such
electing Aurora Entity shall be obligated to purchase, and Participant
shall be obligated to sell, such Purchased Shares at a closing to be held
on the 15th Business Day after the giving of the Aurora Counter-Notice at
the principal executive offices of the Company, or at such other time and
place as may be mutually acceptable to each purchasing Aurora Entity and
Participant. The closing of any such purchase by an Aurora Entity may, at
the election of the purchasing Aurora Entity, be delayed up to 30 Business
Days in order to permit such acquisition of such Purchased Shares to be
made in conformity with applicable laws, including the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended.
(c) Subject to paragraph (d) of this Section 5.2, if the Aurora
Entities do not elect to purchase all of such Purchased Shares proposed to
be sold by Participant within the time limits specified in paragraph (a) of
this Section 5.2, then the Company shall have the option, exercisable by
the delivery of a counter-notice to Participant no later than 15 Business
Days following the date of the Option Notice, to purchase, at the price
offered by the Outside Party in the Bona Fide Offer, all or any portion of
the Shares specified in the Option Notice and not purchased by the Aurora
Entities. In the event that a determination must be made as to the fair
market value of non-cash consideration, the 15 Business Day period referred
to in the immediately preceding sentence shall be extended to such greater
period of time, not to exceed 23 Business Days, specified in good faith by
a disinterested majority of the Board of Directors.
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<PAGE>
(d) If the Aurora Entities and the Company elect to purchase
fewer than all of the Purchased Shares subject to the Bona Fide Offer
within the time limits specified above, then Participant, at any time
within a period of three months from the giving of said Option Notice, may
Transfer all (but not less than all) of the remainder of such Shares to the
Outside Party at the price and on the terms contained in the Bona Fide
Offer; PROVIDED, HOWEVER, that in the event Participant has not so
Transferred said Shares to the Outside Party within said three-month
period, then said Shares thereafter shall continue to be subject to all of
the restrictions contained in this Section 5 as though no Option Notice had
ever been given.
(e) At the closing of any purchase of Purchased Shares pursuant
to this Section 5.2, Participant shall deliver certificates representing
such Shares duly endorsed for transfer and accompanied by all requisite
stock transfer taxes, and such Purchased Shares shall be free and clear of
any and all Liens (other than those arising under this Agreement) and
Participant shall represent and warrant to such effect and to the effect
that Participant is the beneficial owner of such Purchased Shares. The
Person making such purchase shall deliver at such closing, by certified or
bank check, payment in full for the Purchased Shares being purchased by
such Person. At such closing, all of the parties to the transaction shall
execute such additional documents as are otherwise necessary or
appropriate.
(f) If, in any instance, any Aurora Entity or the Company elects
not to exercise its rights hereunder or elects to waive such rights, such
election shall not constitute a waiver of such Person's rights to receive
an Option Notice in the case of any Transfer subsequently proposed by
Participant.
5.3 INVOLUNTARY TRANSFERS. (a) Participant shall notify the
Company and the Aurora Entities promptly upon the occurrence of an Involuntary
Transfer. If an Involuntary Transfer of any of the Purchased Shares owned by
Participant shall occur, the Aurora Entities and the Company shall have the same
rights of first refusal under Section 5.2 above with respect thereto (the
"Transferred Shares") as if the Involuntary Transfer had been a proposed
voluntary Transfer by Participant, except that:
(i) the periods within which such rights must be
exercised shall run from the date notice of the Involuntary
Transfer is received from Participant or its legal
representatives with respect to which such Involuntary Transfer
has occurred;
(ii) such rights shall be exercised by notice to the
involuntary transferee rather than to Participant with respect to
which such Involuntary Transfer has occurred; and
(iii) the purchase price of any Transferred Shares
shall be the Fair Market Value of such Transferred Shares on the
date that the rights of first refusal provided by this
Section 5.3 are exercised with respect to such Transferred
Shares.
(b) At the closing of any purchase of Transferred Shares, the
involuntary transferee shall deliver certificates representing the
Transferred Shares being purchased by the relevant Aurora Entity or the
Company, as the case may be, duly endorsed for transfer and accompanied by
all requisite stock transfer taxes, and such Transferred Shares shall be
free and clear of any and all Liens arising through the action or inaction
of the involuntary transferee (other than those arising under this
Agreement) and the involuntary transferee shall represent and warrant to
such effect and to the effect that
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such involuntary transferee is the beneficial owner of such Shares. The
Person making such purchase shall deliver at closing, by a certified or
bank check, payment in full of the purchase price, for the Transferred
Shares being purchased by such Person. At such closing, all of the parties
to the transaction shall execute such additional documents as are otherwise
necessary or appropriate.
(c) In the event that the provisions of this Section 5.3 shall
be held to be unenforceable with respect to any particular Involuntary
Transfer of Purchased Shares, the Aurora Entities and the Company shall
have a right of first refusal as set forth in Section 5.2 hereof if the
involuntary transferee subsequently obtains a Bona Fide Offer for and
desires to Transfer such Purchased Shares.
5.4 APPLICATION OF FIRST REFUSAL RIGHTS. The first refusal
rights provided in Sections 5.2 and 5.3 shall not apply to any Transfer of
Purchased Shares:
(a) to the Company, to an Aurora Entity or to a Permitted
Transferee, or
(b) pursuant to an effective registration statement under the
Securities Act of 1933.
5.5 TERMINATION OF FIRST REFUSAL RIGHTS. Notwithstanding
anything herein to the contrary, the rights of first refusal provided in this
Section 5 shall terminate, with respect to all Purchased Shares held or
subsequently acquired by Participant, upon the occurrence of the effective date
(the "Qualified IPO Date") of the registration statement for the first
underwritten public offering of the Common Stock; PROVIDED that there are sales
pursuant to such registration statement of shares of Common Stock for an
aggregate offering price of not less than $20,000,000.
5.6 SURVIVAL. The provisions of this Section 5 shall survive
the exercise of all or any part of the Option and shall continue in effect for
so long as Participant or any Permitted Transferee thereof owns or controls any
Purchased Shares.
6. THIRD PARTY OFFER FOR ALL OUTSTANDING SHARES.
6.1 "DRAG-ALONG" OBLIGATIONS. If either Aurora Entity shall
receive an offer in writing from a third party which is not an Affiliate of such
Aurora Entity (a "Third Party Offeror") to purchase all of the issued and
outstanding Shares held by such Aurora Entity, to effect a business combination
of the Company with such Person or an Affiliate thereof or to purchase all or
substantially all the assets of the Company (each an "Acquisition Proposal"),
and the Aurora Entities desire to accept or cause the Company to accept such
Acquisition Proposal, either of the Aurora Entities shall deliver a notice (an
"Acquisition Notice") to the Company (which shall deliver a copy of such
Acquisition Notice to Participant), which Acquisition Notice shall contain a
copy of such Acquisition Proposal, including the name and address of the Third
Party Offeror and the terms of the Acquisition Proposal. If Participant
receives any Acquisition Proposal, Participant shall promptly transmit such
Acquisition Proposal to the Company and each Aurora Entity (which the Aurora
Entities may elect not to pursue without any liability or obligation to
Participant or the Company). Participant agrees that, upon receipt of such
Acquisition Notice, Participant shall be obligated to sell all of Participant's
Purchased Shares to the Third Party Offeror upon the terms and conditions set
forth in the Acquisition Proposal, or, as the case may be, to vote Participant's
Purchased Shares in favor of the merger or sale of all or substantially all the
assets of the Company as described in the Acquisition Proposal, and otherwise to
take all actions necessary or appropriate to cause the Company to consummate the
proposed transaction. In any such transaction, all Shares of Common Stock shall
be purchased at, or be converted into the right to receive, the same price per
Share of Common Stock.
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6.2 TERMINATION OF DRAG-ALONG OBLIGATIONS. Notwithstanding
anything herein to the contrary, the rights and obligations provided for in this
Section 6 shall terminate, with respect to all Purchased Shares held or
subsequently acquired by Participant, upon the occurrence of the Qualified IPO
Date.
6.3 SURVIVAL. The provisions of this Section 6 shall survive
the exercise of all or any part of the Option and shall continue in effect for
so long as Participant or any Permitted Transferee thereof owns or controls any
Purchased Shares.
7. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated
to withhold an amount on account of any tax imposed as a result of the exercise
of the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax, then Participant shall, on the first day upon which the Company becomes
obligated to pay such amount to the appropriate taxing authority, pay such
amount to the Company in cash or by check payable to the Company.
8. NOTICES. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
1800 Century Park East, Suite 1000, Los Angeles, California 90067, Attention:
Mark C. Hardy, or to Participant at the address set forth beneath his or her
signature on the signature page hereto, or at such other addresses as they may
designate by written notice in the manner aforesaid.
9. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company.
10. NONTRANSFERABILITY. Neither the Option nor any interest therein
may be Transferred in any manner other than by will or the laws of descent and
distribution.
11. PLAN. The Option is granted pursuant to the Plan, as in effect
on the Date of Grant, and is subject to all the terms and conditions of the
Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no
such amendment shall deprive Participant, without his or her consent, of the
Option or of any of Participant's rights under this Agreement. The
interpretation and construction by the Committee of the Plan, this Agreement,
the Option and such rules and regulations as may be adopted by the Committee for
the purpose of administering the Plan shall be final and binding upon
Participant. Until the Option shall expire, terminate or be exercised in full,
the Company shall, upon written request therefor, send a copy of the Plan, in
its then-current form, to Participant or any other person or entity then
entitled to exercise the Option.
12. STOCKHOLDER RIGHTS. No person or entity shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
13. EMPLOYMENT RIGHTS. No provision of this Agreement or of the
Option granted hereunder shall (a) confer upon Participant any right to become
or continue to be engaged as an employee or to become or continue to be engaged
as a consultant of the Company or any of
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its subsidiaries, (b) affect the right of the Company and each of its
subsidiaries to terminate the Employment of Participant, with or without cause,
or (c) confer upon Participant any right to participate in any welfare or
benefit plan or other program of the Company or any of its subsidiaries other
than the Plan. PARTICIPANT HEREBY ACKNOWLEDGES AND AGREES THAT THE COMPANY AND
EACH OF ITS SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OF PARTICIPANT AT ANY TIME
AND FOR ANY REASON, OR FOR NO REASON, UNLESS PARTICIPANT AND THE COMPANY OR SUCH
SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT OR CONSULTING AGREEMENT THAT
EXPRESSLY PROVIDES OTHERWISE.
14. GOVERNING LAW. This Agreement and the Option granted hereunder
shall be governed by and construed and enforced in accordance with the laws of
the State of Delaware without reference to choice or conflict of law principles.
15. DEFINITIONS.
"AFFILIATE," when used with reference to any Person, means any other
Person directly or indirectly, through one or more intermediaries, controlling,
controlled by or under common control with such first Person and, when used with
reference to any natural person, shall also include such person's spouse,
parents and descendants (whether by blood or adoption, and including
stepchildren) and the spouses of such persons. "Affiliated with" shall have a
correlative meaning to the term "Affiliate."
"BUSINESS DAY" shall mean any day on which banking institutions in Los
Angeles, California are not authorized or obligated by law to close.
"INVOLUNTARY TRANSFER" means any transfer, proceeding or action (other
than to a Permitted Transferee) by or in which Participant shall be deprived or
divested of any right, title or interest in or to any Purchased Shares,
including, without limitation, any seizure under levy of attachment or
execution, any foreclosure upon a pledge of such Purchased Shares, any transfer
in connection with bankruptcy (whether pursuant to the filing of a voluntary or
an involuntary petition under the Federal Bankruptcy Code of 1978, or any
modifications or revisions thereto) or other court proceeding to a debtor in
possession, trustee in bankruptcy or receiver or other officer or agency, or any
transfer to a state or to a public officer or agency pursuant to any statute
pertaining to escheat or abandoned property.
"LIENS" means any and all liens, claims, options, charges,
encumbrances, voting trusts, irrevocable proxies or other rights of any kind or
nature.
"PERMITTED TRANSFEREE" means, as to Participant, (i) the successors in
interest to such Participant, in the case of a Transfer upon the death of
Participant, (ii) Participant's spouse, parents and descendants (whether by
blood or adoption, and including stepchildren) and the spouses of such persons,
(iii) any transferee pursuant to a divorce or separation agreement or a final
decree of a court in a divorce action or upon or occasioned by the incompetence
of such Participant and (iv) in the case of a Transfer during such Participant's
lifetime, any Person in which no Person has any interest (directly or
indirectly) except for any of such Participant, such Participant's spouse,
parents and descendants (whether by blood or adoption, and including
stepchildren) and the spouses of such persons; PROVIDED that in respect of any
Transfer by any Participant during such Participant's lifetime pursuant to
clause (ii) or (iv), Participant shall retain voting power over all of the
outstanding Shares being Transferred; and PROVIDED FURTHER, that, in the case of
a Transfer to a Person (such as a partnership or a trust) as to which a
governing instrument exists, (x) Participant shall furnish a copy of such
governing instrument to the Company in advance, (y) the Company shall be
reasonably satisfied that the terms of such governing instrument shall not be
inconsistent with the terms of this Agreement and (z) during the period that
such Common Stock is held by such Person, the Participant shall ensure that the
terms of such governing instrument shall not be amended in any manner that
results in such governing
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instrument being inconsistent with the terms of this Agreement; PROVIDED, that
prior written notice of any such Transfer is given to the Company by Participant
and that the Permitted Transferee shall agree in advance of such Transfer to be
bound by the terms of Section 5 hereof pursuant to a written agreement
reasonably satisfactory to the Company and the Aurora Entities.
"PERSON" means a company, a corporation, an association, a
partnership, a limited liability company, an organization, a joint venture, a
trust or other legal entity, an individual, a government or political
subdivision thereof or a governmental agency.
"TRANSFER" means any sale, exchange, assignment, transfer, pledge,
mortgage, hypothecation, gift, grant, encumbrance or other disposition of any
kind, whether voluntary, involuntary or by operation of law and whether direct
or indirect by transfer of any interest in the subject property or otherwise.
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IN WITNESS WHEREOF, the Company and Participant have duly executed
this Agreement as of the Date of Grant.
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
By
--------------------------------
Name:
Title:
PARTICIPANT:
----------------------------------
Signature
----------------------------------
Street Address
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City, State and Zip Code
----------------------------------
Social Security Number
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LIST OF SUBSIDIARIES
SUBSIDIARIES OF AFTERMARKET TECHNOLOGY CORP.:
ATC Components, Inc.
Aaron's Automotive Products, Inc.
CRS Holdings Corp.
Diverco Acquisition Corp.
H.T.P., Inc.
King-O-Matic Industries Limited
Mamco Converters, Inc.
Mascot Truck Parts Inc.
RPM Merit, Inc.
Tranzparts Acquisition Corp.
SUBSIDIARIES OF AFTERMARKET TECHNOLOGY HOLDINGS CORP.:
Aftermarket Technology Corp.
SUBSIDIARIES OF CRS HOLDINGS CORP.:
Component Remanufacturing Specialists, Inc.
SUBSIDIARIES OF DIVERCO ACQUISITION CORP.:
Diverco, Inc.
SUBSIDIARIES OF MASCOT TRUCK PARTS INC.:
Aldo's Driveline Inc. (50% owned by Mascot)
SUBSIDIARES OF RPM MERIT, INC.:
Partes Remanufacturadas De Mexico, S.A. De C.V.
SUBSIDIARES OF TRANZPARTS ACQUISITION CORP.:
Tranzparts, Inc.
