<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 6, 1996
REGISTRATION NO. 333-6697
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 2
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 and GEPT Private Placement; 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 NOVEMBER 6, 1996
3,500,000 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.
CONCURRENTLY WITH THE CLOSING OF THIS OFFERING, THE COMPANY WILL OFFER TO THE
TRUSTEES OF THE GENERAL ELECTRIC
PENSION TRUST $12.0 MILLION OF COMMON STOCK. FOR A DESCRIPTION OF THE TERMS AND
CONDITIONS OF SUCH SALE, SEE "REORGANIZATION AND GEPT PRIVATE PLACEMENT."
-------------------
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 $750,000.
(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 525,000
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
-- "Ability to Serve:" "17,000 Transmission Shops" "54,000 General Repair
Shops"
- -- upper right corner: "Leading Position in the Automotive Aftermarket"
-- Aftermarket Technology Corp. logo
- -- lower left corner:
-- "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
-- picture of clutch kits and standard rebuild kits
-- "Advance Auto" "O'Reilly's" "Western Auto"
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 , 1997 (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 and GEPT Private Placement........ 13
Use of Proceeds.................................. 14
Dividend Policy.................................. 14
Capitalization................................... 15
Dilution......................................... 16
Selected Financial Data.......................... 17
Pro Forma Financial Data......................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 26
Management....................................... 37
<CAPTION>
PAGE
-----------
<S> <C>
Ownership of Voting Securities................... 43
Certain Transactions............................. 45
Description of Capital Stock..................... 47
Description of Certain Indebtedness.............. 49
Shares Eligible for Future Sale.................. 51
Certain United States Federal Tax Consequences to
Non-United States Holders...................... 52
Underwriters..................................... 54
Legal Matters.................................... 55
Experts.......................................... 55
Additional Information........................... 56
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 (I)
THE SIX-FOR-ONE STOCK SPLIT TO BE CONSUMMATED BY AFTERMARKET TECHNOLOGY HOLDINGS
CORP. ("HOLDINGS") PRIOR TO THE COMPLETION OF THIS OFFERING OF COMMON STOCK
(THIS "OFFERING") AND (II) THE REORGANIZATION (AS DEFINED HEREIN), PURSUANT TO
WHICH HOLDINGS WILL BE MERGED INTO ATC. 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
2,272,218 SHARES OF COMMON STOCK AND (III) OUTSTANDING WARRANTS TO PURCHASE
421,056 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 ("ACP") 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 acquisitions in 1995 and the
first nine months of 1996 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
4
<PAGE>
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.
HISTORY; REORGANIZATION
ATC and Holdings, its sole stockholder, 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, 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 one share 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 December 31, 1996,
the aggregate Preferred Stock Reorganization Consideration would be
approximately $25.2 million (including $5.2 million of accrued dividends). As of
October 31, 1996, 12,000,000 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 and GEPT
Private Placement." 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 and the GEPT Private Placement, the Company will continue to be
controlled by the Aurora Partnerships, which will hold approximately 73% of the
voting power (through direct ownership and the grant of irrevocable proxies) and
50% of the common 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 by the
Company............................ 3,500,000 shares
Common Stock to be outstanding after
the Offering....................... 16,455,794 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 31, 1996 and accrued interest of $2.0
million as of the same date on the Senior Notes to be
redeemed, and (ii) for the payment of a portion of
the aggregate Preferred Stock Reorganization
Consideration. The balance of the Preferred Stock
Reorganization Consideration will be borrowed under
the Company's revolving credit facility. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol............................. "ATAC"
</TABLE>
In addition, the Company will offer to the Trustees of the General Electric
Pension Trust ("GEPT"), which presently owns approximately 8.9% of the Common
Stock, the number of shares of restricted Common Stock equal to $12.0 million
divided by the Price to Public less Underwriting Discounts and Commissions (the
"GEPT Private Placement") simultaneously with the closing of this Offering. See
"Reorganization and GEPT Private Placement."
- ---------
(1) Reflects the issuance of 955,794 shares of Common Stock in the GEPT Private
Placement (assuming a Price to Public of $13.50 per share) and excludes the
issuance of 421,056 shares reserved for issuance upon the exercise of
outstanding warrants and 2,272,218 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 16,097 14,908 14,845 12,019
Income taxes............. 471 6,902 7,291 8,722 4,495 8,979 10,143
--------- --------- --------- ----------- --------- --------- -----------
Net income............... 18,136 10,094 10,711 12,754 6,604 12,815 14,477
Preferred stock dividends
(6)..................... -- 2,000 2,093 -- 1,542 1,689 --
--------- --------- --------- ----------- --------- --------- -----------
Net income available to
common stockholders..... $ 18,136 $ 8,094 $ 8,618 $12,754 $ 5,062 $ 11,126 $14,477
--------- --------- --------- ----------- --------- --------- -----------
--------- --------- --------- ----------- --------- --------- -----------
Pro forma (7):
Net income per share... $ 0.67 $ 0.77
Shares used in
computation of net
income per share...... 17,297 18,080
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 $ 57,908
Property, plant and equipment (net)................................ 10,784 15,386 15,386
Total assets....................................................... 247,932 267,346 267,468
Long-term debt (10)................................................ 162,246 162,047 136,579
Preferred stock (6)................................................ 20,000 20,000 --
Common stockholders' equity........................................ 30,188 40,847 92,650
</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 application of the estimated net proceeds
from the Offering, the GEPT Private Placement and borrowings under the
Company's revolving credit facility as if such transactions 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 and the GEPT Private Placement as if the
Offering and the GEPT Private Placement 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 (i) the application of the estimated net
proceeds from the Offering and the GEPT Private Placement (based on an
assumed Price to Public of $13.50 per share) and (ii) borrowings under the
Company's revolving credit facility. 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 1995 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, the GEPT Private Placement, borrowings under the Company's revolving
credit facility and the application of the estimated net proceeds therefrom
(after deducting the underwriting discount and estimated expenses of the
Offering), the consolidated long-term indebtedness of the Company at September
30, 1996 would have been $136.6 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 its 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
10
<PAGE>
Company acquired the assets of RPM (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 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 and the GEPT Private Placement, the Company will continue to be
controlled by the Aurora Partnerships, which will hold approximately 73% of the
voting power in the Company (through direct ownership and the grant of
irrevocable proxies). 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 and the GEPT Private Placement, the Company will
have approximately 16,455,794 shares of Common Stock outstanding, of which
approximately 12,955,794 shares will be "restricted securities" within the
11
<PAGE>
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 stockholders (including GEPT) and certain holders
of the Company's outstanding options have been granted certain "piggyback"
registration rights and will be granted certain "demand" 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 (including GEPT), 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 and
the GEPT Private Placement options and warrants to purchase approximately
2,693,274 shares of Common Stock at exercise prices ranging from $1.67 to $4.67
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 AND GEPT PRIVATE PLACEMENT
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 one share 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
December 31, 1996 the aggregate Preferred Stock Reorganization Consideration
would be approximately $25.2 million (including $5.2 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. Prior
to the completion of this Offering, Holdings will amend and restate its charter
to increase its authorized capitalization to 30,000,000 shares of Common Stock
and 5,000,000 shares of Preferred Stock, and will consummate a six-for-one stock
split.
The Company will offer to GEPT $12.0 million of Common Stock in the GEPT
Private Placement simultaneously with the closing of this Offering. The price
per share for such Common Stock will be the price per share paid by the
Underwriters in this Offering, that is, the public offering price per share less
Underwriters' discounts and commissions. Assuming a public offering price of
$13.50 per share in the Offering, GEPT's price would be approximately $12.56 per
share and it would purchase 955,794 shares of Common Stock. Although GEPT would
receive Common Stock which has not been registered under the Securities Act, it
will also receive a "demand" registration right with respect to such stock and
300,000 shares of Common Stock it currently owns, which right is not exercisable
until after the first anniversary of the completion of this Offering. See
"Shares Eligible for Future Sale." The GEPT Private Placement is conditioned on
consummation of an initial public offering by the Company.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares
offered hereby are estimated to be approximately $43.2 million (approximately
$49.8 million if the Underwriters' over-allotment option is exercised in full),
based upon an assumed offering price of $13.50 per share and after deducting
estimated underwriting discounts and offering expenses. The proceeds to the
Company from the GEPT Private Placement will be approximately $12 million.
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 31,
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. Any remaining proceeds of the Offering (including from any exercise of
the Underwriters' over-allotment option), together with the proceeds from the
GEPT Private Placement and borrowings under the Company's revolving credit
facility, will be used by the Company to pay the aggregate Preferred Stock
Reorganization Consideration (approximately $25.2 million, assuming a December
31, 1996 Reorganization date).
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 estimated
net proceeds from the sale of 3,500,000 shares of Common Stock at an assumed
offering price of $13.50 per share in this Offering, the receipt of $12.0
million from the GEPT Private Placement, and the application thereof and of
borrowings under the Company's revolving credit facility 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:
12% Senior Notes due 2004........................................................... $ 162,047 $ 121,536
Revolving credit facility(1)........................................................ -- 15,043
---------- -----------
Total long-term debt.............................................................. 162,047 136,579
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares authorized; 200,000 shares issued
and outstanding; no shares issued and outstanding, as adjusted (2)................. 20,000 --
Common stock, $.01 par value, 30,000,000 shares authorized; 12,000,000 shares issued
and outstanding; 16,455,794 shares as
adjusted (3)....................................................................... 20,000 75,193
Retained earnings................................................................... 20,815 17,425(4)
Cumulative translation adjustment................................................... 32 32
---------- -----------
Total stockholders' equity........................................................ 60,847 92,650
---------- -----------
Total capitalization............................................................ $ 222,894 $ 229,229
---------- -----------
---------- -----------
</TABLE>
- ---------
(1) 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 $(99.4) million, or $(8.28) 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 3,500,000 shares of Common Stock at an assumed
initial public offering price of $13.50 per share, the GEPT Private Placement
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 $(47.6) million, or $(2.89) per share (after giving effect to the
use of the net proceeds from the Offering and the GEPT Private Placement). This
represents an immediate increase in net tangible book value of $5.39 per share
to current ATC stockholders and an immediate dilution of $16.39 per share to new
stockholders. Dilution to new stockholders is determined by subtracting the net
tangible book value per share after the 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........... $ 13.50
Net tangible book value per share before the
Offering....................................... $ (8.28)
Increase per share attributable to sale of
Common Stock................................... 5.39
---------
Pro forma net tangible book value per share after
the Offering..................................... (2.89)
---------
Dilution per share to new investors............... $ 16.39
---------
---------
</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 and in the GEPT Private Placement 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................. 12,000,000 72.9% $ 20,000,000 25.2% $ 1.67
New investors......................... 3,500,000 21.3 47,250,000 59.7 13.50
GEPT (GEPT Private Placement only).... 955,794 5.8 12,000,000 15.1 12.56
------------ ----- ------------- -----
Total............................. 16,455,794 100.0% $ 79,250,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</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..... $ 0.65 $ 0.79
Shares used in computation of
net income per share........... 14,616 15,555
OTHER DATA:
Capital expenditures (4).......... $ 1,149 $ 1,141 $ 2,310 $ 1,850 $ 1,336 $ 5,187 $ 3,905 $ 5,893
</TABLE>
- ---------
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
<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. Giving effect to the
Offering, the GEPT Private Placement, borrowings under the Company's
revolving credit facility and the application of such funds as set forth
under "Use of Proceeds" as if the same had occurred on January 1, 1995, pro
forma net income per share would have been $0.67 for the year ended December
31, 1995, and assuming such issuance, redemption, payment and borrowings had
occurred on January 1, 1996, pro forma net income per share would have been
$0.77 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.
18
<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 Offering, the GEPT Private Placement, borrowings under the Company's
revolving credit facility and the application of such funds as set forth under
"Use of Proceeds," as if the same 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) 16,097
(140)(11) 957(12)
-------- ------- ------------ ---------------
Income before income taxes.............. 15,966 4,245 18,002 21,476
Provision for income taxes.............. 6,467 95 729(13) 7,291 1,431(14) 8,722
-------- ------- ------------ ---------------
Net income.............................. $ 9,499 $ 4,150 $ 10,711 $ 12,754
-------- ------- ------------ ---------------
-------- ------- ------------ ---------------
</TABLE>
- ---------
(FOOTNOTES ON FOLLOWING PAGE)
19
<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) 12,019
(45)(11) 873(12)
79(15)
-------- ------ ------------- --------
Income before income taxes......... 20,987 561 21,794 24,620
Provision for income taxes......... 8,646 41 292(13) 8,979 1,164(14) 10,143
-------- ------ ------------- --------
Net income......................... $12,341 $ 520 $ 12,815 $ 14,477
-------- ------ ------------- --------
-------- ------ ------------- --------
</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 interest on borrowings under the Company's revolving credit
facility. See "Use of Proceeds."
(13) 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.
(14) Reflects additional income taxes resulting from the adjustments for
interest expense.
(15) Eliminates gain on sale to former owner of a building which was
subsequently leased to the Company.
20
<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."
In the fourth quarter of 1996, the Company will record a non-cash charge of
approximately $477,000 for deferred compensation expense relating to the
difference between the exercise price and the intrinsic value for financial
statement presentation purposes of the Company's Common Stock for 628,176
options granted in October 1996. Substantially all of such options were granted
to Mr. Perkins and other members of senior management at $4.67 per share. This
compensation expense will aggregate $2.3 million, and will be recognized over
the respective vesting periods of the options, which generally range from three
to five years.
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
21
<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 38.7 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
38.0% for the nine month period ended September 30, 1995 to 38.5% 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 19.9% 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.
22
<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.
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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 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
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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 of 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. Upon consummation
of the Offering and the GEPT Private Placement, the Company expects to borrow
approximately $17 million under its revolving credit facility to pay the balance
of the Preferred Stock Reorganization Consideration. See "Use of Proceeds."
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.
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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 acquisitions in 1995 and the
first nine months of 1996 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
28
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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
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<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
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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
31
<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
32
<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.
33
<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>
34
<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 two 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
35
<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.
36
<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.
37
<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.
38
<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 -- 842,106 250,000(2)
and Chief Executive Officer(3)
James R. Wehr................................. 1995 258,000 -- -- --
President, Aaron's 1994 109,000 -- 140,352 --
Michael L. LePore............................. 1995 160,838(4) 179,038(5) 70,176 --
President, CRS 1994 120,451 131,119 -- --
Kenneth A. Bear............................... 1995 103,200 60,000 -- --
Executive Vice President and 1994 44,140 32,960 70,176 --
General Manager, Aaron's
John C. Kent.................................. 1995 124,615 12,000 -- --
Chief Financial Officer 1994 56,154 -- 70,176 --
</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.
(5) Includes $86,759 of bonus earned prior to the acquisition by the Company of
CRS in April 1995.
39
<PAGE>
OPTION GRANTS
Shown below is information concerning grants of options issued by the
Company to the Named Executive Officers for the year ended December 31, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL POTENTIAL REALIZABLE
GRANTS VALUE AT ASSUMED
------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM (1)
OPTIONS GRANTED EMPLOYEES IN PRICE EXPIRATION --------------------
NAME (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- ------------------------------------------- ---------------- ------------- ----------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
William A. Smith........................... -- -- -- -- -- --
James R. Wehr.............................. -- -- -- -- -- --
Michael L. LePore.......................... 35,088(2) 28.5% $ 1.67 6/1/2005 $ 36,842 $ 93,334
35,088(3) 28.5 1.67 12/31/2005 36,842 93,334
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.......................................... 561,408 280,698 $ 746,673 $ 373,328
James R. Wehr............................................. 46,782 93,570 62,220 124,448
Michael L. LePore......................................... -- 70,176 -- 93,334
Kenneth A. Bear........................................... 23,394 46,782 31,114 62,220
John C. Kent.............................................. 23,394 46,782 31,114 62,220
</TABLE>
- ---------
(1) The exercise price of each option is $1.67 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, $3.00, less the applicable per share
exercise price of the option, $1.67.
40
<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 (subject
to cost-of-living adjustments which make the current annual salary approximately
$316,000) 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 (subject to cost-of-living adjustments which make the
current annual salary approximately $274,000) 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 (subject to cost-of-living adjustments
which make the current annual salary approximately $185,000) 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.
41
<PAGE>
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
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 2,272,218 shares of Common Stock to officers and employees of
the Company. The exercise price for these options to purchase an aggregate of
1,526,778 shares is $1.67 per share and $4.67 per share for options to purchase
an aggregate of 745,440 shares. Each option is subject to certain vesting
provisions. All options expire on the tenth anniversary of the date of grant. As
of the same date, the number of shares available for issuance pursuant to
options granted under the Stock Incentive Plan is 127,782. 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.
42
<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
NUMBER OF BEFORE AND GEPT
SHARES (1) OFFERING PRIVATE 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)........... 9,831,972 81.9% 65.6%
Aurora Overseas Equity Partners I, L.P. (Other beneficial owners:
Richard R. Crowell, Richard K. Roeder and Gerald L. Parsky)
(3)(4)(5)............................................................ 3,579,522 29.8 27.6
General Electric Pension Trust(4) .................................... 1,062,858 8.9 12.3
3003 Summer Street
Stanford, CT 06905
William A. Smith (6)(7)............................................... 885,984 6.9 5.1
Stephen J. Perkins (7)(8)............................................. 0 * *
John C. Kent (7)(9)................................................... 23,388 * *
James R. Wehr (10)(11)................................................ 971,064 8.0 5.9
Michael L. LePore (12) ............................................... 11,694 * *
400 Corporate Drive
Mahwah, NJ 07430
Kenneth A. Bear (11)(13).............................................. 23,388 * *
Richard R. Crowell (2)(3)(4)(14)(15).................................. 11,020,122 91.8 72.8
Richard K. Roeder (2)(3)(4)(14)(15)................................... 11,020,122 91.8 72.8
Mark C. Hardy (14)(15)(16)............................................ 18,240 * *
Dr. Michael J. Hartnett (17) ......................................... 46,314 * *
60 Round Hill Road
Fairfield, CT 06430
Kurt B. Larsen (14)(15)(16)........................................... 26,622 * *
William E. Myers, Jr. (18) ........................................... 280,704 2.3 1.7
2 North Lake Avenue, Suite 650
Pasadena, CA 91101
All directors and officers as a group (15 persons)(19)................ 13,288,716 99.6 74.6
</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 1,328,514 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 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
43
<PAGE>
Holdings and may be deemed to be the organizers of the Company under
regulations promulgated under the Securities Act. Also includes the
1,062,858 shares of Holdings Common Stock held by GEPT. See Footnote (4)
below.
(3) Includes 1,328,514 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 1,062,858 shares of Holdings Common Stock held by GEPT.
See Footnote (4) below.
(4) With limited exceptions, GEPT 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 842,106 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 498,000 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 81,896 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 93,564 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 46,788 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 58,482 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) 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 46,788 shares of
Common Stock subject to options granted under the Stock Incentive Plan that
are not exercisable within 60 days of October 15, 1996.
(14) The address for this beneficial holder is 1800 Century Park East, Suite
1000, Los Angeles, CA 90067.
(15) The holder of these shares has granted an irrevocable proxy covering these
shares to AEP and AOEP.
(16) Includes 12,000 shares of Common Stock subject to vested options granted in
October 1996 under the Stock Incentive Plan.
(17) 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 23,862 shares of Common Stock subject to warrants that
are not exercisable within 60 days of October 15, 1996.
(18) Consists of shares of Common Stock subject to exercisable warrants.
(19) Includes 1,347,156 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.
44
<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.
RELATIONSHIP WITH ACP
Fees of approximately $1.1 million were paid to ACP for investment banking
services provided in connection with the acquisitions of Mascot, CRS and
King-O-Matic in 1995 and Tranzparts and Diverco in 1996. The Company has also
agreed to pay to ACP a base annual management fee of approximately $530,000 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 or the GEPT Private Placement), 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."
In October 1996, the Company granted options for an aggregate of 48,000
shares to certain directors and consultants of the Company who are employees of
ACP, including Messrs. Hardy and Larsen.
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
45
<PAGE>
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 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 one share 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 December 31, 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: $70,375; $1,406,250; $203,000;
$13,625; $23,375; and $30,375. 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 Common Stock outstanding before the Offering
have been or will be granted certain "demand" and "piggyback" registration
rights pursuant to a Stockholders Agreement. In addition, GEPT will be granted a
"demand" registration right with respect to 300,000 shares of Common Stock owned
by GEPT and the shares to be offered in the GEPT Private Placement. See "Shares
Eligible for Future Sale."
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Giving effect to the Reorganization, the authorized capital stock of ATC
consists of 30,000,000 shares of Common Stock, par value $0.01 per share, and
5,000,000 shares of Preferred Stock, par value $0.01 per share ("Preferred
Stock"). As of October 15, 1996, 12,000,000 shares of Common Stock were issued
and outstanding and were held of record by 37 stockholders and 2,693,274 shares
were reserved for issuance under outstanding options and warrants. As of the
same date after giving effect to the Reorganization, 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 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 350,880 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 70,176 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 $1.67 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 350,880 of the warrants and the number of shares issuable upon the
exercise thereof will be adjusted accordingly; the other 70,176 warrants do not
contain this adjustment provision. In addition, the warrants are
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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, 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.
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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 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
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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 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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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the GEPT Private Placement, the Company
will have approximately 16,455,794 shares of Common Stock outstanding. The
3,500,000 shares sold in the Offering (4,025,000 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 12,000,000 shares of Common Stock outstanding immediately prior to the
consummation of the Offering and the shares to be issued in the GEPT Private
Placement were or will be 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 (approximately 164,558 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.
In addition, the Commission has published a notice of proposed rule making
which, if adopted as proposed, would shorten the applicable holding periods
under Rule 144(d) and Rule 144(k) to one and two years, respectively (from the
current periods of two and three years). The Company cannot predict whether such
amendments will be adopted or the effect thereof on the trading market for its
Common Stock.
The Company currently has outstanding warrants to purchase an aggregate of
421,056 shares of Common Stock and employee stock options to purchase an
aggregate of 2,272,218 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 (including GEPT), 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 the Offering) and in connection with
certain secondary public offerings effected by the Company.
The Stockholders Agreement is being amended to provide that if, after the
Aurora Partnerships distribute their shares of Common Stock to their limited
partners, any such limited partner holds 10% or more of the outstanding Common
Stock, such limited partner (the "Demand Holder") will have the right to require
the Company to use its best efforts to file a registration statement under the
Securities Act covering the resale of the Demand Holder's shares in an
underwritten offering. If following such offering the Demand Holder still holds
10% or more of the outstanding Common Stock, the Demand Holder will have one
additional "demand" registration right.
The Company will bear all expenses incident to any registration effected
pursuant to the Stockholders Agreement, 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.
In connection with the GEPT Private Placement, the Company will grant a
"demand" registration right to GEPT. Such registration right will cover the
shares being issued in the GEPT Private Placement as well as 300,000 shares of
Common Stock owned by GEPT prior to the GEPT Private Placement. Pursuant to this
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registration right, GEPT may, subject to certain limitations, require the
Company to use its best efforts to file a registration statement under the
Securities Act covering the resale of such Common Stock owned by GEPT. All fees,
costs and expenses of such registration (other than underwriting discounts and
commissions) will be borne by the Company. GEPT and any underwriters through
whom shares are sold on behalf of GEPT will be entitled to customary
indemnification from the Company against certain liabilities, including
liabilities under the Securities Act. GEPT's registration right may not be
exercised until after the first anniversary of the completion of this Offering.
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 (including GEPT),
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 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,
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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.
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.
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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........................................................................ 3,500,000
----------
----------
</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 525,000 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.
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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 175,000
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.
55
<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.
56
<PAGE>
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,
except as to Note 13,
as to which the date is , 1996
- --------------------------------------------------------------------------------
The foregoing report is the form that will be signed upon the completion of
the stock split, described in Note 13 to the consolidated financial statements.
ERNST & YOUNG LLP
Seattle, Washington
November 5, 1996
F-2
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995
------------- ------------- SEPTEMBER 30, PRO FORMA
1996 SEPTEMBER 30,
------------- 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 2,924,475
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 35,069,593
Deferred tax liabilities.......................... 1,483,000 3,478,000 4,746,161 4,746,161
Revolving credit facility......................... -- -- -- 24,635,252
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 -- 5,000,000
Issued and outstanding shares -- 200,000
Aggregate liquidation and redemption value of
$22,946,300 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 -- 30,000,000
Issued and outstanding shares -- 12,000,000.... 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............. $ 0.65 $ 0.79
------------- ------------
------------- ------------
Shares used in calculation of pro
forma net income per share...... 14,616,160 15,555,098
------------- ------------
------------- ------------
</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 12,000,000 shares of
common stock for cash at $1.67 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 -- 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 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.
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
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)
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 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.
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)
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
CURRENT LIABILITIES
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%.
REVOLVING CREDIT FACILITY
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
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)
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.
The Revolving Credit Facility 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.
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 2,221,056 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 1,800,000 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............................................................ 1,403,514 $ 1.67
----------
Balance, December 31, 1994.................................................. 1,403,514 1.67
Granted in 1995........................................................... 123,264 1.67
----------
Balance, December 31, 1995.................................................. 1,526,778 1.67
Granted in 1996........................................................... 117,264 $ 4.67
----------
Balance, September 30, 1996................................................. 1,644,042 $ 1.67-4.67
----------
----------
</TABLE>
At December 31, 1995, 760,236 options (1,103,406 options at September 30,
1996) are exercisable, and 273,222 options (755,958 options at September 30,
1996) options remain available for future grant.
In connection with the prior acquisitions, warrants to purchase 350,880
shares of common stock at $1.67 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 70,176 shares of common stock
at $1.67 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 an amendment to the Plan to
increase the number of shares available for issuance to 2,400,000.
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.
13. SUBSEQUENT EVENTS
In June 1996, the Company's Board of Directors approved the reorganization
of the Company in which Holdings will be merged into ATC. This reorganization
will be effected simultaneous with the closing of the Company's initial public
offering (see Note 1).
On November , 1996, the Company's Board of Directors approved a six for
one stock split of the Company's common stock and an increase in the number of
authorized shares to 30,000,000 shares of common stock and 5,000,000 shares of
preferred stock. The accompanying financial statements have been retroactively
adjusted to reflect the stock split.
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........................................................ 32,400*
Printing Expenses................................................................. 150,000*
Legal Fees and Expenses........................................................... 290,000*
Transfer Agent and Registrar Fees................................................. 2,500*
Accounting Fees and Expenses...................................................... 150,000*
Blue Sky Fees and Expenses........................................................ 20,000*
Miscellaneous Expenses............................................................ 66,233*
----------
TOTAL......................................................................... $ 750,000
----------
----------
</TABLE>
- ---------
* Estimated.
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 one share of Common Stock of the Company.
The following is a description of the issuances of the unregistered securities
of Holdings.
Holdings sold all 12,000,000 currently outstanding shares of its Common
Stock in July 1994 at the time of the Initial Acquisitions at a price of $1.67
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
1,298,250 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 70,176 shares to two employees of the Company. In
October 1994, Holdings issued options to purchase 35,088 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
41,088 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 35,088 shares of Common Stock to an employee. In August 1995 and
November 1995, Holdings issued options to purchase 6,000 shares to each of Mr.
Prugh and an employee, respectively. In December 1995, Holdings issued options
to purchase 35,088 shares to Mr. LePore. In June 1996, Holdings issued options
to purchase 105,324 shares to Mr. Dearbaugh. In August 1996, Holdings issued
options to purchase an aggregate of 12,000 shares to two employees. In October
1996, Holdings issued options to purchase an aggregate of 628,176 shares to
Messrs. Buie, Dearbaugh, Kent, Hardy, Larsen, Perkins and two consultants. The
exercise price for the options issued through 1995 is $1.67, and the exercise
price for the options issued after December 1995 is $4.67. 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 350,880
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 70,176 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 $1.67. 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 (the "Stockholders Agreement") (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 Tax Sharing Agreement, dated July 19, 1994, among Aftermarket Technology Holdings Corp. and
Aftermarket Technology Corp. (previously filed as Exhibit 10.18 to the Registration Statement on
Form S-4 filed on November 30, 1994, Commission File No. 33-86838 and incorporated herein by
this reference)
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
*10.6 Employment Agreement, dated as of October 7, 1996, between Aftermarket Technology Corp. and
William A. Smith
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------
<C> <S>
***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)
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)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------
<C> <S>
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 February 24, 1995, between 29 Santa Anita Partnership L.P. and Replacement Parts
Manufacturing with respect to property located at 12250 E. 4th Street, Rancho Cucamonga,
California
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 Purchase Agreement, dated April 21, 1995, between Fleming Companies, Inc. and Aaron's
Automotive Products, Inc. with respect to property located at 3001 Davis Boulevard, Joplin,
Missouri, as amended
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)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------------------------------------
<C> <S>
*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
***10.38 Amendment No. 1 to the Stockholders Agreement, dated as of June 24, 1996
***10.39 Amendment No. 2 to the Stockholders Agreement, dated as of October 24, 1996
***10.40 Sublease, dated April 20, 1994, between Troll Associates, Inc. and Component Remanufacturing
Specialists, Inc. with respect to property located at 400 Corporate Drive, Mahwah, New Jersey
***10.41 Sublease Modification and Extension Agreement, dated as of February 28, 1996, between Olde
Holding Company and Component Remanufacturing Specialists, Inc. with respect to property located
at 400 Corporate Drive, Mahwah, New Jersey
***10.42 Amendment No. 1 to Aftermarket Technology Holdings Corp. Amended and Restated 1994 Stock
Incentive Plan
***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.
** Previously filed.
*** Filed herewith.
II-6
<PAGE>
(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.
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 November 5, 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 Executive November 5, 1996
Stephen J. Perkins Officer)
/s/ JOHN C. KENT*
--------------------------------- Chief Financial Officer (Principal Financial November 5, 1996
John C. Kent Officer)
/s/ DANIEL C. BUIE*
--------------------------------- Corporate Controller (Principal Accounting November 5, 1996
Daniel C. Buie Officer)
/s/ WILLIAM A. SMITH
--------------------------------- Chairman of the Board of Directors November 5, 1996
William A. Smith
/s/ RICHARD R. CROWELL*
--------------------------------- Director November 5, 1996
Richard R. Crowell
/s/ MARK C. HARDY*
--------------------------------- Director November 5, 1996
Mark C. Hardy
/s/ MICHAEL J. HARTNETT*
--------------------------------- Director November 5, 1996
Michael J. Hartnett
/s/ KURT B. LARSEN*
--------------------------------- Director November 5, 1996
Kurt B. Larsen
/s/ WILLIAM E. MYERS, JR.*
--------------------------------- Director November 5, 1996
William E. Myers, Jr.
/s/ RICHARD K. ROEDER*
--------------------------------- Director November 5, 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,
except as to Note 13, as to which the date is , 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.
ERNST & YOUNG LLP
Seattle, Washington
, 1996
- --------------------------------------------------------------------------------
The foregoing consent is the form that will be signed upon the completion of
the stock split, described in Note 13 to the consolidated financial statements.
ERNST & YOUNG LLP
Seattle, Washington
November 5, 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>
[LETTERHEAD]
Exhibit 5.1
November 5, 1996
(213) 229-7000 C 00610-00024
Aftermarket Technology Corp.
33309 First Way South
Suite A-206
Federal Way, Washington 98003
Re: REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 333-6697)
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (the "Registration
Statement") filed by Aftermarket Technology Corp., a Delaware corporation (the
"Company"), with the Securities and Exchange Commission (the "Commission") on
June 24, 1996 (Registration No. 333-6697), as amended to the date hereof, in
connection with the registration under the Securities Act of 1933, as amended
(the "Securities Act"), of the shares (the "Shares") of the Common Stock, par
value $.01 per share, of the Company subject to the Registration Statement.
For the purposes of the opinion set forth below, we have examined the
proceedings heretofore taken and are familiar with the procedures proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Shares. In addition, we have examined such corporate records of the Company
and certificates of officers of the Company and of public officials and such
other documents as we have deemed relevant and necessary as the basis for the
opinion set forth below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies and the authenticity of the originals of such
copies.
Based upon the foregoing and in reliance thereon, it is our opinion that,
when the Registration Statement has become effective under the Securities Act
and the Shares have been issued, sold and paid for pursuant to the terms of the
Registration Statement and the exhibits thereto, the Shares will be duly and
validly issued, fully paid and non-assessable.
<PAGE>
Aftermarket Technology Corp.
November 5, 1996
Page 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and the Prospectus that
forms a part thereof. In giving this consent we do not thereby admit that we
are within the category of persons whose consent is required under Section 7 of
the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
GIBSON, DUNN & CRUTCHER LLP
BDM/JMS/LYK/KFM
<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, contingent upon Executive's relocation to the Chicago,
Illinois area within three months of the relocation of the Company's
corporate offices to Chicago, Illinois, 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
and subject to Section 9 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,
<PAGE>
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 Section 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.
2
<PAGE>
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
3
<PAGE>
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 Sections 5(d)(i) and (5)(d)(ii), as applicable.
(e) BENEFITS UPON TERMINATION. All benefits provided under
Sections 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 Section 5(a).
4
<PAGE>
(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 Section 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.
5
<PAGE>
9. RELOCATION REQUIREMENT. Upon execution of this Agreement, the
Prior Agreement shall be terminated and this Agreement shall replace the
Prior Agreement; PROVIDED, HOWEVER, that notwithstanding anything herein to
the contrary, if Executive shall not have relocated to the Chicago, Illinois
area within three months of the relocation of the Company's corporate offices
to Chicago, this Agreement shall be null and void and the Prior Agreement
shall be reinstated and shall thereafter remain in full force and effect.
10. 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.
6
<PAGE>
(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
7
<PAGE>
STANDARD INDUSTRIAL LEASE
Dated (for reference) as of February 24, 1995
1. DEFINED TERMS. Each reference in this Lease to any of the following terms
shall include the data for such term as stated below with any additional terms
used in this Lease to have the meaning and definition given hereafter:
<TABLE>
<S> <C>
Tenant: Replacement Parts Manufacturing Landlord: 29 Santa Anita Partnership L.P.
----------------------------------- ------------------------------------------------
a Delaware corporation a California limited partnership
----------------------------------- ------------------------------------------------
Tenant's Address: 209 S. Irwindale Avenue Landlord's Address: c/o Investment Building Group
------------------------- --------------------------------------
Azusa, CA 91702-3292 500 N. State College Blvd., Suite 525
------------------------- --------------------------------------
Orange, CA 92668
------------------------- --------------------------------------
Description of the Premises:
Floor Area of Improvements: Approximately 153,000 sq. ft. indicated on the Preliminary Plans.
-------------
Street Address: 12250 E. 4th Street, Rancho Cucamonga, CA 91730
--------------------------------------------------------------------------------------
Term: Eighty-seven (87) months (see Paragraph 42)
------------------------------------------------------------------------------------------------------
Scheduled Term Commencement Dated: June 1, 1995
--------------
Rent: See paragraph 39
------------------------------------------------------------------------------------------------------
Taxes, Insurance, and Maintenance Reserve Deposit: $5,500 per month
---------------------------------------------------------
Security Deposit: $55,000 initially; $15,000 applied toward initial rent
------------------------------------------------------------------------------------------
Insurance Amounts: Bodily Injury per person 3,000,000
---------------------------------------------------------------
Bodily Injury per Occurrence 3,000,000
------------------------------------------------------------
Property Damage 1,000,000
-------------------------------------------------------------------------
Preliminary Plans (approved by Tenant and Landlord): See Exhibit "A" attached.
--------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Tenant's Construction Representative: Mark Simon
-----------------------------------------------------------------------
Landlord's Construction Representative: Brian Bargemann
---------------------------------------------------------------------
Uses: Manufacture, assembly and distribution of automotive products and associated office use
-----------------------------------------------------------------------------------------------------
Tenant's Share (if multi-tenant) of: Real Property Taxes 100% Insurance Expenses 100% Maintenance Expenses 100%.
---- ---- ----
</TABLE>
2. PREAMBLE. Landlord hereby leases to Tenant, and Tenant hereby leases and
accepts from Landlord, that certain real property described in Paragraph 1 and
the Improvements as defined in Paragraph 3.1 (the "Premises") for the Term and
upon the covenants and conditions hereinafter specified.
3. CONSTRUCTION AND COMMENCEMENT.
3.1 PLANS. Landlord and Tenant have approved the Preliminary Plans
identified in Paragraph 1 for the construction of a building and/or related
facilities (the "Improvements") on the Premises. Landlord shall have prepared
final plans and specifications ("Final Plans") substantially in conformity with
the Preliminary Plans. "Plans" shall hereinafter mean Preliminary Plans and
then, when prepared, Final Plans. Final Plans shall be delivered to Tenant as
soon as reasonably possible. Within ten (10) days after delivery of the Final
Plans, Tenant shall set forth in writing with particularity and precision, any
corrections or changes necessary to bring the Final Plans into substantial
conformity with the Preliminary Plans, except that Tenant may not object to any
logical development or refinement of the Preliminary Plans. Failure to deliver
to Landlord written notice of such corrections or changes within said ten (10)
day period shall constitute approval of the Final Plans by Tenant. Following
approval of the Final Plans, changes may be made only in accordance with
Paragraph 3.3.
3.2 CONSTRUCTION. Landlord shall construct or cause to be constructed the
Improvements substantially in accordance with the Plans. The Premises shall be
ready for occupancy on the date upon which the work of construction to be
undertaken by Landlord has been substantially completed ("Ready for Occupancy")
as determined by the issuance of a written certificate by Landlord to Tenant
certifying (a) that the Improvements have been substantially completed in
accordance with the Plans, and (b) the date of such completion. Landlord shall
complete, as soon as reasonably possible, any items of work or adjustment not
completed when the Premises are Ready for Occupancy and such defective or
omitted work undertaken by Landlord of which Tenant has given Landlord written
notice within thirty (30) days after the date the Premises are Ready for
Occupancy. The Premises shall be Ready for Occupancy not later than the
Scheduled Term Commencement Date; provided, however, that the Scheduled Term
Commencement Date may be extended for a period of time equal to the period of
any delay encountered by Landlord affecting said work of construction because of
fire, inclement weather, acts of God, riot, governmental regulations, strikes,
shortages of material or labor, changes in the Plans pursuant to Paragraph 3.3,
or any other cause beyond the reasonable control of Landlord.
3.3 CHANGES IN PLANS. Tenant shall have the right to request changes in
the Plans, provided, however, that: (a) no such request shall affect any
structural change in the Improvements, (b) Tenant shall pay upon demand, any
additional cost incurred by Landlord required to implement such change, (c) such
requests shall constitute an agreement on the part of Tenant to any delay in
completion caused by reviewing, processing and implementing the change, and
(d) Tenant's obligation to pay Rent hereunder shall commence to accrue on the
date when the same would have otherwise commenced to be payable hereunder had
such changes not been requested by Tenant. In connection with the original
construction of the Improvements, each party shall be bound by each approval or
lack thereof given by its respective Construction Representative. A party may
designate a substitute Construction Representative by giving written notice to
the other party.
3.4 COMMENCEMENT. The Term of this Lease all commence upon the earlier
of: (a) the Scheduled Term Commencement Date, or if the Premises are not Ready
for Occupancy by the Scheduled Term Commencement Date, the date upon which the
Premises are Ready for Occupancy, (b) the date upon which Tenant first occupies
any portion of the Premises, or (c) the date upon which Rent would have
otherwise commenced to accrue under this Lease had Tenant not delayed in the
performance of any of its duties or obligations hereunder or had not otherwise
interfered with or caused a delay in the performance of Landlord's obligations
hereunder. It the work of construction is not completed within one hundred
twenty (120) days after the Scheduled Term Commencement Date as extended
pursuant to Paragraph 3.2, the sole remedy of either party shall be the option
to terminate this Lease by the delivery to the other party of written notice of
such termination within ten (10) days thereafter.
4. RENT; NET LEASE. Tenant agrees to pay Landlord at Landlord's address or at
such other place designated by Landlord by written notice to Tenant the Rent, in
lawful money of the United States, in advance, without demand, off-set or
deduction, on the first day of each calendar month of the Term hereof. In the
event the Term commences or the date of expiration of this Lease occurs other
than on the first day or the last day of a calendar month, the Rent for such
month shall be prorated. This Lease is what is commonly called a "net lease,"
it being understood that Landlord shall receive the Rent free and clear of any
and all impositions, taxes, liens, charges or expenses of any nature or kind
whatsoever in connection with the ownership and operation of the Premises. If
Rent is not received as provided above, a late charge shall be payable by Tenant
as provided in Paragraph 13.4. In the event that a late charge is payable,
whether or not collected, two times in any twelve month period, then Rent shall
automatically become due and payable quarterly in advance, rather than monthly.
5. DEPOSITS.
5.1 TAXES, INSURANCE AND MAINTENANCE RESERVE. Tenant shall deposit with
Landlord each month the amount set forth in Paragraph l as a reserve to be used
to pay real property taxes, maintenance expenses and insurance expenses on the
Premises which are payable by Tenant under the terms of this Lease. If the
amounts deposited with Landlord by Tenant under the provisions of this Paragraph
are insufficient to discharge the obligations of Tenant, Tenant shall deposit
with Landlord, upon Landlord's demand, the additional sums necessary to fully
satisfy such obligations. All monies deposited with Landlord under this
Paragraph may be intermingled with other monies of Landlord and shall not bear
interest.
5.2 SECURITY DEPOSIT. Tenant has deposited with Landlord the Security
Deposit set forth in Paragraph 1 above as security for Tenant's faithful
performance of Tenant's obligations hereunder. If Tenant fails to pay Rent or
other charges due hereunder, or otherwise defaults with respect to any provision
of this Lease, Landlord may use, apply or retain all or any portion of said
deposit for the payment of any Rent or other charge in default or for the
payment of any other sum to which Landlord may become obligated by reason of
Tenant's default, or to compensate Landlord for any loss or damage which
Landlord may suffer thereby. If Landlord so uses or applies all or any portion
of said deposit, Tenant shall within ten (10) days after written demand
therefor deposit cash with Landlord in an amount sufficient to restore said
deposit to the full amount stated in Paragraph 1 and Tenant's failure to do so
shall be a material breach of this Lease. Landlord shall not be required to
keep said deposit separate from its general accounts. If Tenant performs all of
Tenant's obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Landlord, shall be returned, without payment of
interest or other increment for its use, to Tenant (or, at Landlord's option, to
the last assignee, if any, of Tenant's interest hereunder) at the expiration of
the Term hereof, and after Tenant has vacated the Premises. No trust
relationship is created herein between Landlord and Tenant with respect to said
Security Deposit.
<PAGE>
6. USE.
6.1 USE. The Premises shall be used and occupied only for the uses stated
in Paragraph l.
6.2 COMPLIANCE WITH LAW: PRIOR RESTRICTION. Tenant shall, at Tenant's
sole expense, comply promptly and continuously with all applicable statutes,
ordinances, rules, regulations, orders, restrictions of record, and requirements
in effect during the Term or any part of the Term hereof regulating the Use of
the Premises. Tenant shall use or permit the use of the Premises in any manner
that will tend to create waste or a nuisance. Outside storage shall be
allowed provided that it is limited to the fenced areas of the Premises and is
in conformance with all applicable governmental regulations.
6.3 CONDITIONS OF PREMISES. Tenant hereby accepts the Premises in their
condition existing as of the date of the execution hereof, except for those
specific Improvements which Landlord has undertaken to provide in Paragraph 3
and subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations and any covenants or restrictions of record governing
and regulating the use of the Premises, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Tenant acknowledges that neither Landlord nor Landlord's agent has made any
representation or warranty as to the suitability of the Premises for the conduct
of Tenant's business, and that Tenant has made such legal and factual inquiries
with respect thereto as it deems appropriate and has relied solely thereon.
Landlord shall be responsible for the cost of any preexisting repair items
disclosed in writing to Landlord by the 31st day of this Lease.
6.4 HAZARDOUS MATERIALS. Tenant shall not cause any hazardous wastes,
chemicals or materials (collectively "Hazardous Materials") to be used,
generated, stored or disposed of on or about the Premises except with Landlord's
written permission and in strict compliance with all applicable regulations and
using all necessary and appropriate precautions. Landlord's permission may be
withheld for any reason and may be revoked at any time. Tenant shall be liable
to Landlord for any and all damages caused by Tenant's failure to keep, store,
use, maintain or handle Hazardous Materials on the Premises. Landlord shall not
be liable to Tenant for any claims, damages or losses due to the effects of
Hazardous Materials on the Premises that is caused by owners, tenants,
licensees, and invitees of other properties or is not directly caused by
Landlord. Landlord shall not be liable to Tenant regardless of whether or not
Landlord has approved Tenant's activities. Tenant shall indemnify, defend by
counsel acceptable to Landlord and hold Landlord harmless from and against any
claims, damages or liabilities arising out of a breach of any provision of this
Paragraph 6.4. See Paragraph 44.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 TENANT'S OBLIGATIONS. Tenant shall keep in good order, condition and
repair the Premises and every part thereof, structural and non-structural, and
all adjacent sidewalks, landscaping, driveways, parking lots, and fences located
in the areas which are adjacent to and included with the Premises. At the cost
and expense of Tenant, the landscaping shall be maintained by a professional
gardener and the exterior of the building shall be repainted at least once every
four (4) years.
7.2 Surrender. On the last day of the Term hereof, or on any sooner
termination, Tenant shall surrender the Premises to Landlord in the same
condition as when received, ordinary wear and tear excepted, clean and free of
debris. Tenant shall repair any damage to the Premises occasioned by the
removal of Tenant's trade fixtures, furnishings and equipment. Tenant shall
leave the air lines, power panels, electrical distribution systems, fighting
fixtures, space heaters, air conditioning, plumbing and fencing on the Premises
in good operating condition.
7.3 Landlord Rights. If Tenant fails to perform Tenant's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Landlord
may, at its option (but shall not be required to), enter upon the Premises,
after ten (10) days' prior written notice to Tenant (except in the case of an
emergency, in which case no notice shall be required), perform such obligations
on Tenant's behalf and put the same in good order, condition and repair, and the
cost thereof shall become due and payable as additional Rent to Landlord
together with Tenant's next Rent payment.
7.4 Landlord's Obligations. Except for the obligations of Landlord under
Paragraph 9 and 14, it is intended by the parties hereto that Landlord shall
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non-structural, all of which obligations are intended to be that
of the Tenant. Tenant hereby waives the provisions of California Civil Code
Section 1941 and 1942 or any related or successor provision of law which would
otherwise afford Tenant the right to make repairs at Landlord's expense or to
terminate this Lease because of Landlord's failure to keep the Premises in good
order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without Landlord's prior written consent, make
any alterations, improvements, additions or Utility Installations in, on or
about the Premises, except for non-structural alterations not exceeding Twenty
Thousand Dollars ($20,000.00) in cumulative costs during the Term of this
Lease. As used in this Paragraph 7.5, the term "Utility Installations" shall
include carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Landlord may require that Tenant remove any or all of
said alterations, improvements, additions or Utility Installations at the
expiration of the Term, and restore the Premises to their prior condition.
Landlord may require Tenant to provide Landlord, at Tenant's sole cost and
expense, a lien and completion bond in an amount equal to one and one-half
limes the estimated cost of such improvements, to insure Landlord against any
liability for mechanic's and materialmen's liens and to insure completion of
work. Should Tenant make any alterations, improvements, additions or Utility
Installations without the prior approval of Landlord, Landlord may require
that Tenant remove any or all of the same.
(b) Any alterations, improvements, additions or Utility installations
in, or about the Premises that Tenant shall desire to make and which require the
consent of the Landlord shall be presented to Landlord in written form, with
proposed detailed plans. If Landlord shall give its consent, the consent shall
be deemed conditioned upon Tenant acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Landlord prior to the
commencement of the work and the compliance by Tenant with all conditions of
said permit in a prompt and expeditious manner
(c) Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Tenant shall
give Landlord not less than ten (10) days' notice prior to the commencement of
any work in or on the Premises, and Landlord shall have the right to post
notices of non-responsibility in or on the Premises as provided by law.
(d) Unless Landlord requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Tenant),
which may be made on the Premises, shall become the property of Landlord and
remain upon and be surrendered with the Premises at the expiration of the Term.
Notwithstanding the provisions of this Paragraph 7.5(d), Tenant's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Tenant and may be removed by Tenant subject to the provisions of Paragraph 7.2.
7.6 COMMON AREA MAINTENANCE. In the event that the Premises are a portion
of a larger building or complex, Landlord, at Landlord's option, may arrange for
any portion of the exterior or common area maintenance and repair. Tenant shall
pay to Landlord upon demand a reasonable proportion to be determined by Landlord
of all costs including a management fee equal to ten percent of such costs.
8. INSURANCE, INDEMNITY.
8.1 COVERAGE. The following insurance and any additional insurance
coverage that may be required by law, or holders of mortgages or deeds of trust
shall be carried protecting Landlord and the holders of any mortgages or deeds
of trust covering the Premises. Any insurance policies provided by Tenant shall
provide that such policies are primary and non-contributing with any insurance
carried by the Landlord.
(a) Insurance covering loss or damage to the Premises in the amount
of the full replacement value thereof, as the same may exist from time to time,
but in no event less than the total amount required by lenders having liens on
the Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Landlord or to the holders of
mortgages or deeds of trust on the Premises. A stipulated value or agreed
amount endorsement deleting the co-insurance provision of the policy shall be
procured with said insurance. If such insurance coverage has a deductible
clause, the deductible amount shall not exceed $5,000 per occurrence; and Tenant
shall be liable for such deductible amount.
(b) Comprehensive general liability (Landlord's risk only including
without limitation bodily injury, personal injury and property damage insurance)
in the amount of six million dollars or such higher limits as Landlord may
reasonably require.
(c) Insurance against abatement or loss of rent in case of fire or
other casualty in an amount equal to the Rent, Real Property Taxes, and
insurance premium payments to be made by Tenant during one (1) year; and
(d) Comprehensive public liability insurance (including without
limitation bodily injury, personal injury and property damage), with limits at
least as high as the amounts respectively stated in Paragraph 1, or such higher
limits as Landlord may reasonably require.
8.2 PAYMENT OF PREMIUMS. Tenant shall obtain the insurance policy called
for in Paragraph 8.1(d). Landlord shall obtain the insurance policies called
for in Paragraphs 8.1(a), (b), and (c) and Tenant shall pay the cost thereof
upon demand as additional rent. However, it the Improvements are a one-tenant
building and Tenant can provide suitable insurance at lesser cost within thirty
(30) days after notice of the company and rate obtained by Landlord; Tenant may
do so and shall not be liable to Landlord for any cost of temporary insurance in
excess of the rate for the substitute insurance. It Tenant fails to maintain
insurance which Tenant has undertaken to provide, Tenant shall pay for any loss
or cost resulting from said failure.
8.3 INSURANCE POLICIES. Insurance required hereunder shall be with
companies holding a Best's Insurance Guide "General Policyholders Rating" of at
least "A" and a "Financial Size Category" rating of at least Class VIII.
Insurance policies shall not be cancellable or subject to reduction in coverage
or other modification except after thirty (30) days' prior written notice to
Landlord. The insuring party shall deposit with such mortgage holders as
Landlord may require, policies, duplicates or certificates as such holders may
require, and shall in all cases furnish the other party with policies,
duplicates and certificates. Tenant shall not violate or permit to be violated
any of the conditions or provisions of any policy provided for in Paragraph 8.1,
and Tenant shall so perform and satisfy the requirements of the companies
writing such policies so that at all times companies of good standing reasonably
satisfactory to Landlord shall be willing to write and/or continue such
insurance.
8.4 WAIVER OF SUBROGATION. Tenant and Landlord each hereby release and
relieve the other and waive their entire right of recovery against the other for
loss or damage arising out of or incident to the perils insured against
hereunder, which perils occur in, on or about the Premises, whether due to the
negligence of Tenant or Landlord or their agents, employees, contractors and/or
invitees. Tenant and Landlord shall, upon obtaining the policies of insurance
required hereunder, give notice to the insurance carrier or carriers that the
foregoing mutual waiver of subrogation is contained in this Lease.
2
<PAGE>
8.5 INDEMNITY. Except in the case of gross negligence by Landlord, Tenant
shall indemnify and hold harmless Landlord from and against any and all claims
arising from Tenant's use of the Premises, or from the conduct of Tenant's
business or from any activity, work or things done, permitted of suffered by
Tenant in or about the Premises or elsewhere and shall further indemnity and
hold harmless Landlord from and against any and all claims arising from any
breach or default in the performance of any obligation on Tenant's part to be
performed under the terms of this Lease, or arising from any negligence of
Tenant, or any of Tenant's agents, contractors, or employees, and from and
against all costs, attorneys' fees, expenses and liabilities incurred in the
defense of any such claim or any action or proceeding brought thereon; and in
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant upon notice from Landlord shall defend the same at Tenant's
expense by counsel satisfactory to Landlord. Tenant as a material part of the
consideration to Landlord hereby assumes all risk of damage to property or
injury to persons, in, upon or about the Premises arising from any cause, except
the gross negligence of Landlord, and Tenant hereby waives all claims in respect
thereof against Landlord.
8.6 EXEMPTION OF LANDLORD FROM LIABILITY. Except in the case of gross
negligence of Landlord, Tenant hereby agrees that Landlord shall not be liable
for injury to Tenant's business or any loss of income therefrom or for damage to
the goods, wares, merchandise or other property of Tenant, Tenant's employees,
invitees, customers, or any other person in or about the Premises; nor shall
Landlord be liable for injury to the person of Tenant, Tenant's employees,
agents or contractors, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether said damage or injury results from conditions arising upon the Premises
or upon other portions of the building of which the Premises are a part, or from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing same is inaccessible to Tenant. Landlord shall
not be liable for any damages arising from any act or neglect of any other
tenant, if any, of the building in which the Premises are located.
9. DAMAGE OR DESTRUCTION.
9.1 PARTIAL DAMAGE-INSURED. Subject to the provisions of Paragraphs
9.3 and 9.4, if the Premises are damaged and such damage was caused by a
casualty covered under an insurance policy, Landlord shall, or at Landlord's
option, Tenant shall repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If the insurance
proceeds received by Landlord are not sufficient to effect such repair and
Landlord elects to repair, Tenant shall pay to Landlord upon demand any costs
incurred by Landlord not fully covered by insurance proceeds. If Tenant
repairs the damage, Landlord shall reimburse Tenant for the costs of repair
to the extent of insurance proceeds received by Landlord.
9.2 PARTIAL DAMAGE-UNINSURED. Subject to the provisions of Paragraphs 9.3
and 9.4, it at any time during the Term hereof the Premises are damaged, except
by a negligent or willful act of Tenant (in which event Tenant shall make the
repairs at its expense), and such damage was caused by a casualty not covered
under an insurance policy required to be maintained pursuant to Paragraph 8.1,
Landlord may at Landlord's option either (a) repair such damage as soon as
reasonably possible at Landlord's expense, in which event this Lease shall
continue in full force and effect, or (b) give written notice to Tenant within
thirty (30) days after the date of the occurrence of such damage of Landlord's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage. In the event Landlord elects to give such notice of Landlord's
intention to cancel and terminate this Lease, Tenant shall have the right
within twenty (20) days after the receipt of such notice to give written notice
to Landlord of Tenant's intention to repair such damage at Tenant's expense,
without reimbursement from Landlord, in which event this Lease shall continue in
full force and effect, and Tenant shall proceed to make such repairs as soon
reasonably possible. If Tenant does not give such notice within such twenty
(20) day period, this Lease shall be cancelled and terminated as of the date of
the occurrence of such damage.
9.3 TOTAL DESTRUCTION. If at any time during the Term of this Lease
there is damage, whether or not an insured loss, (including destruction required
by any authorized public authority) to the building of which the Premises are a
part to the extent that the cost of repair exceeds fifty percent (50%) of the
then replacement cost of such building as a whole, but not including the cost of
the land thereon, then this Lease shall automatically terminate as of the date
of such destruction.
9.4 DAMAGE NEAR END OF TERM. If the Premises are damaged during the last
year of the Term of this Lease, Landlord may at Landlord's option cancel and
terminate this Lease as of the date of occurrence of such damage by giving
written notice to Tenant of Landlord's election to do so within thirty (30) days
after the date of occurrence of such damage.
9.5 ABATEMENT OF RENT. In the event of damage described in paragraphs 9.1
or 9.2, and Landlord or Tenant repairs or restores the Premises, Rent for the
period during which such damage, repair or restoration continues shall be abated
in proportion to the degree to which Tenant's use of the premises is impaired,
but only to the extent of any proceeds received by Landlord from rental
abatement insurance described in Paragraph 8.1. Except for the abatement of
Rent, if any, Tenant shall have no claim against Landlord for any damage
suffered by reason of any such damage, destruction, repair or restoration.
9.6 WAIVER. Tenant and Landlord hereby waive the provisions of California
Civil Code Paragraphs 1932 (2) and 1933 (4) or any related or successor
provision of law which relate to termination of leases when the thing leased is
destroyed and agree that such event shall be governed by the terms of this
Lease.
10. REAL PROPERTYTAXES.
10.1 PAYMENT OF TAXES. Tenant shall pay the real property tax, as defined
in Paragraph 10.2, applicable to the Premises during the Term of this Lease. If
deposits collected for real property taxes as provided in Paragraph 5.1 are not
sufficient to discharge Tenant's obligations, payment of the balance shall be
made at least ten (10) days prior to the delinquency date by depositing the
balance with Landlord. If any Such taxes paid by Tenant shall cover any period
of time after the expiration of the Term hereof, Tenant's share of such taxes
shall be equitably prorated to cover only the period of time within the tax
fiscal year during which this Lease shall be in effect, and Landlord shall
reimburse Tenant to the extent required within thirty (30) days following
expiration of the Term. If Tenant shall fail to pay any such taxes, Landlord
shall have the right to pay the same, in which case Tenant shall repay such
amount to Landlord with Tenant's next Rent installment together with interest at
the maximum rate then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term Real
Property Tax shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises are a part, as against
Landlord's right to rent or other income therefrom, and as against Landlord's
business of leasing the Premises. Real Property Tax shall also include any tax,
fee, levy, assessment or charge (i) in substitution of, partially or totally,
any tax, fee, levy assessment or charge hereinabove included within the
definition of Real Property Tax or (ii) the nature of which was hereinbefore
included within the definition of Real Property Tax.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Tenant's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Landlord from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Landlord's reasonable determination thereof, in good
faith, shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all personal property of Tenant contained in the Premises or elsewhere.
When possible, Tenant shall cause said trade fixtures, furnishings, equipment
and all other personal property to be assessed and billed separately from the
real property of Landlord.
11. UTILITIES. Tenant shall pay for heat, water, gas, electricity, and any
other utilities and services supplied to the Premises together with taxes
thereon. Tenant shall be responsible for any installation or hook-up charge.
Landlord shall not be liable to Tenant for interruption in or curtailment of any
utility service, nor shall any such interruption in or curtailment constitute a
constructive eviction or grounds for rental abatement. If any such services are
not separately metered to Tenant, Tenant shall pay a reasonable proportion to be
determined by Landlord of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not voluntarily or by
operation of law assign, mortgage, sublet, or otherwise transfer or encumber all
or any part of Tenant's interest in this Lease or in the Premises without
Landlord's prior written consent. Landlord shall not unreasonably withhold its
consent to an assignment or sublet, provided the proposed assignee or sublessee
is reasonably satisfactory to Landlord as to credit and will occupy and use the
Premises for the same purposes specified in Paragraph 1. Any attempted
assignment, transfer, mortgage, encumbrance or subletting without such consent
shall constitute a breach of this Lease and be voidable at Landlord's election.
Tenant shall pay to Landlord five hundred dollars ($500) as compensation for
expenses in connection with any request for Landlord's consent by Tenant.
12.2 NO RELEASE OF TENANT. Regardless of Landlord's consent, no subletting
or assignment shall release Tenant of Tenant's obligation or alter the primary
liability of Tenant to pay the Rent and to perform all other obligations to be
performed by Tenant hereunder. The acceptance of Rent by Landlord from any
other person shall not be deemed to be a waiver by Landlord of any provision
hereof. Consent to one assignment or subletting shall not be deemed consent to
any subsequent assignment or subletting.
12.3 RECAPTURE OF PREMISES. In connection with any proposed assignment or
sublease, Tenant shall submit to Landlord in writing (a) the name of the
proposed assignee or sublessee (b) such information as to its financial
responsibility and standing as Landlord may reasonably require, and (c) all of
the terms and conditions upon which the proposed assignment or subletting is to
be made. Landlord shall have an option to cancel and terminate this Lease with
respect to all or such portion of the Premises which is to be assigned or
sublet. Landlord may exercise said option in writing within thirty (30) days
after its receipt from Tenant of such request to assign or sublease the
Premises. If Landlord shall exercise its option, Tenant shall surrender
possession of the entire Premises, or the portion thereof which is the subject
of the option. If this Lease is cancelled as to a portion of the Premises only,
the Rent after the date of cancellation shall be reduced in the proportion that
the floor area of the cancelled portion bears to the total floor area of the
Premises.
12.4 EXCESS SUBLEASE RENTAL. If, on account of or in connection with any
assignment or sublease, Tenant receives rent or other consideration in excess
of the Rent called for hereunder, or in the case of the sublease of a portion of
the Premises, in excess of the pro rata Rent based on the floor area of such
portion, after appropriate adjustments to assure all other payments called for
hereunder are appropriately taken into account, Tenant shall pay to Landlord
fifty percent (50%) of the excess of such payment of rent or other consideration
received by Tenant promptly after its receipt.
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13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment of Rent or any other
payment required to be made by Tenant hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in Paragraph 13.1(b), where such failure shall continue for
a period of thirty (30) days after written notice thereof from Landlord to
Tenant; provided, however, that if the nature of Tenant's default is such that
more than thirty (30) days are reasonably required for its cure, then Tenant
shall not be deemed to be in default if Tenant commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(d) (i) The making by Tenant of any general arrangement or assignment
for the benefit of creditors; (ii) the filing by or against Tenant of a petition
to have Tenant adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Tenant, the same is dismissed within sixty (60) days);
(iii) the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where possession is not restored to Tenant within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease where such seizure is not discharged within thirty (30)
days.
(e) The discovery by Landlord that any financial statement given to
Landlord by Tenant, any assignee of Tenant, any subtenant of Tenant, any
successor in interest or any guarantor of Tenant's obligations hereunder was
materially false.
13.2 REMEDIES. In the event of any material default or breach by Tenant,
Landlord may at any time thereafter, with or without notice or demand and
without limiting Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises, in which
case this Lease shall terminate and Tenant shall immediately surrender
possession of the Premises to Landlord. In such event, Landlord shall be
entitled to recover from Tenant all damages incurred by Landlord by reason of
Tenant's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting including necessary renovation
and alteration of the Premises, reasonable attorneys' fees, and any real estate
commission actually paid; the worth at the time of award by the court having
jurisdiction thereof of the amount which the unpaid Rent for the balance of the
Term after the time of such award exceeds the amount of such rental loss for the
same period that Tenant proves could be reasonably avoided; and that portion of
the leasing commission paid by Landlord applicable to the unexpired Term of this
Lease. Unpaid installments of Rent or other sums shall bear interest from the
date due at the maximum rate then allowable by law.
(b) Maintain Tenant's right to possession in which case this Lease
shall continue in effect whether or not Tenant shall have abandoned the
Premises. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
the Rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the State of California.
13.3 DEFAULT BY LANDLORD. Landlord shall not be in default unless Landlord
fails to perform obligations required of Landlord within thirty (30) days after
written notice by Tenant to Landlord and to the holder of any mortgage or deed
of trust covering the Premises whose name and address shall have theretofore
been furnished to Tenant in writing, specifying wherein Landlord has failed to
perform such obligations; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for performance,
then Landlord shall not be in default it Landlord commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion.
13.4 LATE CHARGES. Tenant hereby acknowledges that late payment by Tenant
to landlord of Rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within five (5) days after
such amount shall be due, then, without any requirement for notice to Tenant,
Tenant shall pay to Landlord a late charge equal to five percent (5%) of such
overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Landlord will incur by reason of late
payment by Tenant. Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant's default with respect to such overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies granted
hereunder.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "Condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (100%) of the
floor area of the building on the Premises or more than twenty-five percent
(25%) of the land area of the Premises which is not occupied by any building is
taken by Condemnation; then Tenant may, at Tenant's option to be exercised in
writing only within ten (10) days after Landlord shall have given Tenant written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession), terminate this
Lease as of the date the condemning authority takes such possession. If Tenant
does not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Premises remaining,
except that the Rent shall be reduced in the proportion that the floor area
taken bears to the total floor area of the building situated on the Premises.
No reduction in Rent shall occur if the only area taken is that which does not
have a building located thereon. Any award for the taking of all or any part of
the Premises under the power of eminent domain or any payment made under threat
of the exercise of such power shall be the property of Landlord, whether such
award shall be made as compensation for diminution in value of the leasehold or
for the taking of the fee, or as severance damages; provided, however, that
Tenant shall be entitled to any award for loss or damage to Tenant's trade
fixtures and removable personal property. In the event that this Lease is not
terminated by reason of such Condemnation, Landlord shall, to the extent of
severance damages received by Landlord in connection with such Condemnation,
repair any damage to the Premises caused by such Condemnation except to the
extent that Tenant has been reimbursed therefor by the condemning authority.
Tenant shall pay any amount in excess of such severance damages required to
complete such repair.
15. EXAMINATION OF LEASE. Submission of this instrument for examination or
signature by Tenant does not constitute a reservation of or option to lease.
This instrument is not effective as a lease or otherwise until execution and
delivery by Landlord and Tenant.
16. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time during the Term, upon ten (10) days prior
written notice from Landlord execute, acknowledge and deliver to Landlord a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the Rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Tenant's knowledge, any uncured defaults on
the part of Landlord hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Landlord's option, Tenant's failure to deliver such statement
within ten (10) days of receipt of written notice shall be a material breach of
this Lease or shall be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
(ii) that there are no uncured defaults in Landlord's performance, and (iii)
that not more than one month's Rent has been paid in advance.
(c) If Landlord desires to finance, refinance or sell the Premises, or any
part thereof, Tenant hereby agrees upon ten (10) days prior written notice to
deliver to Landlord such financial statements of Tenant as may be reasonably
required by a lender or purchaser. Such statement shall include the past three
years' financial statements of Tenant. All such financial statements shall be
received by Landlord in confidence and shall be used only for the purposes
herein set forth.
17. LANDLORD'S LIABILITY. Whenever Landlord conveys its interest in the
Premises, except to the extent that Landlord is in material default at the time
of conveyance, Landlord shall be automatically released from all liability as
respects the further performance of covenants on the part of Landlord herein
contained provided the assignee executes an assumption agreement expressly
agreeing to assume all of Landlord's obligations with respect to this Lease. If
requested, Tenant shall execute a form of release and such other documentation
as may be required to further effect these provisions. Tenant agrees to look
solely to Landlord's estate and interest in the Premises for the satisfaction of
any liability, duty or obligation of Landlord in respect to this Lease or the
relationship of Landlord and Tenant hereunder and no other assets of Landlord
shall be subject to any liability therefor. Tenant agrees it will not seek and
hereby waives any recourse against the individual partners, directors, officers,
employees or shareholders of Landlord or any of their personal assets for such
satisfaction.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Landlord not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Tenant under this Lease.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Tenant to Landlord under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal service or by certified mail, return
receipt requested. Notice by certified mail shall be deemed served on the date
to delivery as shown on the postal receipt. Either party may by notice to the
other specify a different address for notice purposes, except that, upon
Tenant's taking possession of the Premises, the Premises shall constitute
Tenant's address for notice purposes. A copy of all notices to be given to
Landlord hereunder shall be concurrently transmitted by Tenant to such party or
parties at such addresses as Landlord may hereafter designate by notice to
Tenant.
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24. WAIVER. No waiver by Landlord of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. Landlord's consent to or approval of any act
shall not be deemed to render unnecessary the obtaining of Landlord's consent to
or approval of any subsequent act by Tenant. The acceptance of Rent hereunder
by Landlord shall not be a waiver of any preceding breach Tenant or of any
provision hereof, other than the failure of Tenant to pay the particular Rent so
accepted, regardless of Landlord's knowledge of such preceding breach at the
time of acceptance of such Rent. Partial or incomplete payments accepted by
Landlord shall not be a waiver or considered an accord and satisfaction of any
amounts due.
25. CAPTIONS. Paragraph captions are not a part hereof.
26. HOLDING OVER. If Tenant remains in possession of the Premises or any part
thereof after the expiration of the Term without the express written consent of
Landlord, such occupancy shall be a tenancy from month to month at a rental
equal to the Rent during the last month of The Term increased by twenty percent
(20%) and upon all the terms hereof applicable to a month-to-month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to the provisions of Paragraphs 12
and 17, this Lease shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns and legal representatives. This
Lease shall be governed by the laws of the State of California.
30. SUBORDINATION.
(a) This Lease, at Landlord's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof. Landlord's
election to subordinate this Lease shall not be effective unless the ground
lessor, mortgagee or trustee shall execute with Tenant a nondisturbance
agreement recognizing that Tenant's, right to quiet possession of the Premises
shall not be disturbed if Tenant is not in default and so long as Tenant shall
pay the Rent and observe and perform al the provisions of this Lease. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Tenant, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Tenant agrees to execute any documents required to effectuate an
attornment, a Subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Tenant's failure
to execute such documents within ten (10) days after written demand shall
constitute a default by Tenant hereunder, or at Landlord's option, Landlord
shall execute such documents on behalf of Tenant as Tenant's attorney-in-fact.
Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead to execute such
documents.
31. ATTORNEY'S FEES. If Landlord or Tenant brings an action to enforce its
respective rights hereunder, the unsuccessful party therein agrees to pay all
costs incurred by the prevailing party therein, including reasonable attorney's
fees and court costs to be fixed by the court.
32. LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the right to
enter the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or tenants, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Landlord may deem necessary or desirable.
Landlord may at any time during the last one hundred twenty (120) days of the
Term hereof place on or about the Premises any ordinary "For Sale" or "For
Lease" signs, all without rebate of Rent or liability to Tenant.
33. AUCTIONS. Tenant shall not conduct any auction without Landlord's prior
written consent.
34. SIGNS. Any sign placed on the Premises shall contain only Tenant's name or
the name of any affiliate of Tenant actually occupying the Premises, but no
advertising matter. No such sign shall be erected until Tenant has obtained
Landlord's written approval of the location, materials, size, design, and
content thereof and any necessary permit therefor. Tenant shall remove any such
sign upon termination and return the Premises to their condition prior to the
placement of said sign.
35. MERGER. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, or a termination by Landlord, shall not work a
merger and shall at the option of the Landlord, terminate all or any existing
subtenancies or may, at the option of Landlord, operate as an assignment to
Landlord of any or all of such tenancies.
36. EASEMENTS, BOUNDARY CHANGES. Landlord reserves to itself the right, from
time to time, to grant such easements, rights, dedications and enact boundary
and common area configuration adjustments that Landlord deems necessary or
desirable and to cause the recordation of parcel maps and restrictions, so long
as they do not unreasonably interfere with the use of the Premises by Tenant or
materially reduce or restrict Tenant's vehicular parking or access. Tenant
shall sign any of the aforementioned documents upon request of Landlord and
failure to do so shall constitute a breach of this Lease by Tenant.
37. QUIET POSSESSION. Upon Tenant's paying the Rent, additional rent and other
sums provided hereunder and observing and performing all of the covenants,
conditions and provisions on Tenant's part to be observed and performed
hereunder, Tenant shall have quiet possession of the Premises for the entire
Term hereof, subject to the provisions of this Lease.
38. AUTHORITY. If Tenant is a corporation, trust or partnership, each
individual executing this Lease on behalf of such entity represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of said
entity. If Tenant is a corporation, trust or partnership, Tenant shall, within
thirty (30) days after execution of this Lease, deliver evidence of such
authority satisfactory to Landlord.
SEE ATTACHED ADDENDUM FOR PARAGRAPHS 39 THROUGH 49.
The Parties hereto have executed this Lease on the dates immediately above their
respective signatures.
Dated: 2-24-95 Dated:
-------------------------------- ---------------------------------
29 Santa Anita Partnership L.P.
Replacement Parts Manufacturing a California limited partnership
- --------------------------------------- ---------------------------------------
a Delaware corporation
Investment Building Group
By: By: a California corporation, its agent
----------------------------------- -----------------------------------
By: By:
----------------------------------- -----------------------------------
John Kent Jack M. Langson, its president
Chief Financial Officer
"Tenant" "Landlord"
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ADDENDUM TO THE STANDARD INDUSTRIAL LEASE
DATED FEBRUARY 24,1995
BY AND BETWEEN
REPLACEMENT PARTS MANUFACTURING
A CALIFORNIA CORPORATION
AND
29 SANTA ANITA PARTNERSHIP L.P.
A CALIFORNIA LIMITED PARTNERSHIP
39. RENT: The Rent as called for in Paragraph 1 shall commence at $39,500 per
month. The Rent shall be increased periodically according to the following
schedule:
Months Monthly Rental
------ --------------
1 through 12 $39,500
13 through 48 $43,700
49 through 87 $47,800
40. TENANT IMPROVEMENT ALLOWANCE. Landlord shall provide a tenant improvement
allowance (the "Improvement Allowance") in the amount of Two Hundred
Ninety-two Thousand Dollars ($292,000) for the items outlined in Exhibit
"B". In the event that the items in Exhibit "B" cost more than the
Improvement Allowance, Tenant shall have the right to reduce the
improvements to limit the cost to the Improvement Allowance; or,
alternatively, Tenant shall pay to Landlord on demand the cost of
improvements above the Improvement Allowance. If Tenant does not pay to
Landlord the extra costs above the Improvement Allowance or notify Landlord
of the items to be eliminated within ten (10) days of written notice from
Landlord, Landlord may in its sole discretion eliminate items to bring the
budget within the Improvement Allowance and proceed with the construction
of the Premises and tenant improvements. In no event shall commencement of
Rent be delayed due to any delay in completion of the tenant improvement
items, however, in the event that the office improvements in unit "A" are
not substantially completed by the Scheduled Term Commencement Date, and
the delay has not been caused by Tenant's actions, an offset of $300 per
day to the Rent shall apply until such office improvements are
substantially complete as evidenced by a certificate of occupancy by the
City of Rancho Cucamonga.
Tenant shall provide Landlord with the preliminary tenant improvement and
warehouse racking plan, preliminarily approved by the City of Rancho
Cucamonga and by Landlord on or before March 1, 1995.
41. ADDITIONAL IMPROVEMENTS TO BE INSTALLED BY LANDLORD. Landlord shall pay
for the costs associated with constructing the 2nd floor mezzanine to be
improved and used for office as per the Preliminary Plans.
42. OPTION TO EXTEND TERM. In the event that Tenant i) has fully and
faithfully performed its obligations hereunder during the Term of this
Lease, ii) has had a retained earnings balance of $500,000 for the prior
two years, and iii) has not assigned or sublet more than 25% of the
premises, Tenant is hereby granted the Option to extend the term of this
Lease for an additional three (3) years by giving Landlord written notice
of its election to do so not later than the 57th month of the term of this
Lease. The terms and conditions as contained in this Lease at the time of
exercise of the option shall remain in effect during this three year
extension period, except that the Rent shall be increased to $51,500 during
months 88 through 123 (the extended term).
43. RENT Waiver. Landlord hereby grants a rent waiver to Tenant in the amount
of $25,000 per month for a period of 4 months to be applied toward the
initial Rent due under this Lease.
<PAGE>
EXHIBIT 10.26
LEASE PURCHASE AGREEMENT
THIS AGREEMENT, made this 21st day of April, 1995, by and between Fleming
Companies, Inc., ("Seller"), and Aaron's Automotive Products, Inc. ("Buyer").
WHEREAS, Seller is the Tenant pursuant to a lease agreement dated
August 26, 1968, as amended, ("Lease") regarding certain improved real property
located in Joplin, Missouri, and desires to sell its entire interest in Lease,
and
WHEREAS, Buyer is seeking to lease manufacturing and warehousing space and
is willing to purchase Seller's entire interest in Lease, subject to the terms
and provisions hereof.
NOW THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration to each of the parties hereto paid by
the other, the receipt and legal sufficiency whereof is hereby acknowledged, it
is hereby mutually covenanted and agreed as follows:
SECTION 1. DESCRIPTION OF LEASE TO BE PURCHASED.
Subject to the terms of this Agreement, Seller shall sell and Buyer shall
purchase the following:
(A) A lease dated August 26, 1968 by and between Seller as Tenant and ARBA
Realty Company, Inc., as Landlord ("Landlord") ("Original Lease") as amended by
First Amendment to Lease dated September 20, 1974 ("First Amendment"), and as
amended by Second Amendment to Lease dated November 10, 1974 ("Second
Amendment") (collectively referred to as "Lease"), regarding the real property
described in Exhibit "A" and Exhibit "A-1,", ("Land") and all improvements
thereon described in Exhibit "B" ("Improvements"), and all rights to Lease
provided therein, including but not limited to options to extend term, as
provided for in Article II, Sections 2.02 and 2.03.
<PAGE>
The Lease shall be sold and conveyed by duly executed Assignment (copy
attached as Exhibit F) (and a bill of sale transferring, with warranty of title,
all of Seller's interest, if any, in any personal property, fixtures and
equipment on the Premises) subject to:
(i) Zoning regulations, ordinances and laws of the city, state
and county in which the Premises lie and of any other governmental body
which may have jurisdiction over the Premises;
(ii) County and city real estate taxes which are not yet due and
payable;
(iii) Terms of Lease; and
(iv) Reservation of last day of Lease, or as applicable option
periods.
Land, Improvements, Fixtures and Equipment (sometimes collectively referred
to as "Premises").
(B) All and singular the estate, rights, privileges, easements and
appurtenances belonging to or in any way pertaining to the Lease Premises.
(C) All heating, air conditioning, plumbing, electrical, phone, water,
gas, air and other mechanical systems, fixtures, and equipment currently
installed on the Premises ("Fixtures and Equipment.")
SECTION 2. EARNEST MONEY AND PURCHASE PRICE.
(A) Buyer shall, within ten (10) days after acceptance of this Contract by
Seller, deposit with a title insurance agency selected by Buyer, the sum of TEN
THOUSAND DOLLARS ($10,000.00) (the "Deposit"), into an interest bearing, escrow
account, with all interest to accrue to the benefit of Buyer. If there has been
full performance of this Agreement on part of Seller, and Buyer fails to comply
herewith, this escrow deposit shall be forfeited to Seller as liquidated
damages.
(B) The purchase price (the "Purchase Price") for the Premises shall be
ONE MILLION FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($1,500,000.00), payable
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as set forth in paragraph (C) of this Section.
(C) On the Closing Date, Buyer shall pay to Seller, SEVEN HUNDRED FIFTY
THOUSAND DOLLARS ($750,000.00), less Deposit and normal prorations and costs,
and the balance of SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000.00) to be
paid, without interest as follows:
(i) Two Hundred and Fifty Thousand Dollars ($250, 000. 00) one
(1) year from date of Closing;
(ii) Two Hundred and Fifty Thousand Dollars ($250,000.00) two (2)
years from date of Closing; and
(iii) Two Hundred and Fifty Thousand Dollars ($250,000.00)
three (3) years from date of Closing.
Buyer's obligation to be evidenced by Promissory Note (copy attached as
Exhibit G), secured by Lease, so that if Buyer defaults in any of the required
payments, Seller shall take Lease back and assume the obligations thereunder in
satisfaction of Buyer's obligations.
SECTION 3. COMMITMENT, POLICY OF TITLE INSURANCE AND SURVEY.
(A) Buyer shall, within twenty (20) days from the date of satisfaction of
all conditions precedent in Section 4, except (i) and (ii), make application to
a title agency selected by Buyer ("Title Company") for a commitment pursuant to
which the Title Company shall issue to Buyer a Leaseheld Policy of Title
Insurance, subject to the conditions of such commitment, in the amount of the
Purchase Price ("Title Policy"), insuring that at the time of recordation of the
Assignment there is vested in Buyer, title good and marketable in fact, to the
Lease, free and clear of all liens, charges, claims, actions, encumbrances or
title exceptions of any kind, except the "Permitted Exceptions" (defined below).
(B) Buyer shall cause at its option a survey to be prepared by a
registered land surveyor, prepared in a format consistent with Exhibit "C"
attached hereto and incorporated
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herein by reference. Buyer agrees that all objections to the title and survey
affecting the Lease shall be submitted to Seller in writing no later than twenty
(20) days after Buyer receives such commitment and the survey, and that in the
event that such objections are not submitted as herein specified, then title to
the Lease shall be deemed good and marketable in fact, and Buyer shall be deemed
to have waived objections affecting the title to the Lease as disclosed by said
commitment and survey, except for items normally removed as of closing, required
to be removed by the Title Company title standards herein and/or required to be
removed by the Title Company. Any encumbrance or defect which is within the
scope of any of the Title Standards of the Missouri Bar shall not constitute a
valid objection on the part of Buyer, provided the Seller furnishes the
affidavits or title papers, if any, described in the applicable standard, and
acceptable to Title Company. Those matters disclosed by the title commitment
and/or the survey, and not timely objected to by Buyer or as provided above, and
the terms of Lease are herein referred to as the "Permitted Exceptions". Seller
shall be obligated to reasonably attempt to remedy any defect in title, and
shall use all reasonable efforts to do so, and if Seller is unable to remedy any
defect as to which Buyer has timely objected, this Contract shall terminate and
the Deposit shall be returned to Buyer, unless Buyer agrees in writing to waive
said defect. Seller agrees to deliver to the Title Company affidavits
permitting the Title Company to delete from the Title Insurance Policy to be
delivered to Buyer, the exceptions for rights of parties in possession not shown
by the public records, the exception for any lien or right to a lien for
services, labor or material heretofore or hereafter furnished, imposed by law
and not shown by the public records, and for survey and encroachments.
SECTION 4. CONDITIONS PRECEDENT.
(A) Buyer's obligations to perform the agreement is subject to the
following conditions precedent being satisfied:
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(i) Approval of survey as provided herein;
(ii) Approval of title commitment as provided herein;
(iii) Approval of soil tests, environmental audit, and
engineering, architectural and construction studies as Buyer deems
advisable, to be completed within thirty (30) days from date of acceptance
by Seller. The condition shall be deemed not to be satisfied unless Buyer
gives written notices as provided herein, by said date informing Seller of
satisfaction.
(iv) Written agreement of the Buyer and Seller to be entered into
within ten (10) days from date of acceptance by Seller, upon terms and
conditions agreeable and accepted by both parties, specifically outlining
the items of property which may be removed from the premises upon or prior
to closing, and the condition in which the premises shall be left after
said removal. Said written agreement shall be attached hereto and
incorporated herein by reference as Exhibit D. If not agreed to within the
specified period, then this condition shall not be deemed waived.
(v) Issuance of Approval and Consent Letter of Landlord as to
transfer and uses of Buyer, Estoppel Certificate of Landlord, and
Landlord's approval of Buyer's proposed modifications and improvements
including construction of a tank farm, in form satisfactory to Buyer,
within Thirty (30) days from date.
(vi) Issuance of all applicable governmental authority letters
confirming the status of zoning to permit Buyer's intended operations which
include manufacturing and warehousing.
(vii) Seller shall deliver within ten (10) days from date,
all building, surveys, environmental audits, and inspection reports, in
its possession for review and approval of Buyer within twenty (20) days
after receipt; and
(viii) Seller shall deliver to Buyer, within ten (10) days
from date, a complete list of all expenditures, including required payments
pursuant to Lease, to Landlord or on behalf of Landlord, evidencing costs
of Lease and maintenance of Premises.
(B) Non-satisfaction and/or nonwaiver of any of these conditions precedent
shall terminate this Contract, and Buyer's deposit and all interest therein
shall be refunded in full. Buyer and Seller agree to cooperate with and work
towards satisfaction of all of these conditions.
SECTION 5. CLOSING DATE AND PROCEDURES.
This transaction shall be closed as of May 15, 1995, and upon full
satisfaction of all requirements herein, unless waived in writing or as provided
here. Closing shall be at the
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offices of Title Company, and shall be an escrowed closing, meaning that all
documents and funds shall be deposited in escrow with Title Company, and when
Title Company has redetermined the status of title, made all prorations and
allocations, recorded all required instruments, confirmed to Buyer its ability
to issue the title policies, and shall then release all funds to the appropriate
parties. Possession of premises shall be delivered to Buyer in the condition
required and free and clear of all tenancies. All improvements shall be broom
clean, and Seller's property to be retained shall be removed. The parties shall
work together as to transfer of all utility services without interruption.
Provided that Buyer may commence occupancy and construction of its improvements,
prior to Closing Date, if it provides Seller with written confirmation that
Conditions Precedent of Section 4 above are satisfied, together with proof of
liability insurance with minimum coverage of $5,000,000.00.
SECTION 6. TAXES.
Upon the Closing Date the parties shall prorate general real estate taxes
and installments of special assessments for which Seller is responsible
pursuant to Lease (the "Taxes") levied against the Premises as of the Closing
Date, and if at such time the tax rate of the current fiscal tax year shall not
have been finally determined, proration shall be made upon the basis of the tax
rate for the preceding fiscal tax year applied to the current assessed
valuation, and the parties agree to reprorate when actual taxes are known.
SECTION 7. CLOSING COSTS AND PRORATIONS.
Seller shall pay:
(A) The fee for the issuance of the title commitment, and one-half (1/2)
of the fee of the Title Company for acting as escrow agent and closing the
transaction.
Buyer shall pay:
(B) The cost of recording the assignment and issuance of a Title Policy.
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(C) One-half (1/2) of the fee of Title Company for acting as escrow agent
and closing the transaction.
(D) The costs of the survey.
The parties shall pro-rate as of Closing Date all payments required under
Lease.
SECTION 8. TITLE SURVEY AND/OR CONDITION, DEFECTS.
If the parties shall be unable to close this transaction on the Closing
Date, or such later date as may be mutually agreed upon in writing by the
parties hereto, by reason of the inability of Seller to deliver title or
condition of the premises, including survey, in accordance with the terms of
this Agreement after all reasonable efforts by Seller, and Buyer shall be
unwilling to accept such title or conditions as Seller shall be able to convey,
Buyer's sole remedy shall be to rescind this Contract by giving notice thereof
to Seller, and Title Company shall thereupon refund to Buyer the full Deposit
and all interest therein, and any other moneys deposited in escrow with it by
Buyer and the parties hereto shall thereupon be relieved of any and all further
liability under this Contract except for any obligations which accrued prior to
such rescission, provided that Seller shall reimburse Buyer for Buyer's costs
expended for survey and inspections, and Seller shall pay all title commitment
and Title Company costs. However, Seller, at Seller's election, shall have the
privilege to remedy any objections to title or conditions by Buyer, and for such
purposes shall be entitled to one or more adjournments of the Closing Date for a
reasonable time (not to exceed thirty (30) days in the Aggregate), Buyer's
obligations to remain in full force and effect in the meantime. Buyer may,
nevertheless, accept such title and/or conditions as Seller may be able to
convey without reduction of the Purchase Price or any credit or allowance
against the same.
SECTION 9. Brokerage.
Each party represents and warrants to the other that it has had no dealings
with any
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broker or agent in connection with this Agreement, except Seller's agreements
with John D. Harrison, Jr. of Cushman & Wakefield of Arizona, Inc., and Alan
Buttram of Coldwell Banker of Joplin, Missouri, which Seller shall be solely
responsible for. Each party agrees to indemnify and save the other harmless
from all claims, liability and expense (including reasonable attorneys' fees)
as a consequence of a breach of this representation.
SECTION 10. CONDITION OF PREMISES AND LEASE.
(A) Buyer shall have the right to enter the Premises and perform soil
tests, environmental audits, engineering, architectural and construction studies
thereon, provided Buyer does not interfere with the business conducted by the
Seller and Buyer promptly restores the Premises to its condition existing
before such tests.
(B) Seller warrants and represents that Premises and current uses thereon
satisfy all applicable zoning, and building requirements, and that there are no
undisclosed defects or conditions known to Seller which would be material to
Buyer.
(C) Seller warrants and represents that all plumbing, heating, air
conditioning, electrical, water, air and other mechanical systems shall be in
good operating condition as of closing.
(D) Seller warrants and represents that it has disclosed to Buyer all
terms, conditions, costs, and expenditures of Lease, that Lease is in good
standing and in full force and effect, that all required payments and
expenditures of Lease have been made and are current that it will hold Buyer
harmless for all breaches on its part after Closing Date, that there are no oral
or other Agreements regarding Lease other than those set forth in the Original
Lease, First Amendment and Second Amendment, that it has duly exercised the
first Option for Initial Term, and that Lease is fully assignable, including
options for Extended Terms. Attached hereto as Exhibit E (or to be provided
within ten (10) days from date), is a certified rental expense statement,
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showing all payments which Seller is required or had made in the last twenty-
four (24) months pursuant to Lease.
SECTION 11. FOREIGN REAL PROPERTY TAX ACT CLAUSE.
Seller shall provide to Buyer and Title Company such documents and
instruments as may, in the judgment of Title Company, be necessary to transfer
ownership of the Lease. By way of example and not limitation, Seller shall
provide to Buyer and Title Company a certificate and affidavit form acceptable
to Buyer and Title Company stating that Seller is not a "foreign person" within
the meaning of Section 1445(f)(3) of the Internal Revenue Code of 1986, as
amended, and including such additional certifications and information as may be
required in order to comply with Section 1445 of such Code and Regulations
promulgated thereunder.
SECTION 12. HAZARDOUS WASTES, ASBESTOS, AND OTHER TOXIC CHEMICALS, WASTE
PRODUCTS OR HAZARDOUS OR DANGEROUS CONDITIONS.
(A) Seller represents and warrants that to the best of its knowledge and
belief the Premises contain no asbestos insulation or other material use of that
product; and that 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 or dangerous
conditions, wastes, chemicals or products now exist on the Premises.
(B) Seller represents to Buyer that any and all underground storage tanks
which have ever been on Premises, have been previously removed or will be
removed prior to Closing Date, all in compliance with applicable laws, that
there are no continuing remedial responsibilities, that Premises are in current
compliance with all applicable governmental statutes, regulations, codes, orders
and standards, and that it shall hold Buyer harmless therefrom. If not removed
as of Closing Date and Closure letter received, Buyer may extend Closing Date
until reasonably completed, or at its election, negotiate an Indemnification
Agreement from Seller.
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(C) Seller 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 Buyer and its successors, assigns, and lessees
harmless and shall correct and cure same as soon as reasonably possible after
written notice, and pursuant to all governmental agency requirements.
SECTION 13. BUYER'S COVENANTS.
Buyer covenants and agrees that:
(i) It shall, subject to approval of Landlord, enter into an
agreement with Seller, as of Closing Date, permitting Buyer to cure any
alleged defaults of Buyer under Lease, from and after Closing Date, after
allowing Buyer reasonable notice and opportunity to cure, and if Seller so
cures, that if not reimbursed by Buyer within sixty (60) days after cure,
that Buyer will assign Lease to Seller without further consideration in
satisfaction of its obligations, subject to its reasonable rights to vacate
Premises and remove its property and pay the promissory note referred to in
Section 2(c).
(ii) From and after Closing Date, it will assume Lease and all
obligations thereunder, arising after Closing Date, and hold Seller
harmless therefrom; and
(iii) Buyer agrees that it will not bring onto the Premises
any hazardous material other than lubricating oils, oil additives,
plastics, rubber products, inventory, cleaning supplies and other materials
in normal quantities ordinarily used or stored in the operation of its
business, which include a tank farm previously disclosed, and that it will
not permit any employee, agent, officer, or invitee of Tenant or any person
occupying the Premises, or any portion thereof, by, through or under Buyer
to bring any hazardous material onto Premises. Buyer hereby indemnifies
Seller from and against any and all loss, cost, damage and expense arising
from the introduction of any hazardous material on to the Premises from and
after Closing Date, by Buyer or any employee, agent, officer, director,
invitee of Buyer or any other person occupying the Premises, or any
portion thereof, by, through or under Buyer.
If Seller becomes aware of the presence or suspected presence of any
hazardous material brought onto the Premises in violation of this
paragraph, Seller may so notify the Buyer and request that Buyer institute
remedial action. Buyer will, within ten (10) days of receipt of such
notice, at its sole cost and expense, commence such action as is reasonably
specified by Seller to remove all such hazardous material from the Premises
and will diligently pursue such action to completion. Such work will be
performed in accordance with all applicable laws, ordinances and
regulations governing such work. If Buyer fails to undertake the work
required by this paragraph, Seller may, at its option, to be exercised by
notice to Buyer (i) undertake such work, in which event Buyer shall
reimburse Seller for all costs and expenses, including the fees of
attorneys, engineers and
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other consultants incurred by Seller in such work. However, Seller shall
not be under any obligation to exercise either of the remedies specified in
the preceding sentence, and the remedies provided in this paragraph shall
not be considered exclusive or preclude any claim for damages or any other
remedy which may be available under this Agreement or under law.
SECTION 14. GENERAL CONTRACTUAL PROVISIONS.
(A) HEADINGS. The headings, captions and arrangements used in this
Contract or any related document are, unless specified otherwise, for
convenience only and shall not be deemed to limit, amplify or modify the terms
of the Contract or other documents, nor affect the meaning thereof. Any
references to "Articles" or "Sections" contained herein are, unless specifically
indicated otherwise, references to articles and sections of this Contract. Any
references to "Exhibits" contained herein are references to exhibits attached
hereto, all of which are incorporated by reference and made a part hereof for
all purposes, the same as if set forth herein verbatim, it being understood that
if any exhibit attached hereto, which is to be executed and delivered, contains
blanks or signature lines, the same shall be completed correctly and in
accordance with the terms and provisions contained in and as contemplated herein
prior to or at the time of the execution and delivery thereof.
(B) NUMBER AND GENDER OF WORDS. Whenever herein the singular number is
used, the same shall include the plural where appropriate, and words of any
gender shall include other genders where appropriate.
(C) NOTICES. Whenever this Contract or any related document requires or
permits any notice, consent, approval, request or demand from one party to the
other, the notice, consent, approval, request or demand may be evidenced by a
written memorandum and shall be deemed to have been delivered by envelope,
addressed to the party to be notified at the last address designated by such
party for the receipt of written notices, properly stamped or paid, sealed and
deposited in the United States mail either as express, certified, registered or
first-class mail, or
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otherwise properly deposited for transmittal by an overnight express delivery
service.
(D) SURVIVAL. All agreements, covenants, undertakings, representations
and warranties made in this Contract or any related document shall survive the
closing hereof, shall not be affected by any investigation or information
obtained by any party, and shall continue in full force and effect for the
entire term of the Contract and Lease, including option periods.
(E) GOVERNING LAW. The Contract is being executed and delivered and is
intended to be performed primarily in the State of Missouri, and the substantive
laws of such state shall govern the validity, construction, enforcement and
interpretation of the Contract and any related documents, unless otherwise
specified therein.
(F) INVALID PROVISIONS. If any provision of this Contract or any related
document is held to be illegal, invalid or unenforceable under present or future
laws, effective during the term thereof, such provisions shall be fully
severable; the appropriate document shall be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part thereof;
and the remaining provisions thereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance therefrom. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of such
document a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and may be legal, valid and
enforceable.
(G) ATTORNEY'S FEES AND COSTS. In the event that any dispute arises
between the parties hereto relating to the interpretation, enforcement or
performance of this Contract, and any and all amendments thereto, and such
matter is referred to an attorney for resolution, the prevailing party shall be
entitled to collect from the losing party, any attorney's fees together with any
costs and expenses in the event of litigation.
(H) ENTIRETY AND AMENDMENTS. This Contract embodies the entire agreement
between
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the parties and supersedes all prior agreements and understandings if any,
relating to the subject matter hereof. This Contract may be amended only by an
instrument in writing executed by duly authorized representatives of all
parties; and this Contract may be supplemented only by documents delivered or to
be delivered in accordance with the express terms hereof.
(I) MULTIPLE COUNTERPARTS. This Contract may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed shall be deemed to be an original and all of which when
taken together shall constitute but one and the same instrument.
(J) TIME. Time is of the essence in the performance of all obligations
hereunder.
(K) NO ASSIGNMENT. This Contract shall be binding upon and enure to the
benefit of each party hereto, and its respective successors and assigns;
provided, that no party may assign or otherwise transfer any rights, duties or
obligations hereunder without the prior written consent of the parties, which
consent may be withheld for any reason whatsoever.
IN WITNESS WHEREOF, the parties hereto have executed this Contract as of
the date first above written.
SELLER:
FLEMING COMPANIES, INC.
By:
--------------------------------------
Gary Capshaw
BUYER:
AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
--------------------------------------
Ken Bear
Executive Vice-President
13
<PAGE>
FIRST ADDENDUM TO LEASE PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into effective this 11th day of May, 1995,
by and between FLEMING COMPANIES, INC. ("Seller"), and AARON'S AUTOMOTIVE
PRODUCTS, INC. ("Buyer").
WHEREAS, Buyer and Seller have entered into a certain Lease Purchase
Agreement dated April 21, 1995 ("Lease Purchase Agreement"), and
WHEREAS, pursuant to the provisions of Section 5, the transaction is to be
closed subject to satisfaction of conditions precedent as of May 15, 1995, and
WHEREAS, the parties have mutually agreed that the conditions precedent
cannot be satisfied as of May 15, 1995, and desire to change the closing date to
June 15, 1995.
NOW THEREFORE, in mutual consideration of the foregoing and the respective
covenants and agreements hereinafter contained and in the Lease Purchase
Agreement, the parties hereby agree as follows:
1. Section 5 CLOSING DATE AND PROCEDURES, is amended, to change the
closing date from May 15, 1995 to June 15, 1995.
2. In all other respects not herein above modified, the Lease Purchase
Agreement remains in full force and effect, according to the original
terms and conditions thereof.
IN WITNESS WHEREOF, the parties have hereunto caused this First Amendment
to Lease Purchase Agreement to be executed by their respective officers therein
duly authorized, effective as of the date first written above.
<PAGE>
SELLER:
FLEMING COMPANIES, INC.
By:
--------------------------------------
GARY CAPSHAW
BUYER:
AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
--------------------------------------
KENNETH A. BEAR
EXECUTIVE VICE-PRESIDENT
2
<PAGE>
SECOND ADDENDUM TO LEASE PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into effective this 12th day of June,
1995, by and between FLEMING COMPANIES, INC. ("Seller"), and AARON'S AUTOMOTIVE
PRODUCTS, INC. ("Buyer").
WHEREAS, Buyer and Seller have entered into a certain Lease Purchase
Agreement dated April 21, 1995 ("Lease Purchase Agreement"), and
WHEREAS, pursuant to the provisions of Section 5, and First Addendum to
Lease Purchase Agreement of May 11, 1995 the transaction is to be closed subject
to satisfaction of conditions precedent as of June 15, 1995, and
WHEREAS, the parties have mutually agreed that the conditions precedent
cannot be satisfied as of June 15, 1995, and desire to change the closing date
to June 22, 1995.
NOW THEREFORE, in mutual consideration of the foregoing and the respective
covenants and agreements hereinafter contained and in the Lease Purchase
Agreement and the First Addendum dated May 11, 1995, the parties hereby agree as
follows:
1. Section 5 CLOSING DATE AND PROCEDURES, is amended, to change the
closing date from June 15, 1995 to June 22, 1995.
2. In all other respects not herein above modified, the Lease Purchase
Agreement remains in full force and effect, according to the original
terms and conditions thereof.
IN WITNESS WHEREOF, the parries have hereunto caused this First Amendment
to Lease Purchase Agreement to be executed by their respective officers therein
duly authorized, effective as of the date first written above.
<PAGE>
SELLER:
FLEMING COMPANIES, INC.
By:
--------------------------------------
E. STEPHEN DAVIS
BUYER:
AARON'S AUTOMOTIVE PRODUCTS, INC.
By:
--------------------------------------
KENNETH A. BEAR
EXECUTIVE VICE PRESIDENT
2
<PAGE>
THIRD AMENDMENT TO LEASE
THIS LEASE AMENDMENT of this 24th day of July 1995, by and between FLEMING
COMPANIES, INC. as assignee and successor to ARBA REALTY COMPANY, INC., a
Delaware corporation, by reason of deed and assignment of lease recorded
June 23, 1995, at Book 1480 and Page 431-433, in the office of the Recorder of
Deeds, Jasper County, Missouri (hereinafter referred to as the "Landlord"), and
AARON'S AUTOMOTIVE PRODUCTS, INC., a Delaware corporation, having its principal
offices at 2600 North Westgate, Springfield, Missouri 65803, as assignee and
successor to FLEMING COMPANIES, INC., a corporation organized under the laws of
the State of Kansas, having its office at 6301 Waterford Blvd., Oklahoma City,
OK 73126 by reason of Assignment and Assumption Agreement and Reservation
recorded June 23, 1995, at Book 1480 and Page 434 in the Office of the Recorder
of Deeds for Jasper County, Missouri and Consent To Assignment dated June 22,
1995, copy attached hereto as Exhibit C, (hereinafter referred to as the
"Tenant").
W I T N E S S E T H :
WHEREAS, the Landlord and Tenant are parties to a Lease dated as of
August 26, 1968, as amended by the First Amendment of Lease dated as of
September 20, 1974, and as further amended by the Second Amendment of Lease
dated as of November 10, 1974 (hereinafter referred to as the "Lease") wherein
Landlord let to Tenant and Tenant hired from Landlord certain property, land and
buildings) comprising it certain facility located on Davis Road in Joplin,
Jasper County, Missouri, as more specifically described on Exhibit B attached
hereto and made a part hereof; and
WHEREAS, Landlord and Tenant are now desirous of amending certain
provisions of the Lease as hereinafter set forth to increase the lead premises
by an additional two (2) acres.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Landlord and Tenant hereby
agree as follows:
1. Supplementing the terms and provisions of the Lease and not in
limitation thereof, effective as of the full execution of this Agreement by
Landlord and Tenant, the attached New Exhibit A is added to Lease in lieu of the
prior Exhibit A, as amended by First and Second Amendment, the purpose of said
new Exhibit A, to increase the previously described Premises by an additional
two (2) acres, said two (2) acres described in Exhibit D attached hereto. Said
additional land dedicated to and governed by Lease, is to be without additional
costs to Tenant, except for real property taxes and maintenance, as acquired by
Lease. Tenant has agreed to pay for costs of survey of said additional two (2)
acres, providing a copy of the survey to Landlord and bearing the costs of
applicable subdivision approval and recording of this Third Amendment.
2. Except as herein modified, all the terms, covenants and conditions of
the existing Lease are hereby reaffirmed and shall remain in full force and
effect.
<PAGE>
3. This Agreement shall be binding upon, and inure to the benefit of, the
parties to it and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
executed on their behalf the day and year first above written.
ATTEST: LANDLORD:
FLEMING COMPANIES, INC.
- ------------------------------- By: __________________________________
Secretary Name:
Title:
ATTEST: TENANT:
AARON'S AUTOMOTIVE PRODUCTS, INC.
- ------------------------------- By: __________________________________
Secretary Name:
Title:
2
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AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
This Amendment to Stockholders Agreement (this "Amendment") is made
and entered into as of June 24, 1996 by and between Aftermarket Technology
Holdings Corp., a Delaware corporation (the "Company"), 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 each of the
stockholders of the Company who are signatories hereto (the "Stockholders").
WHEREAS, Section 10.2 of that certain Stockholders Agreement dated as
of August 2, 1994 among the Company and certain of its stockholders,
optionholders and warrantholders (the "Stockholders Agreement") permits the
amendment thereof by a written agreement signed by (a) the Company, (b) AEP and
AOEP and (c) the holders of a majority in voting interest of the outstanding
shares of Common Stock and Preferred Stock of the Company;
WHEREAS, the Stockholders hold a majority in voting interest of the
outstanding shares of Common Stock and Preferred Stock of the Company; and
WHEREAS, the parties hereto desire to amend the Stockholders Agreement
so that the right granted to the stockholders who are a party to the
Stockholders Agreement to include equity securities in an underwritten public
offering of the Company's common stock, par value $.01 per share (the "Common
Stock"), provided 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 (a "Qualified IPO"), pursuant to Section 1(a) of Exhibit D to the
Stockholders Agreement, shall not apply to a Qualified IPO that is consummated
on or before October 31, 1996;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. AMENDMENT. Section 1(a) of Exhibit D to the Stockholders
Agreement is hereby deleted in its entirety and the following is hereby
substituted in its place:
"(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Except in the
case of a Qualified IPO that is consummated on or before October 31, 1996,
if the Company at any time proposes to effect a Qualified IPO or, following
a Qualified IPO, proposes to register any of its equity securities under
the Act (other than by a registration on Form S-4 or S-8 or any successor
or similar forms), whether or not for sale for its own account, in a manner
which would permit registration of Registrable Securities for sale to the
public under the Act, then the Company will each such time give prompt
written notice (which shall be at least 30 days prior to
<PAGE>
filing) to all Eligible Holders of Registrable Securities of its intention
to do so and of such Eligible Holders' rights under this Paragraph 1. Upon
the written request of any such Eligible Holder made within 20 days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Eligible Holder and the
intended method of disposition thereof), the Company will use its best
efforts to effect the registration under the Act of all Registrable
Securities which the Company has been so requested to register by the
holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the Company proposes to register or in a separate
registration statement concurrently filed and on terms substantially the
same as those being offered to the Company; PROVIDED that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
each Eligible Holder of Registrable Securities and, thereupon:
(i) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection
therewith), and
(ii) in the case of a delay in registering, shall be
permitted to delay registering any Registrable Securities for the same
period as the delay in registering such other securities."
2. GOVERNING LAW. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without
reference to choice or conflicts of law principles thereof.
3. EFFECT OF AMENDMENT. Except as amended by this Amendment, the
Stockholders Agreement shall remain unchanged and shall remain in full force and
effect.
2
<PAGE>
IN WITNESS WHEREOF, the Company, AEP, AOEP and each of the
Stockholders have duly executed this Amendment as of the date first above
written.
AFTERMARKET TECHNOLOGY
HOLDINGS CORP.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
THE CLASS A STOCKHOLDERS:
------------------------------------------
WILLIAM A. SMITH
------------------------------------------
JAMES R. WEHR, GRANTOR/TRUSTEE
of The James R. Wehr Revocable Trust dated
2/3/93, as Amended
------------------------------------------
KENNETH T. HESTER
THE CLASS B STOCKHOLDERS:
THE TRUSTEES OF GENERAL ELECTRIC
PENSION TRUST
By:
---------------------------------------
Name:
-------------------------------------
Title: Trustee
SOMERVILLE S TRUST
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
3
<PAGE>
CHEMICAL EQUITY ASSOCIATES
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
HELLER FINANCIAL, INC.
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
BANKAMERICA CAPITAL CORPORATION
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
W. S. INVESTMENTS L.P.
By:
---------------------------------------
Name:
-------------------------------------
General Partner
------------------------------------------
GERALD L. PARSKY
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO GERALD L. PARSKY
By:
---------------------------------------
Richard R. Crowell, Trustee
By:
---------------------------------------
Richard K. Roeder, Trustee
------------------------------------------
RICHARD R. CROWELL
------------------------------------------
JEFFREY S. DEUTSCHMAN
4
<PAGE>
G.M. ROEDER AND R.K. ROEDER, JTWROS
By:
---------------------------------------
Gloria M. Roeder
By:
---------------------------------------
Richard K. Roeder
SUMITOMO BANK OF CA TTEE FOR GIBSON, DUNN &
CRUTCHER RETIREMENT PLAN FBO
H. RICHARD DALLAS
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
------------------------------------------
PATRICK J. STEINER
NHL HOLDINGS LTD.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
------------------------------------------
ROBERT L. CUMMINGS III
------------------------------------------
JOHN E. ANDERSON
ROBERT ANDERSON VARIABLE TRUST
By:
---------------------------------------
Robert Anderson, Trustee
------------------------------------------
AMBASSADOR JAMES D. HODGSON
5
<PAGE>
ALLENWOOD VENTURES, INC.
By:
---------------------------------------
Dr. Simon Ramo
------------------------------------------
FREDERICK J. ELSEA, III
------------------------------------------
W. MONTY YORT
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO W. MONTY YORT
By:
---------------------------------------
Richard R. Crowell, Trustee
By:
---------------------------------------
Richard K. Roeder, Trustee
------------------------------------------
KURT B. LARSEN
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO KURT B. LARSEN
By:
---------------------------------------
Richard R. Crowell, Trustee
By:
---------------------------------------
Richard K. Roeder, Trustee
------------------------------------------
MARK C. HARDY
6
<PAGE>
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO MARK C. HARDY
By:
---------------------------------------
Richard R. Crowell, Trustee
By:
---------------------------------------
Richard K. Roeder, Trustee
------------------------------------------
JOHN T. MAPES
SUMITOMO BANK OF CA TTEE FOR
GIBSON, DUNN & CRUTCHER RETIREMENT
PLAN FBO BRUCE D. MEYER
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
L-A&A GIFT TRUST FBO
ELLIOT LEEDOM ACKERMSN
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
L-A&A GIFT TRUST FBO
NATHANEL LEEDOM ACKERMAN
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
OGAC LIMITED
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
7
<PAGE>
LODWRICK AND CAROLE COOK AS
TRUSTEES OF THE COOK FAMILY
TRUST DATED SEPTEMBER 16, 1991
By:
---------------------------------------
Trustee
THE CLASS C STOCKHOLDERS:
AURORA EQUITY PARTNERS L.P.
By: Aurora Capital Partners L.P.,
its general partner
By: Aurora Advisors, Inc.,
its general partner
By:
---------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
AURORA OVERSEAS EQUITY
PARTNERS I, L.P.
By: Aurora Overseas Capital Partners, L.P.,
its general partner
By: Aurora Overseas Advisors, Ltd.,
its general partner
By:
---------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
8
<PAGE>
AMENDMENT NO. 2 TO
STOCKHOLDERS AGREEMENT
This Amendment to Stockholders Agreement (this "Amendment") is made
and entered into as of October 24, 1996 by and between Aftermarket Technology
Holdings Corp., a Delaware corporation (the "Company"), 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 each of the
stockholders of the Company who are signatories hereto (the "Stockholders").
WHEREAS, Section 10.2 of that certain Stockholders Agreement dated as
of August 2, 1994 among the Company and certain of its stockholders,
optionholders and warrantholders (the "Stockholders Agreement") permits the
amendment thereof by a written agreement signed by (a) the Company, (b) AEP and
AOEP and (c) the holders of a majority in voting interest of the outstanding
shares of Common Stock and Preferred Stock of the Company;
WHEREAS, the Stockholders hold a majority in voting interest of the
outstanding shares of Common Stock and Preferred Stock of the Company; and
WHEREAS, the parties hereto desire to amend the Stockholders Agreement so that
the right granted to the stockholders who are a party to the Stockholders
Agreement to include equity securities in an underwritten public offering of the
Company's common stock, par value $.01 per share (the "Common Stock"), provided
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 (a "Qualified
IPO"), pursuant to Section 1(a) of Exhibit D to the Stockholders Agreement,
shall not apply to a Qualified IPO that is consummated on or before March 31,
1997;
NOW, THEREFORE, in consideration of the foregoing recitals and the
covenants set forth herein, the parties hereto hereby agree as follows:
1. AMENDMENT. Section 1(a) of Exhibit D to the Stockholders
Agreement is hereby deleted in its entirety and the following is hereby
substituted in its place:
"(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Except in the case of a
Qualified IPO that is consummated on or before March 31, 1997, if the
Company at any time proposes to effect a Qualified IPO or, following a
Qualified IPO, proposes to register any of its equity securities under the
Act (other than by a registration on Form S-4 or S-8 or any successor or
similar forms), whether or not for sale for its own account, in a manner
which would permit registration of Registrable Securities for sale to the
public under the Act, then the Company will each such time give prompt
written notice (which shall be at least 30 days prior to
<PAGE>
filing) to all Eligible Holders of Registrable Securities of its intention
to do so and of such Eligible Holders' rights under this Paragraph 1. Upon
the written request of any such Eligible Holder made within 20 days after
the receipt of any such notice (which request shall specify the Registrable
Securities intended to be disposed of by such Eligible Holder and the
intended method of disposition thereof), the Company will use its best
efforts to effect the registration under the Act of all Registrable
Securities which the Company has been so requested to register by the
holders thereof, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities so to be registered, by inclusion of such
Registrable Securities in the registration statement which covers the
securities which the Company proposes to register or in a separate
registration statement concurrently filed and on terms substantially the
same as those being offered to the Company; PROVIDED that if, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register or to delay registration of such securities, the
Company may, at its election, give written notice of such determination to
each Eligible Holder of Registrable Securities and, thereupon:
(i) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its
obligation to pay the Registration Expenses in connection
therewith), and
(ii) in the case of a delay in registering, shall be
permitted to delay registering any Registrable Securities for the
same period as the delay in registering such other securities."
2. GOVERNING LAW. This Amendment shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware without
reference to choice or conflicts of law principles thereof.
3. EFFECT OF AMENDMENT. Except as amended by this Amendment, the
Stockholders Agreement shall remain unchanged and shall remain in full force and
effect.
2
<PAGE>
IN WITNESS WHEREOF, the Company, AEP, AOEP and each of the
Stockholders have duly executed this Amendment as of the date first above
written.
AFTERMARKET TECHNOLOGY
HOLDINGS CORP.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
THE CLASS A STOCKHOLDERS:
---------------------------------
WILLIAM A. SMITH
JAMES R. WEHR REVOCABLE TRUST
---------------------------------
James R. Wehr, Grantor/Trustee
---------------------------------
KENNETH T. HESTER
3
<PAGE>
THE CLASS B STOCKHOLDERS:
ALLENWOOD VENTURES, INC.
By:
------------------------------
Dr. Simon Ramo
---------------------------------
JOHN E. ANDERSON
ROBERT ANDERSON VARIABLE TRUST
By:
------------------------------
Robert Anderson, Trustee
THE ANDREW W. MELLON FOUNDATION
By:
------------------------------
Name:
--------------------------
Title:
-------------------------
AURORA CAPITAL PARTNERS L.P.
By: Aurora Advisors, Inc.,
its general partner
By:
------------------------------
Name:
--------------------------
Title:
-------------------------
4
<PAGE>
AURORA OVERSEAS CAPITAL
PARTNERS, L.P.
By: Aurora Overseas Advisors, Ltd.,
its general partner
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
BANCBOSTON INVESTMENTS, INC.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
BANKAMERICA CAPITAL CORPORATION
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
CASTLEROCK INVESTMENTS LTD.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
5
<PAGE>
CHEMICAL EQUITY ASSOCIATES
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
CHEMICAL INVESTMENTS, INC.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
-------------------------------------
RICHARD R. CROWELL
-------------------------------------
ROBERT L. CUMMINGS III
THE TRUSTEES OF DARTMOUTH COLLEGE
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO RICHARD R. CROWELL
By:
----------------------------------
Richard R. Crowell, Trustee
By:
----------------------------------
Richard K. Roeder, Trustee
6
<PAGE>
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO MARK C. HARDY
By:
----------------------------------
Richard R. Crowell, Trustee
By:
----------------------------------
Richard K. Roeder, Trustee
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO KURT B. LARSEN
By:
----------------------------------
Richard R. Crowell, Trustee
By:
----------------------------------
Richard K. Roeder, Trustee
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO GERALD L. PARSKY
By:
----------------------------------
Richard R. Crowell, Trustee
By:
----------------------------------
Richard K. Roeder, Trustee
7
<PAGE>
DEAN WITTER AS CUSTODIAN FOR AURORA CAPITAL
PARTNERS VIP PLUS 401(K) PLAN
FBO W. MONTAGUE YORT
By:
----------------------------------
Richard R. Crowell, Trustee
By:
----------------------------------
Richard K. Roeder, Trustee
DELTA MASTER TRUST
By:
----------------------------------
Trustee
-------------------------------------
JEFFREY S. DEUTSCHMAN
-------------------------------------
FREDERICK J. ELSEA, III
GENERAL ELECTRIC PENSION TRUST
By:
----------------------------------
Name:
------------------------------
Title: Trustee
HARBOURTON REASSURANCE, INC.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
-------------------------------------
MARK C. HARDY
8
<PAGE>
HELLER FINANCIAL, INC.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
-------------------------------------
AMBASSADOR JAMES D. HODGSON
-------------------------------------
CLEON T. KNAPP
L-A&A GIFT TRUST FBO
ELLIOT LEEDOM ACKERMAN
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
L-A&A GIFT TRUST FBO
NATHANEL LEEDOM ACKERMAN
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
-------------------------------------
KURT B. LARSEN
LODWRICK AND CAROLE COOK AS
TRUSTEES OF THE COOK FAMILY
TRUST DATED SEPTEMBER 16, 1991
By:
----------------------------------
Trustee
-------------------------------------
JOHN T. MAPES
9
<PAGE>
NHL HOLDINGS LTD.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
OGAC LIMITED
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
ORYX EQUITY PARTNERS FUND I LTD.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
-------------------------------------
GERALD L. PARSKY
-------------------------------------
G.M. ROEDER AND R.K. ROEDER, JTWROS
By:
----------------------------------
Gloria M. Roeder
By:
----------------------------------
Richard K. Roeder
SOMERVILLE S TRUST
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
10
<PAGE>
SPRINGBROOK, G.P.
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
-------------------------------------
PATRICK J. STEINER
SUMITOMO BANK OF CA TTEE FOR GIBSON, DUNN &
CRUTCHER RETIREMENT PLAN FBO
H. RICHARD DALLAS
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
SUMITOMO BANK OF CA TTEE FOR
GIBSON, DUNN & CRUTCHER RETIREMENT
PLAN FBO BRUCE D. MEYER
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
UNIVERSITY OF SOUTHERN CALIFORNIA
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
W. S. INVESTMENTS L.P.
By:
----------------------------------
Name:
------------------------------
General Partner
11
<PAGE>
-------------------------------------
JEROME C. WEINTRAUB
-------------------------------------
W. MONTAGUE YORT
THE CLASS C STOCKHOLDERS:
AURORA EQUITY PARTNERS L.P.
By: Aurora Capital Partners L.P.,
its general partner
By: Aurora Advisors, Inc.,
its general partner
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
AURORA OVERSEAS EQUITY
PARTNERS I, L.P.
By: Aurora Overseas Capital Partners, L.P.,
its general partner
By: Aurora Overseas Advisors, Ltd.,
its general partner
By:
----------------------------------
Name:
------------------------------
Title:
-----------------------------
12
<PAGE>
- ------------------------------------------------------------------------------
TROLL ASSOCIATES, INC.
Sublandlord
and
COMPONENT REMANUFACTURING SPECIALISTS, INC.
Subtenant
______________________
Space Sublease
______________________
Premises:
A Portion Of
400 CORPORATE DRIVE
Mahwah, New Jersey 07430
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 - DEFINITIONS.................................................... 1
ARTICLE 2 - DEMISE AND TERM................................................ 6
ARTICLE 3 - RENT........................................................... 7
ARTICLE 4 - USE OF DEMISED PREMISES........................................ 8
ARTICLE 5 - PREPARATION OF DEMISED PREMISES................................10
ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS.............................10
ARTICLE 7 - SECURITY.......................................................11
ARTICLE 8 - SUBORDINATION..................................................12
ARTICLE 9 - QUIET ENJOYMENT................................................15
ARTICLE 10 - ASSIGNMENT, SUBLETTING AND MORTGAGING.........................15
ARTICLE 11 - INSURANCE AND INDEMNITY.......................................17
ARTICLE 12 - ALTERATIONS AND SIGNS.........................................19
ARTICLE 13 - SUBLANDLORD'S AND SUBTENANT'S PROPERTY........................20
ARTICLE 14 - REPAIRS AND MAINTENANCE.......................................20
ARTICLE 15 - PUBLIC UTILITY CHARGES........................................21
ARTICLE 16 - EXTENSION OF TERM.............................................21
ARTICLE 17 - DETERMINATION OF FAIR MARKET RENT AND FAIR
MARKET VALUE FOR THE DEMISED PREMISES.......................22
ARTICLE 18 - RIGHT OF FIRST LEASE..........................................23
ARTICLE 19 - SUBLANDLORD SUBLEASE BACK.....................................23
ARTICLE 20 - ACCESS AND CHANGES............................................23
ARTICLE 21 - MECHANICS' LIENS AND OTHER LIENS..............................24
ARTICLE 22 - NON-LIABILITY AND INDEMNIFICATION.............................24
ARTICLE 23 - DAMAGE AND DESTRUCTION........................................25
i
<PAGE>
PAGE
ARTICLE 24 - EMINENT DOMAIN................................................26
ARTICLE 25 - SURRENDER.....................................................27
ARTICLE 26 - CONDITIONS OF LIMITATION......................................28
ARTICLE 27 - RE-ENTRY BY SUBLANDLORD.......................................29
ARTICLE 28 - DAMAGES.......................................................29
ARTICLE 29 - CURING DEFAULTS...............................................31
ARTICLE 30 - BROKER........................................................34
ARTICLE 31 - NOTICES.......................................................31
ARTICLE 32 - REPRESENTATION OF SUBTENANT...................................32
ARTICLE 33 - PARKING.......................................................32
ARTICLE 34 - SUBLEASE CONTINGENT UPON MUNICIPAL APPROVAL...................32
ARTICLE 35 - REPRESENTATIONS AND WARRANTIES................................33
ARTICLE 36 - ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES..................34
ARTICLE 37 - PERFORMANCE UNDER PROTEST.....................................35
ARTICLE 38 - EVENTS OF DEFAULT.............................................35
ARTICLE 39 - MISCELLANEOUS.................................................36
EXHIBITS
Exhibit A - Legal description of Land
Exhibit B - Survey of Land and Building and
Description of Demised Premises
Exhibit C-1 - Sublandlord's Work
Exhibit C-2 - Subtenant's Work
Exhibit D - Form of Non-Disturbance Agreements
Exhibit E - Parking Plan
Exhibit F - Restrictions of Record
ii
<PAGE>
WHEREAS, this SUBLEASE dated April _, 1994, is executed by and between
TROLL ASSOCIATES, INC., a New Jersey Corporation, with offices at 100
Corporate Drive, Mahwah, New Jersey 07430 ("SUBLANDLORD"), and COMPONENT
REMANUFACTURING SPECIALISTS, Inc., INC., a New Jersey corporation having
offices at 15 Arrow Road, Ramsey, New Jersey 07446 (the "SUBTENANT").
WHEREAS, this SUBLEASE is subject and subordinate to a certain Net
Lease, dated December 16, 1987; as amended by the First Net Lease
Modification, dated June 30, 1992; the Second Net Lease Modification dated
January 28, 1993; the Third Net Lease Modification dated April 21, 1994; and
any further modifications (referred to herein collectively as the "Net Lease"
or "Superior Lease") executed by and between Marvin Schecter and Marian
Schecter as landlord ("LANDLORD" or "SUPERIOR LESSOR") and Troll Associates,
Inc. as tenant ("SUBLANDLORD" or "SUBLESSOR");
WHEREAS, the term of the Net Lease commenced on January 1, 1988 and
presently expires on December 31, 2002, with two (2) renewals of ten (10)
years each.
NOW THEREFORE, in consideration of the mutual promises set forth below
and other good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged by both parties, the parties hereto agree as
follows:
ARTICLE 1 - DEFINITIONS
1.01. As used in this Sublease the following words and phrases shall
have the meanings indicated:
A. Additional Charges: All amounts that become payable by Subtenant to
Sublandlord hereunder, other than the Fixed Rent.
B. Architect: Designers of Bedminster, 2475 Laminston Road,
Bedminster, New Jersey 07921.
C. Broker: David T. Houston Co., 1025 Broad Street, Bloomfield, New
Jersey 07003, Att: Walter Michalski and Mark Siegler.
D. Building: The building consisting of approximately 146,000 total
square feet located on the Land in the Township of Mahwah, New Jersey and
known as 400 Corporate Drive, Mahwah, New Jersey.
E. Calendar Year: Any twelve-month period commencing on January 1.
F. Commencement Date: The Commencement Date of this Sublease shall be
May 1, 1994; or in the event Sublandlord has not obtained all municipal
approvals for Subtenant's use of the Demised Premises under Paragraph 33 of
this Sublease by May 1, 1994, the Commencement Date shall be the date upon
which Sublandlord so
<PAGE>
obtains all municipal approvals for Subtenant's use of the Demised Premises
under Paragraph 33 of this Lease. On the Commencement Date, Subtenant shall
take possession of the Demised Premises but shall not begin to pay Rent, Real
Estate Taxes, Insurance and all of its other rent obligations until the Rent
Commencement Date.
G. Common Areas: Those areas of the Land designated by Sublandlord,
from time to time, which are used and enjoyed by not only Subtenant but other
users, occupants, Subtenants or owners of the Building and Land, including,
without limitation, parking areas, walkways, lawns and landscaped areas.
Sublandlord may change the designation of Common Areas, from time to time,
provided such change in designation (i) does not interfere with the
Subtenant's use and occupancy of the Demised Premises, parking,
ingress/egress and loading and unloading of Subtenant, as permitted by this
Sublease and (ii) does not result in any increase in the Subtenant's Common
Area Maintenance charges. The Building itself is specifically excluded as a
Common Area for the Term of this Sublease, as same may be extended.
H. Common Area Maintenance Charges: Forty-three percent (43%) of any
and all charges for the maintenance, operation, replacement and repair of the
Common Areas of the Land including, without limitation, all costs in
connection with the lighting, policing, landscaping, cleaning, snow removal,
janitorial services and utility charges as respects the Common Areas, all of
which services shall be determined by and performed by Sublandlord as
required by this Sublease and paid for by Subtenant as provided in Article
6.03 of this Lease. If the Common Areas are changed to include additional
parking spaces as provided in Article 32.01 (G) above, the Common Area
Maintenance Charges shall include the maintenance of said additional parking
spaces. The Common Area Maintenance Charges specifically exclude initial
repairs to the upper parking lot to the rear of the Building. To the extent
that the cost of any repairs or replacements to Common Areas are costs which
would be capitalized under Generally Accepted Accounting Practices, then for
purposes of this Sublease, only the applicable amortized cost of same, shall
be included, * on an annualized basis, as Common Area Maintenance Charges.
I. Demised Premises: The Demised Premises shall consist of the portion
of the Building located on the Land depicted as the "Demised Premises" on
Exhibit B hereto, consisting of 63,000 square feet, comprised of 3,000
square feet of office space (subject to Sublandlord's Work set forth on
Exhibit C hereto) and 60,000 square feet of warehouse space (subject to
Sublandlord's Work set forth on Exhibit C hereto) and also sometimes referred
to herein as the South Section of the Building.
- ------------------------
* during the term
2
<PAGE>
J. Expiration Date: The date which is the date immediately preceding
the fifth (5th) anniversary of the Rent Commencement Date, unless the Term is
extended by Subtenant as herein provided.
K. Extended Period: There will be two (2) five (5) year options to
renew.
L. Fixed Rent for the Demised Premises: The Fixed Rent during the Term
is as set forth below, and except as modified by Paragraph 1.01U of this
Sublease:
First through third year of Sublease $4.75 per sq. ft. ($24,937.50 per month)
Fourth through fifth year of Sublease $5.25 per sq. ft. ($27,562.50 per month)
M. Insurance Requirements: Rules, regulations, orders and other
requirements of insurance carriers, the applicable board of underwriters
and/or the applicable fire insurance rating organization and/or any other
similar body having jurisdiction over the Land and Building.
N. Land: The land described on Exhibit "A" and shown on Exhibit "B"
upon which the Building is located and designated as Block 68, Lot 9 on the
tax map of the Township of Mahwah, together with any and all rights
Sublandlord has, if any, in and to a certain roadway, open or proposed,
adjoining the said property.
0. Legal Requirements: Laws and ordinances of all federal, state,
county, and local governments, and rules, regulations, orders and directives
of all departments, subdivisions, bureaus, agencies of any other
governmental, public or quasi-public authorities having jurisdiction over the
Land and Building, including those pertaining to zoning and environmental
matters.
P. Permitted Uses: Warehouse, office, industrial, processing,
distribution, shipping and receiving, storage, light manufacturing, assembly
or other lawful purpose including, without limitation, remanufacturing of
transmissions including assemblage, cleaning, reconditioning, rebuilding and
remanufacturing of transmissions. However, and except as otherwise provided
in Articles 4 and 33 of this Sublease as respects municipal approvals,
Sublandlord makes no representations to Subtenant as to what uses are
permitted by applicable zoning ordinances.
Q. Person: A natural person or persons, a partnership, a corporation,
or any other form of business or legal association or entity.
R. Plans: All drawings, designs, plans and specifications prepared by
the Architect and other necessary engineers and professionals for
Sublandlord's Work to be performed at the Demised
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Premises, a schedule of which such work is attached hereto as Exhibit C.
S. Real Estate Taxes: The percentage of the real estate taxes, charges
and all other similar charges and impositions imposed upon the Building and
the Land, by any governmental body or authorities or any tax, charge, or
imposition imposed in substitution thereof or in addition thereto, which
percentage is arrived at by a comparison of the total office and warehouse
space in the Demised Premises to the total office and warehouse space in the
Building, and calculated in accordance with the following formula which shall
be adjusted to reflect any change in assessment of the Building or Demised
Premises:
For purposes of this formula, warehouse space shall have a designated
factor of one (1) and office space shall have a designated factor of
two (2).
1. The factors shall be multiplied by the square footage of warehouse and
office space in the Building to determine the total Building space as
follows:
BUILDING
Warehouse: ____________ sq. ft. x 1 = _____________
Office: _______________ sq. ft. x 2 = _____________
Building Total: _______________
2. The factors shall be multiplied by the square footage of warehouse
and office space in the Demised Premises to determine the total
Demised Premises space as follows:
DEMISED PREMISES
Warehouse: _____________ sq. ft. x 1 = _______________
Office: ______________ sq. ft. x 2.0 = _______________
Demised Premises Total: _______________
3. The Demised Premises Total shall be divided by the Building Total as
follows:
Demised Premises Total/Building Total
4. The resulting percentage shall represent the Subtenant's percentage
of Real Estate Taxes and shall be multiplied by the total real estate
taxes, assessments, charges, and other similar charges imposed upon
the Building and Land.
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5. EXAMPLE:
BUILDING
Warehouse: 103,000 sq. ft. x 1 = 103,000
Office: 11,300 sq. ft. x 2.0 = 22,600
-------
Building Total: 125,600
DEMISED PREMISES
Warehouse: 60,000 sq. ft. x 1 = 60,000
Office: 3,000 sq. ft. x 2.0 = 6,000
-------
Demised Premises Total: 66,000
PERCENTAGE
DEMISED PREMISES TOTAL: 66,000 = .53
-------
Building Total 125,600
Real Estate Taxes for Land and Building = $50,000 per year
Subtenant Share = .53 x $50,000 = $26,500.00 per year
T. Rent: The Fixed Rent and the Additional Charges.
U. Rent Commencement Date: * The sixtieth (60th) day following the
Commencement Date** On the Rent Commencement Date, Subtenant shall begin to
pay Rent for the Demised Premises. The Subtenant agrees that the Rent
Commencement Date shall not be delayed, notwithstanding the fact that
Sublandlord's Work is not complete, if Sublandlord's failure to complete same
by the Rent Commencement Date was caused by or contributed to by Subtenant's
contractors, agents or employees or otherwise by Subtenant's failure to
timely comply with its obligations hereunder, but only to the extent that
such delays were in fact so caused or contributed to by Subtenant.
Notwithstanding the foregoing to the contrary, provided Subtenant is not in
default under this Sublease beyond applicable grace periods as set forth in
this Sublease, Subtenant shall receive a Fixed Rent credit for 33,000 square
feet of the Demised Premises from the Rent Commencement Date to the earlier
to occur of i) the date which is the eighth (8th) month anniversary date of
the Commencement Date or ii) the date upon which Subtenant enters into either
a) any contract of sale and closes title for all or substantially all of
Subtenant's Existing Building or b) any lease for all or substantially all
of the leasable space in Subtenant's Existing Building and the Subtenant
thereunder commences paying rent to Subtenant. The total dollar value of the
aforesaid Subtenant's Rent credit shall be repaid (together with interest
calculated at the annual rate of five percent (5%), compounded quarterly,
from the Rent Commencement Date to April 1, 1996) by Subtenant to Sublandlord
as additional Fixed Rent over the last
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* The later of (a) the
** or (b) the date upon which Sublandlord substantially completes
Sublandlord's Work and a certificate of occupancy is issued covering the
Demised Premises (however, if a temporary certificate is obtained,
Sublanlord shall be responsible to obtain and deliver to Subtenant the
permanent certificate of occupancy as soon as possible).
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three (3) years of the initial Term of this Sublease, in equal monthly
payments commencing on April 1, 1996.
V. Security Deposit: $47,875.00. Subtenant has an option of
delivering to Sublandlord either: (a) cash or check in the sum of
Forty-Seven Thousand Eight Hundred Seventy-Five Dollars ($47,875.00); or (b)
a clean irrevocable, unconditional Letter of Credit drawn on a financial
institution reasonably satisfactory to Sublandlord, payable to Sublandlord or
Sublandlord's nominee in the amount of $47,875.00. This Letter of Credit
shall be renewed by Subtenant annually, prior to the date of its expiration.
In the event that the replacement Letter of Credit is not delivered to
Sublandlord on or before thirty (30) days prior to the expiration of the
existing Letter of Credit, Sublandlord shall so notify Subtenant and provide
Subtenant the opportunity to deliver the replacement Letter of Credit to
Sublandlord within five (5) days of such notification. If Subtenant fails to
deliver such replacement Letter of Credit, Sublandlord shall cash the
existing Letter of Credit. Such cash shall be held by Sublandlord in a
segregated bank account for sixty (60) days, within which time period
Subtenant shall have the right to the return of the cash in exchange for a
renewed Letter of Credit. Notwithstanding the above, in the event Subtenant
elects to extend the Term of this Sublease pursuant to Article 16 of this
Sublease and provided Subtenant has not exceeded the allowed two (2) grace
periods for payment of Rent without incurring late charges during any
Calendar Year, as more specifically set forth in Paragraph 3.04 of this
Sublease, the Security Deposit for any Extended Period shall be reduced to
$23,937.50.
W. Superior Sublease*: The Net Lease as same may be extended or amended
from time to time, or any other lease now in existence or hereafter created
to which this Sublease is subject and subordinate, however, no such
extensions, amendments or other such leases shall diminish the rights of
Subtenant hereunder.
X. Superior Lessor: A lessor under any Superior Sublease or its
successors and/or assignees.
Y. Superior Mortgage: Any Mortgage given to a mortgagee to which this
Sublease is, at the time referred to, subject and subordinate, or shall
become subject and subordinate to in the future. As of the execution of this
Sublease, First Fidelity Bank, N.A., New Jersey, holds a blanket first
mortgage encumbering the Demised Premises and other properties, dated
December 23, 1988, as amended and modified on June 30, 1992, and as hereafter
amended or modified.
Z. Superior Mortgagee: Any mortgagee under any Superior Mortgage, or
any proposed or future mortgagee or any of their successors and/or assigns.
- ------------------------
* or Superior Lease
6
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AA. Subtenant's Existing Building: Subtenant's building consisting of
approximately 33,000 square feet, located at 15 Arrow Road, Ramsey, New Jersey
07446-1297.
BB. Term: The period commencing on the Commencement Date and ending at
11:59 p.m. of the Expiration Date, or on the date when this Sublease is
earlier terminated, as herein provided.
ARTICLE 2 - DEMISE AND TERM
2.01. Sublandlord hereby leases to Subtenant, and Subtenant hereby
hires from Sublandlord, the Demised Premises for the Term. This Sublease is
subject to (a) any and all existing encumbrances, conditions, rights,
covenants, easements, restrictions and rights of way, of record, and other
matters of record set forth on Exhibit F annexed hereto provided same do not
interfere with Subtenant's use and occupancy of the Demised Premises or
Subtenant's parking, ingress/egress, loading and unloading, as herein
permitted; and (b) easements and restrictions hereafter created by
Sublandlord or Superior Lessor, or Superior Mortgagee provided same do not
interfere with Subtenant's use and occupancy of the Demised Premises or
Subtenant's parking, ingress/egress, loading and unloading, as herein
permitted.
ARTICLE 3 - RENT
3.01. Subtenant shall pay the Fixed Rent in equal monthly installments
in advance on the first day of each and every calendar month during the Term
beginning with the Rent Commencement Date. If the Rent Commencement Date
occurs at any time other than the first day of the month, the Fixed Rent due
shall be prorated so that Subtenant is responsible for Fixed Rent for the
number of days from and including the Rent Commencement Date until the end of
the month. If the Expiration Date occurs at any time other than the last day
of the month, the Fixed Rent due shall be prorated so that Subtenant is
responsible for Fixed Rent for the number of days from and including the
first day of the month in which the Expiration Date occurs to and including
the Expiration Date.
3.02. The Rent shall be paid in lawful money of the United States to
Sublandlord at its office. Subtenant shall pay the Fixed Rent promptly when
due without notice or demand therefor and without any abatement, deduction or
set off for any reason whatsoever except as expressly provided herein and
provided, however, that Sublandlord agrees to notify Subtenant if Sublandlord
has failed to receive the Rent on the first day of each and every month
during the Term. The giving of such Notification, or the failure to provide
same, shall not affect Subtenant's obligations under this Sublease. Any
check received by Sublandlord shall be deemed received subject to collection.
7
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3.03. No payment by Subtenant or receipt or acceptance by Sublandlord
of a lesser amount than the correct Rent shall be deemed to be other than a
payment on account, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment be deemed an accord and
satisfaction, and Sublandlord may accept such check or payment without
prejudice to Sublandlord's right to recover the balance or pursue any other
remedy in this Sublease or at law provided.
3.04. If Subtenant is in arrears in payment of Rent, Sublandlord may
apply any payments made by Subtenant to such items as Sublandlord sees fit.
Any payment due Sublandlord under this Sublease which is paid more than ten
(10) days after the date such payment is due, shall, from the tenth (10th)
day after the due date, until such payment is received by Sublandlord, bear
interest at the prime rate of interest charged by First Fidelity Bank, N.A.,
New Jersey, plus two percent (2%) per annum (THE "LATE PAYMENT RATE"), except
that Subtenant shall be given two (2) grace periods of ten (10) days each
during any Calendar Year, during which the Late Payment Rate will not be
charged to Subtenant. Any such Late Charges if not previously paid shall, at
the option of the Sublandlord, be applied to and become part of the next
succeeding Rent payment to be made hereunder.
ARTICLE 4 - USE OF DEMISED PREMISES
4.01. Subtenant shall use and occupy the Demised Premises for the
Permitted Uses only, and Subtenant shall at all times comply with all Legal
Requirements. Subject to Article 33 hereof, if a Certificate of Use shall be
required pursuant to municipal ordinance to effectuate use of the Demised
Premises, Sublandlord shall procure same, at Sublandlord's expense, and
Subtenant shall maintain same and shall comply with the terms thereof.
Subject to Article 33 hereof, if a Certificate of Occupancy shall be required
pursuant to municipal ordinance for the proper and lawful conduct of
Subtenant's business in the Demised Premises, Sublandlord, with Subtenant's
cooperation as necessary and at Subtenant's * cost and expense, shall procure
same diligently and forthwith, and Subtenant shall comply with the terms
thereof. Sublandlord shall be solely responsible, at Sublandlord's cost and
expense for engaging the Architect to prepare the Plans, as defined in
Article 1 of this Sublease. Subtenant shall not at any time use or occupy,
or do or permit anything to be done in the Demised Premises, in any manner
which (a) violates the Certificate of Occupancy, the Certificate of Use or
other certificate issued by the municipality for the Demised Premises or for
the Building or any zoning ordinance; (b) causes or is liable to cause
injury to the Building or any equipment, facilities or systems therein or
require replacement thereof; (c) constitutes a violation of the Legal
Requirements or Insurance Requirements; or (d) impairs or tends to impair the
proper and
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* landlord
8
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economic maintenance, operation and repair of the Building and/or its
equipment, facilities or systems.
4.02. Subtenant shall not and hereby represents, warrants and covenants
that it will not generate, manufacture, refine, transport, treat, store,
handle or dispose of hazardous substance or wastes, as defined in ECRA, now
ISRA, N.J.S.A. 13:1K-6 ET SEQ. and P.L. 1993, C. 139 (collectively "ISRA"),
the Spill Compensation and Control Act, N.J.S.A. 58:10-23:11 ET SEQ., or any
other federal or state environmental law, in or on the Demised Premises other
than those in connection with Subtenant's Permitted Use. Should Subtenant
cause any hazardous substance or waste, to be discharged in or on the Demised
Premises, Subtenant shall, at its sole cost and expense, clean up such
discharge in accordance with all applicable laws. Prior to cessation of
Subtenant's operation at the Demised Premises, Subtenant shall demonstrate
compliance with ISRA by delivering to the Sublandlord any of the following
ISRA approvals (the "ISRA" Approvals):
(I) a letter from the New Jersey Department of Environmental
Protection and Energy ("NJDEPE") certifying that ISRA does not apply to
the cessation of Subtenant's operation at the site, or
(II) a no further action letter or "Negative Declaration"
approved by the NJDEPE pursuant to ISRA, or
(III) a certification or letter of compliance that an
approved clean-up or remediation plan has been completed.
Subtenant shall pay all filing fees and expenses, including any testing
and remediation expenses, required to obtain the foregoing except that
Sublandlord shall pay for any environmental cleanup not caused by Subtenant,
that is required as a result of compliance herewith. Sublandlord shall fully
cooperate with Subtenant and provide all reasonably necessary information for
Subtenant's compliance. Subtenant shall indemnify and hold Sublandlord
harmless from and against any liability including attorney fees, incurred by
the Sublandlord as a result of the Subtenant's failure to comply with the
requirements of this Article. Subtenant shall keep Sublandlord informed of
all such proceedings and shall timely provide Sublandlord with copies of all
relevant documents. If Subtenant fails to obtain an ISRA Approval prior to
its ceasing operations at the Demised Premises, then, in addition to any
other remedy available to Sublandlord, Sublandlord may deem Subtenant to be a
holdover Subtenant until such time that an ISRA Approval is obtained.
Notwithstanding the foregoing, if Subtenant is proceeding with due diligence
and dispatch to obtain same, Subtenant shall be responsible for only regular
Fixed Rent (not 150% of Fixed Rent) and other charges which accrue under
this Sublease. This provision shall survive termination of the Sublease.
9
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In the event Subtenant fails to timely comply with its obligations under
this Article, then Sublandlord, at its option, may do so on behalf of
Subtenant at Subtenant's cost and expense.
4.03. Notwithstanding the foregoing, it is understood and agreed that
Sublandlord shall be responsible for the cost of compliance with Legal
Requirements and Insurance Requirements which are applicable generally to the
Building and not the result of Subtenant's specific use, provided, however,
Subtenant shall not be responsible to comply with any Legal Requirements and
Insurance Requirements relating to the structure of the Building or relating
to conditions or repair which are the responsibility of the Sublandlord under
this Sublease.
4.04. Notwithstanding the foregoing, if compliance with ISRA becomes
necessary at the Demised Premises because of any ISRA triggering event
initiated by Sublandlord or Superior Lessor, as the case may be, Sublandlord
shall pay for all costs incurred in obtaining an ISRA Approval and Subtenant
shall fully cooperate with Sublandlord in completing and seeking a letter of
non-applicability from the NJDEPE and Sublandlord shall indemnify and hold
Subtenant harmless from any and all liability, costs and expenses, including
without limitation, reasonable attorneys fees, incurred by Subtenant as a
result of Sublandlord's failure to comply with the requirements of this
Article. Sublandlord shall comply with ISRA and all requirements of NJDEPE at
Sublandlord's sole expense, except that Subtenant shall pay for any
environmental cleanup caused by Subtenant that is required as a result of
compliance herewith.
ARTICLE 5 - PREPARATION OF DEMISED PREMISES
5.01. On the Commencement Date Subtenant shall take possession of the
Demised Premises and Subtenant is leasing the Demised Premises "as is" on the
date hereof, subject to Sublandlord's Work (which shall be Sublandlord's only
obligation to Subtenant as respects initial improvements to the Demised
Premises), as detailed in Exhibit C-1 attached hereto, to be performed * by
Sublandlord, ** in a good and workmanlike manner and in accordance with all
Legal Requirements and other provisions of this Sublease.
5.02. At the expense of Sublandlord, the Architect and necessary
engineers and professionals, including without limitation a space planner
design service, shall complete all Plans for all work set forth on Exhibit C
to be performed in the Demised Premises by Sublandlord.
- -------------------------
* and completed
** within sixty (60) days from the Commencement Date
10
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ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS
6.01. Commencing with the * Commencement Date, Subtenant shall pay Real
Estates Taxes due for the Demised Premises or attributable to the Demised
Premises in accordance with the formula set forth in Paragraph 1.01S. Upon
Sublandlord's receipt of the tax bill pertaining to the Demised Premises,
Sublandlord shall promptly send a copy of the bill to Subtenant. On a
monthly basis, Sublandlord shall send Subtenant an invoice for the Real
Estate Taxes. Subtenant will promptly pay Sublandlord the amount of such Real
Estate Tax invoice. Sublandlord shall promptly provide to Subtenant, copies
of paid invoices from the municipality on a quarterly basis.
6.02. Real Estate Taxes, whether or not a lien upon the Premises shall
be apportioned between Sublandlord and Subtenant at the beginning and end of
the Term or Extended Period, as the case may be.
6.03. Commencing with the * Commencement Date, Subtenant shall pay the
Common Area Maintenance Charges promptly upon receipt of an invoice together
with paid invoices (or other reasonable evidence of charges) therefor from
Sublandlord, which invoice shall be sent by Sublandlord on a monthly basis.
6.04. Notwithstanding anything contained in this Sublease to the
contrary, Subtenant shall not be responsible for any income taxes, whatsoever
imposed upon the Sublandlord or Superior Lessor in connection with the
Demised Premises or otherwise.
6.05. Throughout the Term, Sublandlord shall have the right to contest
the amount or validity of any Real Estate Taxes in any manner permitted by
law. In the event Sublandlord, or any presently existing ** Sublandlord in
the Building with the right to do so, does not elect to do so, and after
prior written notice from subtenant to Sublandlord, Subtenant may contest the
amount or validity of any Real Estate Taxes in any manner permitted by law,
in the name of Subtenant, and whenever necessary in the name of Sublandlord
or Superior Lessor, as appropriate, provided and upon condition that
Subtenant does so with due diligence, in good faith, there is a reasonable
likelihood of success, and that such contest shall be without cost, liability
or expenses to Sublandlord or Superior Lessor. Superior Lessor and
Sublandlord shall cooperate with Subtenant and shall execute any documents or
pleadings reasonably required for that purpose. Such contest may include
appeals from any judgment decree of order until a final determination is made
by a court or governmental department or authority having final jurisdiction
in the matter.
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* Rent
** subtenant
11
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ARTICLE 7 - SECURITY
7.01. As set forth in Paragraph 1.01V, Subtenant shall deliver to
Sublandlord the Security Deposit as security for the full and faithful
payment and performance by Subtenant of Subtenant's obligations under this
Sublease. If Subtenant defaults in the full and prompt payment and
performance of any of its obligations under this Sublease, than after notice
to Subtenant and failure of Subtenant to cure any such defaults within
applicable grace periods, Sublandlord may use, apply or retain the whole or
any part of the security to the extent required for the payment of any Rent
or any other sums as to which Subtenant is in default or for any sum which
Sublandlord may expend or may be required to expend by reason of Subtenant's
default in respect of any of Subtenant's obligations under this Sublease,
including, without limitation, any damages or deficiency in the reletting of
the Demised Premises, whether such damages or deficiency accrue before or
after summary proceedings or other re-entry by Sublandlord. If Sublandlord
shall so use, apply or retain the whole or any part of the security,
Subtenant shall upon demand immediately deposit with Sublandlord a sum equal
to the amount so used, applied and retained, as security as aforesaid. If
Subtenant shall fully and faithfully pay and perform all of Subtenant's
obligations under this Sublease, the security or any balance thereof to which
Subtenant is entitled shall be promptly paid over to Subtenant after the date
on which this Sublease shall expire or sooner terminate, and after delivery
to Sublandlord of entire possession of the Demised Premises. In the event of
any sale or leasing of the Land, Sublandlord shall have the right to transfer
the security to which Sublandlord is entitled to the vendee or lessee upon
notice to Subtenant and, provided Sublandlord transfers the security as
provided for herein, Sublandlord shall thereupon be released by Subtenant
from all liability for the return or payment thereof; and Subtenant shall
look solely to the new landlord for the return or payment of the same to the
extent of such transfer; and the provisions hereof shall apply to every
transfer or assignment made of the same to a new landlord. Subtenant shall
not assign or encumber or attempt to assign or encumber the monies deposited
herein as security, and neither Sublandlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance.
ARTICLE 8 - SUBORDINATION
8.01. This Sublease shall be subject and subordinate at all times to
the lien of any mortgages or other permitted encumbrances now or hereafter
placed on the Demised Premises, as set forth in Paragraph 2.01 of this
Sublease, including, without limitation, the Superior Mortgage, without the
necessity of any further instrument or act on the part of Subtenant to
effectuate such subordination, but Subtenant covenants and agrees to
execute and deliver upon
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demand such further instrument or instruments evidencing such subordination
of this Sublease to the lien of any such mortgage or other encumbrance as
shall be desired by a mortgagee or proposed mortgagee. Subtenant shall have
twenty (20) days within which to execute, acknowledge or deliver any such
instruments after request.
8.02. If any act or omission of either Sublandlord or Subtenant would
give the other party the right to terminate this Sublease, neither
Sublandlord nor Subtenant shall exercise such right (a) until it has given
written notice of such act or omission to the other and each Superior
Mortgagee * and Superior Lessor, * and (b) until a reasonable period for
remedying such act or omission shall have elapsed following the giving of
such notice and following the time when such Superior Mortgagee or Superior
Lessor under such Superior Mortgage or Superior Sublease as the case may be,
to remedy the same (which reasonable period shall in no event be more than
the period to which Sublandlord would be entitled under this Sublease or
otherwise, after similar notice, to effect such remedy).
8.03. If any Superior Lessor shall succeed to the rights of Sublandlord
under this Sublease, then at the request of such party so succeeding to
Sublandlord's rights ("SUCCESSOR SUBLANDLORD") and upon such Successor
Sublandlord's written agreement to accept Subtenant's attornment, Subtenant
shall attorn to and recognize such Successor Sublandlord as Subtenant's
landlord under this Sublease and shall promptly execute and deliver any
instrument that such Successor Sublandlord may reasonably request to evidence
such attornment. Upon such attornment this Sublease shall continue in full
force and effect as a direct lease between the Successor Sublandlord and
Subtenant upon all of the terms, conditions and covenants as are set forth in
this Sublease.
8.04. If any then present or prospective Superior Mortgagee or Superior
Lessor shall require any modification(s) of this sublease, Subtenant shall
promptly execute and deliver to Sublandlord such instruments effecting such
modifications) as Sublandlord shall request, provided such modifications
shall not decrease Sublandlord's obligations, increase Subtenant's
obligations or increase the amount of Fixed Rent or Additional Rent due
hereunder or otherwise adversely affect Subtenant's interest hereunder.
8.05. Each party shall, at any time as requested by the other party,
within fifteen (15) days of such request, execute and deliver to the
requesting party a statement certifying that this Sublease is unmodified and
in full force and effect (or if there have been modifications, that the same
is in full force and effect as modified and stating the modifications),
certifying the dates to which the Fixed Rent and Additional Charges have been
paid, stating whether or not, to the best knowledge of the party giving the
statement, the requesting party is in default in performance of any
- ------------------
* (provided Sublandlord has sent to Subtenant notice of such Superior
Mortgagee and Superior Lessor together with the name and address of such
entity)
13
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of its obligations under this Sublease, and, if so, specifying each such
default.
8.06. The parties hereto acknowledge that the Sublease shall be subject
to and subordinate to the Net Lease, the provisions of which shall not
conflict with any of the terms or provisions of this Sublease, which Sublease
shall control in the event of any conflict, and in connection with same the
parties hereto agree as follows:
(A) Sublandlord shall promptly transmit to tenant under the
Superior Lease any notice or demands received from Subtenant and shall
promptly transmit to Subtenant any notice or demands received from tenant
* under the Superior Lease. Subtenant shall promptly transmit to Subtenant
any notice or demands received from Sublandlord under the Superior Lease
any other party having an interest to which this Sublease is subordinate.
8.07. Sublandlord and Subtenant agree that in any case where the
provisions of this Sublease or the Net Lease require the consent or approval
of Sublandlord or Superior Lessor prior to the taking of any action, the
granting of consent by Sublandlord hereunder shall be deemed to be the
consent of Superior Lessor under the Net Lease. By its execution of the
Sublease, Superior Lessor grants Sublandlord the right to consent, on its
behalf, to any of the terms or provisions requiring the consent of Superior
Lessor under the Superior Lease.
8.08. To the extent applicable, Subtenant shall have the benefit of each
and every covenant and agreement made by Sublandlord to Subtenant under the
Net Lease.
8.09. In the event the Net Lease is terminated by Superior Lessor
thereunder on account of the default by Sublandlord thereunder or the Net
Sublease expires pursuant to its terms, in either event prior to the
expiration of the Term of this Sublease, then, in such event, provided
Subtenant is not in default of any of the terms and conditions of this
Sublease, the within Sublease shall be deemed to be a direct lease between
Superior Lessor under the Net Lease and Subtenant pursuant to the terms of
this Sublease.
8.10. Sublandlord and Superior Lessor warrant and covenant to Subtenant
that the Net Lease is in full force and effect, and Sublandlord is not in
default thereunder nor has any event taken place which with the passage of
time could result in a default, and, notwithstanding anything to the
contrary, Subtenant's rights herein are not and will not be affected by the
Net Lease. In the event of any conflict between the Net Lease and this
Sublease, the provisions of this Sublease shall prevail.
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* tenant
14
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8.11. Notwithstanding anything else to the contrary in this Sublease,
Subtenant shall not be required to subordinate or attorn to any other party,
unless such subordination and attornment is specifically provided for in this
Sublease and the party whose interest Subtenant shall subordinate to or
attorn to, as the case may be, recognizes in writing Subtenant's right to the
continued quiet use and enjoyment of the Demised Premises under this Sublease
and all other rights as provided for under this Sublease.
8.12. Sublandlord shall, within thirty (30) days of the date hereof,
provide Subtenant with fully executed Subordination, Recognition and
Non-Disturbance Agreements from the current Superior Mortgagee and Superior
Lessor, substantially in the forms annexed hereto as Exhibit D
("Non-Disturbance Agreements") and shall provide a reasonably comparable
Non-Disturbance Agreement from any future Superior Mortgagee or Superior
Lessor.
ARTICLE 9 - QUIET ENJOYMENT
9.01. So long as Subtenant pays all of the Rent and performs all of
Subtenant's other obligations hereunder, Subtenant shall peaceably and
quietly have, hold and enjoy the Demised Premises, subject, nevertheless, to
the provisions of this Sublease.
ARTICLE 10 - ASSIGNMENT, SUBLETTING AND MORTGAGING
10.01. Subtenant shall not, voluntarily or involuntarily, (a) assign or
otherwise transfer this Sublease, (b) sublet the Demised Premises or any part
thereof, or allow the same to be used, occupied or utilized by anyone other
than Subtenant, or (c) mortgage, pledge, encumber or otherwise hypothecate
this Sublease in any manner whatsoever, except as provided in this Article 10.
10.02. Subtenant shall be permitted to sublet up to fifty percent (50%)
of the Demised Premises (a "Minor Sublease") without Sublandlord's consent,
provided however, (i) Subtenant shall notify Sublandlord in writing, promptly
after execution of any sublease and shall provide a copy of the sublease to
Sublandlord; (ii) Subtenant shall remain liable and responsible for all
obligations of Subtenant under this Sublease notwithstanding any further
sublease; and (iii) Subtenant shall not sublet the Demised Premises to any
person or entity which (a) is a then existing tenant in any building owned by
Sublandlord or Superior Lessor, within a radius of two (2) miles of the
Demised Premises, if Sublandlord or Superior Lessor has comparable space
available to let to the sublessee of Subtenant, in a building owned or
controlled by Sublandlord or Superior Lessor * or (b) which has a SIC code
that would subject the person or entity to ISRA compliance, unless the
proposed subtenant's use of hazardous substances is no greater in quantity or
degree than Subtenant's use of same (or Subtenant
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* within such two (2) mile radiuis
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obtains Sublandlord's approval to different hazardous substances, such
approval not to be unreasonably withheld).
10.03. Subtenant shall be permitted to sublet in excess of fifty
percent (50%) of the Demised Premises or assign this Sublease (a "Major
Sublease") but only with Sublandlord's prior written consent, which shall not
be unreasonably withheld, provided however, (i) Subtenant shall notify
Sublandlord and request Sublandlord's consent prior to such subletting; (ii)
Subtenant shall remain liable and responsible for all obligations of
Subtenant under this Sublease notwithstanding any sublease; (iii) Subtenant
shall not sublet the Demised Premises to any person a entity which has an SIC
code that would subject the person or entity to ISRA, unless the proposed
subtenant's use of hazardous substances is no greater in quantity or degree
than Subtenants' use of same (or Subtenant obtains Sublandlord's approval to
different hazardous substances, such approval not to be unreasonably
withheld).
10.04. If Subtenant derives a profit from any Major Sublease,
Sublandlord and Subtenant shall share equally in Subtenant's profit to the
extent actually received by Subtenant. "Profit" shall mean the amounts, if
any, paid by the Sub-subtenant in excess of:
(I) the amounts including, without limitation, Rent paid by
Subtenant under this Sublease;
(II) an amount sufficient to reimburse Subtenant for its
reasonable costs incurred in the subletting, including, without
limitation, customary brokerage commissions, reasonable legal fees and
costs of renovating and preparing the Demised Premises for such subtenant;
and
(III) any portion of funds received by Subtenant for any
rentals which Subtenant, in turn, pays to any third party (i.e.
reimbursements for equipment rentals).
Profits shall be paid by Subtenant to Sublandlord, after Subtenant has
been fully reimbursed for the costs set forth in subparagraph (ii) above, as
and when monies are received and collected by Subtenant from sub-subtenant.
10.05. If this Sublease is assigned, whether or not in violation of
this Sublease, Sublandlord may collect rent from the assignee. No such
assignment, subletting, occupancy or collection shall be deemed a waiver of
any of the provisions of this Sublease, or the acceptance of the assignee,
Subtenant or occupant as Subtenant, or a release of Subtenant from the
performance by Subtenant of Subtenant's obligations under this Sublease.
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10.06. Any assignment, whether or not made with Sublandlord's consent,
shall be made only if, and shall not be effective until, the assignee shall
execute, acknowledge and deliver to Sublandlord an agreement whereby the
assignee shall assume Subtenant's obligations under this Sublease and whereby
the assignee shall agree that all of the provisions in this Sublease shall,
notwithstanding such assignment, continue to be binding upon it in respect to
all future assignments. Notwithstanding any assignment, whether or not in
violation of the provisions of this Sublease, and notwithstanding the
acceptance of Rent by Sublandlord from an assignee, or any other party, the
original Subtenant shall remain fully liable for the payment of the Rent and
for Subtenant's other obligations under this Sublease.
10.07. The liability of the original Subtenant shall not be discharged,
released or impaired by any agreement made by Sublandlord extending the time
of, or modifying any of the obligations of, this Sublease, or by any waiver
or failure of Sublandlord to enforce any of the provisions of this Sublease.
10.08. If fifty (50%) percent or more of the Demised Premises becomes
available during the Term or extended Term of this Sublease which Subtenant
intends to offer for rent to third parties, prior to offering such space on
the market, Subtenant shall first notify Sublandlord and shall offer the
space to Sublandlord, upon such terms as Subtenant intends to market the
space (except the term shall be no longer than the Term of this Sublease).
Sublandlord shall have fifteen (15) days from receipt of such notice to
notify Subtenant of Sublandlord's intention to lease such space on such terms
as Subtenant has proposed. If Sublandlord fails to so notify Subtenant, or
notifies Subtenant that Sublandlord does not intend to lease such space on
such terms, Subtenant shall be free to market the space to third parties. As
respects a Major Sublease, in addition to Sublandlord's right of first lease
aforesaid, and Sublandlord's right to give or withhold consent as provided in
this Sublease, Sublandlord shall have the right to, but shall not be
obligated to, terminate the Sublease and recapture the part of the Demised
Premises to be sublet or assigned * If Sublandlord elects to recapture and upon
the date specified in such notice, which date shall be not less than thirty
(30) days and not more than sixty (60) days after the giving of said notice,
this Sublease shall terminate provided that with respect to a sublease of
less than all of the Demised Premises, the Sublease shall terminate only to
the extent of the portion of the Demised Premises being sublet, in which
event the Rent and Additional Charges shall be adjusted in accordance with
Article 1.01 (L) based upon the remaining square feet of the Demised
Premises. If Sublandlord elects to recapture all or any portion of the Demised
Premises, Sublandlord shall pay the cost of constructing any demising walls,
separating the utilities and HVAC, if necessary, that may be required in order
to separate the recaptured space from the remainder of the Demised Premises. If
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* to be executed by Sublandlord sending written notice thereof to Subtenant
within fifteen (15) days from notice by Subtenant requesting the consent of
the Sublanlord pursuant to the terms of Section 10.03.
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Sublandlord elects to recapture all or any portion of the Demised Premises,
then Sublandlord must accept Subtenants' proposed tenants and contract
directly with such proposed tenants. Notwithstanding the provisions of
section 10.06 above, to the extent of such recaptured space, Subtenant shall
have no further liabilities or obligations to Sublandlord for Rent (prorated,
if applicable) or other obligations under this Sublease. If Sublandlord does
not so terminate this Sublease, and if Subtenant does not consummate the
subject transaction within one hundred and eighty (180) days after the last
day in which Sublandlord received notice of the proposed assignment or
sublet, Subtenant shall again be required to comply with the provisions of
this Article in connection with any such transaction as if the notice by
Subtenant referred to above in this Article had not been given.
10.09. Without limiting any of the default provisions of this Lease,
if pursuant to the Federal Bankruptcy Code (or any similar law hereafter
enacted having the same general purpose), Subtenant is permitted to assign
this Lease notwithstanding the restrictions contained in this Lease, adequate
assurance of future performance by an assignee expressly permitted under such
amount equal to the sum of six (6) month's Fixed Rent plus an amount equal to
the Additional Charges for the Calendar Year preceding the year in which such
assignment is intended to become effective, which deposit shall be held for
the balance of the Term by Sublandlord, without interest, as security for the
full performance of all of Subtenant's obligations under this Lease, and
applied in the manner specified for security in this Lease for Security
Deposit.
10.10. Notwithstanding the foregoing to the contrary, Subtenant shall
have the right to assign this Sublease, without Sublandlord's consent, to a
party or entity which (a) purchases all or substantially all of Subtenant's
business, or (b) is an affiliate, parent or wholly owned subsidiary of
Subtenant, or (c) merges with Subtenant, provided however, that in any such
instance, the assignee shall have a credit reputation and a net worth at
least equal to that of Subtenant as of the date hereof and Subtenant shall
provide Sublessor with reasonable proof of same prior to such assignment. In
the event of the foregoing assignment, and notwithstanding any other
provisions of this Sublease to the contrary, Sublandlord shall have no right
to any Profit to Subtenant or rights of recapture, as respects such
assignment.
ARTICLE 11 - INSURANCE AND INDEMNITY
11.01. Sublandlord or Superior Lessor shall maintain or cause to be
maintained at reasonably competitive rates, All Risk Insurance in respect of
the Building and other improvements (except for property Subtenant is
required (or may elect) to cover with insurance under Article 11.02), on the
Land and Building normally
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covered by such insurance for the benefit of Subtenant, Superior Lessor and
Superior Mortgagee, in an amount equal to the replacement value of the
Building, and rent insurance equivalent to the aggregate amount of one year's
Fixed Rent, and Real Estate Taxes pursuant to this Sublease. Sublandlord
shall have the right to provide any insurance maintained or caused to be
maintained by it under blanket policies. Commencing with the * Commencement
Date, forty-three percent (43%) of the cost of such insurance carried by
Sublandlord hereunder, shall be paid by Subtenant in advance upon
presentation of a paid invoice or other evidence of payment by Sublandlord.
The annual cost of such insurance shall be paid by Subtenant in monthly or
quarterly assessments, at Sublandlord's option upon receipt by Subtenant of a
paid invoice or other written evidence of charges. Sublandlord shall deliver
to Subtenant and any additional insureds, certificates for such fully paid
for policies required by Article 11.01, before the Commencement Date and
Sublandlord shall deliver to Subtenant and any additional insured
certificates of renewal at least thirty (30) days before expiration.
11.02. Subtenant shall pay for and maintain the following insurance:
(a) comprehensive general public liability insurance in respect of the
Demised Premises and the operation of business therein, with Sublandlord and
its Superior Lessor and Superior Mortgagee, as additional insureds, with
limits of not less than $1,000,000 for single coverage and $2,000,000
umbrella coverage, (b) All Risk insurance for the sole benefit of Subtenant
in respect of Subtenant's stock in trade, fixtures, furniture, furnishings,
removable floor coverings, equipment, and all other property of Subtenant in
the Demised Premises in any amounts not less than 80% of the full insurable
value of the property covered and not less than the amount sufficient to
avoid the effect of the co-insurance provisions of the applicable policy or
policies. Subtenant shall deliver to Sublandlord and any additional
insured(s) certificates for such fully paid-for policies required by Article
11.02(a), before the Commencement Date and Subtenant shall deliver to
Sublandlord and any additional insured(s) certificates therefor at least
thirty (30) days before the expiration of any existing policy.
11.03. All policies required pursuant to Article 11 shall be issued
by companies licensed to do business in New Jersey and rated B+ or better by
A.M. Best or some other reputable company that rates insurance companies, and
all such policies shall contain a provision whereby the same cannot be
canceled unless Sublandlord and any additional insured(s) are given at least
thirty (30) days' prior written notice of such cancellation.
11.04. Neither party shall be liable or responsible for and each
party hereby releases the other party from, all liability to such party and
any person claiming by, through or under such party, by way of subrogation
or otherwise, for any injury, loss or damage
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* Rent
19
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to any person or property in or around the Demised Premises or to Subtenant's
business and Sublandlord and Subtenant shall require each other's insurers to
include in all of the policies to be issued pursuant to this Sublease, a
clause or endorsement waiving the insurers rights of subrogation against the
other party and against the Superior Lessor and any Superior Mortgagee.
ARTICLE 12 - ALTERATIONS AND SIGNS
12.01. Subtenant shall submit to Sublandlord, a complete set of plans
and specifications for all initial work desired to be installed at the
Demised Premises by Subtenant (the "Subtenant Initial Work"), which Subtenant
Initial Work shall be at Subtenants sole cost and expense.
12.02. Except for non-structural alterations and changes (other than
to the roof) costing Fifty Thousand Dollars ($50,000) or less in the
aggregate at any one time (in which case no Sublandlord's consent shall be
required), Subtenant shall not i) make any structural alterations or
additions to the Demised Premises, or (ii) make any cuts or penetrations in
the roof of the Demised Premises, or (iii) any non-structural alterations and
changes costing more than Fifty Thousand ($50,000) Dollars at any one time,
without on each occasion, set forth in (i)-(iii) above, first obtaining the
consent of Sublandlord, such consent not to unreasonably withheld,
conditioned or delayed ("Subtenant's Additional Work"). Subtenant shall
submit to Sublandlord plans and specifications for Subtenant's Additional
Work at the time Sublandlord's consent is sought and with respect to
structural alterations only, Subtenant shall reimburse Sublandlord for the
out of pocket reasonable costs actually incurred by Sublandlord for
Sublandlord's review and approval of the plans and specifications, including,
without limitation, the reasonable cost to Sublandlord for engaging
architects and engineers (unless Subtenant obtains Sublandlord's approval of
Subtenant's architect or engineer, such consent not to be unreasonably
withheld, in which case Sublandlord shall not be entitled to such
reimbursement). Subtenant shall obtain all necessary governmental permits
and certificates for the commencement and prosecution of permitted
alterations and for final approval thereof upon completion. Notwithstanding
the above, Subtenant shall be permitted to perform: (i) Subtenant's * Work as
set forth in Exhibit C-2 and (ii) non-structural alterations and changes (not
affecting the roof) costing less than Fifty Thousand ($50,000) Dollars, each
without the need for Sublandlord's consent. However, in each such
instance, Subtenant shall, prior to commencement of such work, provide
Sublandlord, for informational purposes only, with prior written notice of
same together with a copy of plans for all proposed work.
12.03. At Subtenant's option, prior to undertaking Subtenant's
Additional Work, Subtenant may request that Sublandlord
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* Initial
20
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notify Subtenant as to whether Sublandlord will require removal of
Subtenant's Additional Work upon expiration or sooner termination of the term
of this Sublease.
12.04. Subtenant's contractor or Subtenant shall furnish Sublandlord
with reasonably satisfactory evidence that worker's compensation insurance is
in effect at or before the commencement of alterations.
12.05. Subtenant may place a sign on the Demised Premises and/or on
the front lawn of the Land, subject to Sublandlord's prior approval which
approval shall not be unreasonably delayed or withheld, at Subtenant's sole
cost and expense, provided that any sign placed on the Demised Premises shall
be in compliance with all Legal Requirements.
12.06. At or before the Expiration Date, or earlier termination of
this Sublease, Subtenant shall, at its cost and expense, remove from the
Demised Premises all of Subtenant's Initial Work, Subtenant's Additional Work
and all of Subtenant's Property (defined hereinafter) and restore the Demised
Premises to their condition as of the date hereof. If Subtenant fully
complies with the above and leaves the Demised Premises in good order and
repair and in broom clean condition, Sublandlord shall reimburse Subtenant
for (a) up to Five Thousand ($5,000) Dollars towards the actual cost of such
removal and restoration if Subtenant vacates after the initial term, or (b)
up to Ten Thousand ($10,000) Dollars towards the actual cost of such removal
and restoration if Subtenant vacates after the initial term is extended *
as provided herein.
ARTICLE 13 - SUBLANDLORD'S AND SUBTENANT'S PROPERTY
13.01. All fixtures, equipment and improvements attached to or built
by Sublandlord into the Demised Premises at the commencement of or during the
Term, shall remain a part of the Demised Premises and same shall be deemed to
be the property of Sublandlord and shall not be removed by Subtenant.
13.02. All movable trade fixtures, machinery and equipment, which are
installed in the Demised Premises by Subtenant and all furniture,
furnishings, and other movable personal property owned by Subtenant and
located in the Demised Premises (COLLECTIVELY "SUBTENANT'S PROPERTY") shall
be and shall remain the property of Subtenant, provided that Subtenant shall
repair or pay the cost of repairing any damage to the Demised Premises,
resulting from the installation and/or removal thereof. Any items of the
Subtenant's Property which shall remain in the Demised Premises after the
Expiration Date may, at the option of Sublandlord, be deemed to have been
abandoned, and such items may be retained by Sublandlord
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* for at least the first five (5) year renewal option
21
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as its property or disposed of by Sublandlord, without accountability, at
Subtenant's expense.
ARTICLE 14 - REPAIRS AND MAINTENANCE
14.01. As of the Commencement Date, Subtenant shall take good care of
the interior, non-structural portions of the Demised Premises. At
Subtenant's sole cost and expense, Subtenant shall promptly make or cause to
be made, all nonstructural maintenance repairs and replacements, to the
interior, in and to the Demised Premises including without limitation all
building equipment, glass, windows, doors, loading docks, loading bay doors,
plumbing and electrical systems, heating, ventilation and air-conditioning
("HVAC") systems, and maintaining same and the Demised Premises in a clean
and orderly condition, except Subtenant shall not be responsible for the
foregoing arising out of (a) fire or casualty, or (b) Sublandlord's or its
agents, employees or contractors', acts or omissions.
14.02. As of the Commencement Date, Sublandlord, at its own cost and
expense, shall be responsible for all exterior and structural repairs and
replacements to the Demised Premises, the roof on the Demised Premises and
all repairs and replacements to plumbing electrical systems located outside
the Demised Premises and serving the Demised Premises. Notwithstanding the
above, Subtenant shall be responsible for annual, normal and regular
maintenance of the roof above the Demised Premises, the cost of which shall
not exceed Five Hundred ($500.00) Dollars, annually.
14.03. As of the Commencement Date, Sublandlord, at its own cost and
expense, subject to Subtenant's obligations for payment of Common Area
Maintenance Charges under this Sublease, shall be responsible for and shall
take good care of the Common Areas, including without limitation, all
necessary repairs and replacements, striping, snow and ice removal.
ARTICLE 15 - PUBLIC UTILITY CHARGES
15.01. As of the Commencement Date, Subtenant shall pay all charges
for water, sprinkler, sewer, gas or other utility or service supplied to the
Demised Premises relating to Subtenant's use. If separate meters for such
utilities are not presently installed, Subtenant shall pay its proportionate
share of utilities as determined by Sublandlord, written proof and evidence
of which charges shall be provided by Sublandlord to Subtenant. Sublandlord
represents that the Demised Premises are separately metered for gas and
electric.
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ARTICLE 16 - EXTENSION OF TERM
16.01. Provided Subtenant is not then in default of this Sublease
beyond applicable grace periods as set forth in this Sublease, Subtenant
shall have two (2) options to extend the term for an additional five (5)
years per option. If Subtenant elects to exercise either such option, it
shall do so by delivering written notice of such election to Sublandlord no
later than one hundred eighty (180) days prior to expiration of the then
existing Term. Subtenant agrees that it shall have forever waived its right
to exercise any such option if it shall fail for any reason whatsoever to
give such written notice to Sublandlord by the time provided for the giving
of such notice, time being of the essence as to the exercise of such option.
If Subtenant effectively elects to exercise said options, the Term shall be
automatically extended for the applicable Extended Period without execution
of an agreement of extension or renewal lease. Within ten (10) days after
request of either party after the effective exercise of any such option,
Sublandlord and Subtenant shall execute, acknowledge and deliver to each
other duplicate originals of an instrument in recordable form confirming that
such option was effectively exercised provided however, a failure of the
parties to execute such instrument within ten (10) days shall not affect the
validity of Subtenant's exercise of its option. Except as herein otherwise
provided, the applicable Extended Period shall be upon the same terms and
conditions as are in effect immediately preceding the commencement of such
applicable Extended Period, except that Subtenant shall have no right or
option to extend the Term for any period of time beyond the expiration of the
second Extended Period. The Fixed Rent for any Extended Period shall be
ninety five percent (95%) of the then Fair market Rent for the Demised
Premises as determined in accordance with Article 17 of this Sublease,
provided, however, that the annual Fixed Rent for any Extended Period shall
not be less than the annual Fixed Rent paid in the Calendar Year next
preceding the first year of the applicable Extended Period. Any termination,
expiration, cancellation or surrender of this Sublease * shall terminate any
right or option for the Extended Period not yet exercised.
16.02. If Subtenant elects to extend the initial Term as above
provided, Sublandlord shall extend the term of the Net Lease so that the term
of the Net Lease runs at least as long as the extended term of this Sublease.
The foregoing shall in no way diminish any rights of Subtenant, Sublandlord
or Superior Lessor set forth elsewhere in this Sublease as respects the Net
Lease.
16.03. If Subtenant does not exercise its option to extend the
initial Term, ** Subtenant shall, upon expiration of Subtenant's option period
to elect to extend with Subtenant not so electing to extend this Sublease,
pay Sublandlord $30,000.00 as reimbursement towards Sublandlord's Work,
provided that the Sublease has not been terminated earlier by reason of fire,
casualty, or condemnation.
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* in whole (and not in part)
** for the first five (5) year renewal option
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ARTICLE 17 - DETERMINATION OF FAIR MARKET RENT AND FAIR
MARKET VALUE FOR THE DEMISED PREMISES
17.01. For purposes of this Sublease, Fair Market Rent shall be
determined in the following manner:
a. On or before the first day of the ninth (9th) month prior
to the expiration of the then existing term, Subtenant, if
Subtenant so elects, shall provide Sublandlord with written
notice of Subtenant's determination of fair market rent for the
Demised Premises for the next option period as to which the Term
may be extended by Subtenant, if Subtenant is interested in
exercising such option.
b. If by the first day of the eighth (8th) month prior to
expiration of the then existing Term, Sublandlord and Subtenant
have not reached agreement on the determination of Fair Market
Rent, at their own cost and expense, Sublandlord and Subtenant
each shall secure an appraisal of fair market rent for the
Demised Premises applicable as of the expiration of the existing
term from a licensed MAI real estate appraiser, the geographic
scope of which appraisal shall be limited to the area in New
Jersey along the New Jersey State Highway Route 17 corridor
north of Allendale.
c. If the fair market rent of the two appraisals are within
ten percent (10%) of each other, the two fair market rents shall
be averaged, and ninety five percent (95%) of the resulting
product shall be deemed the "Fair Market Rent".
d. If the fair market rents of the two appraisals are in
excess of ten percent (10%) of each other, the Sublandlord and
Subtenant shall select another mutually acceptable licensed MAI
real estate appraiser to perform an appraisal.
e. The fair market rent as determined by the third appraisal
shall be averaged with whichever of the two previous fair market
rents is closest in value to the third appraisal, and ninety
five percent (95%) of the resulting product shall be deemed the
"Fair Market Rent".
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ARTICLE 18 - RIGHT OF FIRST LEASE
18.01. If any space becomes available in the Building during the Term
or extended Term of this Sublease which Sublandlord intends to offer for rent
to third parties, prior to offering such space on the market, Sublandlord
shall first notify Subtenant and shall offer the space to Subtenant, upon
such terms as Sublandlord intends to market the space (except the term shall
be coterminous with this Sublease). Subtenant shall have fifteen (15) days
from receipt of such notice to notify Sublandlord of Subtenant's intention to
lease such space on such terms as Sublandlord has proposed. The Sublandlord
agrees that the rent included in said proposed terms will be at fair market
value. * If Subtenant disputes said value and the parties cannot agree on same,
fair market value * shall be determined by appraisal method set forth in
Article 17 of this Sublease. If Subtenant fails to so notify Sublandlord, or
notifies Sublandlord that Subtenant does not intend to lease such space on
such terms, Sublandlord shall be free to market the space to third parties
and shall have no further obligations to Subtenant, unless the space becomes
available again after execution of a lease therefor.
ARTICLE 19 - SUBLANDLORD SUBLEASE BACK
19.01. From the Commencement Date through March 31, 1995 ("Sublease
Term"), Sublandlord hereby subleases from Subtenant a portion of the Demised
Premises consisting of 13,000 square feet of warehouse space with access to
one loading dock as depicted on Exhibit B ("Subleased Premises"). During the
Sublease Term, Subtenant shall be excused from its Rent obligation for the
Demised Premises during the Sublease Term, as respects the portion
representing the Subleased Premises only, in the amount of $5,145.83 per
month which shall be deducted from the Fixed Rent each month, unless, the
Subleased Premises are occupied in whole or in part by any occupant other
than Sublandlord, in which case all Rent as to the Subleased Premises shall
be prorated and excused for the applicable portion of the Sublease Term.
ARTICLE 20 - ACCESS AND CHANGES
20.01. Sublandlord and its agents shall have the right to enter the
Demised Premises, upon reasonable notice to Subtenant, during regular
business hours and at reasonable frequency, and without notice in the case of
emergency (a) to examine the Demised Premises and to show them to actual and
prospective mortgagees, or purchasers of the Demised Premises, and (b) to
make such repairs, alterations, additions and improvements in or to the
Demised Premises and/or in or to the Building or its facilities and equipment
as Subtenant is required to make.
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* rent
25
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ARTICLE 21 - MECHANICS' LIENS AND OTHER LIENS
21.01. Nothing contained in this Sublease shall be deemed to imply
any consent on the part of Sublandlord to subject any interest or estate in
the Demised Premises to any liability under any mechanic's or other lien law.
If any mechanic's or other lien or any notice of intention to file a lien is
filed against the Demised Premises, or any part thereof, for any work, labor,
service or materials claimed to have been performed or furnished for or on
behalf of (i) Subtenant or anyone holding any part of the Demised Premises
through or under Subtenant, for Subtenant's Work, Subtenant's Additional Work
and/or any other work which Subtenant may perform during the Term, or (ii)
Sublandlord or anyone holding any part of the Demised Premises through or
under Sublandlord, for Sublandlord's Work and/or any other work which
Sublandlord may perform during the Term, Subtenant or Sublandlord as the case
may be shall cause the same to be discharged of record by payment, bond or
order of a court of competent jurisdiction within thirty (30) days after
notice by one to the other.
ARTICLE 22 - NON-LIABILITY AND INDEMNIFICATION
22.01. Neither Sublandlord, nor any director, officer, agent or
employee of Sublandlord shall be liable to Subtenant for any loss, injury or
damage to Subtenant or to any other Person, or to its or their property,
irrespective of the cause of such injury, damage or loss, unless caused by or
resulting directly from the negligence of Sublandlord, its agents, servants
or employees in the operation or maintenance of the Land or Building.
Further, neither Sublandlord nor any director, officer, agent, or employee of
subtenant shall be liable for any such damage caused by other Persons in,
upon or about the Land, Building or Demised Premises, or caused by operations
in construction of any private, public or quasi-public work.
22.02. Subtenant shall indemnify and hold harmless Sublandlord and
its and their respective directors, officers, agents, and employees, Superior
Lessor and Superior Mortgagee, and Sublandlord shall indemnify and hold
harmless Subtenant and its and their respective directors, officers, agents
and employees, from and against any and all claims arising from or in
connection with (a) the conduct or management of the Demised Premises or of
any business therein, or any work or thing whatsoever done, or any condition
created unless caused by the other party in the Demised Premises during the
Term or during any Extended Period; (b) any act, omission or negligence of
the other party or its or their directors, officers, agents, employees or
contractors; (c) any accident, injury or damage whatever (unless caused
solely by the other party's negligence) occurring in the Demised Premises;
and (d) any breach or default by the other party in the full and prompt
payment and performance of that party obligations under this
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Sublease; together with all costs, expenses and liabilities incurred in or in
connection with each such claim or action or proceeding brought thereon,
including, without limitation, all attorneys, fees and expenses.
22.03. Notwithstanding any provision to the contrary, Subtenant shall
look solely to the estate and property of Sublandlord in and to the Demised
Premises * in the event of any claim against Subtenant arising out of or in
connection with this Sublease and Subtenant agrees that the liability of
Sublandlord arising out of or in connection with this Sublease shall be
limited to such estate and property of Sublandlord (or sale proceeds). No
other properties or assets of Sublandlord or any director, officer, agent, or
employee of Subtenant shall be subject to levy, execution or other
enforcement procedures for the satisfaction of any judgement or for the
satisfaction of any other remedy of Subtenant arising out of, or in
connection with, this Sublease, and if Subtenant shall acquire a lien on or
interest in any other properties or assets by judgment or otherwise,
Subtenant shall promptly release such lien on or interest in such other
properties and assets by executing, acknowledging and delivering to
Sublandlord an instrument to that effect prepared by Subtenant's attorneys.
Notwithstanding the foregoing to the contrary, Sublandlord's liability to
Subtenant, if any, for failure to comply with Sublandlord's obligations as
respects any and all environmental matters under this Sublease and the return
of Subtenant's security Deposit shall not be limited to Sublandlord's
interest in the estate and property of the Demised Premises, * but rather shall
extend to any and all interests of Sublandlord.
ARTICLE 23 - DAMAGE AND DESTRUCTION
23.01. If the Demised Premises shall be partially damaged or
destroyed by fire or other casualty, Sublandlord shall repair the damage and
restore and rebuild the Building and/or the Demised Premises as nearly as
practicable to its character and value immediately prior to such damage or
destruction, with reasonable dispatch after notice to it of the damage or
destruction. Notwithstanding the above, Sublandlord shall not be obligated to
expend any sum in excess of the insurance proceeds actually received by
Sublandlord to repair or restore the Building and/or the Demised Premises.
In the event of partial destruction of the Demised Premises, the Rent shall
be adjusted in accordance with Article 1.01(L), based upon the square footage
of the Demised Premises remaining for Subtenant's use.
23.02. If the Demised Premises shall be totally damaged or destroyed,
Sublandlord shall have the option, to be exercised within thirty (30) days of
such casualty, to either (a) terminate this Sublease, or (b) elect to rebuild
and/or restore the Demised Premises, consistent with the then existing zoning
ordinance.
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* Building and land
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Sublandlord shall not be required to expend any sum in excess, of the
insurance proceeds actually received by Subtenant. Nothing herein contained
shall be construed to imply a duty upon Sublandlord to advance any money to
restore or rebuild the Demised Premises pursuant to the Superior Mortgage or
any other document. Notwithstanding anything to the contrary contained
herein, in the case of any damage or destruction of any part of the Demised
Premises by fire or casualty which shall render at least twenty-five (25%)
percent of the floor area of the Demised Premises untenantable or unfit for
occupancy which is not repaired within six (6) months after the occurrence of
such fire or casualty, using reasonable diligence, then in such event,
Subtenant shall have the right, upon written notice to the Sublandlord within
thirty (30) days following the expiration of the six (6) month period, to
terminate the Sublease. If such fire or casualty is not reasonably capable of
restoration with six (6) months, Subtenant may terminate this Sublease on
written notice to Sublandlord, such option to be exercised within thirty
(30) days of such casualty. In such event, Subtenant shall surrender the
Demised Premises and this Sublease to Sublandlord and all Rent shall be
pro-rated accordingly to the date of termination. Subtenant shall not be
entitled to any damages or compensation from Sublandlord for any
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the Demised Premises. In the case of total
destruction of the Demised Premises, the Rent shall abate as of the date of
casualty, and, in the case of a partial destruction of the Demised Premises,
the Rent shall be adjusted proportionately on a per square foot basis.
23.03. Notwithstanding anything to the contrary contained herein,
neither Sublandlord (its Superior Lessor) nor Subtenant shall be liable or
responsible for, and each party hereby releases the other party from, all
liability to such party and any person claiming by, through or under such
party, by way of subrogation or otherwise, for any injury, loss or damage to
any person or property in or around the Demised Premises, the Building or the
Common Areas, or to Sublandlord's, Subtenant's or Superior Lessor's business
and Sublandlord, Superior Lessor and Subtenant shall require each other's
insurers to waive rights of subrogation against the other party and against
the Superior Lessor and any Superior Mortgagee.
23.04. Sublandlord hereby represents and warrants that if Sublandlord
is required by the operation of this Article to repair the Demised Premises,
the proceeds which are payable under policies of insurance carried by
Sublandlord shall first be made available for repair of the Demised Premises
to the extent required by this Sublease before such proceeds are applied in
any other manner, including the satisfaction of debts secured by
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a mortgage or other lien instrument, or interest or penalties imposed
therein.
23.05. Notwithstanding the foregoing to the contrary, if Sublandlord
rightfully elects to restore the Demised Premises after a partial or total
destruction, and Sublandlord fails to substantially complete such restoration
within six (6) months of such casualty, then in such event, Subtenant shall
have the option to terminate this Sublease.
ARTICLE 24 - EMINENT DOMAIN
24.01. If the whole of the Demised Premises shall be taken by any
public or quasi-public authority under the power of condemnation, eminent
domain or expropriation, or in the event of conveyance of the whole of the
Demised Premises in lieu thereof, this Sublease shall terminate as of the day
possession shall be taken by such authority. If any of the floor space of
the Demised Premises shall be so taken or conveyed, Subtenant may, by notice
to Sublandlord, terminate this Sublease as of the day possession shall be
taken. If this Sublease shall continue in effect, as to any portion of the
Demised Premises not so taken or conveyed, the Rent shall be reduced
proportionally on a per square foot basis. If this Sublease shall continue in
effect Sublandlord shall promptly, at its expense make all necessary
alterations so as to constitute the remainder of the Demised Premises a
complete architectural and tenantable unit, and Subtenant shall make all
alterations or replacements to Subtenant's Property and its decorations in
the Demised Premises. All awards and compensation for any taking or
conveyance, whether for the whole or a part of the Land or Building, the
Demised Premised shall be property of Sublandlord, and Subtenant hereby
assigns to Sublandlord all of Subtenant's right, title and interest in and to
any and all such awards and compensation, including, without limitation, any
award or compensation for the value of the unexpired portion of the Term.
Notwithstanding the foregoing, if there is a taking hereunder, Subtenant
shall be entitled to appear, claim, prove and receive in the condemnation
proceeding the value of Subtenant's Property that is damaged, destroyed or
taken hereunder; the cost of relocation; and special awards or allowances
paid to Subtenants when their rental space is taken by eminent domain,
provided that none of the foregoing shall reduce any award to Sublandlord.
24.02. Notwithstanding the above, if as a result of any condemnation
proceeding, Subtenant is denied access to the Demised Premises and
Sublandlord is unable to provide suitable alternate access to the Demised
Premises reasonably acceptable to Subtenant, any of the loading docks are
taken and Sublandlord cannot provide Subtenant with replacement loading docks
reasonably acceptable to Subtenant, or if all or a portion of the parking
area is taken and Sublandlord cannot provide replacement parking reasonably
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acceptable to Subtenant so that Subtenant would have at least eighty-five
percent (85%) of the number of parking spaces that were available to
Subtenant prior to institution of any condemnation proceeding, Subtenant
shall have the right to terminate the Sublease.
ARTICLE 25 - SURRENDER
25.01. On the Expiration Date, or upon any earlier termination of
this Sublease, Subtenant shall surrender the Demised Premises to Subtenant
"broom-clean" and in good order, condition and repair, except for ordinary
wear and tear and fire and casually and Subtenant shall remove all of
Subtenant's Property therefrom. If Subtenant remains in possession of the
Demised Premises after the expiration of the Term, or upon any earlier
termination of this Sublease, Subtenant shall be deemed to be occupying the
Demised Premises as a Subtenant from month to month subject to all of the
provisions of this Sublease, including, but not limited to, payment of Fixed
Rent. In the event Subtenant remains in possession of the Demised Premises
after the expiration of the Term or earlier termination of this Sublease, the
monthly Fixed Rent thereafter shall be one hundred fifty percent (150%) of
the monthly Fixed Rent in effect during the last month of the Term, provided,
however, that this amount shall be deemed liquidated damages and, however,
Sublandlord shall have available all remedies at law and equity for
dispossession of Subtenant remaining in possession of the Demised Premises.
ARTICLE 26 - CONDITIONS OF LIMITATION
26.01. This Sublease is subject to the limitation that whenever
Subtenant (a) shall make an assignment for the benefit of creditors, or (b)
(i) shall commence a voluntary case or (ii) have entered against it an order
for relief under any chapter of the Federal Bankruptcy Code (Title 11 of the
United States Code) or any similar order or decree under any federal or state
law, and such involuntary order is not discharged within sixty (60) days or
(c) shall cause, suffer, permit or consent to the appointment of a receiver,
trustee, administrator, conservator, sequestrator, liquidator or similar
official in any federal, state or foreign judicial or nonjudicial proceeding,
to hold, administer and/or liquidate all or substantially all of its assets,
then Sublandlord, at any time after the occurrence of any such event, may
give Subtenant a notice of intention to end the Term at the expiration of
five (5) days from the date of service of such notice of intention, and upon
the expiration of said five (5) day period, this Sublease shall terminate
with the same effect as if that day were the expiration date of this
Sublease, but Subtenant shall remain liable for damages as provided in
Article 28.
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26.02. This Sublease is subject to the further limitations that: (a)
if Subtenant shall default in the payment of any Rent or any other monetary
obligation following notice from Sublandlord that the Rent or other monetary
obligation has not been received and does not cure the default within ten
(10) days of the date of Sublandlord's written notice advising Subtenant of
the default or (b) if Subtenant shall, be in default of any of its
obligations other than monetary obligations and does not cure same within
sixty (60) days of the date of Sublandlord's written notice advising
Subtenant of the Default under this Sublease or, if the default is not
capable of being cured within the sixty (60) day period and Subtenant does
not attempt to cure the default and continue to diligently pursue the
default, then in any of said cases Sublandlord may give to Subtenant a notice
of intention to end the Term at the expiration of five (5) days from the date
of the service of such notice of intention, and upon the expiration of said
five (5) days, this Sublease shall terminate, but Subtenant shall remain
liable for damages as provided hereinafter.
ARTICLE 27 - RE-ENTRY BY SUBLANDLORD
27.01. If Subtenant shall default in the payment of any Rent or if
this Sublease shall terminate as provided in this Sublease, Sublandlord may
re-enter the Demised Premises, either by summary dispossess proceedings or by
any suitable action or proceeding at law, without being liable to indictment,
prosecution or damages therefor, and may repossess the same, and may remove
any Person therefrom, to the end that Sublandlord may have, hold and enjoy
the Demised Premises. If this Sublease is terminated or if Sublandlord shall
re-enter the Demised Premises pursuant to legal action, Sublandlord may
cumulatively invoke any remedy allowed at law or in equity and Subtenant
shall pay to Sublandlord the Rent then due on the date of such termination
and shall also pay to Sublandlord damages as provided hereinafter.
ARTICLE 28 - DAMAGES
28.01. If this Sublease is terminated as provided herein or if
Sublandlord shall re-enter the Demised Premises under the provisions of the
Sublease, or pursuant to any judicial proceeding, Subtenant shall pay as
Additional Charges to Sublandlord, at the election of Sublandlord, either:
(a) a sum which at the time of such termination of this Sublease
or at the time of any such re-entry by Sublandlord, as the case may be,
represents the then present value of the excess, if any, of (i) the
aggregate amount of the * Rent and Additional Charges which would have
been payable by Subtenant for the period commencing with such earlier
termination of this Sublease or the
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* Fixed
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date of any such re-entry, as the case may be, and ending with
the Expiration Date, less (ii) the aggregate * rental value of the
Demised Premises for the same period; or
(b) sums equal to the Fixed Rent and the Additional Charges
which would have been payable by Subtenant had this Sublease not so
terminated, or had Sublandlord not so re-entered the Demised Premises, as
and when same would be due and payable under this Sublease.
If Sublandlord shall relet the Demised Premises during said period,
Sublandlord shall credit Subtenant with the net rents received by Sublandlord
from such reletting, less the reasonable expenses of reletting, including,
without limitation, altering and preparing the Demised Premises for new
Subtenants, brokers, commissions, legal fees, and all other reasonable
expenses properly chargeable against the Demised Premises and the rental
therefrom, it being understood that any such reletting may be for a period
shorter or longer than the period ending on the Expiration Date; but in no
event shall Subtenant be entitled to receive any excess of such net rents
over the sums payable as Fixed Rent by Subtenant to Sublandlord hereunder.
If the Demised Premises or any part thereof be relet by Sublandlord before
presentation of proof of such damages to any court, commission or tribunal,
the amount of rent received upon such reletting shall, prima facie (but
subject to rebuttle), be the fair and reasonable rental value for the Demised
Premises, or part thereof, so relet during the term of the reletting.
Sublandlord shall use good faith efforts to mitigate damages as required by
law. However, Sublandlord shall not be liable in any way whatsoever for its
failure to relet, or to collect the rent under such reletting unless
Sublandlord failed to use good faith efforts, and no such failure to relet or
failure to collect rent shall release or affect Subtenant's liability for
damages or otherwise under this Sublease, unless, Sublandlord fails to use
good faith efforts.
28.02. Suit or suits for the recovery of such damages and other
damages may be brought by Sublandlord at any time and from time to time at
its election, and nothing contained herein shall be deemed to require
Sublandlord to postpone suit until the date when the Term would have expired
if it had not been so terminated under the provisions of this Sublease or
pursuant to Law or had Sublandlord not re-entered the Demised Premises.
28.03. Subtenant, on behalf of itself and any and all persons
claiming through or under Subtenant, does hereby waive and surrender all
right and privilege which it, they or any of them might have under or by
reason of any present or future law, to redeem the Demised Premises or to
have a continuance of this Sublease after being dispossessed or ejected from
the Demised Premises by process of law or under the terms of this Sublease
or
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* fair and reasonable
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after the termination of this Sublease as provided in this Sublease.
Sublandlord and Subtenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either against the other on any matter
whatsoever arising out of or in any way connected with this Sublease, the
relationship of Subtenant and Subtenant, and Subtenant's use or occupancy of
the Demised Premises. Subtenant shall not interpose any counterclaim of any
kind in any action or proceeding commenced by Sublandlord to recover
possession of the Demised Premises unless such counterclaim is a defense to
Sublandlord's possession or would be lost if not then interposed.
ARTICLE 29 - CURING DEFAULTS
29.01. If either party shall default in the performance of any of its
obligations under this Sublease, or if Sublandlord shall default in the
performance of any of its obligations under the Superior Sublease the
non-defaulting party, after notice and reasonable opportunity to cure,
without thereby waiving such default, may perform the same for the account
and at the expense of the defaulting party, without notice in a case of
emergency, and in any other case only if such default continues after the
expiration of sixty (60) days from the date non-defaulting party gives the
other notice of the default. Bills for any expenses incurred by the
non-defaulting party in connection with any such performance by the
non-defaulting party for the account of the defaulting party, may be sent by
the defaulting party monthly, and such amounts shall be due and payable in
accordance with the terms of such bills. If Sublandlord fails to reimburse
Subtenant as provided for herein, said amount plus interest at the Late
Payment Rate may be deducted or offset from the next or succeeding payments
of Fixed Rent due hereunder.
29.02. If Sublandlord shall be in default of its obligations and does
not cure same within sixty (60) days of the date of Subtenant's written
notice advising the Sublandlord of the default under this Sublease or if the
default is not capable of being cured within the sixty (60) day period, and
Sublandlord does not attempt to cure the default and continue to diligently
pursue such default, and such default materially interferes with Subtenant's
use and enjoyment of the Demised Premises, then Subtenant may give to
Sublandlord notice of intention to end the Term at the expiration of five (5)
days from the date of service of such notice of intention, and upon the
expiration of said five (5) days, this Sublease shall terminate and
Sublandlord shall remain liable for damages incurred by Subtenant, subject to
the provisions of Article 22.03 of this Sublease. The remedies provided for
in this Sublease for Subtenant are in addition to any and all other remedies
available at law or in equity.
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ARTICLE 30 - BROKER
30.01. Sublandlord and Subtenant each represent to each other that no
broker except the Broker was instrumental in bringing about this Sublease and
that neither party had any conversations or negotiations with any broker
except the Broker concerning the leasing of the Demised Premises. Each party
agrees to indemnify and hold harmless the other against and from any claims
for any brokerage commissions and all costs, expenses and liabilities in
connection therewith, including, without limitation, attorneys' fees and
expenses, arising therefrom. All fees due and payable to the Broker shall be
paid by the Sublandlord.
ARTICLE 31 - NOTICES
31.01. Any notice, statement, demand, or other communication required
pursuant to this Sublease shall be in writing and shall be deemed to have
been properly given, only if sent by Federal Express or registered or
certified mail, return receipt requested, addressed to the other party at the
address hereinabove set forth (except that after the Commencement Date
Subtenant's address shall be the Building), and as to Subtenant, with a
concurrent notice to James R. Crane, CEO, 15 Arrow Road, Ramsey, New Jersey
07446, telephone ( ) , telefax ( ) ; and
Martin Kafafian, Esq.; Beattie Padovano P.O. Box 244, 50 Chestnut Ridge Road,
Montvale, New Jersey, 07645, telephone (201) 573-1810, telefax (201)
573-9736; and, as to Sublandlord, William Gross, CFO, Troll Associates, Inc.,
100 Corporate Drive, Mahwah, New Jersey 07430, with a concurrent Notice to
the attention of James A. Kosch, Esq., of Waters, McPherson, McNeill, P.C.,
with offices at 300 Lighting Way, Secaucus, New Jersey, (201) 863-4400,
telefax (201) 863-2866. Notices shall be deemed to have been given, rendered
or made on the second day after the day so mailed, unless mailed outside the
State of New Jersey, in which case it shall be deemed to have been given,
rendered or made on the third business day after the day so mailed.
ARTICLE 32 - PARKING
32.01. Sublandlord shall provide Subtenant with a total of ninety-six
(96) designated and exclusive parking spaces as depicted on the Parking Plan
attached hereto as Exhibit E.
32.02. If, after execution of this Sublease, Subtenant requests
additional parking spaces, not to exceed fifty (50) spaces ("the Additional
Parking Spaces") , Sublandlord shall make good faith efforts to secure such
Additional Parking Spaces for Subtenant from any of the following sources:
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(a) From other presently existing spaces on the Land. If
Sublandlord is successful in securing such Additional Parking Spaces, but
Sublandlord has incurred costs in so doing (for example: reimbursements to
other tenants in the Building), Subtenant shall, if first approved by
Subtenant, reimburse Sublandlord for the actual costs incurred by
Sublandlord upon receipt of an invoice from Sublandlord.
(b) Sublandlord may construct new Additional Parking Spaces, if
permitted by applicable municipal zoning regulations, on the Land for
Subtenant. If so constructed, Subtenant shall pay Sublandlord as
additional Fixed Rent hereunder, the amortized (over 15 years) cost
(exclusive of any interest or borrowing charges) of such Additional Parking
Spaces.
(c) From the neighboring building owned and/or controlled by
Sublandlord and commonly known as 300 Corporate Drive, Mahwah, New Jersey.
If Sublandlord is successful in securing such Additional Parking Spaces,
but Sublandlord has incurred costs in so doing (for example: reimbursements
to other tenants at the property), Subtenant shall, if first approved by
Subtenant, reimburse Sublandlord for such actual costs incurred by
Sublandlord upon receipt of an invoice from Sublandlord.
32.03. Subtenant's liability to reimburse Sublandlord for Additional
Parking Spaces as provided above in Article 32.02 shall not exceed One
hundred ($100.00) dollars per new Additional Parking Space or Five Thousand
($5,000.00) dollars in the aggregate, annually.
ARTICLE 33 - SUBLEASE CONTINGENT UPON MUNICIPAL APPROVAL
33.01. The parties acknowledge that this lease is contingent upon
Sublandlord obtaining approval by the Township of Mahwah Planning Board,
approving the Subtenant's use of the Demised Premises. * Subtenant agrees to
cooperate with Sublandlord in applying to the Township as necessary, without
cost to Subtenant.
ARTICLE 34 - REPRESENTATIONS AND WARRANTIES
34.01. The Sublandlord hereby represents and warrants to Subtenant
the following:
(a) Sublandlord has no actual knowledge of, and has received no
notice of, any outstanding violation of any governmental law, rule,
statute, ordinance, or regulation affecting the Demised Premises, and if
there are any such violations as of the Commencement Date, Sublandlord
shall remove such violations.
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* on or before June 1, 1994
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(b) Sublandlord has no actual knowledge of any confirmed or
unconfirmed special assessments affecting the Demised Premises.
(c) Sublandlord has full power and right to enter into and
complete this Sublease with out the consent or approval of other parties.
(d) The Demised Premises are serviced by public gas, sewer,
water and electric, and are heated by gas, heat, and that the heating, air
conditioning, sprinkler, electrical and plumbing systems are now in good
working order and will be * on the Commencement Date, and Sublandlord shall
assign to Subtenant any warranties for the HVAC.
(e) To the best of its knowledge, there is no pending or
threatened litigation affecting the Demised Premises and Sublandlord is
unaware of any acts which may give rise to a claim against the Demised
Premises. To the best of the Sublandlord's knowledge, no Lis Pendens is
filed against the Demised Premises.
(f) Each party represents that upon the execution and delivery
of the Sublease by each party, the Sublease will be legally binding upon
Sublandlord and Subtenant in accordance with all of the terms and
conditions.
(g) Sublandlord represents that there is access to the Demised
Premises from what is currently known as "Corporate Drive".
(h) Sublandlord, at its sole cost and expense, has removed the
underground heating oil tanks which previously serviced the Demised
Premises and Building. Sublandlord shall comply with any requirements of
the NJDEPE and other laws, rules and regulations related to the underground
heating oil tanks, including, but not limited to, the removal of the tanks
in accordance with NJDEPE requirements and any remediation of
contamination. Sublandlord shall indemnify and hold harmless Subtenant and
shall be responsible for any expenses, claims, liabilities and penalties
which may be assessed by NJDEPE for all matters which may arise out of the
underground heating oil tanks.
ARTICLE 35 - ENVIRONMENTAL REPRESENTATIONS AND WARRANTIES
35.01. Sublandlord hereby represents and warrants to Subtenant that,
except as otherwise specifically set forth in this
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* so
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Sublease, to the best of Sublandlord's knowledge, the following are true:
(i) There are no pending actions against the Sublandlord
with respect to any of its activities in the Demised Premises, under any
environmental law, regulation or ordinance, and the Sublandlord has not
received notice in any form of such an action, or of a possible action.
(ii) To the best of Sublandlord's knowledge, there has not
been, any release, of hazardous substance, as such term is defined under
any federal, state or local environmental law, regulation or ordinance
applicable to the Demised Premises, nor are there, to the best of
Sublandlord's knowledge, any hazardous substances, present in, or on, the
Demised Premises.
35.02. Each party shall immediately notify the other in the event it
receives: (i) any notices or correspondence from the Environmental Protection
Agency or NJDEPE alleging the presence or release of any hazardous substances
or environmental contaminants in, on, around or under the Demised Premises;
or (ii) any information suggesting or demonstrating the release or presence
of any hazardous substances or environmental contaminants in, on, around or
under the Demised Premises.
35.03. Each party hereby indemnities and holds harmless the other
(and shall, at the other party's option, defend) the other party, its
employees, agents, guests, visitors and invitees, or from and against any and
all cost, expense (including without limitation reasonable attorneys and
environmental consultants fees), loss, damage or liability arising directly
or indirectly from a breach by said party of any of the representations or
warranties contained in this Article 35.
35.04. Notwithstanding anything to the contrary contained herein,
Subtenant shall have absolutely no liability for any environmental conditions
including contamination or remediation that may be required pursuant to any
federal, state or local law unless such environmental conditions were caused
by the Subtenant or Subtenant's agents, servants, employees, guests,
invitees, sublessees or assigns. Sublandlord agrees that it will be
responsible to promptly and diligently remediate and comply with all
environmental laws (federal, state or local) with respect to the Land,
Building, Common Areas and Demised Premises except for those conditions which
are the responsibility of the Subtenant and hereby agrees to indemnify and
hold harmless Subtenant, its employees, agents, guests, visitors and invitees
from and against any and all costs, expenses (including, without limitation,
reasonable attorneys, fees and environmental consulting fees), loss, damage
or liability, arising directly or indirectly from same.
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ARTICLE 36 - PERFORMANCE UNDER PROTEST
36.01. If at any time a dispute shall arise as to any amount or sum
of money to be paid by one party to the other under the provisions hereof,
the party against whom the obligation to pay money is asserted shall have the
right to make payment "under protest" and such payment shall not be regarded
as a voluntary payment and there shall survive the right on the part of said
party to institute suit for the recovery of such sum, and if it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such
sum or so much thereof as it was not legally required to pay under the
provisions of this Sublease; and if at any time a dispute shall arise between
the parties hereto as to any work to be performed by either of them under the
provisions hereof, the party against whom the obligation to perform the work
is asserted may perform such work and pay the costs thereof "under protest"
and the performance of such work shall in no event be regarded as a voluntary
performance, and there shall survive the right on the part of said party to
institute suit for the recovery of the cost of such work, and if it shall be
adjudged that there was no legal obligation on the part of said party to
perform the same or any part thereof, said party shall be entitled to recover
the cost of such work or the cost of so much of the work as said party was
not legally required to perform under the provisions of this Sublease, plus
reasonable legal fees and interest thereon, at the Late Payment Rate.
ARTICLE 37 - MISCELLANEOUS
37.01. With respect to this Sublease, neither party has relied upon
any statement or representation not embodied in this Sublease or any other
written agreements made concurrently herewith. No agreement shall be
effective to change, modify, waive, release, discharge, terminate or effect
an abandonment of this Sublease, unless such agreement is in writing, and is
signed by the party against whom enforcement of the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
37.02. The obligations under this Sublease shall bind and benefit the
successors and assigns of the parties hereto.
37.03. Upon the request of any Superior Mortgagee in connection with
the financing of the Demised Premises, which such request shall be limited to
one (1) per calendar year, Subtenant shall furnish Sublandlord with a copy
of its last annual financial statement, if available, or if not, the last
annual unaudited financial statement certified by its chief financial
officer, together with any other document or information reasonably
38
<PAGE>
requested by such mortgagee within ten (10) days of the request therefor.
Subtenant's failure to provide such financial statement to Subtenant within
said period shall constitute a default of this Sublease. All such financial
information shall be kept confidential by Sublandlord and Superior Mortgagee
and released by Sublandlord only to any Superior Mortgage, existing or
proposed.
37.04. Any liability for payments hereunder (including, without
limitation, Additional Charges) shall survive the expiration of the Term or
earlier termination of this Sublease.
37.05. This Sublease shall be governed by and construed in accordance
with the laws of the State of New Jersey. If any provision of this Sublease
shall be invalid or unenforceable, the remainder of this Sublease shall not
be affected and shall be enforced to the extent permitted by law.
37.06. Sublandlord and Subtenant shall not record this Sublease.
However, at the request of Sublandlord or Subtenant, each party shall
promptly execute, acknowledge and deliver a Memorandum of Sublease in respect
of this Sublease sufficient for recording at the expense of Subtenant.
IN WITNESS WHEREOF, Subtenant and Subtenant have duly executed the
Sublease as of the day and year first above written.
ATTEST: SUBLANDLORD:
TROLL ASSOCIATES, INC., A NEW
JERSEY CORPORATION
BY:____________________________ BY:__________________________________
MARVIN SCHECTER MARIAN SCHECTER
ITS: SECRETARY ITS: PRESIDENT
ATTEST: SUBTENANT:
COMPONENT REMANUFACTURING
SPECIALISTS, INC.
A NEW JERSEY CORPORATION
BY:____________________________ BY:___________________________________
JAMES R. CRANE
ITS: SECRETARY ITS: CHIEF EXECUTIVE OFFICER
39
<PAGE>
Landlord has signed this Sublease below to indicate its consent to the terms
and conditions of this Sublease.
LANDLORD:
BY:___________________________________
MARVIN SCHECTER
BY:___________________________________
MARIAN SCHECTER
40
<PAGE>
SUBLEASE MODIFICATION AND EXTENSION AGREEMENT
THIS AGREEMENT made as of the 28 day of February 1996, by and between OLDE
HOLDING COMPANY, a New Jersey corporation, having an address at 100 Corporate
Drive, Mahwah, New Jersey 07430 ("Sublandlord") and COMPONENT REMANUFACTURING
SPECIALISTS, INC., a New Jersey corporation, having an office at 400 Corporate
Drive, Mahwah, New Jersey 07430 ("Subtenant").
W I T N E S S E T H:
WHEREAS, Sublandlord (previously named Troll Associates, Inc.), as
sublandlord, and Subtenant, as subtenant, entered into a certain sublease dated
as of May 10, 1994 (hereinafter the "Sublease") covering the premises
(hereinafter called the "Demised Premises") consisting of sixty-three thousand
(63,000) square feet located at the Building at 400 Corporate Drive, Mahwah, New
Jersey, as more particularly described in the Sublease; and
WHEREAS, Subtenant desires to let from Sublandlord an additional twenty-
nine thousand nine hundred forty (29,940) square feet located in the Building as
shown on EXHIBIT "A-1" attached hereto (hereinafter called the "Additional
Premises"); and
WHEREAS, in connection therewith, Sublandlord and Subtenant desire to
further modify and extend the Sublease;
NOW, THEREFORE, for and in consideration of the premises, the Sublease and
the mutual covenants and agreements hereinafter contained, the parties covenant
and agree as follows:
1. Sublandlord and Subtenant agree to extend the initial term of the
Sublease, upon the same terms, covenants, and conditions as are contained in the
Sublease, as amended hereby, from the date it would otherwise expire for a
period of six (6) years commencing on the Effective Date (as hereinafter
defined) and ending on the date that is six (6) years after the Effective Date.
2. As of the Effective Date, the Sublease is hereby amended by adding the
Additional Premises as delineated on EXHIBIT "A-1" attached hereto and made a
part hereof to the Existing Premises (the Existing Premises and the Additional
Premises, hereinafter collectively referred to as the "Demised Premises," will
consist of approximately ninety-two thousand nine hundred forty (92,940)
rentable square feet comprised of seven thousand six hundred twenty (7,620)
square feet of office space, eighty-four thousand sixty (84,060) square feet of
warehouse space, and one thousand two hundred sixty (1,260) square feet of
production space). As of the Effective Date, reference in the Sublease to the
Demised Premises shall mean the Demised Premises as amended in the preceding
sentence.
3. As of the Effective Date, Common Area Maintenance Changes as set forth
in Article 1.06H of the Sublease is hereby increased from forty-three (43%)
percent to sixty-three
<PAGE>
(63%) percent.
4. Article 1.01J of the Sublease is hereby deleted and of no further
force and effect, and the following is substituted in its place and stead:
"Expiration Date: The date which is the date immediately preceding the sixth
(6th) anniversary of the Effective Date, unless the Term is extended by
Subtenant as herein provided."
5. The Fixed Rent (payable in accordance with Article 1.01L of the
Sublease) shall be increased to the following (subject to Article 8 of this
Lease Modification and Extension Agreement):
EXISTING PREMISES
From the date hereof
through June 30, 1997 $4.75 per sq. ft. $24,937.50 per month
July 1, 1997 through
June 30, 1999 $5.25 per sq. ft. $27,562.50 per month
July 1, 1999 through
the date that is 72 months
after the Effective Date $5.32 per sq. ft. $28,612.50 per month
ADDITIONAL PREMISES
From the Effective Date
through the date that is
30 days after the Effective
Date $ 0 per sq. ft. $ 0
From the date that is 31
days after the Effective
Date through June 30, 1997 $5.58 per sq. ft. $13,922.10 per month
From July 1, 1997
through December 31, 1998 $6.00 per sq. ft. $14,970.00 per month
From January 1, 1999
through the date that is
72 months after the
Effective Date $6.20 per sq. ft. $15,469.00 per month
6. As of the Effective Date, Article 1.01S of the Sublease is hereby
deleted and of no further force and effect, and the following is substituted in
its place and stead:
2
<PAGE>
"S. Real Estate Taxes: The percentage of the real estate taxes,
charges and all other similar charges and impositions imposed upon the
Building and the Land, by any governmental body or authorities or any
tax, charge, or imposition imposed in substitution thereof or in
addition thereto, which percentage is arrived at by a comparison of
the total office, production, and warehouse space in the Demised
Premises to the total office, production, and warehouse space in the
Building, and calculated in accordance with the following formula
which shall be adjusted to reflect any change in assessment of the
Building or Demised Premises:
For purposes of this formula, warehouse space shall have a designated
factor of one (1), production space shall have a designated factor of
one and one-half (1.5), and office space shall have a designated
factor of two (2).
(1) The factors shall be multiplied by the square footage of
warehouse, production, and office space in the Building to determine
the total Building space as follows:
BUILDING
Warehouse: _____________ sq. ft. X 1 = _________________
Production: ________________ sq. ft. X 1.5 = _______________
Office: ____________________ sq. ft. X 2 = _________________
Building Total: ______________________
(2) The factors shall be multiplied by the square footage of
warehouse, production, and office space in the Demised Premises to
determine the total Demised Premises space as follows:
DEMISED PREMISES
Warehouse: _____________ sq. ft. X 1 = _________________
Production: ________________ sq. ft. X 1.5 = _______________
Office: ____________________ sq. ft. X 2.0 = _________________
Demised Premises Total: ______________________
(3) The Demised Premises Total shall be divided by the Building Total
as follows:
Demised Premises Total/Building Total.
3
<PAGE>
(4) The resulting percentage shall represent the Subtenant's
percentage of Real Estate Taxes and shall be multiplied by the total
real estate taxes, assessments, charges, and other similar charges
imposed upon the Building and Land.
(5) Example:
BUILDING
Warehouse: 104,000 sq. ft x 1 = 104,000
Production: 31,700 sq. ft x 1.5 = 47,550
Office: 11,300 sq. ft x 2 = 22,600
-------
Building Total: 174,150
DEMISED PREMISES
Warehouse: 84,060* sq. ft x 1 = 84,060
Production: 1,260* sq. ft x 1.5 = 1,890
Office: 7,620* sq. ft x 2 = 15,240
--------
Demised Premises Total: 101,190
PERCENTAGE
DEMISED PREMISES TOTAL 101,190 =.58
-------
Building Total 174,150
Real Estate Taxes for Land and Building = $50,000.00 per year
Subtenant's Share = .58 x $50,000.00 = $29,000 per year
*Subject to verification.
7. The security deposit referred to in Article 1.01V of the Sublease
shall be increased from Forty-Seven Thousand Eight Hundred Seventy-Five and
00/100 ($47,875.00) Dollars to Sixty-One Thousand Seven Hundred Ninety-Seven
and 10/100 ($61,797.10) Dollars. Upon execution of this Lease Modification
and Extension Agreement by both parties, Subtenant shall deposit with
Sublandlord the sum of Thirteen Thousand Nine Hundred Twenty-Two and 10/100
($13,922.10) Dollars representing such increase. The additional security
deposits shall be returned to Subtenant over the twelve (12) month period
following the Effective Date, by Landlord's applying a credit of One Thousand
One Hundred Sixty and 18/100 ($1,160.18) Dollars per month against Fixed Rent
as set forth in Article 5 of this Lease Modification and Extension Agreement.
8. The Sublease is hereby amended by deleting each reference to "New
Jersey Department of Environmental Protection and Energy" and "NJDEPE" and by
substituting "New
4
<PAGE>
Jersey Department of Environmental Protection" and "NJDEP" in their place and
stead respectively.
9. At the expiration of the Term, as herein extended, Subtenant shall
continue to have the two (2) options to extend the term for an additional five
(5) years per option pursuant to the terms and conditions as set forth in
Article 16 of the Sublease.
10. Notwithstanding anything to the contrary, Article 16.03 of the
Sublease which states as follows: "If Subtenant does not exercise its option to
extend the initial Term for the first five (5) year renewal option, Subtenant
shall, upon expiration of Subtenant's option period to elect to extend with
Subtenant not so electing to extend this Sublease, pay Sublandlord $30,000.00 as
reimbursement towards Sublandlord's Work, provided that the Sublease has not
been terminated earlier by reason of fire, casualty, or condemnation" is hereby
deleted and of no further force and effect.
11. Article 31 of the Sublease entitled "Notices" is hereby modified by
deleting "James R. Crane, CEO, 15 Arrow Road, Ramsey, New Jersey 07446,
telephone ( ) - , telefax ( ) - "and by substituting the
following in its place and stead: Michael Lepore, CEO, 400 Corporate Drive,
Mahwah, New Jersey 07430, telephone (201) 512-1700, telefax (201) 512-1224."
12. Article 32.01 of the Sublease is hereby deleted and of no further
force and effect, and the following is substituted in its place and stead:
"Sublandlord shall provide Subtenant with a total of one hundred thirty-one
(131) designated and exclusive parking spaces as depicted on the Parking Plan
attached hereto as EXHIBIT "B-1".
13. Sublandlord shall, within thirty (30) days of the date hereof, provide
Subtenant with fully executed Subordination, Recognition and Non-Disturbance
Agreements from the current Superior Mortgagee and Superior Lessor,
substantially in the forms annexed hereto as EXHIBIT "C-1" ("Non-Disturbance
Agreements") and shall provide reasonably comparable Non-Disturbance Agreements
from any future Superior Mortgagee or Superior Lessor.
14. Delivery of Possession shall be deemed to have occurred on the date
(the "Effective Date") which is the latest of the following:
(a) Date of delivery to Subtenant of a certificate of occupancy for
the Additional Premises; however, Landlord may deliver a temporary certificate
of occupancy or use permit permitting occupancy of the Additional Premises by
Subtenant instead of a permanent certificate of occupancy, provided Landlord
shall be responsible to obtain the permanent certificate of occupancy prior to
expiration of the temporary certificate of occupancy or use permit);
(b) Date of completion of Sublandlord's Work; and
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<PAGE>
(c) The Additional Premises shall have been delivered to Subtenant
free of all tenancies, occupancies, and Subleases (other than the Sublease, as
herein modified).
15. Sublandlord agrees that, prior to the Effective Date, Sublandlord will
perform or cause to be performed all of the work (hereinafter called
"Sublandlord's Work") in the Additional Premises in accordance with EXHIBIT
"D-1" attached hereto and made a part hereof.
16. The Scheduled Effective Date shall be April 1, 1996.
17. If Delivery of Possession fails to occur by the Scheduled Effective
Date, then Subtenant may at its option: (i) waive such requirement; (ii) extend
from time to time the Scheduled Effective Date; or (iii) commence or complete
all or any portion of Sublandlord's Work (as hereinafter defined) at any time
after the Scheduled Effective Date (as same may be extended pursuant to
subsection (ii) above) by sending written notice to Sublandlord of its intention
to do so, in which event, Subtenant may deduct the reasonable and necessary cost
and expense thereof from Fixed Rent and Additional Charges due Sublandlord.
Upon receiving such notice of Subtenant's intention, Sublandlord shall cease
doing any work which would, in any way, interfere with Subtenant's completion of
Sublandlord's Work. In the event the Effective Date is earlier than or later
than the Scheduled Effective Date, the parties agree to execute an agreement
confirming the Effective Date.
18. Landlord shall install a separate electric submeter for the Additional
Premises as part of Sublandlord's Work. The cost of water and gas utilities for
the Additional Premises will be equitably apportioned for the Additional
Premises based on Tenant's usage.
19. Each party represents and warrants to the other party that it has
dealt with no broker or other person entitled to claim fees for such services in
connection with the negotiation and letting of the Additional Premises or the
execution and delivery of this Sublease Modification and Extension Agreement
except S & P Realty and David Houston & Co. (collectively, the "Brokers").
Sublandlord agrees to pay the Brokers. Each party agrees to defend, indemnify
and hold the other party harmless from and against any and all claims for
finders' fees or brokerage or other commission which may at any time be asserted
against the indemnified party founded upon a claim that the substance of the
aforesaid representation and agreement of the indemnifying party is untrue,
together with any and all losses, damages, costs and expenses (including
reasonable attorneys' fees) relating to such claims or arising therefrom or
incurred by the indemnified party in connection with the enforcement of this
indemnification provision.
20. All capitalized terms used in this Sublease Modification and Extension
Agreement and not otherwise defined or redefined herein shall have the same
meaning as previously given in the Sublease. All capitalized terms which are
defined herein and used in the Sublease shall have the new meaning ascribed to
such terms in this Sublease Modification and Extension Agreement.
21. Except as herein amended, the Sublease is hereby ratified and
confirmed and shall
6
<PAGE>
continue in full force and effect and all the terms, covenants and conditions
contained in the Sublease shall remain in full force and effect.
22. This Sublease Modification and Extension Agreement shall bind and
inure to the benefit of, and may be enforced by, the parties hereto and their
respective heirs, legal representatives, successors and assigns.
23. The Sublease, as hereby modified, contains the entire agreement
between the parties and cannot be changed, modified or amended unless such
change, modification, amendment is in writing and executed by the party against
which the enforcement of the change, modification or amendment is sought.
24. In the event of any conflict between the terms of the Sublease and
this Sublease Modification and Extension Agreement, the terms of this Sublease
Modification and Extension Agreement shall prevail.
IN WITNESS WHEREOF, the parties hereto have executed this document on the
date first above written.
ATTEST: OLDE HOLDING COMPANY
By:
- -------------------------------- -------------------------------
Marvin Schecter, Secretary Marian Schecter, President
WITNESS: COMPONENT REMANUFACTURING
SPECIALISTS, INC.
By:
- --------------------------------- -------------------------------
Printed Name:
------------------
Its:
---------------------------
7
<PAGE>
AFTERMARKET TECHNOLOGY HOLDINGS CORP.
AMENDMENT NO. 1
TO
AMENDED AND RESTATED 1994 STOCK INCENTIVE PLAN
Aftermarket Technology Holdings Corp., a Delaware corporation, hereby
adopts this amendment to the Amended and Restated 1994 Stock Incentive Plan (the
"Plan") pursuant to Section 8 of the Plan, on September 19, 1996:
Section 4(a) of the Plan is hereby amended and restated in its
entirety to read as follows:
"(a) The aggregate number of Common Shares that may be issued
pursuant to all Incentive Stock Options granted under this Plan shall
not exceed 400,000 subject to adjustment as provided in Section 7
hereof."
<PAGE>
EXHIBIT 11.1
AFTERMARKET TECHNOLOGY CORP.
Computation of Pro Forma Net Income Per Share
Nine Months
Year Ended Ended
December 31, 1995 September 30, 1996
------------------ -------------------
Net income $9,498,569 $12,341,324
---------- -----------
---------- -----------
Weighted average common shares
outstanding 12,000,000 12,000,000
Net effect of stock options granted during
the twelve months prior to the Company's
filing of its initial public offering,
calculated using the treasury stock
method at an assumed offering price of
$13 per share, and treated as
outstanding for all periods presented 523,772 523,772
Net effect of stock options and warrants
outstanding, excluding those discussed
above, calculated using the treasury stock
method at the average price for the
period. 817,791 1,099,982
Number of shares of common stock
to be issued in the Company's
initial public offering whose net
proceeds will be used to redeem
the outstanding preferred stock
including accured dividends. 1,776,466 1,933,399
----------- -----------
14,618,029 15,557,153
----------- -----------
----------- -----------
Pro forma net income per share $ 0.65 $ 0.79
------ ------
------ ------
