<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1997
REGISTRATION NO. 333-35543
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
AFTERMARKET TECHNOLOGY CORP.
Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3714 95-4486486
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
---------------------
900 OAKMONT LANE, SUITE 100
WESTMONT, ILLINOIS 60559
(630) 455-6000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
JOSEPH SALAMUNOVICH, ESQ.
VICE PRESIDENT
AFTERMARKET TECHNOLOGY CORP.
900 OAKMONT LANE, SUITE 100
WESTMONT, ILLINOIS 60559
(630) 455-6000
(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. JONATHAN H. GRUNZWEIG, 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE(3)(4)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share......... 3,680,000 $24.25 $89,240,000 $27,043
</TABLE>
(1) Includes shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Calculated pursuant to Rule 457(c) based on the average of the high and low
prices of the Common Stock on the Nasdaq National Market on September 5,
1997.
(4) Previously paid.
---------------------
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>
PROSPECTUS (SUBJECT TO COMPLETION)
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>
ISSUED OCTOBER 1, 1997
3,200,000 SHARES
[LOGO]
COMMON STOCK
-----------------
OF THE 3,200,000 SHARES OF COMMON STOCK OFFERED HEREBY, 2,200,000 SHARES ARE
BEING SOLD BY THE COMPANY AND 1,000,000 SHARES ARE BEING SOLD BY THE SELLING
STOCKHOLDERS. SEE "PRINCIPAL AND SELLING STOCKHOLDERS." THE COMPANY
WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE
SELLING STOCKHOLDERS. THE COMMON STOCK IS TRADED ON THE
NASDAQ NATIONAL MARKET SYSTEM UNDER THE SYMBOL "ATAC."
ON SEPTEMBER 30, 1997, THE LAST SALE PRICE OF
THE COMMON STOCK, AS REPORTED BY NASDAQ, WAS
$23 3/4 PER SHARE. SEE "PRICE RANGE OF
COMMON STOCK."
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 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 PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) STOCKHOLDERS
----------------- ------------------- --------------- ------------------------
<S> <C> <C> <C> <C>
PER SHARE.............. $ $ $ $
TOTAL (3).............. $ $ $ $
</TABLE>
- ------------
(1) THE COMPANY AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY THE
UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $ .
(3) THE SELLING STOCKHOLDERS HAVE GRANTED TO THE UNDERWRITERS AN OPTION,
EXERCISABLE WITHIN 30 DAYS OF THE DATE HEREOF, TO PURCHASE UP TO AN
AGGREGATE OF 480,000 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 SELLING STOCKHOLDERS 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 LLP, COUNSEL FOR THE UNDERWRITERS. IT IS
EXPECTED THAT THE DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT ,
1997 AT THE OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST
PAYMENT THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
-------------------
MORGAN STANLEY DEAN WITTER
WILLIAM BLAIR & COMPANY
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
, 1997
<PAGE>
(THIS IS A NARRATIVE DESCRIPTION OF THE GRAPHICS)
On the inside front cover will be the following pictures and text:
- -- centered on top:
-- Aftermarket Technology Corp. logo
-- "Leading Position in the Automotive Aftermarket"
- -- Left side of page:
-- "OEM Customers"
-- "American Isuzu" "AWTEC (Toyota)" "BMW" "Chrysler" "General Motors"
"Hyundai" "Jaguar" "Mitsubishi" "Mitsubishi Fuso" "New Venture Gear"
"Nissan Diesel" "Saab" "Subaru" "Volvo"
-- picture of remanufactured engine
-- picture of remanufactured transmission
-- picture of remanufactured transfer case
-- right side of page:
-- "Independent Aftermarket"
-- "Providing a broad line of remanufactured and new drive train products to
transmission rebuilders, general repair shops and retail parts stores"
-- picture of clutch kits and standard rebuild kits
-- picture of standard transmission parts
-- picture of remanufactured torque converter
-- pictures of automatic transmission parts
-- picture of remanufactured engine
On the inside back cover will be the following pictures and text:
- -- "Aftermarket Technology Corp."
- -- map of the United States with distribution centers denoted by o's and
manufacturing facilities denoted by x's.
- -- "Manufacturing Facilities" "Florence, Alabama" "Rancho Cucamonga, California"
"Harvey, Illinois" "Louisville, Kentucky (2)" "Joplin, Missouri"
"Springfield, Missouri (3)" "Mahwah, New Jersey" "Gastonia, North Carolina"
"Dayton, Ohio" "Dallas, Texas" "Janesville, Wisconsin" "Edmonton, Alberta --
Canada" "Mississauga, Ontario --Canada (2)" "Moncton, New Brunswick--Canada"
"Mexicali, Mexico"
- -- "Distribution Centers" "Florence, Alabama" "Phoenix, Arizona" "Tucson,
Arizona" "Azusa, California" "Fresno, California" "Los Angeles, California"
"Rancho Cucamonga, California" "Sacramento, California" "San Diego,
California" "San Jose, California" "San Leandro, California" "Van Nuys,
California" "Colorado Springs, Colorado" "Denver, Colorado" "Jacksonville,
Florida" "Orlando, Florida" "Atlanta, Georgia" "Harvey, Illinois" "Hillside,
Illinois" "Louisville, Kentucky" "Grand Rapids, Michigan" "Taylor, Michigan"
"Berkeley, Missouri" "Creve Coeur, Missouri" "Kansas City, Missouri"
"Springfield, Missouri" "Las Vegas, Nevada" "East Rutherford, New Jersey"
"Albuquerque, New Mexico" "Charlotte, North Carolina" "Forest Park, Ohio"
"Portland, Oregon" "Memphis, Tennessee" "Nashville, Tennessee" "Austin,
Texas" "Dallas, Texas (2)" "Houston, Texas" "San Antonio, Texas" "Salt Lake
City, Utah" "Norfolk, Virginia (2)" "Seattle, Washington" "Spokane,
Washington" "Janesville, Wisconsin" "Calgary, Alberta -- Canada" "Edmonton,
Alberta -- Canada" "Vancouver, British Columbia -- Canada" "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."
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................ 4
Risk Factors...................... 8
The Company....................... 12
Recent Developments............... 12
Use of Proceeds................... 13
Price Range of Common Stock....... 13
Dividend Policy................... 13
Capitalization.................... 14
Selected Financial Data........... 15
Pro Forma Financial Data.......... 17
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... 21
Business.......................... 28
<CAPTION>
PAGE
----
<S> <C>
Management........................ 39
Principal and Selling
Stockholders.................... 46
Certain Transactions.............. 49
Description of Capital Stock...... 52
Description of Certain
Indebtedness.................... 54
Shares Eligible for Future Sale... 56
Certain United States Federal Tax
Consequences to Non-United
States Holders.................. 57
Underwriters...................... 60
Legal Matters..................... 61
Experts........................... 62
Available Information............. 62
Index to Financial Statements..... F-1
</TABLE>
-------------------
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.
-------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THIS OFFERING
AND MAY BID FOR, AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. IN
ADDITION, UNDERWRITERS AND SELLING GROUP MEMBERS MAY ENGAGE IN PASSIVE MARKET
MAKING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
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 OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
The Company is a leading remanufacturer and distributor of drive train
products used in the repair of vehicles in the automotive aftermarket. 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 assemblies. The Company's two primary customer groups
are: original equipment manufacturers ("OEMs"), principally Chrysler, which
purchase remanufactured transmissions and other remanufactured drive train
components for use as replacement parts by their dealers primarily during the
warranty period following the sale of a vehicle; and independent transmission
rebuilders, general repair shops, distributors and retail automotive parts
stores (the "Independent Aftermarket"), which purchase remanufactured torque
converters and engines and other remanufactured and new parts for repairs during
the period following the expiration of the vehicle warranty.
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 (the most recent period
for which data is available), estimated industry-wide revenue for the automobile
aftermarket increased from approximately $127 billion to $188 billion. This
consistent growth is due principally to the increase in the number of vehicles
in operation, the increase in the average age of vehicles, 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 L.P. ("ACP") 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 eight additional acquisitions. The Company and its predecessor
companies have achieved compound annual growth in revenue of approximately 37%
from 1992 through June 30, 1997 (including both internal growth and growth
through acquisitions). 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
products as the industry recognizes that remanufacturing provides a consistently
high 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 business by: (i)
increasing penetration of its current customer base; (ii) gaining new OEM and
Independent Aftermarket customers; and (iii) introducing new products to both
existing and new customers. Strategic acquisitions have been an important
element in the Company's historical growth, and the Company plans to continue to
support the growth strategies listed above through strategic acquisitions in the
future. The Company's management is experienced in identifying acquisition
opportunities and completing and integrating acquisitions within the automotive
aftermarket. In addition,
4
<PAGE>
the Company believes that its core competency of remanufacturing, which has been
applied to the drive train products segment of the automotive aftermarket, has
the potential to be utilized in other aftermarket segments. Therefore, the
Company is conducting selective market studies to explore possible additional
markets for its remanufacturing capabilities.
ATC was incorporated under the laws of Delaware in July 1994 at the
direction of 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"), Tranzparts, Inc. ("Tranzparts") in April 1996 and Diverco, Inc.
("Diverco") in October 1996 (the "1996 Acquisitions") and Replacement & Exchange
Parts Co., Inc. ("REPCO") in January 1997, ATS Remanufacturing ("ATS") in July
1997 and Trans Mart, Inc. ("Trans Mart") in August 1997 (the "1997 Acquisitions"
and, together with the Initial Acquisitions, the 1995 Acquisitions and the 1996
Acquisitions, the "Acquisitions"). ATC conducts all of its operations through
its wholly-owned subsidiaries and each of their respective subsidiaries.
Prior to this Offering, approximately 69% of the voting power (through
direct ownership of shares and certain voting arrangements) and 50% 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, Gerald L. Parsky and Richard K. Roeder, each of whom
is a director of the Company. Upon consummation of this Offering, the Company
will continue to be controlled by the Aurora Partnerships, which will hold
approximately 56% of the voting power (through direct ownership and certain
voting arrangements) and 41% of the common equity in the Company. See "Risk
Factors -- Control of the Company; Anti-Takeover Matters," "Principal and
Selling Stockholders" and "Certain Transactions."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........ 2,200,000 shares
Common Stock offered by the Selling
Stockholders............................. 1,000,000 shares
Total shares offered in this Offering...... 3,200,000 shares
Common Stock to be outstanding after this
Offering................................. 19,445,578 shares (1)
Use of proceeds............................ For the retirement of outstanding indebtedness
under the Company's revolving credit facility.
See "Use of Proceeds."
Nasdaq National Market symbol.............. "ATAC"
</TABLE>
- ---------
(1) Based on shares outstanding as of August 31, 1997. Excludes 421,056 shares
reserved for issuance upon the exercise of outstanding warrants and
2,181,610 shares reserved for issuance upon the exercise of outstanding
stock options, except for 56,000 shares which will be issued upon the
exercise of options in connection with the sale of shares by a Selling
Stockholder.
RISK FACTORS
See "Risk Factors" for a description of certain risks to be considered
before making an investment in the Common Stock.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following tables present summary pro forma statement of income data for
the years ended December 31, 1994, December 31, 1995 and December 31, 1996 and
for the six months ended June 30, 1996 and 1997, and summary historical balance
sheet data at December 31, 1996 and June 30, 1997. 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, 1996 and 1997
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 this Offering and the
anticipated application of the net proceeds therefrom. See "Use of Proceeds."
This data should be read in connection with "Selected Financial Data," "Pro
Forma Financial Data," "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Consolidated Financial Statements
and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
SIX MONTHS ENDED JUNE
PRO FORMA YEAR ENDED DECEMBER 31, 30,
------------------------------------------------------------ ----------------------
1994 1995 1996 1996 1996 1997
(1) (2) (3) AS ADJUSTED (4) (3) (5)(6)
------------- ------------- ------------- --------------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales...................... $ 157,792 $ 210,820 $ 345,649 $ 345,649 $ 170,175 $ 195,812
Cost of sales.................. 92,857 128,124 218,153 218,153 107,902 123,513
------------- ------------- ------------- --------------- --------- -----------
Gross profit................... 64,935 82,696 127,496 127,496 62,273 72,299
Selling, general and
administrative expenses...... 30,361 43,189 67,793 67,793 31,516 39,076
Amortization of intangible
assets....................... 3,057 3,751 5,137 5,137 2,573 2,566
------------- ------------- ------------- --------------- --------- -----------
Operating income............... 31,517 35,756 54,566 54,566 28,184 30,657
Interest expense, net.......... 14,521 19,010 24,887 20,487 12,695 10,135
Income taxes................... 6,902 6,783 12,223 14,006 6,368 8,251
------------- ------------- ------------- --------------- --------- -----------
Income before extraordinary
item......................... 10,094 9,963 17,456 20,073 9,121 12,271
Preferred stock
dividends (7)................ 2,000 2,093 2,222 2,222 1,083 --
------------- ------------- ------------- --------------- --------- -----------
Income before extraordinary
item available to common
stockholders................. $ 8,094 $ 7,870 $ 15,234 $ 17,851 $ 8,038 $ 12,271
------------- ------------- ------------- --------------- --------- -----------
------------- ------------- ------------- --------------- --------- -----------
Pro forma (8):
Income before extraordinary
item per share............. $ 1.11
Shares used in computation of
income before extaordinary
item per share............. 18,118
OTHER DATA:
Capital expenditures (9)....... $ 3,186 $ 5,187 $ 7,843 $ 7,843 $ 3,541 $ 4,962
<CAPTION>
1997
AS ADJUSTED (4)
---------------
<S> <C>
STATEMENT OF INCOME DATA:
Net sales...................... $ 195,812
Cost of sales.................. 123,513
---------------
Gross profit................... 72,299
Selling, general and
administrative expenses...... 39,076
Amortization of intangible
assets....................... 2,566
---------------
Operating income............... 30,657
Interest expense, net.......... 7,870
Income taxes................... 9,160
---------------
Income before extraordinary
item......................... 13,627
Preferred stock
dividends (7)................ --
---------------
Income before extraordinary
item available to common
stockholders................. $ 13,627
---------------
---------------
Pro forma (8):
Income before extraordinary
item per share............. $ 0.63
Shares used in computation of
income before extaordinary
item per share............. 21,486
OTHER DATA:
Capital expenditures (9)....... $ 4,962
</TABLE>
- ------------
(FOOTNOTES ON FOLLOWING PAGE)
6
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
DECEMBER 31, 1996 ACTUAL (10) (11)
----------------- --------- ------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ 103,371 $ 83,561 $ 90,599 $ 90,599
Property, plant and equipment, net................. 17,482 21,357 22,490 22,490
Total assets....................................... 320,747 299,986 356,667 356,667
Long-term liabilities (12)......................... 161,981 140,387 190,564 138,801
Stockholders' equity............................... 105,832 113,681 113,681 165,444
</TABLE>
- ------------
(1) 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 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>
(2) Reflects the results of operations of CRS, Mascot and King-O-Matic, as if
the 1995 Acquisitions (including related financings) had occurred on January
1, 1995. The consolidated financial data presented under "Selected Financial
Data" for the year ended December 31, 1995 exclude such results of
operations for periods prior to the respective dates of acquisition.
(3) Reflects the results of operations of Tranzparts, Diverco, REPCO, ATS and
Trans Mart as if the 1996 Acquisitions (including related financings) and
1997 Acquisitions (including related financings) had occurred on January 1,
1996. The consolidated financial data presented under "Selected Financial
Data" for the year ended December 31, 1996 and the six months ended June 30,
1996 exclude such results of operations for periods prior to the respective
dates of acquisition.
(4) As adjusted to give effect to the application of the estimated net proceeds
from this Offering as if it had occurred at the beginning of the respective
periods. See "Use of Proceeds."
(5) Reflects the results of operations of REPCO, ATS and Trans Mart as if the
1997 Acquisitions (and related financings) had occurred on January 1, 1997.
The consolidated financial data presented under "Selected Financial Data"
for the six months ended June 30, 1997 exclude such results of operations
for periods prior to the respective dates of acquisition.
(6) Income before extraordinary item for the six months ended June 30, 1997
excludes an extraordinary item in the amount of $3,749 ($6,270 less related
income tax benefit of $2,521). This amount is comprised of (i) a $5,700
charge resulting from the early redemption of $40,000 in principal amount of
the Senior Notes in February 1997, which included the payment of a 12.0%
early redemption premium and the write-off of related debt issuance costs
and (ii) a charge of approximately $600 for the write-off of previously
capitalized debt issuance costs in connection with the termination of the
Company's previous revolving credit facility.
(7) Related to preferred stock of the Company's former parent corporation, which
was merged into the Company in December 1996, immediately after which such
preferred stock was redeemed by the Company. See "The Company."
(8) 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 this Offering as if this Offering had occurred at the
beginning of the respective periods.
(9) Excludes capital expenditures made by each of CRS, Mascot, King-O-Matic,
Tranzparts, Diverco, REPCO, ATS and Trans Mart prior to such subsidiaries'
respective acquisitions and any capital expenditures made in connection with
such acquisitions.
(10) Reflects the acquisitions of ATS and Trans Mart as if these acquisitions
(and related financings) had occurred at June 30, 1997.
(11) As adjusted to give effect to the application of the estimated net proceeds
from this Offering. See "Use of Proceeds."
(12) Excludes deferred tax liabilities and deferred compensation. See Note 6 of
"Selected Financial Data."
7
<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 $102 million and $59 million of the
Company's combined net sales for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively, or approximately 37.2% and 34.9%,
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 (like the Company's other OEM
customers) 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 three 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 --
Customers -- 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 OEMs or from Independent
Aftermarket 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 a
central core return center for all of Chrysler's transmission product lines. The
operation of this facility enables the Company to receive cores on a more timely
basis and better monitor the availability of cores. 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 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
8
<PAGE>
prevalent in the industry, the prices for attractive acquisition candidates may
increase to unacceptable levels. See "Business -- Business Strategy."
The Company also 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."
In addition, the Company is exploring possible additional markets for its
remanufacturing capabilities, but no assurance can be given that the Company
will pursue any such opportunity or be successful outside the automotive
aftermarket. See "Business -- Business Strategy -- Additional Remanufacturing
Opportunities."
INDEBTEDNESS AND LIQUIDITY. The Company had outstanding long-term
indebtedness of $140.4 million at June 30, 1997, including $19.0 million
outstanding under the Company's $100.0 million revolving credit facility (the
"Credit Facility"). On July 31, 1997, the Company borrowed an additional $12.8
million under the Credit Facility to purchase ATS, and on August 15, 1997
borrowed an additional $27.3 million under the facility to purchase Trans Mart.
See "Recent Developments." As of August 31, 1997, $65.0 million was outstanding
under the Credit Facility. After giving effect to the sale of 2,200,000 shares
by the Company in this Offering and the application of the estimated net
proceeds therefrom (after deducting the underwriting discount and estimated
expenses of this Offering payable by the Company), the consolidated long-term
indebtedness of the Company at June 30, 1997 would have been $138.8 million and
the amount outstanding under the Credit Facility as of August 31, 1997 would
have been $13.2 million. See "Capitalization." 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 Stephen J. Perkins, Chairman of the
Board, President and Chief Executive Officer. Mr. Perkins and the presidents of
the operating groups (Wesley N. Dearbaugh, Michael L. LePore and James R. Wehr)
have an average of 18 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 and impose
liability for the costs of cleaning up, and certain damages resulting from, past
spills, disposals or other releases of hazardous substances.
In connection with the Acquisitions, the Company conducted certain
investigations of the acquired companies' facilities and their compliance with
applicable environmental laws. These investigations found
9
<PAGE>
various environmental matters and conditions that could, under certain
circumstances, expose the Company to liability. Furthermore, the company from
which RPM acquired its assets has been identified by the United States
Environmental Protection Agency 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 one of its current
distribution facilities. Although no assurances can be given, the Company
believes that it will not incur any material liabilities relating to these
matters. See "Business -- Environmental Matters."
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 this
Offering, the Company will continue to be controlled by the Aurora Partnerships,
which will hold approximately 56% (54% if the Underwriters' over-allotment
option is exercised in full) of the voting power in the Company (through direct
ownership and certain voting arrangements). Therefore, the Aurora Partnerships
will be able to elect all of the directors of the Company and 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, Parsky and Roeder, each of whom is a director of
the Company. The Indentures governing the Company's 12% Senior Subordinated
Notes due 2004 (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 (as defined
therein), which could also have the effect of discouraging a third party from
acquiring the Company. See "Principal and Selling Stockholders" 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 5,000,000 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 this Offering, the Company will have approximately 19,450,000
shares of Common Stock outstanding, of which approximately 10,800,000 shares
will be "restricted securities" within the meaning of Rule 144 ("Rule 144")
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
and may not be sold without registration under the Securities Act unless Rule
144 or another exemption from registration is available. The stockholders of the
Company who acquired their shares prior to the Company's initial public offering
in December 1996 (the "Original Stockholders"), the Company's warrant holders
and certain holders of the Company's outstanding options have been granted
certain "piggyback" registration rights and certain "demand" registration rights
with respect to the shares of Common Stock owned by them or to be issued to
them. However, subject to certain exceptions, the Company will agree not to
offer, pledge, sell, contract to sell, sell any option, right or warrant to
purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
10
<PAGE>
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 90 days from the date of this
Prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated. Each of the Company's directors and executive officers and certain
of the Original Stockholders (including the Aurora Partnerships) will be 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."
11
<PAGE>
THE COMPANY
ATC was incorporated under the laws of Delaware in July 1994 at the
direction of ACP to acquire Aaron's, HTP, Mamco and RPM. Subsequent to the
Initial Acquisitions, the Company acquired CRS and Mascot in June 1995,
King-O-Matic in September 1995, Tranzparts in April 1996, Diverco in October
1996, REPCO in January 1997, ATS in July 1997 and Trans Mart in August 1997. ATC
conducts all of its operations through its wholly-owned subsidiaries and each of
their respective subsidiaries.
Prior to the Company's initial public offering in December 1996 (the "IPO"),
ATC was a wholly owned subsidiary of Aftermarket Technology Holdings Corp.
("Holdings"). Simultaneously with the consummation of the IPO, Holdings was
merged into ATC. Upon the effectiveness of such merger, each outstanding share
of Holdings common stock was converted into one share of ATC Common Stock, and
each outstanding share of Holdings Redeemable Exchangeable Cumulative Preferred
Stock was converted into one share of ATC Redeemable Exchangeable Cumulative
Preferred Stock, which was immediately thereafter redeemed for $126 in cash
(which was equal to the original purchase price for such stock of $100 per share
plus an amount equal to accrued and unpaid dividends on the Holdings Preferred
Stock to the date of the merger). Following the completion of the IPO, the
Company redeemed $40 million in principal amount of outstanding Senior Notes at
a price of 112% plus accrued and unpaid interest.
The principal executive offices of the Company are located at 900 Oakmont
Lane, Suite 100, Westmont, Illinois 60559, and its telephone number is (630)
455-6000.
RECENT DEVELOPMENTS
On July 31, 1997, the Company acquired substantially all of the assets of
ATS, a remanufacturer of automatic transmissions and related components for
General Motors. Prior to the acquisition, General Motors was not a customer of
the Company. On the acquisition closing date, the Company made an initial cash
payment of $12.0 million as consideration for the ATS assets, with additional
payments due on each of the first eight anniversaries after the closing date.
Substantially all of the additional payments, which will aggregate up to
approximately $19 million, are contingent upon the attainment of certain sales
levels by ATS. ATS is located in Gastonia, North Carolina.
On August 15, 1997, the Company acquired Trans Mart, a distributor of
automatic and standard transmission parts and related drive train components,
for a cash purchase price of approximately $22 million plus repayment of $5
million of Trans Mart's pre-acquisition indebtedness. Trans Mart is one of the
largest transmission aftermarket parts wholesalers in the United States with
sales of approximately $33 million in 1996. Trans Mart is located in Florence,
Alabama.
The Company financed the purchases of ATS and Trans Mart with borrowings
under the Credit Facility and contingent notes payable as described above. See
"Use of Proceeds," "Capitalization" and "Pro Forma Financial Data."
The Company periodically evaluates strategic acquisition opportunities and
expects to continue to do so in the future. The Company has recently entered
into a non-binding letter of intent to acquire another North American drive
train parts distributor. The letter of intent provides for a purchase price of
approximately $7 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 transaction 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
that the Company will enter into a definitive acquisition agreement or
consummate such acquisition.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,200,000 shares
offered by the Company are estimated to be $51.8 million after deducting
estimated underwriting discounts and offering expenses. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders.
The Company will use the net proceeds to repay a portion of the outstanding
indebtedness under the Credit Facility. See "Capitalization." As of August 31,
1997, the total amount outstanding under the Credit Facility was $65.0 million.
The Credit Facility was put in place in February 1997 and replaced the Company's
previous $30.0 million revolving credit facility. Of the indebtedness currently
outstanding under the Credit Facility, (i) $12.2 million was incurred in January
1997 to repay indebtedness relating to the purchase of REPCO, (ii) $12.8 million
was incurred to purchase ATS and pay related fees and expenses, (iii) $27.3
million was incurred to purchase Trans Mart, pay related fees and expenses and
repay Trans Mart's pre-acquisition credit facility, (iv) $7.2 million was
incurred to make semi-annual interest payments on the Senior Notes and (v) the
balance was incurred for working capital purposes. The advances outstanding
under the Credit Facility at August 31, 1997 were made under the Eurodollar Rate
option (see "Description of Certain Indebtedness -- Bank Lines of Credit") and
bear interest at an effective annual rate of 6.7%. The advances are due and
payable on December 31, 2001, the termination date of the Credit Facility.
PRICE RANGE OF COMMON STOCK
The Common Stock has been traded on the Nasdaq National Market System since
the IPO in December 1996. The following table sets forth for the periods
indicated the range of high and low sale prices of the Common Stock as reported
by Nasdaq:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996
Fourth quarter (beginning December 17, 1996)................................... $17 5/8 $14 1/4
1997
First quarter.................................................................. 19 5/8 14 3/8
Second quarter................................................................. 23 14 3/4
Third quarter.................................................................. 27 1/4 18 1/2
</TABLE>
On September 30, 1997, the last sale price of the Common Stock, as reported
by Nasdaq, was $23 3/4 per share.
DIVIDEND POLICY
The Company has not paid cash dividends on the 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 is
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 Credit Facility contains certain
covenants that, 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.
13
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company at June 30, 1997, the pro forma capitalization of the Company at June
30, 1997 giving effect to the ATS and Trans Mart acquisitions, including related
financings (see "Recent Developments"), and such pro forma consolidated
capitalization as adjusted to give effect to the estimated net proceeds from the
sale of the shares of Common Stock offered by the Company in this Offering and
the application thereof as described under "Use of Proceeds." This table should
be read in conjunction with "Pro Forma Financial Data," "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>
JUNE 30, 1997
------------------------------------
PRO FORMA,
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
LONG-TERM DEBT:
Credit Facility........................................................... $ 19,000 $ 59,034(1) $ 7,271(1)
Senior Notes.............................................................. 121,387 121,387 121,387
Contingent acquisition notes payable (2).................................. -- 10,143 10,143
---------- ----------- -----------
Total long-term debt.................................................. 140,387 190,564 138,801
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 30,000,000 shares authorized; 17,034,578
shares issued and outstanding, actual and pro forma; 19,234,578 shares,
as adjusted (3)......................................................... 170 170 192
Additional paid-in capital................................................ 81,469 81,469 133,210
Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares
issued and outstanding; no shares issued and outstanding, as adjusted... -- -- --
Retained earnings......................................................... 31,969 31,969 31,969
Cumulative translation adjustment......................................... 73 73 73
---------- ----------- -----------
Total stockholders' equity............................................ 113,681 113,681 165,444
---------- ----------- -----------
Total capitalization.............................................. $ 254,068 $ 304,245 $ 304,245
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
- ---------
(1) The pro forma amount gives effect to $40,034 subsequently borrowed under the
Credit Facility to purchase ATS and Trans Mart as if the acquisitions had
occurred at June 30, 1997, but does not give effect to unrelated borrowings
under the Credit Facility after June 30, 1997. The pro forma as adjusted
amount gives effect to the application of the estimated net proceeds to the
Company from this Offering. See "Risk Factors -- Indebtedness and Liquidity"
and "Use of Proceeds."
(2) Represents the present value of contingent consideration payable in
connection with the purchase of ATS. See "Recent Developments."
(3) Does not give effect to the issuance of shares reserved for issuance upon
the exercise of outstanding warrants and stock options. See "Shares Eligible
for Future Sale."
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below with respect to the statements
of income for the seven months ended July 31, 1994, five months ended December
31, 1994, and the years ended December 31, 1995 and December 31, 1996 and the
balance sheets at December 31, 1995 and 1996 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 years ended
December 31, 1992 and December 31, 1993 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, 1994 are derived from the audited Consolidated Financial Statements
of the Company that have been audited by Ernst & Young LLP, independent
auditors; however, the balance sheet is not included herein. The balance sheet
data at June 30, 1997 and the statement of income data for the six months ended
June 30, 1996 and 1997 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
six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997. 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>
FOR THE
SIX
MONTHS
ENDED
JUNE 30,
---------
CONSOLIDATED
------------------------------------------------------
1996
---------
(UNAUDITED)
---------
COMBINED
---------------------------------
FOR THE
FOR THE YEAR ENDED SEVEN
MONTHS FOR THE FIVE FOR THE YEAR ENDED
DECEMBER 31, ENDED JULY MONTHS ENDED ----------------------------
-------------------- 31, 1994 DECEMBER 31, DECEMBER 31, DECEMBER 31,
1992 1993 (1) 1994 1995 1996
--------- --------- ----------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $ 75,264 $ 110,702 $ 90,056 $ 67,736 $ 190,659 $ 272,879 $ 131,019
Cost of sales...................... 45,588 66,687 52,245 40,112 115,499 166,811 80,168
--------- --------- ----------- ------------- ------------- ------------- ---------
Gross profit....................... 29,676 44,015 37,811 27,624 75,160 106,068 50,851
Selling, general and administrative
expenses......................... 22,103 25,682 20,475 14,206 38,971 55,510 25,126
Amortization of intangible
assets........................... 28 28 16 1,210 3,308 3,738 1,849
--------- --------- ----------- ------------- ------------- ------------- ---------
Operating income................... 7,545 18,305 17,320 12,208 32,881 46,820 23,876
Interest expense (income), net..... (258) (302) (158) 6,032 16,915 19,106 9,780
Income taxes (3)................... 150 471 (5) 2,565 6,467 11,415 5,806
--------- --------- ----------- ------------- ------------- ------------- ---------
Income before extraordinary item... $ 7,653 $ 18,136 $ 17,483 3,611 9,499 16,299 8,290
--------- --------- -----------
--------- --------- -----------
Preferred stock dividends.......... 853 2,093 2,222 1,083
------------- ------------- ------------- ---------
Income before extraordinary item
available to common
stockholders..................... $ 2,758 $ 7,406 $ 14,077 $ 7,207
------------- ------------- ------------- ---------
------------- ------------- ------------- ---------
Income before extraordinary item
per share (4).................... $ 1.02
Shares used in computation of
income before extraordinary item
per share (4).................... 15,918
OTHER DATA:
Capital expenditures (5)........... $ 1,141 $ 2,310 $ 1,850 $ 1,336 $ 5,187 $ 7,843 $ 3,541
<CAPTION>
1997 (2)
---------
<S> <C>
STATEMENT OF INCOME DATA:
Net sales.......................... $ 168,098
Cost of sales...................... 103,160
---------
Gross profit....................... 64,938
Selling, general and administrative
expenses......................... 35,736
Amortization of intangible
assets........................... 1,991
---------
Operating income................... 27,211
Interest expense (income), net..... 8,014
Income taxes (3)................... 7,718
---------
Income before extraordinary item... 11,479
Preferred stock dividends.......... --
---------
Income before extraordinary item
available to common
stockholders..................... $ 11,479
---------
---------
Income before extraordinary item
per share (4).................... $ 0.60
Shares used in computation of
income before extraordinary item
per share (4).................... 19,286
OTHER DATA:
Capital expenditures (5)........... $ 4,962
</TABLE>
- ------------
(FOOTNOTES ON FOLLOWING PAGE)
15
<PAGE>
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
-------------------- ----------------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30,
-------------------- --------------------------------------- 1997
1992 1993 1994 1995 1996 (UNAUDITED)
--------- --------- --------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................... $ 18,639 $ 26,651 $ 39,646 $ 57,066 $ 103,371 $ 83,561
Property, plant and equipment, net........ 3,274 4,678 6,196 10,784 17,482 21,357
Total assets.............................. 32,654 45,618 187,293 247,932 320,747 299,986
Long-term liabilities (6)................. 1,497 998 121,483 165,724 167,233 146,421
Preferred stock........................... -- -- 20,000 20,000 -- --
Common stockholders' equity............... 22,107 31,720 22,757 30,188 105,832 113,681
</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. All material transactions between the Predecessor
Companies have been eliminated.
(2) Income before extraordinary item for the six months ended June 30, 1997
excludes an extraordinary item in the amount of $3,749 ($6,270 less related
income tax benefit of $2,521). This amount is comprised of (i) a $5,700
charge resulting from the early redemption of $40,000 in principal amount of
the Senior Notes in February 1997, which included the payment of a 12.0%
early redemption premium and the write-off of related debt issuance costs
and (ii) a charge of approximately $600 for the write-off of previously
capitalized debt issuance costs in connection with the termination of the
Company's previous revolving credit facility.
(3) 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 that would have been provided
had these companies been C Corporations and included in consolidated returns
with the Company is as follows: $3,036 and $7,334 for the years ended
December 31, 1992 and 1993, respectively, and $7,004 for the seven months
ended July 31, 1994.
(4) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income per share. Giving effect to this Offering
and the application of the proceeds as set forth under "Use of Proceeds" as
if the same had occurred on January 1, 1996, pro forma income before
extraordinary item per share would have been $1.11 for the year ended
December 31, 1996, and assuming this Offering had occurred on January 1,
1997, pro forma income before extraordinary item per share would have been
$0.63 for the six months ended June 30, 1997.
(5) Excludes capital expenditures made by each of CRS, Mascot, King-O-Matic,
Tranzparts, Diverco and REPCO prior to such subsidiaries' respective
acquisitions and any capital expenditures made in connection with such
acquisitions.
(6) Includes deferred tax liabilities of $1,438, $3,478, $5,252 and $6,034 at
December 31, 1994, 1995 and 1996 and June 30, 1997, respectively.
16
<PAGE>
PRO FORMA FINANCIAL DATA
The Unaudited Pro Forma Consolidated Balance Sheet and the Unaudited Pro
Forma Consolidated Statements of Income give effect to business acquisitions
made in 1996 and 1997 which were accounted for using the purchase method of
accounting. The acquisitions were as follows:
<TABLE>
<CAPTION>
Tranzparts, Inc. (Tranzparts)................................. April 1996
<S> <C>
Diverco, Inc. (Diverco)....................................... October 1996
Replacement & Exchange Parts Co., Inc. (REPCO)................ January 1997
Automatic Transmission Shops, Inc. (ATS)...................... July 1997
Trans Mart, Inc. (Trans Mart)................................. August 1997
</TABLE>
The Unaudited Pro Forma Consolidated Balance Sheet at June 30, 1997 includes
the Unaudited Consolidated Balance Sheet of the Company and gives effect to the
ATS and Trans Mart acquisitions as if they had occurred on June 30, 1997. The
Unaudited Pro Forma Consolidated Balance Sheet, as adjusted, at June 30, 1997
gives effect to the application of the proceeds of this Offering as set forth
under "Use of Proceeds," as if the same had occurred on June 30, 1997.
The Unaudited Pro Forma Consolidated Statements of Income for the year ended
December 31, 1996 and for the six months ended June 30, 1997 include the
historical consolidated statements of income of the Company and give effect to
the 1996 and 1997 Acquisitions as if they had occurred at the beginning of the
respective periods. The Unaudited Pro Forma Consolidated Statements of Income,
as adjusted, for the year ended December 31, 1996 and for the six months ended
June 30, 1997 gives effect to the application of the proceeds of this Offering
as set forth under "Use of Proceeds," as if the same had occurred on January 1,
1996 and January 1, 1997, respectively.
The Unaudited Pro Forma Consolidated Balance Sheet is not necessarily
indicative of the financial position that would actually have occurred if the
acquisitions of ATS and Trans Mart had been consummated as of June 30, 1997. 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, 1996 or January 1, 1997
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.
17
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
PRO FORMA FOR PRO FORMA
COMPANY ADJUSTMENTS (1) PRO FORMA OFFERING AS ADJUSTED
---------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 4,508 $ 4,508 $ 4,508
Accounts receivable, net................... 44,394 $ 3,594 47,988 47,988
Inventories................................ 69,098 6,903 76,001 76,001
Prepaid and other assets................... 5,445 120 5,565 5,565
---------- ----------- -----------
Total current assets..................... 123,445 134,062 134,062
Equipment and leasehold improvements, net.... 21,357 1,133 22,490 22,490
Debt issuance costs, net..................... 4,678 4,678 4,678
Cost in excess of net assets acquired, net... 150,080 44,931 195,011 195,011
Other assets................................. 426 426 426
---------- ----------- -----------
Total assets................................. $ 299,986 $ 356,667 $ 356,667
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 18,662 $ 3,032 $ 21,694 $ 21,694
Other accrued liabilities.................. 15,719 547 16,266 16,266
Bank lines of credit....................... 4,310 4,310 4,310
Income taxes payable....................... 1,193 1,193 1,193
---------- ----------- -----------
Total current liabilities................ 39,884 43,463 43,463
Senior Notes................................. 121,387 121,387 121,387
Contingent acquisition notes payable......... -- 10,143 10,143 10,143
Credit Facility.............................. 19,000 40,034 59,034 $ (51,763) 7,271
Deferred compensation........................ -- 2,925 2,925 2,925
Deferred tax liabilities..................... 6,034 6,034 6,034
STOCKHOLDERS' EQUITY:
Common Stock............................... 170 170 22 192
Additional paid-in capital................. 81,469 81,469 51,741 133,210
Retained earnings.......................... 31,969 31,969 31,969
Cumulative translation adjustment.......... 73 73 73
---------- ----------- -----------
Total stockholders' equity............... 113,681 113,681 165,444
---------- ----------- -----------
Total liabilities and stockholders'
equity................................. $ 299,986 $ 356,667 $ 356,667
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Represents the assets purchased and liabilities assumed related to the ATS
and Trans Mart acquisitions and related financings. Included in related
financings are contingent acquisition notes payable with a present value of
$10,143 related to the ATS acquisition. Deferred compensation represents
compensation arrangements under long-term agreements with employees and
consultants of ATS which were entered into in connection with the purchase
of ATS.
18
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
ACQUIRED ADJUSTMENTS
BUSINESSES PRO FORMA FOR PRO FORMA AS
COMPANY (1) ADJUSTMENTS PRO FORMA OFFERING ADJUSTED (2)
---------- ------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 272,879 $ 72,770 $ 345,649 $ 345,649
Cost of sales................. 166,811 51,342 218,153 218,153
---------- ------------- ----------- --------------
Gross profit.................. 106,068 21,428 127,496 127,496
Selling, general and
administrative expenses..... 55,510 14,901 $ (1,853)(2) 67,793 67,793
(277)(3)
66(4)
(554)(5)
Amortization of intangible
assets...................... 3,738 53 1,346(6) 5,137 5,137
---------- ------------- ----------- --------------
Income from operations 46,820 6,474 54,566 54,566
Interest expense, net......... 19,106 171 (632)(7) 24,887 $ (4,400) 20,487
6,162(8)
80(9)
---------- ------------- ----------- --------------
Income before income taxes.... 27,714 6,303 29,679 34,079
Provision for income taxes.... 11,415 41 767 (10 12,223 1,783 14,006
---------- ------------- ----------- --------------
Net income.................... $ 16,299 $ 6,262 $ 17,456 $ 20,073
---------- ------------- ----------- --------------
---------- ------------- ----------- --------------
</TABLE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMBINED
ACQUIRED ADJUSTMENTS
BUSINESSES PRO FORMA FOR PRO FORMA AS
COMPANY (1) ADJUSTMENTS PRO FORMA OFFERING ADJUSTED (2)
---------- ------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 168,098 $ 27,714 $ 195,812 $ 195,812
Cost of sales................. 103,160 20,353 123,513 123,513
---------- ------------- ----------- --------------
Gross profit.................. 64,938 7,361 72,299 72,299
Selling, general and
administrative expenses..... 35,736 4,140 $ (471)(2) 39,076 39,076
(87)(3)
(242)(5)
Amortization of intangible
assets...................... 1,991 -- 575(6) 2,566 2,566
---------- ------------- ----------- --------------
Income from operations........ 27,211 3,221 30,657 30,657
Interest expense, net......... 8,014 (64) (233)(7) 10,135 $ (2,265) 7,870
2,418(8)
---------- ------------- ----------- --------------
Income before income taxes.... 19,197 3,285 20,522 22,787
Provision for income taxes.... 7,718 533 (10 8,251 909 9,160
---------- ------------- ----------- --------------
Income before extraordinary
item........................ $ 11,479 $ 3,285 $ 12,271 $ 13,627
---------- ------------- ----------- --------------
---------- ------------- ----------- --------------
</TABLE>
- ---------
(FOOTNOTES ON FOLLOWING PAGE)
19
<PAGE>
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 1996 amounts
are Tranzparts for the three months ended March 31, 1996, Diverco for the
nine months ended September 30, 1996 and REPCO, Trans Mart and ATS for the
year ended December 31, 1996. The 1997 amounts include REPCO for the one
month ended January 31, 1997 and Trans Mart and ATS for the six months ended
June 30, 1997.
(2) Adjusts compensation of the former owners of the acquired companies to the
amounts payable under employment agreements entered into with the Company at
the time of acquisition.
(3) Reflects the revised rental payments on facilities based upon the lease
agreements signed at the time of the acquisition.
(4) Reflects additional depreciation expense for the acquired companies from
the beginning of the period through the respective acquisition dates.
(5) Reflects additional savings for one of the acquired companies as a result
of the anticipated closing of distribution facilities in regions already
served by existing Company facilities and other identifiable savings for the
acquisitions from the beginning of the period through the respective
acquisition dates.
(6) Reflects additional amortization expense for the acquired companies from
the beginning of the period through the respective acquisition dates.
(7) Eliminates interest on debt not assumed in the acquisitions.
(8) Reflects additional interest expense on debt incurred in connection with
the acquisitions, as if such debt had been incurred at the beginning of the
periods presented.
(9) Eliminates gain on sale recognized by Tranzparts in connection with the
sale of property to its former stockholder prior to its acquisition by the
Company.
(10) 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.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of the Company and notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company's revenues are generated through the sale of drive train
products used in the repair of vehicles in the automotive aftermarket. 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 approximately 37% from 1992 through June 30, 1997 (including both
internal growth and growth through acquisitions).
The Company's revenues from sales to Independent Aftermarket customers
increased by 23.6% compounded annually from $58.5 million to $151.9 million from
1992 through June 30, 1997. This growth was due to geographic expansion through
the addition of distribution centers, a broadened product line, enhanced
customer service, effective sales efforts, the addition of retail automotive
parts stores as customers, and acquisitions. During the same period, revenues
from sales to OEM customers increased by 64.6% compounded annually from $16.8
million to $158.1 million due to increased sales to existing customers,
including Chrysler, and the addition of new customers.
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 1996.
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
29.4% in 1992 to 20.3% in 1996 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 has entered into a non-binding letter of intent to acquire another
North American drive train parts distributor for a purchase price of
approximately $7 million. If this acquisition is completed, the Company expects
to pay the purchase price with a combination of cash from operations and
borrowings under the Credit Facility. See "Recent Developments."
RESULTS OF OPERATIONS
The following table sets forth certain financial statement data expressed in
millions of dollars and as a percentage of net sales. The pro forma statement of
income for the year ended December 31, 1994 reflects the combined financial
statements for the seven months ended July 31, 1994 for Aaron's, HTP, Mamco and
RPM, and the consolidated operations of these companies for the five months
ended December 31, 1994.
21
<PAGE>
Pro forma expense adjustments were made to reflect the Initial Acquisitions as
if they had occurred on January 1, 1994.
<TABLE>
<CAPTION>
1996
YEAR ENDED DECEMBER 31, --------------------
------------------------------------------------------------------ SIX MONTHS ENDED JUNE 30,
-------------------------------
PRO FORMA 1994 1995 (IN MILLIONS) 1996 1997
---------------------- -------------------- -------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 157.8 100.0% $ 190.7 100.0% $ 272.9 100.0% $ 131.0 100.0% $ 168.1
Cost of sales.................. 92.9 58.9 115.5 60.6 166.8 61.1 80.2 61.2 103.2
----------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross profit................... 64.9 41.1 75.2 39.4 106.1 38.9 50.8 38.8 64.9
SG&A expenses.................. 30.4 19.2 39.0 20.5 55.5 20.3 25.1 19.2 35.7
Amortization of intangible
assets....................... 3.0 1.9 3.3 1.7 3.8 1.4 1.8 1.4 2.0
----------- --------- --------- --------- --------- --------- --------- --------- ---------
Operating income............... 31.5 20.0 32.9 17.2 46.8 17.2 23.9 18.2 27.2
Interest expense, net.......... 14.5 9.2 16.9 8.8 19.1 7.0 9.8 7.5 8.0
Provision for income taxes..... 6.9 4.4 6.5 3.4 11.4 4.2 5.8 4.4 7.7
----------- --------- --------- --------- --------- --------- --------- --------- ---------
Net income from continuing
operations................... $ 10.1 6.4% $ 9.5 5.0% $ 16.3 6.0% $ 8.3 6.3% $ 11.5
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
<CAPTION>
<S> <C>
Net sales...................... 100.0%
Cost of sales.................. 61.4
---------
Gross profit................... 38.6
SG&A expenses.................. 21.3
Amortization of intangible
assets....................... 1.1
---------
Operating income............... 16.2
Interest expense, net.......... 4.8
Provision for income taxes..... 4.6
---------
Net income from continuing
operations................... 6.8%
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net income from continuing operations increased 38.5% from $8.3 million for
the six months ended June 30, 1996 to $11.5 million for the six months ended
June 30, 1997. Net sales increased 28.3%, from $131.0 million for the six months
ended June 30, 1996 to $168.1 million for the six months ended June 30, 1997,
primarily due to increased sales volumes to OEM customers as well as sales
generated by the acquisitions of Tranzparts, Diverco and REPCO. In general,
costs and expenses also increased; however, overall the Company was able to
spread its overhead expenses over a larger revenue base, which contributed to
the comparatively higher net income from continuing operations for the six month
period.
On a per share basis, net income from continuing operations increased from
$0.53 per share for the six months ended June 30, 1996 to $0.60 per share for
the six months ended June 30, 1997. The number of shares used in the per share
calculations were 15.7 million for the six months ended June 30, 1996 and 19.3
million for the six months ended June 30, 1997. The increase in shares resulted
primarily from the IPO.
NET SALES. Net sales increased $37.1 million, or 28.3%, from $131.0 million
for the six months ended June 30, 1996 to $168.1 million for the six months
ended June 30, 1997. Of this increase, $21.2 million was due to the internal
growth described above and $15.9 million was due to the incremental net sales
generated by the companies acquired in April 1996, October 1996 and January 1997
(Tranzparts, Diverco and REPCO, respectively).
Net sales to Chrysler represented 34.9% of total net sales for the six
months ended June 30, 1997, as compared to 36.9% for the six months ended June
30, 1996.
GROSS PROFIT. Gross profit as a percentage of net sales remained relatively
constant at 38.6% for the six months ended June 30, 1997 as compared to 38.8%
for the six months ended June 30, 1996.
SG&A EXPENSES. The Company's SG&A expenses increased $10.6 million, from
$25.1 million for the six months ended June 30, 1996 to $35.7 million for the
six months ended June 30, 1997. As a percentage of net sales, SG&A expenses
increased from 19.2% to 21.3% between the two periods. The increase in SG&A
expenses is primarily due to the ongoing incremental expenses of the Tranzparts,
Diverco and REPCO acquisitions, certain enhancements to the Company's
infrastructure (including additional management and improved information
systems), and additional selling and other variable overhead costs associated
with the higher sales volume (including increased production capacity). The
increase in SG&A expenses as a percentage of net sales is primarily attributable
to: (i) the deferred compensation expense described below, (ii) certain
enhancements to the Company's infrastructure (including additional management
and improved information systems), (iii) the acquisitions of Tranzparts and
REPCO in April 1996 and January 1997, respectively, which generally have higher
SG&A expenses as a percentage of net sales
22
<PAGE>
than does the Company as a whole, and (iv) the additional ongoing expenses
associated with being a publicly held company.
Included in SG&A expenses are non-cash charges totaling $1.0 million,
representing the pro rata portion for the first six months of 1997 of deferred
compensation expense relating to the difference between the exercise price and
the intrinsic value for financial statement presentation purposes of stock
options granted to Mr. Stephen J. Perkins, the Company's Chairman of the Board,
President and Chief Executive Officer and other members of senior management at
$4.67 per share in October 1996, prior to the IPO. There were no corresponding
charges recognized in the first six months of 1996. The Company expects to
recognize additional compensation expense aggregating $2.3 million over the
balance of the respective vesting periods of the options, which generally range
from three to five years from the date of grant.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased from $1.8 million for the six months ended June 30, 1996 to $2.0
million for the six months ended June 30, 1997. The increase resulted from the
additional intangible assets arising from the acquisitions of Tranzparts,
Diverco and REPCO.
INCOME FROM OPERATIONS. Principally as a result of the factors described
above, income from operations increased 14.0%, from $23.9 million for the six
months ended June 30, 1996 to $27.2 million for the six months ended June 30,
1997.
INTEREST EXPENSE, NET. Interest expense decreased from $10.2 million for
the six months ended June 30, 1996 to $9.0 million for the six months ended June
30, 1997. The lower interest resulted from the net effect of the early
redemption of $40.0 million of the Senior Notes in February 1997 offset to some
extent by increased borrowings under the Credit Facility. The Credit Facility
carries a significantly lower effective interest rate than did the Senior Notes.
EXTRAORDINARY ITEM. An extraordinary item in the amount of $3.8 million
($6.3 million, net of related income tax benefit of $2.5 million) was recorded
in the six months ended June 30, 1997. This amount is comprised of (i) a $5.7
million charge resulting from the early redemption of $40.0 million of the
Senior Notes in February 1997, which included the payment of a 12.0% early
redemption premium and the write-off of related debt issuance costs and (ii) a
charge of approximately $600,000 for the write-off of previously capitalized
debt issuance costs in connection with the termination of the Company's previous
revolving credit facility.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net income increased 71.6% from $9.5 million in 1995 to $16.3 million in
1996, as the Company experienced significant revenue growth from both of its
customer groups, OEMs and the Independent Aftermarket including retail
automotive parts stores. More than half of the revenue growth occurred from OEM
customers. Growth from the Independent Aftermarket was achieved largely through
two strategic acquisitions (Tranzparts and Diverco), and to a lesser extent from
internal growth. The higher net income was primarily achieved from the Company's
ability to spread its overhead expenses over a larger revenue base.
Although the IPO resulted in an increase in the number of shares used in the
earnings per share ("EPS") calculation, EPS increased significantly from $0.65
in 1995 to $1.02 in 1996. The number of shares used in the calculation of EPS
were 14.6 million for 1995 and 15.9 million for 1996.
NET SALES. Net sales increased $82.2 million or 43.1%, from $190.7 million
in 1995 to $272.9 million in 1996. Of this increase, $42.8 million was due to
internal growth and $39.4 million was due to the incremental net sales generated
by the companies acquired in 1995 and 1996: CRS, Mascot, King-O-Matic,
Tranzparts and Diverco, which were acquired on June 1, 1995, June 9, 1995,
September 12, 1995, April 2, 1996 and October 1, 1996, respectively.
23
<PAGE>
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 associated with the opening of five new
distribution centers during the second half of 1995, increased sales volumes
through existing distribution centers and increased sales volumes with existing
retail customers.
Net sales to Chrysler of $101.5 million in 1996 represented 37.2% of the
Company's total net sales for the year, as compared to $67.6 million and 35.4%
in 1995. The increase in net sales to Chrysler is partially reflective of an
effort by Chrysler during the third quarter of 1995 to reduce its inventory of
remanufactured transmissions. Management believes that the Chrysler inventory
reduction during the third quarter of 1995 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 decreased slightly
from 39.4% in 1995 to 38.9% in 1996. The decrease in gross profit margin was
largely attributable to 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.
SG&A EXPENSES. SG&A expenses decreased slightly as a percentage of net
sales from 20.4% in 1995 to 20.3% in 1996. However, SG&A expenses increased in
absolute dollars from $39.0 million in 1995 to $55.5 million in 1996,
representing an increase of $16.5 million or 42.4%. The increase in SG&A
expenses was due largely to the ongoing incremental SG&A expenses of the
companies acquired in 1995 and 1996: CRS, Mascot, King-O-Matic, Tranzparts and
Diverco. Other significant factors contributing to the increase in SG&A expenses
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. In addition, SG&A expenses in 1996 included a charge of
approximately $700,000 for certain planned reorganization costs associated with
the relocation of the Company's corporate headquarters to the Chicago area and
costs associated with a realignment of the Independent Aftermarket division.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets
increased approximately $400,000 in 1996 as compared to 1995, reflecting the
increase in intangible assets that occurred as a result of the acquisitions of
CRS, Mascot, King-O-Matic, Tranzparts and Diverco.
INCOME FROM OPERATIONS. Principally as a result of the factors described
above, income from operations increased 42.2%, from $32.9 million in 1995 to
$46.8 million in 1996. As a percentage of net sales, income from operations in
1996 was 17.2%, equal to the same percentage of net sales in 1995.
INTEREST EXPENSE, NET. Interest expense increased $2.3 million from $18.0
million in 1995 to $20.3 million in 1996. The increase was due to a full year of
interest expense on the Series D Senior 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 Senior Notes were issued on June 1, 1995 and
therefore were only outstanding for the last seven months of 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO PRO FORMA YEAR ENDED DECEMBER 31,
1994
The Company experienced revenue growth of 20.8% in 1995, its first full year
of operation following its formation. However, net income decreased from $10.1
million in 1994 (on a pro forma basis) to $9.5 million in 1995. The decrease in
net income resulted from the combined effect on 1995 results of higher interest
expense and a lower percentage of income from operations. On June 1, 1995, the
Company issued the Series D Senior Notes, which added $2.7 million of interest
expense for the year. Income from operations decreased from 20.0% of net sales
in 1994 to 17.2% in 1995, principally as a result of a lower gross profit margin
and higher SG&A expenses as discussed below.
NET SALES. Net sales increased by $32.9 million or 20.8% from $157.8
million in 1994 to $190.7 million in 1995 primarily as a result of the
acquisitions of CRS, Mascot, and King-O-Matic. The three new
24
<PAGE>
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.
SG&A EXPENSES. SG&A expenses increased from $30.4 million in 1994 to $39.0
million in 1995 and, 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 approximately $300,000 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 4.4% from $31.5 million in 1994 to $32.9
million in 1995. As a percentage of net sales, income from operations decreased
from 20.0% in 1994 to 17.2% in 1995.
INTEREST EXPENSE, 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 Senior Notes that were issued principally to
finance the acquisitions of CRS, Mascot and King-O-Matic and the related
amortization of debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company had total cash and cash equivalents on hand of $4.5 million at
June 30, 1997, representing a decrease in net cash of $42.0 million for the six
months ended June 30, 1997. Net cash provided by operating activities was $3.6
million for the six month period. Net cash used in investing activities was
$19.1 million for the period, including $12.2 million for the acquisition of
REPCO, a scheduled payment of $2.0 million relating to the acquisition of
Diverco, and $4.9 million in capital expenditures, primarily for purchases of
equipment. Net cash used in financing activities was $26.5 million, including
payments totaling $44.8 million in connection with the redemption of $40.0
million of Senior Notes offset by net borrowings of $19.0 million under the
Credit Facility. Subsequent to June 30, 1997, the
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Company acquired ATS and Trans Mart. The ATS acquisition involves contingent
payments expected to be made over eight years. See "Recent Developments" and
"Pro Forma Financial Data."
The Company raised total net proceeds of $61.6 million in the IPO and
concurrent private placement of Common Stock in December 1996. From the
Company's inception in July 1994 to December 1996, the Company funded its
operations and investments in property and equipment, including acquisitions,
through the issuance of Senior Notes totaling $162.4 million, the private sale
of preferred stock of $20.0 million and Common Stock of $20.0 million, and to a
lesser extent through cash provided by operating activities and revolving bank
lines. In December 1996, the preferred stock was redeemed and, in February 1997,
$40.0 million in principal amount of the Senior Notes was redeemed, with a
combination of the proceeds from the IPO and borrowings under the Credit
Facility. See "The Company."
The Company's capital expenditures for the six months ended June 30, 1997
were $5.0 million. The Company budgeted $5.6 million for capital expenditures
for the remainder of 1997. The 1997 capital expenditures budget consists
primarily of additional transmission, engine and torque converter
remanufacturing equipment and other improvements to support planned increases in
production capacity in the Joplin and Springfield, Missouri and Mahwah, New
Jersey plants. Overall, planned capital expenditures for the remainder of 1997
are considered adequate for normal replacement and consistent with projections
for future sales and earnings.
In February 1997, the Company terminated its $30.0 million revolving credit
facility with The Chase Manhattan Bank that had been scheduled to mature in July
1999 and replaced it with the $100.0 million Credit Facility. The Credit
Facility is available to finance the Company's working capital requirements,
future acquisitions and other general corporate needs, and will expire in
December 2001. Amounts advanced under the agreement are secured by substantially
all assets of the Company. As of August 31, 1997, the Company had approximately
$32.4 million available under the Credit Facility, and would have had
approximately $84.2 million available after giving effect to the application of
the net proceeds to the Company from this Offering. See "Use of Proceeds,"
"Capitalization" and "Description of Certain Indebtedness -- Bank Lines of
Credit."
In September 1997, the Company entered into an agreement with Bank of
Montreal for a revolving credit facility to accommodate the working capital
needs of the Company's Canadian subsidiaries. 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 $3.5 million
Canadian. See "Description of Certain Indebtedness -- Bank Lines of Credit."
The Company believes that cash on hand, cash flow from operations and
existing borrowing capacity will be sufficient to fund its ongoing operations
and its budgeted capital expenditures, as well as amounts that the Company
estimates would be expended in connection with the potential acquisition
discussed under "Recent Developments." In pursuing future acquisitions, the
Company will continue to consider the effect any such acquisition costs may have
on its liquidity. In order to consummate such acquisitions, the Company may need
to seek additional capital through additional borrowings or equity financings.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating primary
earnings per share, the dilutive effect of stock options and warrants will be
excluded. The impact is expected to result in an increase in basic net income
per share. For example, this new method would have increased earnings per share
by $0.05 for the six months ended June 30, 1997. The impact of the Statement on
the calculation of diluted earnings per share for these periods is not expected
to be material.
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In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 129 "Disclosure of Information about
Capital Structure" which is required to be adopted on December 31, 1997. The
Statement requires additional disclosures which are not expected to change
current disclosures significantly.
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 repair of vehicles in the automotive aftermarket. 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 assemblies. The Company's two primary customer groups
are: OEMs, principally Chrysler, which purchase remanufactured transmissions and
other remanufactured drive train components for use as replacement parts by
their dealers primarily during the warranty period following the sale of a
vehicle; and the Independent Aftermarket, consisting of independent transmission
rebuilders, general repair shops, distributors and retail automotive parts
stores, which purchase remanufactured torque converters and engines and other
remanufactured and new parts for repairs generally during the period following
the expiration of the vehicle warranty.
The Company was organized in 1994 by ACP 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 eight additional
acquisitions. The Company and its predecessor companies have achieved compound
annual growth in revenue of approximately 37% from 1992 through June 30, 1997
(including both internal growth and growth through acquisitions). 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 products 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 business by: (i)
increasing penetration of its current customer base; (ii) gaining new OEM and
Independent Aftermarket customers; and (iii) introducing new products to both
existing and new customers. The Company plans to continue to support these
growth strategies through strategic acquisitions in the future. In addition, the
Company believes that its core competency of remanufacturing, which has been
applied to the drive train products segment of the automotive aftermarket, has
the potential to be utilized in other aftermarket segments. Therefore, the
Company is conducting selective market studies to explore possible additional
markets for its remanufacturing capabilities.
AUTOMOTIVE AFTERMARKET
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 (the most recent period
for which data is available), estimated industry-wide revenue for the automobile
aftermarket increased from approximately $127 billion to $188 billion. This
consistent growth is due principally to the increase in the number of vehicles
in operation, the increase in the average age of vehicles, 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.
REMANUFACTURING
Remanufacturing is a process through which used assemblies are returned to a
central facility where they are disassembled and their component parts cleaned,
refurbished and tested. The usable component
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parts are then combined with new parts in a high volume, precision assembly line
manufacturing process to create remanufactured assemblies.
When an 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 it
into its component pieces, replace worn or broken parts with remanufactured or
new components, and reinstall the assembly in the vehicle ("rebuild"); (ii)
replace the assembly with an assembly from a remanufacturer such as the Company;
or (iii) in rare instances, replace the assembly with a new assembly
manufactured by the OEM.
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 and the components that can be
incorporated into the remanufactured product are cleaned, refurbished and
tested. All components determined not reusable or repairable are replaced by
other remanufactured or new components. The units are then reassembled 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. After testing,
completed products are then packaged for immediate delivery or shipped to one of
the Company's distribution centers.
The cores used in the Company's remanufacturing process for sale to its OEM
customers are provided by the OEMs and remain their property throughout the
process. In the case of OEMs other than Chrysler, the dealers return cores to
the OEM, which then ships them to the Company. Chrysler cores are sent to the
Company through its central core return center. See "-- Customers -- OEM
Customers."
The majority of the cores used in the Company's remanufacturing process for
sale to its Independent Aftermarket customers are obtained from customers as
trade-ins. The Company encourages its Independent Aftermarket 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.
There are three primary benefits of using remanufactured components rather
than rebuilt or new components in repair of vehicles:
- First, costs to the OEM associated with remanufactured assemblies
generally are 50% less than new or rebuilt assemblies due to the
remanufacturer's use of high volume manufacturing techniques and salvage
methods that enable the remanufacturer to refurbish and reuse a high
percentage of original components.
- Second, remanufactured assemblies are generally of consistent high quality
compared to 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 have tended to favor
remanufacturing over rebuilding assemblies for aftermarket repairs. For
warranty repairs, consistent quality is
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important to the OEM providing the applicable warranty, because once
installed, the remanufactured product is usually covered by the OEM's
warranty for the balance of the original warranty period.
- Third, replacement of a component with a remanufactured component
generally takes considerably less time than the time needed to rebuild the
component, thereby significantly reducing the time the vehicle is at the
dealer or repair shop.
The Company believes that because of this combination of high quality, low cost
and efficiency, the use of remanufactured assemblies for aftermarket repairs is
growing compared to the use of new or rebuilt assemblies. Although the primary
customers for the Company's remanufactured components have historically been
OEMs, the Company expects the Independent Aftermarket to increase its use of
remanufactured components in the future.
PRODUCTS
The principal product lines of the Company are remanufactured transmissions,
repair kits and hard parts used in drive train repairs, and remanufactured
engines.
REMANUFACTURED TRANSMISSIONS
The Company remanufactures transmissions that are factory approved and
suitable for warranty and post-warranty replacement of transmissions for
Chrysler, General Motors and 12 foreign OEMs, including Hyundai Motor America,
Mitsubishi 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.
In addition, the Company rebuilds heavy duty and medium duty truck
transmissions, differentials and air compressors for truck manufacturers such as
Navistar, Freightliner and Western Star. These assemblies are sold primarily to
truck dealers in Canada.
REPAIR KITS AND HARD PARTS
Repair kits sold by the Company consist of gaskets, friction plates, seals,
bands, filters, clutch components 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
transmission model. Due to its high volume of kit sales, the Company maintains a
variety of supply relationships that enable the Company to purchase components
for its kits at prices that the Company believes are more favorable than those
available to its lower volume competitors. The Company also believes that its
remanufacturing of some of the parts used in its kits gives it an additional
pricing advantage over some of its competitors who purchase all their parts from
suppliers.
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 the hard parts that they distribute. The Company believes these
factors provide it both an availability and cost advantage over many of its
competitors.
The Company's Independent Aftermarket customers typically require both
repair kits and hard parts in order to complete a vehicle repair. For this
reason, the Company believes that the breadth of its product line, which enables
a customer to obtain all the parts for a repair job from a single source, gives
the Company a competitive advantage.
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REMANUFACTURED ENGINES
The Company remanufactures engines for use as replacement engines in many
domestic passenger cars and light trucks. Principal customers are Western Auto
and O'Reilly Auto Parts, as well as general repair garages and distributors.
Over the past four years, the variety of engine models remanufactured by the
Company has increased from 50 to 77 as the Company has expanded the range of
engines offered to meet customer requirements. In addition, the Company obtains
remanufactured engines for many foreign passenger cars and light trucks from
independent suppliers.
CUSTOMERS
The Company's customers are Chrysler, General Motors and 12 foreign OEMs,
and the Independent Aftermarket, which includes independent transmission
rebuilders, general repair shops, distributors and retail automotive parts
stores.
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, Mitsubishi and American
Isuzu. The Company added General Motors as a customer in July 1997 with the
purchase of ATS. See "Recent Developments." Products are sold to each OEM
pursuant to supply arrangements for individual transmission models, which supply
arrangements may be terminated by the OEM at any time. Sales to the Company's
OEM customers accounted for 51.9% of the Company's 1996 revenues and 49.3% of
revenues in the first six months of 1997. Sales to Chrysler accounted for 37.2%
and 34.9% of the Company's revenues in 1996 and in the first six months of 1997,
respectively. See "Risk Factors -- Dependence on Significant Customer."
Over the past 15 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 and again
in 1996 the Company was awarded the Platinum Pentastar award, the highest award
Chrysler bestows on a supplier. Chrysler presented only 14 Platinum Pentastar
awards in 1995 and only 13 in 1996 to its approximately 3,500 suppliers. The
Company's 1995 Platinum Pentastar award marked the first time that the award has
gone to a remanufacturer or to a supplier that serves exclusively as a MOPAR
aftermarket parts supplier. In addition to its Platinum Pentastar awards, the
Company received Gold Pentastar awards in each of the last four years. Only
seven suppliers received the Gold Pentastar award in each of these years.
In August 1997, the Company's facilities that remanufacture transmissions
for Chrysler and General Motors received QS-9000 certification, a complete
quality management system developed for Chrysler, Ford, General Motors and truck
manufacturers who subscribe to the ISO-9001 quality standards. The system is
designed to help suppliers such as the Company develop a quality system that
emphasizes defect prevention and continuous improvement in manufacturing
processes.
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 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
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transmissions subject to major repair by Chrysler dealers, with the balance
being rebuilt by the dealers. The Company believes that a substantial portion of
the remaining 50% will continue to be rebuilt by the dealers. The Company, with
the approval of Chrysler, developed a new production line in late 1996 dedicated
to remanufacturing substantially all Chrysler transmission models that are not
covered by the current remanufacturing programs, although Chrysler has not
released firm orders for these transmission models.
As part of its expanding relationship with Chrysler and in response to
periodic shortages of cores in the past, the Company established and expanded a
central core return center for all of Chrysler's transmission models. 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. The Company is
continuing to work with Chrysler to improve the tracking and management of
cores, which will allow the Company 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. In 1996, the Company also
established a technical support center to assist selected Chrysler dealers in
evaluating transmission warranty repair options.
Net sales to Chrysler grew from $16.9 million in 1992 to $101.5 million in
1996 and were $58.7 million for the first six months of 1997.
INDEPENDENT AFTERMARKET
The Company supplies transmission repair kits and hard parts used in drive
train repairs to over 25,000 of the approximately 71,000 independent
transmission rebuilders, distributors and general repair shops in the United
States and Canada. 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 remanufactured engines and transmission filter kits to over 1,000 of
the approximately 40,000 retail automotive parts 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.
As the number of vehicle models has proliferated and repairs have become
increasingly complex, independent transmission rebuilders and general repair
shops have grown more dependent on their suppliers for technical support and for
assistance in managing inventory by delivering product on a just-in-time basis
at competitive prices. To address these needs, the Company maintains 53
distribution centers located in metropolitan areas throughout the United States
and Canada from which the Company provides technical support and a wide range of
drive train related products that are delivered on a same day basis by trucks to
customers in and around metropolitan areas and on a next day basis by an
overnight carrier to customers in more remote areas. The Company believes that
its distribution 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. The Company believes there
are opportunities for further geographic penetration in this relatively
fragmented market. See "-- Business Strategy."
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. The Company provides high quality products,
competitive prices and high service levels as well as value added promotional
literature and advertising support. The Company's principal retail customers are
Western Auto, O'Reilly Auto Parts and Advance Auto.
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The Company significantly expanded its telemarketing capability with the
acquisition of Trans Mart in August 1997. See "Recent Developments."
Telemarketing from a central location in Alabama, coupled with the Company's
next day delivery strategy to more remote areas, enables the Company to reach
customers in areas that cannot support the costs associated with establishing
and maintaining a distribution center. In addition to telemarketing, new
customers are developed by the Company's direct sales force operating from its
distribution centers, and by national and local trade publication advertising.
In addition, the Company participates in trade shows. The Company believes its
RPM, HTP, KING-O-MATIC, MAMCO, TRANZPARTS, INTERCONT, DIVERCO, REPCO and OLYMPIC
brand names are well recognized and respected in their regional markets.
The Company has developed a common product identification and numbering
system which is currently being implemented on a company-wide basis in
conjunction with a computer network electroni-
cally linking its distribution centers. The Company expects to complete this
process by the end of 1998. These changes are expected to improve customer
service, increase product availability, enhance inventory management and improve
operational efficiencies.
The Company believes it is well 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 53 distribution
centers throughout the United States and Canada. Sales to Independent
Aftermarket customers accounted for 48.1% of the Company's revenues in 1996 and
50.7% in the first six months of 1997.
BUSINESS STRATEGY
The Company's strategy is to achieve growth both internally and through
strategic acquisitions. The Company intends to expand its business by: (i)
increasing penetration of its current customer base; (ii) gaining new OEM and
Independent Aftermarket customers; and (iii) introducing new products to both
existing and new customers. Strategic acquisitions have been an important
element in the Company's historical growth, and the Company plans to continue to
support its growth strategy through strategic acquisitions in the future. The
Company's management is experienced in identifying acquisition opportunities and
completing and integrating acquisitions within the automotive aftermarket. The
Company has recently entered into a non-binding letter of intent to acquire
another North American drive train parts distributor. See "Recent Developments."
In addition, the Company believes that its core competency of remanufacturing,
which has been applied to the drive train products segment of the automotive
aftermarket, has the potential to be utilized in other aftermarket segments.
INCREASING SALES TO EXISTING CUSTOMERS
OEM CUSTOMERS. The Company intends to increase its business with its
existing OEM customers by working with OEMs to increase dealer utilization of
remanufactured transmissions in both the warranty and post-warranty period. 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 performed in the Independent Aftermarket rather than at OEM dealers.
Given the relatively low cost and high 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 high 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. The Company has introduced 44
new transmission models and a number of related drive train products in the last
four years for its OEM customers. The Company, with the approval of Chrysler,
developed a new production line in late 1996 dedicated to remanufacturing
substantially all of the Chrysler
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transmission models that are not covered by the current remanufacturing
programs, although Chrysler has not released firm orders for these transmission
models.
INDEPENDENT AFTERMARKET CUSTOMERS. The Company believes that it currently
supplies less than one-third of the remanufactured or new drive train component
requirements of its independent transmission rebuilder and general repair shop
customers. The Company believes it is well positioned to expand sales to these
customers through a common product identification and numbering system which is
currently being implemented on a company-wide basis in conjunction with a
computer network electronically linking its distribution centers. The Company
also intends to expand its business with existing customers by cross-selling
products among its subsidiaries' customers. For example, after its acquisition
in January 1997, REPCO introduced Mamco and RPM torque converters to its
customers. The Company intends to increase its business with its existing retail
automotive customers by offering "niche" products at competitive prices
throughout these customers' networks.
INTRODUCING NEW PRODUCTS
OEM CUSTOMERS. The Company believes that OEMs recognize that the use of
remanufactured assemblies provide a high quality, lower cost alternative to
rebuilding damaged assemblies or replacing them with new assemblies. For this
reason, the Company believes that OEMs are interested in working with large,
high quality remanufacturers to reduce the OEMs' warranty expenditures and
increase their parts sales into the post-warranty aftermarket. The Company
continues to work with its OEM customers to identify additional remanufactured
products and services where the Company can provide value to the OEM. In this
way, the Company believes that it will be able to leverage its customer
relationships and remanufacturing competency. For example, the Company recently
began remanufacturing 4.0 liter engines for Chrysler.
INDEPENDENT AFTERMARKET CUSTOMERS. 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
monitors sales trends and is in frequent communication with customers regarding
potential new products. For example, the Company recently began to offer clutch
kits, transmission filter kits and torque converters to its retail customers.
The acquisition of Diverco in October 1996 has enabled Company to begin offering
standard transmission components to its independent transmission rebuilder and
general repair shop customers.
ESTABLISHING NEW CUSTOMER RELATIONSHIPS
OEM CUSTOMERS. The Company believes that opportunities for growth exist
with several OEMs regarding 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. Earlier this year, the
Company began remanufacturing standard transmissions for New Venture Gear, a
joint venture between Chrysler and General Motors. In July 1997, the Company
added General Motors as a customer when the Company acquired ATS, which has been
remanufacturing transmissions for General Motors for 12 years.
INDEPENDENT AFTERMARKET CUSTOMERS. The Company believes that its product
mix and distribution network position it to expand its Independent Aftermarket
customer base in three ways. First, although the Company's distribution network
is currently the most extensive in the drive train segment of the automotive
aftermarket, there are further opportunities for the Company to expand to
additional geographic markets. Second, as a result of the acquisition of Trans
Mart in August 1997, which significantly expanded the Company's telemarketing
capability, the Company expects to reach new Independent Aftermarket customers
in non-metropolitan areas. Third, in the last few years, the Company has
expanded its customer base to include general repair shops and retail automotive
parts stores. The Company now serves over 1,000 of the 40,000 retail automotive
parts stores in the United States, primarily by selling products to
34
<PAGE>
three retail chains, and 25,000 of the approximately 71,000 independent
transmission rebuilders, distributors and general repair shops in the United
States and Canada. The Company intends to leverage its breadth of products and
distribution network to supply "niche products" such as transmission filter kits
and remanufactured engines at improved availability rates and competitive
prices. The Company believes that its position as a leading national supplier of
remanufactured engines affords it the opportunity to service additional national
retail chains to the extent that these chains migrate away from their existing
fragmented base of suppliers. In addition, the Company's position enables it to
supply other chains that may expand their product lines in the future to include
remanufactured engines.
ADDITIONAL REMANUFACTURING OPPORTUNITIES
The Company has begun to look beyond the automotive aftermarket to identify
other aftermarket segments that utilize the Company's core competency of
remanufacturing. The Company believes that other markets may have similar
characteristics to those experienced by the Company in the automotive
aftermarket. If remanufacturing opportunities are identified in these other
markets, the Company will review them and may pursue those that are expected to
be consistent with its capabilities and investment objectives. See "Risk Factors
- -- Ability to Achieve and Manage Growth."
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 or 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 diverse 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.
FACILITIES
The Company currently leases 70 facilities with total leased space of
approximately 2.5 million square feet. The following table sets forth certain
information regarding the manufacturing facilities and distribution centers of
the Company.
<TABLE>
<CAPTION>
APPROXIMATE LEASE EXPIRATION TYPE OF FACILITY/PRODUCTS
LOCATION SQ. FEET DATE MANUFACTURED
- ------------------------------------------------------- ------------- ------------------- -------------------------------
<S> <C> <C> <C>
Florence, Alabama 85,100 2002 Distribution Center, Repair
Kits, Torque Converters
Phoenix, Arizona 22,000 (1) Distribution Center
Tucson, Arizona 6,400 1998 Distribution Center
Azusa, California 5,600 (1) Distribution Center
Fresno, California 14,000 (1) Distribution Center
Los Angeles, California 4,700 1998 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 (1) Distribution Center
San Jose, California 10,000 2000 Distribution Center
San Leandro, California 13,000 2002 Distribution Center
Van Nuys, California 6,800 2000 Distribution Center
Colorado Springs, Colorado 5,000 (1) Distribution Center
Denver, Colorado 9,000 (1) Distribution Center
</TABLE>
- ------------
(FOOTNOTE ON FOLLOWING PAGE)
35
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE LEASE EXPIRATION TYPE OF FACILITY/PRODUCTS
LOCATION SQ. FEET DATE MANUFACTURED
- ------------------------------------------------------- ------------- ------------------- -------------------------------
<S> <C> <C> <C>
Jacksonville, Florida 12,000 1999 Distribution Center
Orlando, Florida 11,900 2002 Distribution Center
Atlanta, Georgia 14,900 1998 Distribution Center
Harvey, Illinois 46,000 2001 Distribution Center,
Transmissions, Hard Parts,
Engine Repair Kits
Hillside, Illinois 20,000 2000 Distribution Center
Westmont, Illinois 5,900 2002 Corporate Offices
Louisville, Kentucky 51,500 1999 Distribution Center, Hard
Parts, Repair Kits
Louisville, Kentucky 9,200 (1) CV Axles
Grand Rapids, Michigan 9,000 1998 Distribution Center
Taylor, Michigan 12,200 2000 Distribution Center
Berkeley, Missouri 18,000 1998 Distribution Center
Creve Coeur, Missouri 9,700 1998 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 60,400 2000 Core Storage
Springfield, Missouri 98,800 (1) Core Storage
Springfield, Missouri 10,000 (1) Core Storage
Springfield, Missouri 200,000 2006 Core Storage
Las Vegas, Nevada 7,500 1999 Distribution Center
Las Vegas, Nevada 250 1997 Sales Office
East Rutherford, New Jersey 5,700 1999 Distribution Center
Mahwah, New Jersey 92,900 2002 Transmissions
Albuquerque, New Mexico 7,000 2000 Distribution Center
Charlotte, North Carolina 23,000 2001 Distribution Center
Gastonia, North Carolina 130,000 2000 Transmissions
Gastonia, North Carolina 60,000 (1) Core Storage
Dayton, Ohio 42,000 1999 Torque Converters
Forest Park, Ohio 10,000 1998 Distribution Center
Portland, Oregon 20,000 (1) Distribution Center
Memphis, Tennessee 37,800 2003 Distribution Center
Nashville, Tennessee 6,500 2000 Distribution Center
Austin, Texas 5,000 (1) Distribution Center
Dallas, Texas 93,000 2012 Distribution Center, Repair
Kits, Hard Parts
Dallas, Texas 9,000 1998 Distribution Center
Houston, Texas 13,500 2002 Distribution Center
San Antonio, Texas 13,000 2002 Distribution Center
Salt Lake City, Utah 15,000 (1) Distribution Center
Norfolk, Virginia 9,700 2000 Distribution Center
Norfolk, Virginia 13,500 2002 Distribution Center
Seattle, Washington 22,000 (1) Distribution Center
Spokane, Washington 9,500 2000 Distribution Center
Janesville, Wisconsin 30,000 2001 Distribution Center, Repair
Kits, Hard Parts
Calgary, Alberta 9,200 2001 Distribution Center
Edmonton, Alberta 14,800 1998 Distribution Center, Heavy Duty
Truck Transmissions
Vancouver, British Columbia 13,000 2004 Distribution Center
Moncton, New Brunswick 12,000 2000 Distribution Center, Heavy Duty
Truck Transmissions
Mississauga, Ontario 35,100 1998 Distribution Center, Heavy Duty
Truck Transmissions and Air
Compressors
Mississauga, Ontario 12,200 2001 Repair Kits
Mississauga, Ontario 24,000 2000 Distribution Center
Montreal, Quebec 11,200 2000 Distribution Center
Regina, Saskatchewan 600 (1) Distribution Center
Mexicali, Mexico 77,100 1998 Torque Converters
</TABLE>
- ------------
(1) Month-to-month lease.
36
<PAGE>
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. 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 and impose liability for the costs of cleaning
up, and certain damages resulting from, past spills, disposals or other releases
of hazardous substances.
In connection with the CRS, Aaron's, HTP, King-O-Matic, Mamco, Mascot, RPM,
Tranzparts, Diverco, REPCO, ATS and Trans Mart acquisitions, the Company
conducted certain investigations of these companies' facilities and their
compliance with applicable environmental laws. The investigations, which
included "Phase I" assessments by independent consultants of all manufacturing
and certain distribution facilities, found that certain facilities have had or
may have had releases of hazardous materials that may require remediation and
also may be subject to potential liabilities for contamination from off-site
disposal of substances or wastes. These assessments also found that certain
reporting and other regulatory requirements, including certain waste management
procedures, were not or may not have been satisfied. Although there can be no
assurance, the Company believes that, based in part on the investigations
conducted, in part on certain remediation completed prior to the acquisitions,
and in part on the indemnification provisions of the agreements entered into in
connection with the Company's acquisitions, the Company will not incur any
material liabilities relating to these matters.
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 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 Federal Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended ("CERCLA" or "Superfund"), provides for cleanup of sites
from which there has been a release or threatened release of hazardous
substances, and authorizes recovery of related response costs and certain other
damages from potentially responsible parties ("PRPs"). PRPs are broadly defined
under CERCLA, and generally include present owners and operators of a site and
certain past owners and operators. As a general rule, courts have interpreted
CERCLA to impose strict, joint and several liability upon all persons liable for
cleanup costs. As a practical matter, however, at sites where there are multiple
PRPs, the costs of cleanup typically are allocated among the PRPs according to a
volumetric or other standard. 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 the part 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
37
<PAGE>
agreement and the leases pursuant to which the Company leased RPM's facilities
after the Company acquired the assets of RPM (the "RPM Acquisition") expressly
provide that the Company did not 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. Although there can be no assurance, the Company believes that it will not
incur any material liability as a result of these environmen-
tal conditions.
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 August 31, 1997, the Company employed approximately 3,500 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.
38
<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>
Stephen J. Perkins 50 Chairman of the Board, President and Chief
Executive Officer
John C. Kent 45 Chief Financial Officer
Joseph Salamunovich 38 Vice President, General Counsel and Secretary
John J. Machota 45 Vice President, Human Resources
Wesley N. Dearbaugh 45 President and General Manager, ATC Distribution
Group
James R. Wehr 44 President, Aaron's
Michael L. LePore 43 President, CRS
Robert Anderson 76 Director
Richard R. Crowell 42 Director
Dale F. Frey 65 Director
Mark C. Hardy 33 Director
Dr. Michael J. Hartnett 52 Director
Gerald L. Parsky 54 Director
Richard K. Roeder 48 Director
William A. Smith 51 Chairman Emeritus of the Board of Directors
J. Richard Stonesifer 61 Director
</TABLE>
STEPHEN J. PERKINS was elected as the President and Chief Executive Officer
of the Company in October 1996 and became Chairman of the Board of Directors in
August 1997. 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. Prior to that, Mr. Perkins
held various positions with the Flexonics Division of what is now Allied Signal
Inc. and several management positions in manufacturing at multiple facilities
for the Steel Tubing Group of Copperweld Corporation.
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.
JOSEPH SALAMUNOVICH joined the Company as Vice President, General Counsel
and Secretary in March 1997. From January 1995 to March 1997, Mr. Salamunovich
was a partner in the law firm of Gibson, Dunn & Crutcher LLP, where he
specialized in corporate and securities law matters. From 1986 to 1995, Mr.
Salamunovich was an associate of the same firm.
JOHN J. MACHOTA joined the Company as Vice President, Human Resources in
June 1997. From 1996 to 1997, he was a self-employed human resources consultant.
From 1995 to 1996, Mr. Machota was Vice President -- Compensation for Waste
Management, Inc. and from 1993 to 1995 served as Waste
39
<PAGE>
Management's Vice President -- Human Resource Services. From 1986 to 1993 Mr.
Machota was Vice President -- Human Resources for a subsidiary of Waste
Management and prior to that held various other positions in the human resources
area.
WESLEY N. DEARBAUGH joined ATC as President and General Manager of the ATC
Distribution Group 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.
JAMES R. WEHR has been President of Aaron's, since August 1990 and has
responsibility for developing and maintaining the Company's relationships with
Chrysler, other OEMs and Western Auto. 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.
ROBERT ANDERSON became a director of the Company in March 1997. Mr. Anderson
has been associated with Rockwell International Corporation since 1968, where he
has been Chairman Emeritus since 1990 and served previously as Chairman of the
Executive Committee from 1988 to 1990 and as Chairman of the Board and Chief
Executive Officer from 1979 to 1988. Mr. Anderson is a director of Gulfstream
Aerospace Corporation, Optical Data Systems Company and The Timken Company.
RICHARD R. CROWELL became a director of the Company in July 1994. Mr.
Crowell is President and a founding partner 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. Mr. Crowell is
also a director of Astor Corporation.
DALE F. FREY became a director of the Company in August 1997. Prior to his
retirement in early 1997, Mr. Frey was Chairman of the Board, President and
Chief Executive Officer of General Electric Investment Corporation, a position
he had held since 1984, and a Vice President of General Electric Company since
1980. Mr. Frey is a director of Rhone-Poulenc Rorer, USF&G Corporation, Proxair,
Inc., The Beacon Companies, First American Financial Corporation, Red Lion
Doubletree Master Limited Partnership and The Cancer Research Fund of the Damon
Runyon-Walter Winchell Foundation and is a Trustee of Franklin and Marshall
College.
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. 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.
GERALD L. PARSKY became a director of the Company in March 1997. Mr. Parsky
is the Chairman and a founding partner of ACP. Prior to forming ACP in 1991, Mr.
Parsky was a senior partner and a member of the Executive and Management
Committees of the law firm of Gibson, Dunn & Crutcher LLP. Prior to that, he
served as an official with the United States Treasury Department and the Federal
Energy Office,
40
<PAGE>
and as Assistant Secretary of the Treasury for International Affairs. Mr. Parsky
is also a director of Astor Corporation.
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. Mr. Roeder is also a director of
Astor Corporation.
WILLIAM A. SMITH has been a director and Chairman Emeritus of the Board of
Directors since August 1997 and prior to that served as Chairman of the Board
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. Prior to that, Mr. Smith held various
positions with Navistar International Transportation Corporation, Labinal, Inc.
(a French automotive and aerospace equipment manufacturer) and Cummins Engine
Company.
J. RICHARD STONESIFER became a director of the Company in August 1997. Prior
to his retirement in 1996, Mr. Stonesifer was employed with the General Electric
Company for 37 years, serving most recently as President and Chief Executive
Officer of GE Appliances, and an executive officer and Senior Vice President of
the General Electric Company, from January 1992 until his retirement. Mr.
Stonesifer is also a director of Grand Union Co.
BOARD OF DIRECTORS COMMITTEES AND COMPENSATION
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation and Human Resources Committee. The members
of the Audit Committee are Messrs. Anderson, Frey and Roeder. The members of the
Compensation Committee are Messrs. Crowell, Parsky and Stonesifer. The
Compensation Committee administers the Company's Stock Incentive Plan. Directors
do not receive cash 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. The Company reimburses directors for their expenses in
connection with attending Board and committee meetings. At the time that Messrs.
Anderson, Frey and Stonesifer joined the Board of Directors, each was granted an
option to purchase 12,000 shares of Common Stock at an exercise price equal to
the closing price of a share the Common Stock on the Nasdaq National Market
System on the date the option was granted less $3.00. Each option vests in
one-third increments on each of the first, second and third anniversaries of the
date of grant.
Mr. Smith will receive annual compensation of $126,224 to serve as Chairman
Emeritus of the Board of Directors from August 1, 1997 to December 31, 1998.
From October 1996 to August 1997, Mr. Smith received annual compensation of
$319,196 to serve as Chairman of the Board of Directors under the terms of his
prior employment agreement. See "--Executive Compensation."
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
The following table sets forth, for the three most recently completed fiscal
years, the cash compensation for services in all capacities to the Company of
those persons who were, as of December 31, 1996, the Company's Chief Executive
Officer, and the four other most highly compensated executive officers of the
41
<PAGE>
Company and its subsidiaries whose total annual salary and bonus exceeded
$100,000 during the last fiscal year (collectively, the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
NUMBER OF
SECURITIES
ANNUAL COMPENSATION UNDERLYING
------------------------ OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) (#)(1) COMPENSATION ($)
- --------------------------------- ---- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
Stephen J. Perkins (2)........... 1996 $ 70,385 $125,000 498,000 --
Chairman of the Board, 1995 -- -- -- --
President and Chief Executive 1994 -- -- -- --
Officer
William A. Smith (3)............. 1996 319,196 315,803 -- --
Chairman Emeritus of the 1995 300,000 -- -- --
Board of Directors 1994 150,000 -- 842,106 $250,000(4)
James R. Wehr.................... 1996 282,297 300,000 -- --
President, Aaron's 1995 258,000 -- -- --
1994 109,000 -- 140,352 --
Michael L. LePore................ 1996 226,520 181,745 -- --
President, CRS 1995 160,838(5) 179,038(6) 70,176 --
1994 120,451 131,119 -- --
John C. Kent..................... 1996 127,918 100,000 35,088 --
Chief Financial Officer 1995 124,615 12,000 -- --
1994 56,154 -- 70,176 --
Kenneth A. Bear.................. 1996 107,467 80,000 -- --
Executive Vice President and 1995 103,200 60,000 -- --
General Manager, Aaron's 1994 44,140 32,960 70,176 --
</TABLE>
- ---------
(1) Includes only options to purchase securities of the Company, which options
were issued pursuant to the Company's Stock Incentive Plan. Pursuant to the
Stock Incentive Plan, the Compensation Committee makes recommendations to
the Board of Directors regarding the terms and conditions of each option
granted.
(2) Mr. Perkins joined the Company as its President and Chief Executive Officer
in October 1996 and was elected Chairman of the Board in August 1997. See
"Executive Compensation -- Employment Agreements."
(3) Mr. Smith served as the Company's President and Chief Executive Officer
until October 1996 and as Chairman of the Board until August 1997.
(4) In July 1994 the Company paid Mr. Smith $250,000 for consultation services
rendered in connection with the Company's formation and the Initial
Acquisitions.
(5) Includes five months' salary of $56,777 prior to the acquisition of CRS by
the Company in April 1995.
(6) Includes $86,759 of bonus earned prior to the acquisition of CRS by the
Company in April 1995.
42
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning grants of options issued by the
Company to the Named Executive Officers during the year ended December 31, 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (2)
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME (#)(1) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
- --------------------------------- --------------- --------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen J. Perkins............... 498,000(3) 66.8% $ 4.67 10/7/06 $ 1,462,608 $ 3,706,404
William A. Smith................. -- -- -- -- -- --
James R. Wehr.................... -- -- -- -- -- --
John C. Kent..................... 35,088(4) 4.7 4.67 10/1/06 103,052 261,145
Michael L. LePore................ -- -- -- -- -- --
Kenneth A. Bear.................. -- -- -- -- -- --
</TABLE>
- ---------
(1) All options were granted under the Company's Stock Incentive Plan. The
vesting of the options accelerates if the holder's employment is terminated
within one year of a change of control, as defined in the option agreements.
(2) 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.
(3) One third of the options vest and become exercisable on each of the first
three anniversaries of the date of grant.
(4) One third of the options vest and become exercisable on the first, third and
fifth anniversaries of the date of the grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
Shown below is information relating to the values of all options held by the
Named Executive Officers as of December 31, 1996. No Named Executive Officer
exercised any options during 1996:
<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........................................ 842,106 -- $ 13,120,012 --
Stephen J. Perkins...................................... -- 498,000 -- $ 6,264,840
James R. Wehr........................................... 93,568 46,784 1,457,789 728,895
John C. Kent............................................ 23,392 81,872 364,447 1,170,302
Michael L. LePore....................................... 23,392 46,784 364,447 728,895
Kenneth A. Bear......................................... 23,392 46,784 364,447 728,895
</TABLE>
- ---------
(1) Calculated using closing price on December 31, 1996 of $17.25 per share.
EMPLOYMENT AGREEMENTS
Stephen J. Perkins entered into a three year employment agreement with the
Company effective as of October 7, 1996, pursuant to which he serves as Chairman
of the Board, President and Chief Executive Officer of the Company at an annual
salary of $300,000. The employment agreement with Mr. Perkins
43
<PAGE>
contains a noncompete provision for a period of 18 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.
William A. Smith entered into an employment agreement with the Company
effective as of August 1, 1997, pursuant to which he serves as Chairman Emeritus
of the Board of Directors at an annual salary of $126,224 until December 31,
1998. The employment agreement contains a noncompete provision for a period of
18 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. This agreement replaces an earlier
employment agreement with the Company pursuant to which Mr. Smith served as
Chairman of the Board, President and Chief Executive Officer of the Company at
an annual salary of $316,000 (subject to cost-of-living adjustments).
John C. Kent entered into a three year employment agreement with the Company
effective as of October 1, 1996, pursuant to which he serves as Chief Financial
Officer of the Company at an annual salary of $150,000. The employment agreement
with Mr. Kent contains a noncompete provision for a period of 18 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. Kent is also entitled to participate in any bonus, incentive or
other benefit plans provided by the Company to its employees.
Joseph Salamunovich entered into a three year employment agreement with the
Company effective as of March 17, 1997, pursuant to which he serves as Vice
President and General Counsel of the Company at an annual salary of $165,000.
The employment agreement with Mr. Salamunovich contains a noncompete provision
for a period of 18 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. Salamunovich 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 serves 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 $283,000). The initial term of the agreement
expired in August 1997, at which time the agreement was automatically renewed in
accordance with its terms for an additional year. 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 a five year employment agreement with CRS
effective as of June 1, 1995, pursuant to which he serves as President of CRS at
an annual salary of approximately $225,000 (subject to cost-of-living
adjustments). 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 a three year employment agreement with Aaron's
effective July 28, 1994, pursuant to which he serves as Executive Vice President
and General Manager of Aaron's at an annual salary of $104,000. The initial term
of the agreement expired in August 1997, at which time the agreement was
automatically renewed in accordance with its terms for an additional year. 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.
44
<PAGE>
Each of these employment agreements, other than Mr. Smith's, provides that
upon the expiration of the initial term the agreement will automatically renew
for successive one-year periods unless the Company gives advance notice of its
desire not to renew the agreement.
1996 STOCK INCENTIVE PLAN
Upon the merger of Holdings with and into the Company in December 1996, the
Company assumed the Amended and Restated 1994 Stock Incentive Plan of Holdings
and renamed it the 1996 Stock Incentive Plan (the "Stock Incentive Plan").
Pursuant to the Stock Incentive Plan, officers, directors, employees and
consultants of the Company and its subsidiaries are eligible to receive options
to purchase Common Stock and other awards in order to provide incentives to
employees and directors. The Compensation Committee makes recommendations for
awards to the Board of Directors and has broad authority in administering and
interpreting other aspects of 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.
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 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 August 31, 1997, there were outstanding options to purchase an
aggregate of 2,181,610 shares (including options granted in 1997 to purchase an
aggregate of 130,176 shares) of Common Stock granted to directors, officers and
employees of the Company and certain independent contractors pursuant to the
Stock Incentive Plan. The exercise price for these options are as follows:
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF OPTION SHARES PRICE
- ----------------------------- -------------
<S> <C>
1,317,994 $ 1.67
733,440 4.67
35,088 14.75
12,000 15.25
35,088 17.25
24,000 18.25
24,000 23.00
</TABLE>
Each option is subject to certain vesting provisions and expires on the tenth
anniversary of the date of grant. As of August 31, 1997, the number of shares
available for issuance pursuant to options yet to be granted under the Stock
Incentive Plan was 9,606. The Company expects to submit a new stock incentive
plan for consideration at its next stockholders meeting. For certain information
regarding options granted to officers of the Company, see "--Executive
Compensation" and "Principal and Selling Stockholders."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Crowell, Parsky and
Stonesifer, none of whom is or was an employee or officer of the Company. Mr.
Smith previously served on the Compensation Committee but did not participate in
any matters considered by the Committee relating to his compensation. None of
the Company's executive officers serves as a director or member of the
compensation committee of any other entity.
45
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
as of August 31, 1997 by each director of the Company, each of the Named
Executive Officers, the directors and executive officers of the Company as a
group, each person who at such time beneficially owned more than 5% of the
outstanding shares of the Common Stock and each stockholder selling shares in
this Offering. The Common Stock is the only series or class of the Company's
capital stock currently outstanding.
<TABLE>
<CAPTION>
PRIOR TO OFFERING SHARES TO AFTER OFFERING
----------------------- BE SOLD IN -----------------------
SHARES (1) % OFFERING SHARES (1) %
------------ --------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Aurora Equity Partners L.P. (other beneficial owners:
Richard R. Crowell, Gerald L. Parsky and Richard K.
Roeder) (2)(3)........................................... 10,702,888 62.3 493,926(4) 9,837,962 50.6
Aurora Overseas Equity Partners I, L.P. (other beneficial
owners: Richard R. Crowell, Gerald L. Parsky and Richard
K. Roeder) (3)(5)........................................ 4,450,418 25.9 79,074(6) 4,000,364 20.6
General Electric Pension Trust (7)......................... 2,018,652 11.7 134,000(8) 1,884,652 9.7
3003 Summer Street
Stamford, CT 06905
Stephen J. Perkins (9)(10)................................. 167,000 1.0 -- 167,000 *
John C. Kent (9)(11)....................................... 59,480 * -- 59,480 *
James R. Wehr (12)(13)..................................... 823,352 4.8 -- 823,352 4.2
Michael L. LePore (14)..................................... 36,688 * -- 36,688 *
400 Corporate Drive
Mahwah, NJ 07430
Kenneth A. Bear (13)(15)................................... 47,084 * -- 47,084 *
Robert Anderson (16)....................................... 14,628 * -- 14,628 *
10877 Wilshire Blvd.
Los Angeles, CA 90024
Richard R. Crowell (2)(5)(17)(18).......................... 11,891,038 69.2 573,000(19) 10,947,038 56.3
Dale F. Frey (16).......................................... -- -- -- -- --
One Gorham Island
Westport, CT 06880
Mark C. Hardy (17)(18)(20)................................. 12,460 * -- 12,460 *
Dr. Michael J. Hartnett (21)............................... 70,176 * -- 70,176 *
60 Round Hill Road
Fairfield, CT 06430
Gerald L. Parsky (2)(5)(17)(18)............................ 11,891,038 69.2 573,000(19) 10,947,038 56.3
Richard K. Roeder (2)(5)(17)(18)........................... 11,891,038 69.2 573,000(19) 10,947,038 56.3
William A. Smith (9)(22)................................... 755,984 4.2 56,000(23) 699,984 3.5
J. Richard Stonesifer (16)................................. -- -- -- -- --
812 Pitch Apple Lane
Naples, FL 34108
Somerville S Trust (18).................................... 341,928 2.0 237,000(24) 104,928 *
c/o Rockport Capital, Inc.
700 Eleventh Street, Suite 640
Washington, D.C. 20001
All directors and officers as a group
(17 persons) (25)........................................ 13,890,890 75.4 629,000(26) 12,890,890 62.5
</TABLE>
- ---------
* Less than 1%.
(FOOTNOTES ON FOLLOWING PAGE)
46
<PAGE>
(1) The shares of Common Stock underlying options, warrants, rights or
convertible securities that are exercisable as of August 31, 1997 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) Consists of (i) 7,440,600 shares owned by Aurora Equity Partners L.P.
("AEP"), (ii) 2,018,652 shares owned by the General Electric Pension Trust
("GEPT") (see Footnote (7) below) and (iii) 1,243,636 shares that are
subject to an irrevocable proxy granted to AEP and Aurora Overseas Equity
Partners I, L.P. ("AOEP") by certain stockholders, including the Somerville
S Trust, Messrs. Crowell, Hardy, Parsky and Roeder, certain other limited
partners of AEP and certain affiliates of a limited partner of AOEP. The
proxy terminates upon the transfer of such shares. The number of shares
owned after this Offering excludes shares sold by GEPT and the Somerville S
Trust in this Offering. 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, Parsky and
Roeder are the sole stockholders and directors of AAI, are limited partners
of ACP and may be deemed to beneficially share ownership of Common Stock
beneficially owned by AEP and may be deemed to be the organizers of the
Company under regulations promulgated under the Securities Act.
(3) The address for this beneficial holder is West Wind Building, P.O. Box
1111, Georgetown, Grand Cayman, Cayman Islands, B.W.I.
(4) Excludes 251,766 shares subject to the Underwriters' over-allotment option.
(5) Consists of (i) 1,188,150 shares owned by AOEP, (ii) 2,018,652 shares owned
by GEPT (see Footnote (7) below) and (iii) 1,243,636 shares that are
subject to an irrevocable proxy granted to AEP and AOEP by certain
stockholders, including the Somerville S Trust, Messrs. Crowell, Hardy,
Parsky and Roeder, certain other limited partners of AOEP and certain
affiliates of a limited partner of AOEP. The proxy terminates upon the
transfer of such shares. The number of shares owned after this Offering
excludes shares sold by GEPT and the Somerville S Trust in this Offering.
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, Parsky and Roeder are the sole stockholders and
directors of AOAL, are limited partners of AOCP and may be deemed to
beneficially own the shares of Common Stock beneficially owned by AOEP.
(6) Excludes 40,306 shares subject to the Underwriters' over-allotment option.
(7) With limited exceptions, GEPT has agreed to vote these shares in the same
manner as AEP and AOEP vote their respective shares of Common Stock. This
provision terminates upon the transfer of such shares.
(8) Excludes 59,000 shares subject to the Underwriters' over-allotment option.
(9) The address for this beneficial holder is 900 Oakmont Lane, Suite 100,
Westmont, Illinois 60559.
(10) Includes 166,000 shares subject to options granted under the Stock
Incentive Plan that are exercisable as of August 31, 1997 or that will
become exercisable within 60 days thereafter. Excludes 332,000 shares
subject to options granted under the Stock Incentive Plan that are not
exercisable within 60 days of August 31, 1997.
(11) Includes 58,480 shares subject to options granted under the Stock
Incentive Plan that are exercisable as of August 31, 1997 or that will
become exercisable within 60 days thereafter. Excludes 46,784 shares
subject to options granted under the Stock Incentive Plan that are not
exercisable within 60 days of August 31, 1997.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
47
<PAGE>
(12) Includes 140,352 shares subject to options granted under the Stock
Incentive Plan that are exercisable as of August 31, 1997 or that will
become exercisable within 60 days thereafter. Excludes 35,088 shares
subject to options granted under the Stock Incentive Plan that are not
exercisable within 60 days of August 31, 1997.
(13) The address for this beneficial holder is 2699 North Westgate,
Springfield, MO 65803.
(14) Excludes 35,088 shares subject to options granted under the Stock
Incentive Plan that are not exercisable within 60 days of August 31, 1997.
(15) Includes 46,784 shares subject to options granted under the Stock
Incentive Plan that are exercisable as of August 31, 1997 or that will
become exercisable within 60 days thereafter. Excludes 23,392 shares
subject to options granted under the Stock Incentive Plan that are not
exercisable within 60 days of August 31, 1997.
(16) Excludes 12,000 shares subject to options granted under the Stock
Incentive Plan that are not exercisable within 60 days of August 31, 1997.
(17) The address for this beneficial holder is 1800 Century Park East, Suite
1000, Los Angeles, CA 90067.
(18) The holder of these shares has granted an irrevocable proxy covering these
shares to AEP and AOEP.
(19) Consists of shares being sold by AEP and AOEP. Excludes 292,072 shares
subject to the Underwriters' over-allotment option.
(20) Includes 4,000 shares subject to options granted under the Stock Incentive
Plan that are exercisable as of August 31, 1997 or that will become
exercisable within 60 days thereafter. Excludes 8,000 shares subject to
options granted under the Stock Incentive Plan that are not exercisable
within 60 days of August 31, 1997.
(21) Consists of shares subject to warrants that are exercisable as of August
31, 1997 or that will become exercisable within 60 days thereafter.
(22) Includes 702,106 shares subject to options granted under the Stock
Incentive Plan that are exercisable as of August 31, 1997 or that will
become exercisable within 60 days thereafter. Mr. Smith will exercise
56,000 of these options and sell in this Offering the shares issued upon
such exercise.
(23) Excludes 24,000 shares subject to the Underwriters' over-allotment option.
(24) Excludes 104,928 shares subject to the Underwriters' over-allotment
option.
(25) Includes 1,222,986 shares subject to warrants and stock options that are
exercisable as of August 31, 1997 or that will become exercisable within
60 days thereafter. Mr. Smith will exercise 56,000 of these options and
sell in this Offering the shares issued upon such exercise.
(26) Excludes 316,072 shares subject to the Underwriters' over-allotment
option.
48
<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
Aggregate fees of approximately $2 million were paid to ACP for investment
banking services provided in connection with the acquisitions of Mascot, CRS and
King-O-Matic in 1995, Tranzparts and Diverco in 1996 and REPCO, ATS and Trans
Mart in 1997. The Company also pays 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
any of the Acquisitions. The base annual management fee is also subject to
increase for specified cost of living increases pursuant to which the base
annual management fee was increased to $540,000 effective July 1997. 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 1996,
ACP did not receive this additional management fee in 1996. In the event the
Company consummates any significant acquisitions or dispositions, 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 Credit Facility. 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% as follows: 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 discretionary increases by the Board of
Directors or cost of living increases as described above, 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. After this Offering, the
collective beneficial ownership of AEP and AOEP for purposes of the Management
Services Agreement will be approximately 56% (54% if the Underwriters'
over-allotment option is exercised in full). For information regarding the
general and certain of the limited partners of ACP, see "Principal and Selling
Stockholders."
In October 1996, the Company granted options for an aggregate of 48,000
shares of Common Stock to certain directors and consultants of the Company who
are employees of ACP, including Mr. Hardy. These
49
<PAGE>
options, which have an exercise price of $4.67 per share, become exercisable in
one-third increments on each of the first three anniversaries of the date of
grant and expire in 2006. In 1997, 12,000 of these options terminated when the
holder resigned from ACP.
FACILITY LEASES
In connection with its acquisition of Aaron's, the Company entered into a
lease with CRW, Inc., an affiliate of C.R. Wehr and James R. Wehr (whose
individual family trusts owned all of the outstanding capital stock of Aaron's
prior to its acquisition by the Company), for Aaron's headquarters and primary
remanufacturing facility located in Springfield, Missouri with an initial term
beginning as of January 1, 1994 and expiring as of December 31, 2004, subject to
the Company's option to extend the term for a period of five years. The monthly
base rent is $33,105 and the Company is responsible for paying property taxes,
insurance and maintenance expenses for the leased premises. The Company also
entered into three leases with C.R. Wehr, Westway Partnership, JRW, Inc. and
C.J. Cates Real Estate Co. (each, an affiliate of C.R. Wehr and James R. Wehr)
for three manufacturing facilities comprising approximately 84,000 square feet
for an aggregate rent of $12,000 per month with an initial term beginning as of
January 1, 1994 and expiring as of 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 is a party to a lease with Patricia L. Bridgeforth,
Mr. Wehr's sister, for Aaron's 200,000 square foot core storage facility. The
lease 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.
INDEMNIFICATION AGREEMENTS
The Company has entered into separate but identical indemnification
agreements (the "Indemnification Agreements") with each director and executive
officer of the Company. The Indemnification Agreements provide for, among other
things, the following: (i) indemnification to the fullest extent permitted by
law against any and all expenses (including attorneys' fees and all other costs
and obligations of any nature whatever), judgments, fines, penalties and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection therewith) of any claim, unless the Company determines
that such indemnification is not permitted under applicable law; (ii) the prompt
advancement of expenses to the director or officer, including attorneys' fees
and all other costs, fees, expenses and obligations paid or incurred in
connection with investigating or defending any threatened, pending or completed
action, suit or proceeding related to the fact that such director or officer is
or was a director or officer of the Company or is or was serving at the request
of the Company as a director, officer, employee, trustee, agent or fiduciary of
another corporation, partnership, joint venture, employee benefit plan, trust or
other enterprise, and for repayment to the Company if it is found that such
director or officer is not entitled to such indemnification under applicable
law; (iii) a mechanism through which the director or officer may seek court
relief in the event the Company determines that the director or officer is not
permitted to be indemnified under applicable law (and therefore is not entitled
to indemnification under the Indemnification Agreement); and (iv)
indemnification against expenses (including attorneys' fees) incurred in seeking
to collect from the Company an indemnity claim or advancement of expenses to the
extent successful.
50
<PAGE>
PAYMENT OF PREFERRED STOCK REORGANIZATION CONSIDERATION
In connection with the formation of the Company, in July and August 1994
Holdings issued shares of its preferred stock to each purchaser of Holdings
common stock, including AEP and AOEP and Messrs. Anderson, Crowell, Hardy,
Parsky, Roeder, Smith and Wehr (each of whom is a director and/or executive
officer of the Company), for consideration of $100 per share. These shares were
converted into shares of the Company's preferred stock in the merger of Holdings
into the Company in December 1996, immediately after which the Company redeemed
the preferred stock for an amount per share equal to $100 plus an amount equal
to the accrued and unpaid dividends on the Holdings preferred stock through the
date of the merger. Upon the redemption of their shares of preferred stock
Messrs. Anderson, Crowell, Hardy, Parsky, Roeder, Smith and Wehr received
$23,630, $159,195, $13,701, $176,403, $30,596, $70,765 and $1,414,051,
respectively. AEP and AOEP distributed their shares of preferred stock to their
respective general and limited partners prior to the redemption.
REGISTRATION RIGHTS
The Original Stockholders have certain "demand" and "piggyback" registration
rights pursuant to a Stockholders Agreement. In addition, GEPT has certain
"demand" and "piggyback" registration rights with respect to 1,255,794 shares of
the 2,018,652 shares of Common Stock owned by it. See "Shares Eligible for
Future Sale."
51
<PAGE>
DESCRIPTION OF CAPITAL STOCK
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 August 31, 1997, 17,189,578
shares of Common Stock were issued and outstanding and 2,602,666 shares were
reserved for issuance under outstanding options and warrants. As of the same
date, no shares of Preferred Stock were outstanding. The Board of Directors and
the Company's stockholders have approved an amendment to the Company's
Certificate of Incorporation to reduce the authorized number of shares of Common
Stock and Preferred Stock to 24,000,000 shares and 2,000,000 shares,
respectively. The amendment has not been effected to date.
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 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. 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. See "Risk Factors --
Control of the Company; Anti-Takeover Matters."
WARRANTS
In August 1994, the Company issued warrants to a former director and another
individual to purchase an aggregate of 350,880 shares of Common Stock at a price
of $1.67 per share. In December 1994, the Company issued warrants to Dr.
Hartnett to purchase an aggregate of 70,176 shares of Common Stock at a price of
$1.67 per share. These warrants are exercisable at any time and 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
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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 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 this 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 Delaware General Corporation Law (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 that 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 that 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.
See "Certain Transactions -- Indemnification Agreements" for a description
of Indemnification Agreements that the Company has entered into with its
directors and executive officers.
The Company believes that the provisions in its Certificate of Incorporation
and Bylaws and the Indemnification Agreements 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 material 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 February 1997, the Company entered into the Credit Facility with several
banks and The Chase Manhattan Bank (the "Bank"), as agent, providing for a
$100.0 million revolving credit facility available to the Company for
acquisitions and working capital purposes. Subject to the satisfaction of
customary conditions, advances under the Credit Facility may be made, and
letters of credit may be issued, in each case up to an aggregate of $100.0
million and up to $10.0 million with respect to any individual letter of credit,
at any time prior to December 31, 2001 (the "Termination Date"). All amounts
advanced under the Credit Facility 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 Credit
Facility are secured by a first priority security interest in substantially all
of the accounts receivable and inventory of the Company and its existing and
future subsidiaries. The obligations of the Company under the Credit Facility
are guaranteed by each of the Company's existing and future subsidiaries.
At the Company's election, amounts advanced under the Credit Facility will
bear interest at either (i) the Alternate Base Rate plus a specified margin, or
(ii) the Eurodollar Rate plus a specified margin. 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
Credit Facility. The applicable margin for both Alternate Base Rate and
Eurodollar loans is subject to a quarterly adjustment based on the Company's
leverage ratio as of the end of the four fiscal quarters then completed. The
Alternate Base Rate margin, which was 0.25% initially, is zero currently and the
Eurodollar margin, which was 1.25% originally, is 1.0% currently. Interest
payments on advances that bear interest based upon the Alternate Base Rate are
due quarterly in arrears and on the Termination Date, and interest payments on
advances that 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 Credit Facility 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
investments, issue stock and engage in transactions with affiliates of the
Company and its subsidiaries. The Credit Facility also contains customary events
of default provisions.
The Company paid the Bank a one-time facility and commitment fee upon the
effectiveness of the Credit Facilty and is required to pay the Bank quarterly in
arrears a commitment fee equal to a per annum percentage of the average daily
unused portion of the Credit Facility during such quarter. The commitment is
subject to a quarterly adjustment based on the Company's leverage ratio as of
the end of the four fiscal quarters then completed. The quarterly commitment fee
percentage, which was 0.375% initially, was recently reduced to 0.300%. 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 rate per annum equal to
the applicable margin then in effect for advances bearing interest at the
Eurodollar Rate.
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In September 1997, the Company entered into a revolving credit agreement
with Bank of Montreal (the "BOM Revolving Credit Agreement") for a $3.5 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 $3.5 million
Canadian, due upon demand, and subject to annual review. The funds available to
be advanced may not exceed the aggregate of 75% of the eligible accounts
receivable of Mascot and King-O-Matic and 50% of the eligible inventory of
Mascot and King-O-Matic in each case as defined in the BOM Revolving Credit
Agreement. The amounts advanced under the BOM Revolving Credit Agreement bear
interest at the Bank of Montreal prime lending rate plus 0.25%. The agreement
contains certain covenants including a tangible net worth covenant for the
combined results of Mascot and King-O-Matic.
SENIOR NOTES
GENERAL. ATC's currently outstanding $90,000,000 aggregate principal amount
of its Series B Senior Notes and $30,000,000 aggregate principal amount of its
Series D Senior Notes were issued pursuant to indentures 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 ATC in whole or in part at (i) 106% of the
principal amount redeemed on or after August 1, 1999 but prior to August 1,
2000, (ii) 104% of the principal amount redeemed on or after August 1, 2000 but
prior to August 1, 2001, (iii) 102% of the principal amount redeemed on or after
August 1, 2001 but prior to August 1, 2002 or (iv) 100% of the principal amount
redeemed on or after August 1, 2002 through maturity, in each case plus accrued
and unpaid interest, if any.
The Indentures governing the Senior Notes contain various restrictive
covenants that, among other things, limit: (i) the incurrence of certain
additional indebtedness by ATC or its subsidiaries; (ii) the creation of Senior
Debt of ATC which is, by its terms, subordinated in right of payment to other
indebtedness of ATC; and (iii) the payment of dividends on capital stock of ATC
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 ATC is in default within 120 days after the end of each fiscal
year. Events of default under the Indentures governing the Senior Notes include,
among other things: (1) a default in the payment of any interest on any Senior
Note when due, which default continues for 30 days; (2) a default in the payment
of any principal of or premium, if any, on any Senior Note when due; (3) the
failure by ATC 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;
(4) final unsatisfied judgments in excess of $2.5 million (excluding amounts
covered by insurance) not discharged, waived or stayed for 60 days; (5) default
under indebtedness of ATC 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 (6) certain events of
bankruptcy, insolvency or reorganization of ATC or any of its subsidiaries.
CHANGE OF CONTROL PUT. Upon the occurrence of a Change of Control, ATC 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 ATC, its subsidiaries or
certain other entities related to ACP (an "Excluded Person")) is or becomes the
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"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, or
(iii) during any period of 12 consecutive months, individuals who at the
beginning of such 12-month period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office. The occurrence
of this Offering will not constitute a "Change of Control" for purposes of the
Senior Notes.
In addition, indebtedness under the Credit Facility would be accelerated
upon a change of control, as defined in the Credit Facility Agreement, 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."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have approximately
19,450,000 shares of Common Stock outstanding, of which approximately 10,800,000
shares will be "restricted securities" within the meaning of Rule 144, and may
not be sold without registration under the Securities Act unless Rule 144 or
another exemption from registration is available. The 3,200,000 shares sold in
the Offering will be freely tradeable except for any shares held by "affiliates"
of the Company, which shares may be sold in compliance with Rule 144.
The Company currently has outstanding warrants to purchase an aggregate of
421,056 shares of Common Stock. When issued, these shares may not be publicly
sold unless registered under the Securities Act or sold in accordance with Rule
144 or another exemption from registration.
As of August 31, 1997, there were outstanding stock options to purchase an
aggregate of 2,181,610 shares of Common Stock. The shares issuable upon the
exercise of these options will be freely tradable without restriction under the
Securities Act, except for any such shares held at any time by affiliates of the
Company, which shares may be sold in compliance with Rule 144.
In general, under Rule 144, a person (whether or not an affiliate) who has
beneficially owned restricted shares (I.E., shares issued by the Company in a
transaction not involving a public offering) for at least one year, or an
affiliate of the Company who beneficially owns shares that are not restricted,
may sell, within any three-month period, a number of such shares that does not
exceed the greater of one percent (1%) of the then outstanding shares of Common
Stock (approximately 194,500 shares immediately after this Offering) or the
average weekly trading volume of the Common Stock on the Nasdaq Nation Market
System 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 an affiliate of the Company and who has
beneficially owned shares for at least two years is entitled to sell such shares
at any time under Rule 144 without regard to the limitations described above.
The parties to a Stockholders Agreement among the Company and the Original
Stockholders, certain of the Company's optionholders and its warrant holders
(the "Stockholders Agreement") have been granted certain "piggy-back"
registration rights with respect to shares of the Common Stock in connection
with certain public offerings effected by the Company, including this Offering.
The Stockholders Agreement provides 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
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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 December 1996 private placement to GEPT, the Company
granted a "demand" registration right to GEPT. Such registration right covers
the 955,794 shares issued in the private placement as well as 300,000 shares of
Common Stock owned by GEPT prior to the private placement. Pursuant to this
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 shares of Common Stock. In addition,
GEPT was granted a "piggyback" registration right to include such shares on a
pro rata basis in any registration effected for the account of any person
exercising a contractual "demand" registration right granted by the Company in
the future. 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 rights may
not be exercised until after the end of the 90-day "lock-up" period described
below and may not be exercised after December 20, 1999.
The Company will agree with the Underwriters, subject to certain exceptions,
not to sell or otherwise dispose of any shares of Common Stock for a period of
90 days from the date of this Prospectus without the prior written consent of
Morgan Stanley & Co. Incorporated. Each of the the Company's directors and
executive officers and certain of the Original Stockholders (including the
Aurora Partnerships) will be 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.
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DIVIDENDS
Dividends on Common Stock paid to a Non-United States Holder generally will
be subject to withholding of United States Federal income tax at the rate of
30%, unless the withholding rate is reduced under an applicable income tax
treaty between the United States and the country of tax residence of the
Non-United States Holder. The 30% withholding tax will not apply if the dividend
is effectively connected with a trade or business conducted within the United
States by the Non-United States Holder (or, alternatively, where an income tax
treaty applies, if the dividend is effectively connected with a permanent
establishment maintained within the United States by the Non-United States
Holder), but, instead, the dividend will be subject to the United States Federal
income tax on net income that applies to United States persons (and, with
respect to corporate holders, also may be subject to the branch profits tax). A
Non-United States Holder may be required to satisfy certain certification
requirements in order to claim treaty benefits or to otherwise claim a reduction
of or exemption from withholding under the foregoing rules. A Non-United States
Holder that is eligible for a reduced rate of U.S. withholding tax pursuant to a
tax treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the United States Internal Revenue Service.
GAIN ON DISPOSITION
A Non-United States Holder will generally not be subject to United States
Federal income tax on gain recognized on a sale, redemption, or other
disposition of Common Stock unless (i) the gain is effectively connected with
the conduct of a trade or business within the United States by the Non-United
States Holder, or (ii) in the case of a Non-United States Holder who is a
nonresident alien individual and holds the Common Stock as a capital asset, such
holder is present in the United States for 183 or more days in the taxable year
of disposition 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% 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, "domestic individuals") 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.
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
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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 where the transaction
is effected outside the United States through 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. Informal statements by the Internal
Revenue Service indicate that the proposed Treasury Regulations, when finally
adopted, will be made effective for payments after December 31, 1998 although no
official announcement to that effect has been made. 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 "Underwriting Agreement"), the Underwriters
named below, for whom Morgan Stanley & Co. Incorporated, William Blair &
Company, L.L.C. and Donaldson, Lufkin & Jenrette Securities Corporation are
acting as Representatives, have severally agreed to purchase, and the Company
and the Selling Stockholders have agreed to sell to them, severally, 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........................................................................ 3,200,000
----------
----------
</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 their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
Each Underwriter has represented that it has not offered or sold, and has
agreed not to offer or sell, any shares of the Company's Common Stock being sold
in this Offering ("Shares"), directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
The Underwriters initially propose to offer part of the Shares directly to
the public at the public offering price set forth on the cover page hereof and
part to certain dealers at a price that represents a concession not in excess of
$ a Share under the public offering price. Any Underwriter may allow, and
such dealers may reallow, a concession not in excess of $ a Share to other
Underwriters or to certain dealers. After the initial offering of the Shares,
the offering price and other selling terms may from time to time be varied by
the Representatives.
The Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
aggregate of 480,000 additional shares of Common Stock at the public offering
price set forth on the cover page hereof, less underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any,
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made in connection with the offering 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 of Common Stock 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 set forth next to the names of all Underwriters in the
preceding table.
The Company has applied for quotation of the Shares on the NASDAQ National
Market System.
Each of the Company and the directors, executive officers and certain other
stockholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of this Prospectus, (i) 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, lend, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The restrictions described in this
paragraph do not apply to (x) the sale of Shares to the Underwriters, (y) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or a warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing or (z)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with this Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Stock in this Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act. The Company
has agreed to indemnify the Selling Stockholders as well.
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 this Offering will be passed upon for the
Underwriters by Skadden, Arps, Slate, Meagher & Flom LLP, Los Angeles,
California.
61
<PAGE>
EXPERTS
The consolidated financial statements of Aftermarket Technology Corp. as of
December 31, 1995 and 1996 and for the years ended December 31, 1994, 1995 and
1996, and the combined financial statements of the Predecessor Companies to
Aftermarket Technology Corp. for the seven months ended July 31, 1994 included
in this Prospectus and the 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.
AVAILABLE INFORMATION
The Company is subject to the periodic reporting and other information
requirements of the Securities Exchange Act of 1934, as amended, and in
accordance therewith files reports proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information 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. In addition, the
Company is required to file electronic versions of these documents with the
Commission through the Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Material filed by the Company can also be inspected at the offices
of The Nasdaq Stock Market at 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with 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 AARON'S TRANSMISSIONS trademark is a federally protected servicemark of
the Company. This Prospectus also contains the registered trademarks of other
companies.
62
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
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-7
</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, 1995 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
five months ended December 31, 1994 and for the years ended December 31, 1995
and 1996. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Aftermarket Technology Corp. at December 31, 1995 and 1996, and the consolidated
results of the Company's operations and cash flows for the five months ended
December 31, 1994, and for the years ended December 31, 1995 and 1996 and the
combined results of the operations of the Predecessor Companies to Aftermarket
Technology Corp. and their cash flows for the seven months ended July 31, 1994,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
February 14, 1997
F-2
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------ -----------
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 8,755,691 $46,498,249 $ 4,507,699
Accounts receivable, net.............................................. 32,965,874 38,779,538 44,393,615
Inventories........................................................... 43,064,712 60,586,056 69,097,688
Prepaid and other assets.............................................. 2,032,671 2,916,197 3,105,807
Deferred tax assets................................................... 2,267,000 2,272,000 2,339,371
----------- ----------- -----------
Total current assets.................................................... 89,085,948 151,052,040 123,444,180
Equipment and leasehold improvements:
Machinery and equipment............................................... 7,187,840 12,907,232 16,570,660
Autos and trucks...................................................... 1,503,760 2,012,450 2,129,739
Furniture and fixtures................................................ 858,070 1,552,660 2,428,293
Leasehold improvements................................................ 2,860,711 4,584,329 5,198,874
----------- ----------- -----------
12,410,381 21,056,671 26,327,566
Less accumulated depreciation and amortization........................ (1,625,917) (3,574,276) (4,970,300)
----------- ----------- -----------
10,784,464 17,482,395 21,357,266
Debt issuance costs, net................................................ 7,162,690 6,320,179 4,677,816
Cost in excess of net assets acquired, net.............................. 140,652,620 145,430,296 150,080,319
Other assets............................................................ 245,897 461,714 426,403
----------- ----------- -----------
Total assets............................................................ $247,931,619 $320,746,624 $299,985,984
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................................... $12,951,575 $25,225,797 $18,662,496
Accrued payroll and related costs..................................... 2,094,237 4,429,339 5,396,181
Accrued interest payable.............................................. 8,097,647 7,995,405 6,032,569
Other accrued expenses................................................ 3,170,162 3,371,562 4,220,521
Bank lines of credit.................................................. 811,067 4,334,686 4,309,667
Income taxes payable.................................................. 1,912,116 321,299 1,192,575
Due to former stockholders............................................ 36,734 2,002,824 69,609
----------- ----------- -----------
Total current liabilities............................................... 29,073,538 47,680,912 39,883,618
Amount drawn on revolving credit facility............................... -- -- 19,000,000
12% Series B and D Senior Subordinated Notes............................ 162,245,762 161,981,356 121,386,865
Deferred tax liabilities................................................ 3,478,000 5,252,000 6,034,470
Commitments and contingencies...........................................
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares -- 5,000,000
Issued and outstanding shares -- 200,000 at December 31, 1995, and 0
at each of December 31, 1996 and June 30, 1997.................... 22,946,300 -- --
Common stock, $.01 par value:
Authorized shares -- 30,000,000
Issued and outstanding shares -- 12,000,000, 16,980,794 and
17,034,578 at December 31, 1995, December 31, 1996 and June 30,
1997, respectively................................................ 120,000 169,808 170,346
Additional paid-in capital............................................ 19,880,000 81,379,860 81,469,142
Retained earnings..................................................... 10,163,019 24,239,467 31,968,993
Cumulative translation adjustment..................................... 25,000 43,221 72,550
----------- ----------- -----------
Total stockholders' equity.............................................. 53,134,319 105,832,356 113,681,031
----------- ----------- -----------
Total liabilities and stockholders' equity.............................. $247,931,619 $320,746,624 $299,985,984
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
CONSOLIDATED
COMBINED ----------------------------------------------------------------------
-------------- SIX MONTHS ENDED
SEVEN MONTHS FIVE MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30,
ENDED JULY 31, DECEMBER 31, ------------------------ ------------------------
1994 1994 1995 1996 1996 1997
-------------- ------------------ ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales....................... $ 90,055,996 $ 67,735,869 $190,659,143 $272,878,458 $131,019,316 $168,098,556
Cost of sales................... 52,245,178 40,111,819 115,499,023 166,810,941 80,168,576 103,160,222
-------------- ------------------ ----------- ----------- ----------- -----------
Gross profit.................... 37,810,818 27,624,050 75,160,120 106,067,517 50,850,740 64,938,334
Selling, general, and
administrative expense........ 20,475,113 14,205,750 38,971,230 55,509,529 25,125,707 35,736,452
Amortization of intangible
assets........................ 15,534 1,209,971 3,307,563 3,738,382 1,848,781 1,990,991
-------------- ------------------ ----------- ----------- ----------- -----------
Income from operations.......... 17,320,171 12,208,329 32,881,327 46,819,606 23,876,252 27,210,891
Interest and other income....... 288,059 341,342 1,099,588 1,181,473 397,528 1,008,180
Interest expense................ 130,036 6,373,921 18,015,346 20,287,419 10,177,918 9,022,672
-------------- ------------------ ----------- ----------- ----------- -----------
Income before income taxes...... 17,478,194 6,175,750 15,965,569 27,713,660 14,095,862 19,196,399
Provision (benefit) for income
taxes......................... (5,000) 2,565,000 6,467,000 11,415,000 5,805,838 7,717,558
-------------- ------------------ ----------- ----------- ----------- -----------
Income before extraordinary
item.......................... 17,483,194 3,610,750 9,498,569 16,298,660 8,290,024 11,478,841
Extraordinary item on the early
extinguishment of debt........ -- -- -- -- -- 3,749,315
-------------- ------------------ ----------- ----------- ----------- -----------
Net income...................... $ 17,483,194 3,610,750 9,498,569 16,298,660 8,290,024 7,729,526
--------------
--------------
Dividends accrued on preferred
stock......................... 853,288 2,093,012 2,222,212 1,083,275 --
------------------ ----------- ----------- ----------- -----------
Net income available to holders
of Common Stock............... $ 2,757,462 $ 7,405,557 $14,076,448 $ 7,206,749 $ 7,729,526
------------------ ----------- ----------- ----------- -----------
------------------ ----------- ----------- ----------- -----------
Pro forma (unaudited):
Income before income taxes per
above....................... $ 17,478,194
Provision for income taxes.... 7,004,000
--------------
Pro forma net income.......... $ 10,474,194
--------------
--------------
Per share of Common Stock:
Income before extraordinary
item...................... $ 0.65 $ 1.02 $ 0.53 $ 0.60
Extraordinary item, net of
tax....................... -- -- -- (.20)
----------- ----------- ----------- -----------
Net income per share........ $ 0.65 $ 1.02 $ 0.53 $ .40
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Shares used in calculation
of net income per share... $14,616,160 $15,918,384 $15,653,029 $19,286,019
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMBINED SEVEN MONTHS
ENDED JULY 31, 1994
----------------------
<S> <C>
Stockholders' equity at beginning of period............................................... $ 31,719,717
Distributions to stockholders........................................................... (5,503,000)
Net income.............................................................................. 17,483,194
------------
Stockholders' equity at end of period..................................................... $ 43,699,911
------------
------------
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED
-------------------------------------------------------------------------
CUMULATIVE
PREFERRED RETAINED TRANSLATION
STOCK COMMON 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.................. 20,853,288 20,000,000 2,757,462 -- 43,610,750
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.................. 22,946,300 20,000,000 10,163,019 25,000 53,134,319
Issuance of 4,980,794 shares of Common Stock
for cash at $13.50 per share, December 17,
1996 net of offering costs of $4,787,832.... -- 61,549,668 -- -- 61,549,668
Accrued dividends on preferred stock.......... 2,222,212 -- (2,222,212) -- --
Redeem preferred stock, December 20, 1996..... (25,168,512) -- -- -- (25,168,512)
Translation adjustment........................ -- -- -- 18,221 18,221
Net income for the year ended December 31,
1996........................................ -- -- 16,298,660 -- 16,298,660
-------------- ------------- ------------- ----------- --------------
Balance at December 31, 1996.................. -- 81,549,668 24,239,467 43,221 105,832,356
Issuance of 53,784 shares of Common Stock from
exercise of stock options (unaudited)....... -- 89,820 -- -- 89,820
Translation adjustment (unaudited)............ -- -- -- 29,329 29,329
Net income for the six months ended June 30,
1997 (unaudited)............................ -- -- 7,729,526 -- 7,729,526
-------------- ------------- ------------- ----------- --------------
Balance at June 30, 1997 (unaudited).......... $ -- $ 81,639,488 $ 31,968,993 $ 72,550 $ 113,681,031
-------------- ------------- ------------- ----------- --------------
-------------- ------------- ------------- ----------- --------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
COMBINED CONSOLIDATED
------------- ---------------------------------------------------------------
SEVEN MONTHS FIVE MONTHS YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE
ENDED JULY ENDED 30,
31, DECEMBER 31, ------------------------ -----------------------
1994 1994 1995 1996 1996 1997
------------- ------------ ----------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.................................. $17,483,194 $3,610,750 $ 9,498,569 $16,298,660 $8,290,024 $ 7,729,526
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary Item........................ -- -- -- -- -- 6,269,758
Depreciation and amortization............. 726,761 1,598,491 4,680,388 5,773,238 2,738,773 3,437,211
Amortization of debt issuance costs....... -- 268,650 710,281 842,511 415,222 445,685
Increase (decrease) in allowance for
losses on accounts receivable........... 249,176 192,208 496,591 (1,149,916) 127,080 36,882
Loss (gain) on sale of equipment.......... 24,276 4,804 (5,955) 21,912 27,206 5,397
Deferred income taxes..................... -- 50,000 1,274,000 1,769,000 484,717 715,099
Changes in operating assets and
liabilities:
Accounts receivable..................... (6,218,650) (1,799,626) (3,172,303) (2,719,859) (2,315,982) (4,467,643)
Inventories............................. (2,716,807) (576,145) (8,118,364) (12,574,161) (6,451,298) (2,596,992)
Prepaid and other assets................ (519,553) 299,101 (1,137,901) (987,949) (570,628) (151,617)
Accounts payable and accrued expenses... 2,102,961 4,249,395 6,555,947 10,520,582 4,650,798 (7,824,224)
------------- ------------ ----------- ----------- ---------- -----------
Net cash provided by operating activities... 11,131,358 7,897,628 10,781,253 17,794,018 7,395,912 3,599,082
INVESTING ACTIVITIES:
Purchases of equipment...................... (1,850,224) (1,335,551) (5,187,400) (7,843,401) (3,540,856) (4,962,417)
Acquisition of companies, net of cash
received.................................. -- (146,954,457) (40,264,452) (12,199,106) (4,106,970) (14,183,033)
Proceeds from sale of fixed assets.......... 78,657 55,603 7,685 86,271 29,686 35,919
------------- ------------ ----------- ----------- ---------- -----------
Net cash used in investing activities....... (1,771,567) (148,234,405) (45,444,167) (19,956,236) (7,618,140) (19,109,531)
FINANCING ACTIVITIES:
Issuance of Senior Notes.................... -- 120,000,000 42,400,000 -- -- --
Redemption of Senior Notes.................. -- -- -- -- -- (40,000,000)
Premium paid on redemption of Senior
Notes..................................... -- -- -- -- -- (4,800,000)
Borrowings on revolving credit facility..... -- 18,160,000 3,500,000 12,800,000 3,600,000 34,000,000
Payments on revolving credit facility....... -- (17,000,000) (4,742,458) (12,800,000) (3,600,000) (15,000,000)
Borrowings (payments) on bank lines of
credit.................................... (1,000,000) -- -- 3,523,619 1,377,784 (25,019)
Payment of debt issuance costs.............. -- (5,697,413) (2,179,167) -- -- (744,902)
Payment of offering costs................... -- (5,339,855) -- -- -- --
Payment of initial public offering costs.... -- -- -- (4,787,832) -- --
Net payments on other long-term debt........ (100,584) (358,637) -- -- -- --
Sale of Common Stock........................ -- 20,000,000 -- 66,337,500 -- --
Sale of preferred stock..................... -- 20,000,000 -- -- -- --
Preferred stock redemption.................. -- -- -- (25,168,511) -- --
Net payments to related parties............. (88,737) -- -- -- -- --
Distributions to stockholders............... (5,503,000) -- -- -- -- --
Proceeds from exercise of stock options..... -- -- -- -- -- 89,820
Payments on amounts due to former
stockholders.............................. -- -- (4,987,088) -- -- --
------------- ------------ ----------- ----------- ---------- -----------
Net cash provided by (used in) financing
activities................................ (6,692,321) 149,764,095 33,991,287 39,904,776 1,377,784 (26,480,101)
Increase (decrease) in cash and cash
equivalents............................... 2,667,470 9,427,318 (671,627) 37,742,558 1,155,556 (41,990,550)
Cash and cash equivalents at beginning of
period.................................... 581,680 -- 9,427,318 8,755,691 8,755,691 46,498,249
------------- ------------ ----------- ----------- ---------- -----------
Cash and cash equivalents at end of
period.................................... $ 3,249,150 $9,427,318 $ 8,755,691 $46,498,249 $9,911,247 $ 4,507,699
------------- ------------ ----------- ----------- ---------- -----------
------------- ------------ ----------- ----------- ---------- -----------
Cash paid during the period for:
Interest.................................. $ 128,259 $ 185,817 $15,376,365 $19,411,691 $9,675,975 $10,555,941
------------- ------------ ----------- ----------- ---------- -----------
------------- ------------ ----------- ----------- ---------- -----------
Income taxes.............................. $ 209,671 $2,571,000 $ 3,221,356 $10,970,402 $6,305,846 $ 3,595,757
------------- ------------ ----------- ----------- ---------- -----------
------------- ------------ ----------- ----------- ---------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Aftermarket Technology Corp. (ATC
or the Company) 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 (King) 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; (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; (vii) Tranzparts, Inc. (Tranzparts), a Janesville,
Wisconsin-based remanufacturer and warehouse distributor of new and
remanufactured parts for independent transmission rebuilders; (viii) ATC
Components, Inc. (ATAC), a Memphis, Tennessee-based warehouse distributor of
transmission parts, engines, engine kits, and parts to independent transmission
and engine rebuilders; and (ix) Diverco, Inc. (Diverco) a Harvey, Illinois-based
distributor of standard drive train parts, engine parts, gaskets, and other soft
parts for transmission and engine repair and complete transmissions for light
trucks and automobiles.
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. 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 June 30, 1997 and for the six months June 30,
1996 and 1997 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 six months ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the entire period.
PRINCIPLES OF CONSOLIDATION
The Company's acquisitions have been accounted for as purchases, and the
consolidated financial statements for the years ended December 31, 1995 and 1996
and the five months ended December 31,
F-7
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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. Depreciation
expense was $711,227, $388,520, $1,372,825, $2,034,856 and $1,449,210 for the
seven months ended July 31, 1994, the five months ended December 31, 1994, and
the years ended December 31, 1995 and 1996, and the six months ended June 30,
1997 respectively.
FOREIGN CURRENCY TRANSLATION
The financial statements of Canadian subsidiaries have been translated into
U.S. dollars in accordance with Statement of Financial Accounting Standards
(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 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.
F-8
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $4,466,669 and
$8,261,622 at December 31, 1995 and 1996, 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.
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 $2,469,000 and $1,326,000 December 31, 1995 and 1996, respectively.
WARRANTY POLICY
For certain products on which the Company provides a warranty, the warranty
period is generally up to twelve months or 12,000 miles.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." As permitted under SFAS No. 123, the Company has
continued its current accounting for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25. The effect of
applying SFAS No. 123 to the Company's stock-based awards on net income and
earnings per share is immaterial.
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to the 1996
presentation.
F-9
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA DATA (UNAUDITED)
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 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 issued
in the Company's initial public offering whose net proceeds were 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
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 initial public offering price. Historical earnings per share is not
considered meaningful due to the significant changes in the Company's capital
structure that occurred upon the closing of the Company's initial public
offering; accordingly, such per share information is not presented.
2. ACQUISITIONS
During the year ended December 31, 1995, the Company acquired three
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 acquisition closed on September 12, 1995 (collectively, the 1995
Acquisitions). The Company issued $40 million in principal amount of 12% Senior
Notes due in 2004 concurrently with the acquisition of CRS, the proceeds of
which financed the 1995 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. for $10.5 million (collectively 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, 1995 gives effect to the 1995
acquisitions as if such acquisitions had occurred on January 1, 1995. Pro forma
information to reflect the 1996 acquisitions has not been presented because the
effect of such acquisitions was not material to prior periods. 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
F-10
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
2. ACQUISITIONS (CONTINUED)
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>
YEAR ENDED
DECEMBER 31, 1995
-----------------
(IN THOUSANDS)
<S> <C>
Net sales.................................................................. $ 210,958
Net income................................................................. 10,043
</TABLE>
3. RELATED-PARTY TRANSACTIONS
The Company had liabilities to former stockholders totaling $36,734 at
December 31, 1995 and $2,002,824 at December 31, 1996. The 1996 amounts are
composed primarily of an additional purchase price payable to Diverco's former
stockholder. The remaining amount was paid in the first quarter of 1997.
The Company paid Aurora Capital Partners (ACP), a significant stockholder,
approximately $1.1 million in fees for investment banking services provided in
connection with the 1995 and 1996 acquisitions. In addition, ACP was paid
management fees of $500,000 and $513,015 in 1995 and 1996, respectively. ACP is
also entitled to various additional fees depending on the Company's
profitability or future acquisitions. No such additional fees were paid in 1995
and 1996.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------- -------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Raw materials, including core inventories....... $ 19,015,530 $ 30,412,730 $ 32,808,518
Work-in-process................................. 1,394,479 1,166,275 1,132,780
Finished goods.................................. 22,654,703 29,007,051 35,156,390
------------- ------------- -------------
$ 43,064,712 $ 60,586,056 $ 69,097,688
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Finished goods include purchased parts which are available for sale.
5. BANK LINES OF CREDIT
CURRENT LIABILITIES
In July 1996, the Company entered into a Revolving Credit Agreement with
Bank of Montreal (BOM Revolving Credit Agreement) providing for a revolving
credit facility to accommodate the working capital needs of King and Mascot (the
Canadian subsidiaries). Advances under the BOM Revolving Credit Agreement may be
made, due upon demand, up to an aggregate of 75% of the eligible accounts
receivable and 50% of the eligible inventory of the Canadian subsidiaries, in
each case as defined in the BOM Revolving Credit Agreement, up to a maximum of
C$3.0 million. Amounts advanced are secured by substantially all assets of the
Canadian subsidiaries and are guaranteed by the Company. The agreement will
expire initially in June 1997 and may be renewed subject to an annual review.
Interest is payable
F-11
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
5. BANK LINES OF CREDIT (CONTINUED)
monthly at the Bank of Montreal prime lending rate plus 0.25%. At December 31,
1996, $1.4 million was outstanding under this line of credit and the interest
rate in effect was 5.0%. At December 31, 1995, $0.8 million was outstanding
under a former credit line used by the Canadian subsidiaries.
In January 1996, the Company entered into an agreement with Commerce Bank,
N.A. providing financing for equipment purchases by Aaron's up to a maximum of
$2.9 million, secured by the underlying equipment purchased. Interest is payable
monthly at a fixed rate equal to 70% of the bank's prime lending rate at the
date of the advance plus 1%. As of December 31, 1996, $2.9 million was
outstanding under this loan agreement. The agreement contains several covenants
including levels of net worth, leverage, interest coverage and earnings before
interest, taxes, depreciation, and amortization (EBITDA).
REVOLVING CREDIT FACILITY
On July 19, 1994, the Company entered into an agreement with The Chase
Manhattan Bank, as agent, providing for a $30 million revolving credit facility
to finance the Initial 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, 1996 was approximately
$27 million. All amounts advanced are secured by all accounts receivable and
inventories and become due on July 31, 1999. The Company may prepay outstanding
advances in whole or in part without incurring any premium or penalty.
At the Company's election, amounts advanced under the revolving credit
facility will bear interest at either (i) the Alternate Base Rate plus 1.25% or
(ii) the Eurodollar Rate plus 2.25%. The Alternate Base Rate is equal to the
highest of (a) the Bank's prime rate, (b) the secondary market rate for
three-month certificates of deposit plus 1.0%, or (c) the federal funds rate
plus 0.5%. Interest payments on advances which bear interest based upon the
Alternate Base Rate are due quarterly in arrears, and interest payments on
advances which bear interest based upon the Eurodollar Rate are due on the last
day of each relevant interest period (or, if such period exceeds three months,
quarterly after the first day of such period).
The Company paid the Bank a one-time facility and commitment fee upon
establishing the revolving credit facility and is required to pay the Bank
quarterly in arrears a commitment fee of 0.5% per annum of the average daily
unused portion of the revolving credit facility.
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, 1996, 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 in principal amount of 12% Series A Senior Subordinated Notes due
in 2004. Proceeds from the issuance were used to partially finance the Initial
Acquisitions. The privately placed debt was exchanged for public debt
(designated Series B) on February 22, 1995.
F-12
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
6. 12% SERIES B AND SERIES D SENIOR SUBORDINATED NOTES (CONTINUED)
On June 1, 1995, the Company completed another private placement issuance of
$40 million in 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 12% Series B and Series D Senior Subordinated Notes (Senior
Notes) is payable semiannually on February 1 and August 1 of each year,
commencing on February 1, 1995 for the Series B Senior Notes and August 1, 1995
for the Series D Senior Notes. The Senior Notes will mature on August 1, 2004.
On or after August 1, 1999, the Senior 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>
YEAR REDEMPTION 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 Senior
Notes and $10 million of the Series D Senior Notes aggregate principal amounts
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. On February 16, 1997 the Company exercised its right and redeemed $30
million in principal amount of the Series B Senior Notes and $10 million in
principal amount of the Series D Senior Notes resulting in a loss on early
extinguishment of debt of $4.8 million.
In the event of a change in control, the Company would be required to offer
to repurchase the Senior Notes at a price equal to 101% of the principal amount
plus accrued and unpaid interest.
The Senior Notes are general obligations of the Company, subordinated in
right of payment to all existing and future senior debt (including the Company's
revolving credit facility). The Senior 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 revolving credit facility (Note 5),
subject to certain limitations.
The indentures under which the Senior Notes were issued contain 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, 1996,
the Company was in compliance with such covenants.
F-13
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
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,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Book basis of intangible assets in excess of tax amounts........ $ 3,208,000 $ 4,630,000
Other........................................................... 270,000 622,000
------------ ------------
Total deferred tax liabilities.................................... 3,478,000 5,252,000
Deferred tax assets:
Inventory obsolescence reserve.................................. 898,000 1,182,000
Bad debt reserves............................................... 545,000 778,000
Product warranty accruals....................................... 438,000 312,000
Other........................................................... 386,000 --
------------ ------------
Total deferred tax assets......................................... 2,267,000 2,272,000
------------ ------------
Net deferred tax liability........................................ $ 1,211,000 $ 2,980,000
------------ ------------
------------ ------------
</TABLE>
Significant components of the provision for income taxes attributable to
operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
FIVE MONTHS ENDED DECEMBER 31,
DECEMBER 31, ---------------------------
1994 1995 1996
------------------ ------------ -------------
<S> <C> <C> <C>
Current:
Federal.................................... $ 2,136,000 $ 4,429,000 $ 8,499,000
State...................................... 379,000 764,000 1,147,000
------------------ ------------ -------------
Total current................................ 2,515,000 5,193,000 9,646,000
Deferred:
Federal.................................... 53,000 1,137,000 1,621,000
State...................................... (3,000) 137,000 148,000
------------------ ------------ -------------
Total deferred............................... 50,000 1,274,000 1,769,000
------------------ ------------ -------------
$ 2,565,000 $ 6,467,000 $ 11,415,000
------------------ ------------ -------------
------------------ ------------ -------------
</TABLE>
F-14
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
7. INCOME TAXES (CONTINUED)
The components of the provision for deferred income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
FIVE MONTHS ENDED --------------------------
DECEMBER 31, 1994 1995 1996
------------------ ------------ ------------
<S> <C> <C> <C>
Amortization of intangible assets....................... $ 754,000 $ 1,759,000 $ 1,422,000
Inventory obsolescence reserve.......................... (483,000) (333,000) (284,000)
Bad debt reserves....................................... (85,000) (223,000) (233,000)
Product warranty accruals............................... (56,000) (20,000) 126,000
Depreciation............................................ 2,000 339,000 427,000
Other................................................... (82,000) (248,000) 311,000
---------- ------------ ------------
Provision for deferred income taxes..................... $ 50,000 $ 1,274,000 $ 1,769,000
---------- ------------ ------------
---------- ------------ ------------
</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>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
FIVE MONTHS ENDED
DECEMBER 31, 1995 1995 1996
------------------------- ------------------------- --------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------ ----------- ------------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates..... $ 2,159,000 35.0% $ 5,588,000 35.0% $ 9,700,000 35.0%
State income taxes, net of
federal tax benefit........... 244,000 3.9 529,000 3.3 842,000 3.0
Other........................... 162,000 2.7 350,000 2.2 873,000 3.2
------------ --- ------------ --- ------------- ---
$ 2,565,000 41.6% $ 6,467,000 40.5% $ 11,415,000 41.2%
------------ --- ------------ --- ------------- ---
------------ --- ------------ --- ------------- ---
</TABLE>
8. COMMON AND PREFERRED STOCK
On December 13, 1996, the Company amended and restated its charter to
increase its authorized Common Stock to 30,000,000 shares and consummated a
six-for-one stock split, and to increase its authorized Preferred Stock to
5,000,000 shares. The accompanying financial statements have been retroactively
adjusted to reflect the stock split.
The Company sold 4,025,000 shares of Common Stock through a public offering
(Public Offering). The price per share for such Common Stock was $13.50 (Public
Offering Price). At approximately the same time, the Company sold to General
Electric Pension Trust (GEPT) $12.0 million of Common Stock (955,794 shares) in
a private placement. The price per share for such privately placed Common Stock
was the price per share paid by the Underwriters in the Public Offering
($12.555), that is the public offering price per share less Underwriters'
discounts and commissions. Although GEPT received Common Stock which has not
been registered under the Securities Act of 1933, it also received a "demand"
registration right and a "piggyback" registration right with respect to such
stock and the 300,000 shares of Common Stock it owned prior to the additional
purchase in the private placement, which rights are not exercisable until after
June 14, 1997.
F-15
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
8. COMMON AND PREFERRED STOCK (CONTINUED)
STOCK OPTION PLAN
The Company adopted its 1994 Stock Incentive Plan (Plan) in July 1994 in
order to provide incentives to employees and directors of the Company. The
Company had reserved 1,800,000 shares of Common Stock for issuance under the
plan. 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. 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 from three
to five years. The options expire 10 years from the date of grant.
The following table summarizes the stock option activity:
<TABLE>
<CAPTION>
SHARES SUBJECT TO PRICE PER
OPTION 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................................... 745,440 4.67
----------
Balance, December 31, 1996.......................... 2,272,218 1.67-4.67
Granted through June 30, 1997..................... 82,176 1.67-17.25
Exercised through June 30, 1997................... (53,784) 1.67
Forfeited through June 30, 1997................... (12,000) 4.67
----------
Balance, June 30, 1997.............................. 2,288,610 $ 1.67-17.25
----------
----------
</TABLE>
At June 30, 1997 1,240,556 options are exercisable and 57,606 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.
Following the completion of the Public Offering, the Company redeemed its
outstanding Preferred Stock.
9. EMPLOYEE RETIREMENT PLAN
The Company sponsors several defined contribution plans to provide
substantially all U.S. salaried and hourly employees of the Company an
opportunity to accumulate personal funds for their retirement, subject to
minimum duration of employment requirements. Contributions are made on a
before-tax basis to substantially all of these plans.
As determined by the provisions of each plan, the Company matches a portion
of the employees' basic voluntary contributions. Company matching contributions
to the plans were approximately $65,000, $108,000, and $206,000 for the plan
years ending in 1994, 1995, and 1996, respectively. The net assets of these
plans approximated $2.6 million as of the 1996 plan year ends.
F-16
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 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, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------
<S> <C>
1997........................................................................... $ 5,062,498
1998........................................................................... 4,230,712
1999........................................................................... 3,383,449
2000........................................................................... 2,690,464
2001........................................................................... 2,369,592
Thereafter..................................................................... 4,042,372
-------------
$ 21,779,087
-------------
-------------
</TABLE>
Rent expense under operating leases approximated $1,159,000, $902,000,
$3,114,999 and $4,582,000 for the seven months ended July 31, 1994, the five
months ended December 31, 1994, and the years ended December 31, 1995 and 1996,
respectively.
Rent expense includes amounts paid to related parties of $254,000, $611,000,
and $940,000 for the five months ended December 31, 1994, the year ended
December 31, 1995, and the year ended December 31, 1996, respectively.
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 and impose liability for the costs of cleaning
up, and certain damages resulting from, past spills, disposals or other releases
of hazardous substances.
In connection with the CRS, Aaron's, HTP, King-O-Matic, Mamco, Mascot, RPM,
Tranzparts, Diverco, REPCO, ATS and Trans Mart acquisitions, the Company
conducted certain investigations of these companies' facilities and their
compliance with applicable environmental laws. The investigations, which
included "Phase I" assessments by independent consultants of all manufacturing
and certain distribution facilities, found that certain facilities have had or
may have had releases of hazardous materials that may require remediation and
also may be subject to potential liabilities for contamination from off-site
disposal of substances or wastes. These assessments also found that certain
reporting and other regulatory requirements, including certain waste management
procedures, were not or may not have been satisfied. Although there can be no
assurance, the Company believes that, based in part on the investigations
conducted, in part on certain remediation completed prior to the acquisitions,
and in part on the indemnification provisions of the agreements entered into in
connection with the Company's acquisitions, the Company will not incur any
material liabilities relating to these matters.
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 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 Federal Comprehensive
F-17
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA" or "Superfund") provides for cleanup of sites from which there has
been a release or threatened release of hazardous substances, and authorizes
recovery of related response costs and certain other damages from potentially
responsible parties ("PRPs"). PRPs are broadly defined under CERCLA, and
generally include present owners and operators of a site and certain past owners
and operators. As a general rule, courts have interpreted CERCLA to impose
strict, joint and several liability upon all persons liable for cleanup costs.
As a practical matter, however, at sites where there are multiple PRPs, the
costs of cleanup typically are allocated among the PRPs according to a
volumetric or other standard. 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 the part of the Superfund site within which RPM's
former manufacturing facilities and current distribution facility, as well as
those of many other potentially responsible parties, are located. The actual
cost of this remedial action could vary substantially from this estimate, and
additional costs associated with the Superfund site are likely to be assessed.
The Company has significantly reduced its presence at the site and has moved all
manufacturing operations off-site. Since July 1995, the Company's only real
property interest in this site has been the lease of a 6,000 square foot storage
and distribution facility. The RPM acquisition agreement and the leases pursuant
to which the Company leased RPM's facilities after the Company acquired the
assets of RPM (the "RPM Acquisition") expressly provide that the Company did not
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. Although there can be no
assurance, the Company believes that it will not incur any material liability as
a result of these environmental conditions.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of all financial instruments approximate their fair
values at December 31, 1995 and 1996, except for the Series B and Series D
Senior Notes.
The fair values of the Company's Series B and Series D Senior Notes 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>
1995 1996
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Series B Senior Notes............................................ $ 120,000 $ 126,600 $ 120,000 $ 126,900
Series D Senior Notes............................................ 40,000 42,200 40,000 42,300
</TABLE>
F-18
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JUNE 30, 1997 AND JUNE 30, 1996 IS UNAUDITED)
12. SIGNIFICANT CUSTOMER
For the seven months ended July 31, 1994, the five months ended December 31,
1994, the year ended December 31, 1995, and the year ended December 31, 1996,
sales to one customer accounted for 43%, 45%, 35%, and 37% of net sales,
respectively. Additionally, at December 31, 1995 and 1996, this customer
accounted for approximately 46% and 51% of accounts receivable, respectively. No
other customer accounted for more than 10% of net sales in any period.
13. SUBSEQUENT EVENTS
On February 14, 1997 the Company terminated its $30 million revolving credit
facility and replaced it with a new $100 million revolving credit facility with
The Chase Manhattan Bank, as agent, (New Revolving Credit Facility) to finance
the Company's working capital requirements, future acquisitions, and other
general corporate needs. Amounts advanced under the New Revolving Credit
Facility are secured by substantially all assets of the Company and will become
due on December 31, 2001, although the Company may prepay outstanding advances
in whole or in part without incurring any premium or penalty. The New 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.
14. QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1995
- ----------------------------------------------------------------------
Net sales............................................................. $ 40,638 $ 45,094 $ 46,740 $ 58,187
Gross profit.......................................................... 15,668 18,066 16,686 24,740
Net income............................................................ 1,953 2,924 1,344 3,278
Pro forma earnings per share.......................................... $ 0.14 $ 0.20 $ 0.09 $ 0.22
1996
- ----------------------------------------------------------------------
Net sales............................................................. $ 64,146 $ 66,873 $ 68,287 $ 73,572
Gross profit.......................................................... 25,788 25,063 25,998 29,219
Net income............................................................ 4,399 3,891 4,051 3,958
Pro forma earnings per share.......................................... $ 0.28 $ 0.25 $ 0.26 $ 0.23
</TABLE>
F-19
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this Offering are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
- ---------------------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee.............................................................. $ 27,043
NASD Fee.......................................................................... 9,424
Nasdaq National Market Fee........................................................ 17,500
Printing Expenses................................................................. 125,000*
Legal Fees and Expenses........................................................... 75,000*
Transfer Agent and Registrar Fees................................................. 15,000*
Accounting Fees and Expenses...................................................... 50,000*
Blue Sky Fees and Expenses........................................................ 5,000*
Miscellaneous Expenses............................................................ 26,033*
----------
TOTAL......................................................................... $ 350,000
----------
----------
</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.
The Company has entered into separate but identical indemnification
agreements (the "Indemnification Agreements") with each director and executive
officer of the Company. The Indemnification
II-1
<PAGE>
Agreements provide for, among other things, the following: (i) indemnification
to the fullest extent permitted by law against any and all expenses (including
attorneys' fees and all other costs and obligations of any nature whatever),
judgments, fines, penalties and amounts paid in settlement (including all
interest, assessments and other charges paid or payable in connection therewith)
of any claim, unless the Company determines that such indemnification is not
permitted under applicable law; (ii) the prompt advancement of expenses to the
director or officer, including attorneys' fees and all other costs, fees,
expenses and obligations paid or incurred in connection with investigating or
defending any threatened, pending or completed action, suit or proceeding
related to the fact that such director or officer is or was a director or
officer of the Company or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
and for repayment to the Company if it is found that such director or officer is
not entitled to such indemnification under applicable law; (iii) a mechanism
through which the director or officer may seek court relief in the event the
Company determines that the director or officer is not permitted to be
indemnified under applicable law (and therefore is not entitled to
indemnification under the Indemnification Agreement); and (iv) indemnification
against expenses (including attorneys' fees) incurred in seeking to collect from
the Company an indemnity claim or advancement of expenses to the extent
successful.
The Company has purchased a policy of directors' and officers' liability
insurance.
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 IPO, (i) Holdings
was merged into the Company, and each outstanding share of Holdings Common Stock
was converted into one share of Common Stock of the Company and (ii) the Company
issued 955,794 shares of Common Stock to GEPT which GEPT previously committed to
purchase in a Section 4(2) private placement. 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.
II-2
<PAGE>
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. (previously filed as
Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by this reference)
3.2 Certificate of Designations, Preferences, and Relative, Participating, Option and Other Special Rights
of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Redeemable Exchangeable
Cumulative Preferred Stock of Aftermarket Technology Corp. (previously filed as Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by
this reference)
*3.3 Amended and Restated Bylaws of Aftermarket Technology Corp.
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 (previously filed as Exhibit 4.3 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed on October 25, 1996, Commission File No. 333-6697, and
incorporated herein by this reference)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
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 (previously filed as Exhibit 4.4 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed on October 25, 1996, Commission File No. 333-5597, and
incorporated herein by this reference)
<C> <S>
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
(previously filed as Exhibit 4.5 to Amendment No. 1 to the Company's Registration Statement on Form S-1
filed on October 25, 1996, Commission File No. 333-5597, and incorporated herein by this reference)
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 Amendment No. 1 to the Stockholders Agreement, dated as of June 24, 1996 (previously filed as Exhibit
10.38 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed on November 6, 1996,
Commission File No. 333-5597, and incorporated herein by this reference)
10.3 Amendment No. 2 to the Stockholders Agreement, dated as of October 24, 1996 (previously filed as Exhibit
10.39 to Amendment No. 2 to the Company's Registration Statement on Form S-1 filed on November 6, 1996,
Commission File No. 333-5597, and incorporated herein by this reference)
10.4 Amendment No. 3 to Stockholders Agreement, dated as of December 4, 1996 (previously filed as Exhibit
10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated
herein by this reference)
10.5 Amendment No. 4 to Stockholders Agreement, dated as of December 16, 1996 (previously filed as Exhibit
10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated
herein by this reference)
10.6 Credit Agreement, dated as of February 14, 1997, among Aftermarket Technology Corp., the Lenders from
time to time parties thereto and The Chase Manhattan Bank (the Credit Agreement) (previously filed as
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by this reference)
10.7 Guarantee and Collateral Agreement, dated as of February 14, 1997, by Aftermarket Technology Corp. and
each of the signatories thereto in favor of The Chase Manhattan Bank as Agent for the banks and other
financial institutions from time to time parties to the Credit Agreement (previously filed as Exhibit
10.7 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated
herein by this reference)
10.8 Amended and Restated Tax Sharing Agreement, dated as of December 20, 1996, among Aftermarket Technology
Holdings Corp., Aaron's Automotive Products, Inc., ATC Components, Inc., CRS Holdings Corp., Diverco
Acquisition Corp., H.T.P., Inc., Mamco Converters, Inc., R.P.M. Merit, Inc. and Tranzparts Acquisition
Corp. (previously filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by this reference)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.9 Amended and Restated Management Services Agreement, dated as of November 18, 1996, by and among
Aftermarket Technology Corp., the subsidiaries of Aftermarket Technology Corp., and Aurora Capital
Partners L.P. (previously filed as Exhibit 10.4 to Amendment No. 4 to the Company's Registration
Statement on Form S-1 filed on October 25, 1996, Commission File No. 333-5597, and incorporated herein
by this reference)
<C> <S>
10.10 Aftermarket Technology Corp. 1996 Stock Incentive Plan (previously filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996 and incorporated herein by
this reference)
10.11 Form of Incentive Stock Option Agreement (previously filed as Exhibit 10.36 to Amendment No. 1 to the
Company's Registration Statement on Form S-1 filed on October 25, 1996, Commission File No. 333-5597,
and incorporated herein by this reference)
10.12 Form of Non-Qualified Stock Option Agreement (previously filed as Exhibit 10.37 to Amendment No. 1 to
the Company's Registration Statement on Form S-1 filed on October 25, 1996, Commission File No.
333-5597, and incorporated herein by this reference)
*10.13 Employment Agreement dated as of August 1, 1997 between William A. Smith and Aftermarket Technology
Corp.
10.14 Employment Agreement, dated as of October 7, 1996, between Stephen J. Perkins and Aftermarket Technology
Corp. (previously filed as Exhibit 10.35 to Amendment No. 1 to the Company's Registration Statement on
Form S-1 filed on October 25, 1996, Commission File No. 333-5597, and incorporated herein by this
reference)
10.15 Employment Agreement, dated as of October 1, 1996, between John C. Kent and Aftermarket Technology Corp.
(previously filed as Exhibit 10.7 to Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed on November 6, 1996, Commission File No. 333-5597, and incorporated herein by this reference)
10.16 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)
10.17 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)
10.18 Amended and Restated Warrant Certificate, dated as of August 2, 1994, for 280,704 warrants issued to
William E. Myers, Jr. (previously filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and incorporated herein by this reference)
10.19 Amended and Restated Warrant Certificate, dated as of August 2, 1994, for 70,176 warrants issued to
Brian E. Sanderson (previously filed as Exhibit 10.19 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996 and incorporated herein by this reference)
10.20 Amended and Restated Warrant Certificate, dated June 24, 1996, for 70,176 warrants issued to Michael J.
Hartnett (previously filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated herein by this reference)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.21 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)
<C> <S>
10.22 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)
10.23 Stock Purchase Agreement, dated July 21, 1994, by and among John B. Maynard, Mamco Converters, Inc. and
Mamco Acquisition Corp. (previously filed as Exhibit 10.16 to the Company's Registration Statement on
Form S-4 filed on November 30, 1994, Commission File No. 33-86838, and incorporated herein by this
reference)
10.24 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)
10.25 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)
10.26 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)
10.27 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)
10.28 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. (previously filed as Exhibit 10.23 to Amendment No. 1 to the Company's
Registration Statement on Form S-1 filed on October 25, 1996, Commission File No. 333-5597, and
incorporated herein by this reference)
10.29 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. (previously filed as Exhibit
10.34 to Amendment No. 1 to the Company's Registration Statement on Form S-1 filed on October 25, 1996,
Commission File No. 333-5597, and incorporated herein by this reference)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.30 Stock Purchase Agreement, dated as of January 31, 1997, by and among S. Jay Wilemon, Ricki J. Wilemon,
Bradley J. Wilemon, Corby L. Wilemon, Replacement & Exchange Parts Co., Inc., Aftermarket Technology
Corp. and Repco Acquisition Corp. (previously filed as Exhibit 10.30 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated herein by this reference)
<C> <S>
10.31 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
(previously filed as Exhibit 10.24 to Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed on November 6, 1996, Commission File No. 333-5597, and incorporated herein by this reference)
10.32 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)
10.33 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
(previously filed as Exhibit 10.26 to Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed on November 6, 1996, Commission File No. 333-5597, and incorporated herein by this reference)
10.34 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
(previously filed as Exhibit 10.40 to Amendment No. 2 to the Company's Registration Statement on Form
S-1 filed on November 6, 1996, Commission File No. 333-5597, and incorporated herein by this reference)
10.35 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 (previously filed as Exhibit 10.41 to Amendment No. 2 to the
Company's Registration Statement on Form S-1 filed on November 6, 1996, Commission File No. 333-5597,
and incorporated herein by this reference)
10.36 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)
10.37 Exchange and Registration Rights Agreement, dated June 1, 1995, by and among Aftermarket Technology
Corp., the subsidiaries of Aftermarket Technology Corp., Chemical Securities Inc., and Donaldson,
Lufkin & Jenrette Securities Corporation (previously filed as Exhibit 10.16 to the Company's
Registration Statement on Form S-4 filed on June 21, 1995, Commission File No. 33-93776, and
incorporated herein by this reference)
10.38 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 (previously filed as Exhibit 10.33 to Amendment No. 1
to the Company's Registration Statement on Form S-1 filed on October 25, 1996, Commission File No.
333-5597, and incorporated herein by this reference)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
10.39 Stock Subscription Agreement, dated as of November 18, 1996, between Aftermarket Technology Corp. and
the Trustees of the General Electric Pension Trust (previously filed as Exhibit 10.44 to Amendment No.
4 to the Company's Registration Statement on Form S-1 filed on October 25, 1996, Commission File No.
333-5597, and incorporated herein by this reference)
<C> <S>
*10.40 Amendment and Consent dated as of July 25, 1997 to the Credit Agreement dated as of February 14, 1997
among Aftermarket Technology Corp., the several banks and other financial institutions from time to
time parties thereto and The Chase Manhattan Bank, as agent
*10.41 Asset Purchase Agreement dated as of July 31, 1997 among Automatic Transmission Shops Inc., C.W. Smith,
ATS Remanufacturing, Inc. and Aftermarket Technology Corp.
*10.42 Lease Agreement dated as July 31, 1997 between C.W. Smith and ATS Remanufacturing, Inc.
*10.43 Stock Purchase Agreement dated as of July 21, 1997 among Gary A. Gamble, James E. Henderson, Trans Mart,
Inc., TM-AL Acquisition Corp. and Aftermarket Technology Corp.
*10.44 Amendment No. 1 to Stock Purchase Agreement dated as of 15, 1997 among Gary A. Gamble, James E.
Henderson, Trans Mart, Inc., TM-AL Acquisition Corp. and Aftermarket Technology Corp.
*10.45 Amendment No. 2 to Stock Purchase Agreement dated as of 15, 1997 among Gary A. Gamble, James E.
Henderson, Trans Mart, Inc., TM-AL Acquisition Corp. and Aftermarket Technology Corp.
10.46 Form of Indemnification Agreement between Aftermarket Technology Corp. and directors and certain
officers
10.47 Amendment Agreements dated August 25, 1997 to Firstbank Lending Agreement between Bank of Montreal,
Mascot Truck Parts, Inc. and King-O-Matic Industries Limited.
11.1 Computation of Pro Forma Net Income Per Share (previously filed as Exhibit 11 to each of the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 and the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by this reference)
*21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, independent auditors
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
*24.1 Power of Attorney
</TABLE>
- ---------
* Previously filed.
(b) Financial Statement Schedules. The following financial statement
schedule is filed with Part II of this Registration Statement:
II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
applicable instructions or are inapplicable and therefore have been omitted.
II-8
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising out of the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense in any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-9
<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 Westmont, State of Illinois, on
October 1, 1997.
<TABLE>
<S> <C> <C>
AFTERMARKET TECHNOLOGY CORP.
By: /s/ JOSEPH SALAMUNOVICH
-----------------------------------------
Joseph Salamunovich
VICE PRESIDENT
</TABLE>
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>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------------------ ----------------------
<C> <S> <C>
* Chairman of the Board, President, Chief
------------------------------- Executive Officer (Principal Executive October 1, 1997
Stephen J. Perkins Officer)
/s/ JOHN C. KENT
------------------------------- Chief Financial Officer (Principal Financial October 1, 1997
John C. Kent Officer)
/s/ DANIEL C. BUIE
------------------------------- Corporate Controller (Principal Accounting October 1, 1997
Daniel C. Buie Officer)
*
------------------------------- Director October 1, 1997
Robert Anderson
*
------------------------------- Director October 1, 1997
Richard R. Crowell
*
------------------------------- Director October 1, 1997
Dale F. Frey
*
------------------------------- Director October 1, 1997
Mark C. Hardy
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------------------ ----------------------
<C> <S> <C>
*
------------------------------- Director October 1, 1997
Michael J. Hartnett
*
------------------------------- Director October 1, 1997
Gerald L. Parsky
*
------------------------------- Director October 1, 1997
Richard K. Roeder
*
------------------------------- Chairman Emeritus of the Board of Directors October 1, 1997
William A. Smith
*
------------------------------- Director October 1, 1997
J. Richard Stonesifer
*/s/ JOSEPH SALAMUNOVICH
-------------------------------
Joseph Salamunovich
Attorney-in-Fact
</TABLE>
II-11
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Aftermarket
Technology Corp. (the Company) as of December 31, 1995 and 1996, and for the
five months ended December 31, 1994 and for the years ended December 31, 1995
and 1996 and the combined financial statements of the Predecessor Companies to
Aftermarket Technology Corp. (the Predeccessor Companies) for the seven months
ended July 31, 1994, and have issued our report thereon dated February 14, 1997
(included elsewhere in this Registration Statement). Our audits also included
the financial statement schedules listed in Item 16(b) of this Registration
Statement. These schedules are the responsibility of the Company's and the
Predecessor Companies' managements. Our responsibility is to express an opinion
based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the base financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
February 14, 1997
II-12
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGE TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Combined:
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 -- -- 785,603
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
Year ended December 31, 1996:
Reserve and allowances deducted from
asset accounts:
Allowance for Uncollectible
accounts........................... 2,469,000 667,857 14,594(2) 1,825,368(1) 1,326,083
Reserve for inventory obsolescence... 2,114,304 1,411,013 -- 784,543 2,740,774
</TABLE>
- ---------
(1) Accounts written off, net of recoveries
(2) Balances added through new acquisitions
II-13
<PAGE>
3,200,000 Shares
AFTERMARKET TECHNOLOGY CORP.
COMMON STOCK, PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
October __, 1997
<PAGE>
October __, 1997
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Aftermarket Technology Corp., a Delaware corporation (the
"COMPANY"), proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "UNDERWRITERS"), and certain stockholders of the
Company (the "SELLING STOCKHOLDERS") named in Schedule II hereto severally
propose to sell to the several Underwriters, an aggregate of 3,200,000 shares
of the Company's Common Stock, par value $.01 per share (the "FIRM SHARES"),
of which 2,200,000 shares are to be issued and sold by the Company and
1,000,000 shares are to be sold by the Selling Stockholders, each Selling
Stockholder selling the amount set forth opposite such Selling Stockholder's
name in Schedule II hereto.
The Selling Stockholders also propose to issue and sell to the
several Underwriters not more than an additional 480,000 shares of the
Company's Common Stock, par value $.01 per share (the "ADDITIONAL SHARES"),
each Selling Stockholder selling the amount set forth opposite such Selling
Stockholder's name and in the manner provided in Schedule II hereto, if and
to the extent that you, as Managers of the offering, shall have determined to
exercise, on behalf of the Underwriters, the right to purchase such shares of
common stock granted to the Underwriters in Section 3 hereof. The Firm
Shares and the Additional Shares are hereinafter collectively referred to as
the "SHARES." The shares of Common Stock, par value $.01 per share, of the
Company to be outstanding after giving effect to the sales contemplated
hereby are hereinafter referred to as the "COMMON STOCK." The Company and
the Selling Stockholders are hereinafter sometimes collectively referred to
as the "SELLERS."
<PAGE>
The Company has filed with the Securities and Exchange Commission
(the "COMMISSION") a registration statement, including a prospectus, relating
to the Shares. The registration statement as amended at the time it becomes
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), is
hereinafter referred to as the "REGISTRATION STATEMENT"; the prospectus in
the form first used to confirm sales of Shares is hereinafter referred to as
the "Prospectus." If the Company has filed an abbreviated registration
statement to register additional shares of Common Stock pursuant to Rule
462(b) under the Securities Act (the "RULE 462 REGISTRATION STATEMENT"), then
any reference herein to the term "Registration Statement" shall be deemed to
include such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or, to the best of
the Company's knowledge, threatened by the Commission.
(b) (i) Each part of the Registration Statement, when such part
became effective, did not contain and each such part, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
the Registration Statement and the Prospectus comply and, as amended or
supplemented, if applicable, will comply in all material respects with the
Securities Act and the applicable rules and regulations of the Commission
thereunder and (iii) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, except that the representations and warranties set
forth in this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information relating to
any Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
2
<PAGE>
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The Shares have been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.
(g) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(h) The shares of Common Stock (including the Shares to be sold by
the Selling Stockholders) outstanding prior to the issuance of the Shares
to be sold by the Company have been duly authorized and are validly issued,
fully paid and non-assessable.
(i) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
(j) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not
3
<PAGE>
contravene any provision of applicable law or the certificate of
incorporation or by-laws of the Company or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no consent,
approval, authorization or order of, or qualification with, any
governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(k) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(l) There are no legal or governmental proceedings pending or, to the
best of the Company's knowledge, threatened, to which the Company or any of
its subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not so
described or any statutes, regulations, contracts or other documents that
are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement that
are not described or filed as required.
(m) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(n) All Tax Returns (as defined below) required to be filed by the
Company or any of its subsidiaries in any jurisdiction have been filed,
other than those filings being contested in good faith, and all material
taxes, including withholding taxes, penalties and interest, assessments,
fees and other charges due or claimed to be due from such entities have
been paid, other than those being contested in good faith and for which
adequate
4
<PAGE>
reserves have been provided or those currently payable without
penalty or interest. To the best of the Company's knowledge, all Tax
Returns filed by the Company and its subsidiaries prior to the date hereof
were complete and accurate, except such as could not reasonably be expected
to result, singly or in the aggregate, in a material adverse effect on the
Company and its subsidiaries, taken as a whole. No material claim for
assessment or collection of Taxes is presently being asserted against the
Company or its subsidiaries. Furthermore, the Company and its subsidiaries
are not parties to any pending action, proceeding or investigation by any
governmental authority for the assessment or collection of Taxes, nor does
the Company have knowledge of any such threatened action, proceeding or
investigation, except such as could not reasonably be expected to result,
singly or in the aggregate, in a material adverse effect on the Company and
its subsidiaries, taken as a whole. No waivers of statutes of limitation
in respect of any Tax Returns have been given by or requested of the
Company or any of its subsidiaries, nor has the Company or any of its
subsidiaries agreed to any extension of time with respect to a Tax
assessment or deficiency. No material claim by any authority in a
jurisdiction where the Company or any of its subsidiaries does not
currently file a Tax Return is pending to the effect that the Company or
any of its subsidiaries is or may be subject to taxation by that
jurisdiction. No Liens are presently imposed upon or asserted against any
of the Company's or any of its subsidiaries' assets as a result of or in
connection with any failure, or alleged failure, to pay any Tax. As of the
Closing Date, the Company and its subsidiaries will not have any agreement,
whether or not written, providing for the payment of Tax liabilities or
entitlements to refunds with any other party. To the best of the Company's
knowledge, the Company and its subsidiaries have withheld and paid all
Taxes required to be withheld in connection with any amounts paid or owing
to any employee, creditor, independent contractor or other third party with
respect to the business of the Company or its subsidiaries. The unpaid
Taxes of the Company and its subsidiaries do not exceed the reserve for Tax
liability (as opposed to any reserve for deferred Taxes established to
reflect timing differences between book and tax income) set forth on the
most recent balance sheet of the Company, as adjusted for the passage of
time through the date hereof in accordance with the past custom and
practice in filing Tax Returns. For purposes of this Agreement, the terms
"TAX" and "TAXES" shall mean all federal, state, local or foreign income,
payroll, employee withholding, unemployment insurance, social security,
sales, use, service use, leasing use, excise, franchise, gross receipts,
value added, alternative or add-on minimum, estimated, occupation, real and
personal property, stamp,
5
<PAGE>
transfer, workers' compensation, severance, windfall profits,
environmental (including taxes under Section 59A of the Internal Revenue
Code of 1986, as amended (the "CODE")), or other tax of the same or of a
similar nature, including any interest, penalty, or addition thereto,
whether disputed or not. The term "TAX RETURN" means any return,
declaration, report, form, claim for refund, or information return or
statement relating to Taxes or income subject to taxation, or any
amendment thereto, and including any schedule or attachment thereto.
(o) The Company is not an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(p) Except as disclosed in the Registration Statement or as would not
have, singularly or in the aggregate, a material adverse effect on the
Company and its subsidiaries, taken as a whole, or otherwise would not
require disclosure in the Registration Statement, (i) neither the Company
nor any of its subsidiaries is in violation of any federal, state or local
laws and regulations relating to pollution or protection of human health or
the environment, including, without limitation, laws and regulations
relating to emissions, discharges, releases or threatened releases of toxic
or hazardous substances, materials or wastes, or petroleum and petroleum
products ("MATERIALS OF ENVIRONMENTAL CONCERN"), or otherwise relating to
the protection of human health and safety, or the use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern
(collectively, "ENVIRONMENTAL LAWS"), which violation includes, but is not
limited to, noncompliance with, or lack of, any permits or other
environmental authorizations, and (ii) (A) neither the Company nor any of
its subsidiaries has received any communication (written or oral), whether
from a governmental authority or otherwise, alleging any such violation or
noncompliance, and, to the best of the Company's knowledge, there are no
circumstances, either past, present or that are reasonably foreseeable,
that may lead to any such violation in the future, (B) there is no pending,
or, to the best of the Company's knowledge, threatened claim, action,
investigation or notice (written or oral) by any person or entity alleging
potential liability for investigatory, cleanup, or governmental response
costs, or natural resources or property damages, or personal injuries,
attorney's fees or penalties relating to (x) the presence, or release into
the environment, of any Materials of Environmental Concern at any location
owned or operated by the Company or any of its subsidiaries now or in the
past, or (y) circumstances forming the
6
<PAGE>
basis of any violation or alleged violation of any Environmental Law
(collectively, "ENVIRONMENTAL CLAIMS"), and (C) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents that could form the basis
of any Environmental Claim against the Company or any of its subsidiaries
or against any person or entity for whose acts or omissions the Company
or any of its subsidiaries is or may reasonably be expected to be liable,
either contractually or by operation of law. The Company and each of its
subsidiaries, as appropriate, (i) has conducted a review of the effect of
Environmental Laws on the business, operations and properties of the
Company and each of its subsidiaries, in the course of which, or as a
result of which, the Company evaluated potential costs and liabilities
including, without limitation, those relating to the cleanup or closure
of properties or compliance with Environmental Laws or permits, licenses
or approvals, related constraints on operating activities, and potential
liabilities to third parties, and (ii) have conducted environmental
investigations of, and have reviewed reasonably available information
regarding, the business, properties and operations of the Company and
each of its subsidiaries, and of certain other properties within the
vicinity of their business, properties and operations, as appropriate for
the circumstances of each such property and operation; on the basis of
such review, investigations and inquiries, the Company has reasonably
concluded that, except as disclosed in the Registration Statement, any
costs and liabilities associated with such matters would not have,
singularly or in the aggregate, a material adverse effect on the Company
and its subsidiaries, taken as a whole, or otherwise require disclosure
in the Registration Statement.
(q) Except as disclosed in the Registration Statement, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement.
(r) No "prohibited transaction" (as defined in Section 406 of the
Employee Retirement Income Security Act of 1974, as amended, including the
regulations and published interpretations thereunder ("ERISA"), or Section
4975 of the Code) or "accumulated funding deficiency" (as defined in
Section 302 of ERISA) or any of the events set forth in Section 4043(b) of
ERISA (other than events with respect to which the 30-day notice
require-
7
<PAGE>
ment under Section 4043 of ERISA has been waived) has occurred with
respect to any employee benefit plan which might reasonably be expected to
have a material adverse effect on the Company and its subsidiaries, taken
as a whole; each employee benefit plan is in compliance in all material
respects with applicable law, including ERISA and the Code; the Company has
not incurred and does not expect to incur liability under Title IV of ERISA
with respect to the termination of, or withdrawal from, any "pension plan";
and each "pension plan" (as defined in ERISA) for which the Company would
have any liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which might reasonably be expected
to cause the loss of such qualification.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. Each
of the Selling Stockholders severally represents and warrants to and agrees with
each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(b) The execution and delivery by such Selling Stockholder of, and the
performance by such Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by such Selling Stockholder and
___________________ as Custodian, relating to the deposit of the Shares to
be sold by such Selling Stockholder (the "CUSTODY AGREEMENT") and the Power
of Attorney of such Selling Stockholder appointing certain individuals as
such Selling Stockholder's attorneys-in-fact to the extent set forth
therein, relating to the transactions contemplated hereby and by the
Registration Statement (each Power of Attorney, a "POWER OF ATTORNEY") will
not contravene any provision of applicable law, or the certificate of
incorporation or by-laws of such Selling Stockholder (if such Selling
Stockholder is a corporation), or the trust instrument of such Selling
Stockholder (if such Selling Stockholder is a trust), or any agreement or
other instrument binding upon such Selling Stockholder or any judgment,
order or decree of any governmental body, agency or court having
jurisdiction over such Selling Stockholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling
8
<PAGE>
Stockholder, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer
and sale of the Shares.
(c) Such Selling Stockholder has, and on the Closing Date will have,
valid title to the Shares to be sold by such Selling Stockholder and the
legal right and power, and all authorization and approval required by law,
to enter into this Agreement, the Custody Agreement and the Power of
Attorney and to sell, transfer and deliver the Shares to be sold by such
Selling Stockholder.
(d) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by such Selling Stockholder and are
valid and binding agreements of such Selling Stockholder.
(e) Delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(f) Such parts of the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relate to such
Selling Stockholder do not, and will not on the Closing Date, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made, not misleading.
3. AGREEMENTS TO SELL AND PURCHASE. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at $________ a share (the
"PURCHASE PRICE") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the number of Firm Shares to be sold by such Seller as the number of Firm
Shares set forth in Schedule I hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Stockholders,
severally and not jointly, agree to sell to the Underwriters the Additional
Shares, and the Underwriters shall have a one-time right to purchase, severally
and not jointly, up to 480,000 Additional Shares at the Purchase Price. If you,
on behalf of the Underwriters, elect to exercise such option, you shall so
notify the Custodian in
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writing not later than 30 days after the date of this Agreement, which notice
shall specify the number of Additional Shares to be purchased by the
Underwriters and the date on which such shares are to be purchased. Such
date may be the same as the Closing Date but not earlier than the Closing
Date nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 5 hereof solely for
the purpose of covering over-allotments made in connection with the offering
of the Firm Shares. If any Additional Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares (subject to such adjustments to eliminate fractional shares
as you may determine) that bears the same proportion to the total number of
Additional Shares to be purchased as the number of Firm Shares set forth in
Schedule I hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
The Company hereby agrees, on its own behalf and on behalf of each
stockholder of the Company listed on Schedule III hereto (the "SUBJECT
STOCKHOLDERS"), that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the Underwriters, it will not and each Subject
Stockholder will not, during the period commencing on the date hereof and ending
90 days after the date of the final prospectus relating to the Public Offering
(as defined herein), (1) 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, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock, or (2) enter into any swap
or other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Shares to be sold hereunder, (B) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof of
which the Underwriters have been advised in writing or (C) transactions by any
person other than the Company relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of the
offering of the Shares. In addition, the Company, on behalf of each Subject
Stockholder, agrees that, without the prior written consent of Morgan Stanley &
Co. Incorporated on behalf of the Underwriters, each Subject Stockholder will
not, during the period ending 90 days after the date of the Prospectus, make any
demand for, or exercise any right with respect to, the registration of any
shares of Common Stock or any security convertible into or exercisable or
exchangeable for Common Stock. The
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Company agrees to give notice to each Subject Stockholder bound by the
foregoing "lock-up" agreement pursuant to Section 4(c) of Exhibit D to that
certain Stockholders Agreement, dated as of August 2, 1994, as amended, among
the Aftermarket Technology Holdings Corp. (which was subsequently merged with
and into the Company) and certain of its stockholders, optionholders and
warrantholders (the "STOCKHOLDERS AGREEMENT.") The Representatives hereby
agree that those stockholders of the Company listed on Schedule IV attached
hereto are not bound by the foregoing "lock-up" agreement notwithstanding
that such stockholders are also parties to the Stockholders Agreement.
Each Selling Stockholder hereby agrees that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not, during the period commencing on the date hereof
and ending 90 days after the date of the final prospectus relating to the
Public Offering, (1) 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, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock, or (2)
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (1) or (2) above is
to be settled by delivery of Common Stock or such other securities, in cash
or otherwise. The foregoing sentence shall not apply to (A) the Shares to be
sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing or (C) transactions by any person other than the Company relating to
shares of Common Stock or other securities acquired in open market
transactions after the completion of the offering of the Shares. In
addition, each Selling Stockholder, agrees that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the Underwriters,
it will not, during the period ending 90 days after the date of the
Prospectus, make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into
or exercisable or exchangeable for Common Stock.
4. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that
the Underwriters propose to make a public offering (the "PUBLIC OFFERING") of
their respective portions of the Shares as soon after the Registration Statement
and this Agreement have become effective as in your judgment is advisable. The
Sellers are further advised by you that the Shares are to be offered to the
public initially at
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$_____ a share (the "PUBLIC OFFERING PRICE") and to certain
dealers selected by you at a price that represents a concession not in excess of
$. a share under the Public Offering Price, and that any Underwriter may
allow, and such dealers may reallow, a concession, not in excess of $. a
share, to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by
each Seller shall be made to such Seller by wire transfer to the account of such
Seller at 7:00 A.M., local time in Los Angeles, California, on October __, 1997,
or at such other time on the same or such other date, not later than ________,
1997, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made by wire transfer to
the accounts of the Selling Stockholders at 7:00 A.M., local time in Los
Angeles, California, on the date specified in the notice described in Section 3
or on such other date, in any event not later than November __, 1997, as shall
be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:30 P.M. (New York time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
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(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall
any notice have been given of any intended or potential downgrading or
of any review for a possible change that does not indicate the
direction of the possible change, in the rating accorded any of the
Company's securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or operations of
the Company and its subsidiaries, taken as a whole, from that set
forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by the chief executive
officer of the Company and by the chief financial officer of the Company,
to the effect set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company contained in this Agreement
are true and correct as of the Closing Date and that the Company has
complied with all of the agreements and satisfied all of the conditions on
its part to be performed or satisfied hereunder on or before the Closing
Date.
The officers signing and delivering such certificate may each rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Gibson, Dunn & Crutcher LLP, outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
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will not contravene, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, or any
material statute, order rule or regulation known to such counsel to be
generally applicable to transactions of the type contemplated by this
Agreement of any federal state court of governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their property or assets, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required under any such statute, order, rule or regulation for the
performance by the Company of its obligations under this Agreement,
except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the
Shares;
(ii) the statements in the Prospectus under the caption
"Certain United States Federal Tax Consequences to Non-United States
Holders," insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters,
documents and proceedings and fairly summarize the matters referred to
therein;
(iii) such counsel does not have actual knowledge of any legal
or governmental proceedings pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(iv) the Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the Investment Company Act of 1940, as amended; and
(v) such counsel is of the opinion that the Registration
Statement and Prospectus (except for financial statements, data and
schedules included therein, as to which such counsel need not express
any opinion) comply as to form in all material respects with the
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<PAGE>
Securities Act and the applicable rules and regulations of the
Commission thereunder.
In addition, such counsel shall state that it has no reason to believe
that (except for financial statements, data and schedules, as to which such
counsel need not express any belief) the Registration Statement and the
prospectus included therein, at the time the Registration Statement became
effective, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading and that it has no reason to believe that (except for
financial statements, and schedules, as to which such counsel need not
express any belief) the Prospectus, as of its date or as of the Closing
Date, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Joseph Salamunovich, in-house counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(ii) Aaron's Automotive Products has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the state of Delaware, has the corporate power and authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is in good
standing in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
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<PAGE>
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(iii) RPM Merit, Inc. has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the State
of Delaware, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent
that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries,
taken as a whole;
(iv) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(v) the shares of Common Stock (including the Shares to be
sold by the Selling Stockholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable;
(vi) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene the certificate of incorporation or by-laws of the
Company or, to the best of such counsel's knowledge, any agreement or
other instrument listed as an exhibit to the Registration Statement,
or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, or any material statute, order
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<PAGE>
rule or regulation known to such counsel to be generally applicable to
transactions of the type contemplated by this Agreement of any federal
state court of governmental agency or body having jurisdiction over
the Company or any of its subsidiaries or any of their property or
assets, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required under
any such statute, order, rule or regulation for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Description of Certain Indebtedness" and "Description of Capital
Stock" and "Underwriters" and (B) in the Registration Statement in
Items 14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings referred to
therein, fairly present the information called for with respect to
such legal matters, documents and proceedings and fairly summarize the
matters referred to therein;
(x) such counsel does not have actual knowledge of any
legal or governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required; and
(xi) such counsel is of the opinion that the Registration
Statement and Prospectus (except for financial statements, data and
schedules included therein, as to which such counsel need not express
any opinion) comply as to form in all material respects with the
Securities Act and the applicable rules and regulations of the
Commission thereunder.
In addition, such counsel shall state that he has no reason to believe
that (except for financial statements, data and schedules, as to which such
counsel need not express any belief) the Registration Statement and the
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prospectus included therein, at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading and that it has no reason to believe that (except for
financial statements, and schedules, as to which such counsel need not
express any belief) the Prospectus, as of its date contained or contains
any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(e) The Underwriters shall have received on the Closing Date an
opinion of counsel for each Selling Stockholder reasonably acceptable to
you, dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and delivered
by or on behalf of such Selling Stockholder;
(ii) the execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under,
this Agreement and the Custody Agreement and Powers of Attorney of
such Selling Stockholder will not contravene any provision of
applicable law, or the organizational documents of such Selling
Stockholder, or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon such Selling Stockholder
or, to the best of such counsel's knowledge, any judgment, order or
decree of any governmental body, agency or court having jurisdiction
over such Selling Stockholder, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by such Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of such Selling Stockholder, except such as may be required
by the securities or Blue Sky laws of the various states in connection
with offer and sale of the Shares;
(iii) such Selling Stockholder has valid title to the Shares to be
sold by it and the legal right and power, and all authorization and
approval required by law, to enter into this Agreement and the Custody
Agreement and Power of Attorney of such Selling Stockholder and to
sell, transfer and deliver the Shares to be sold by it;
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<PAGE>
(iv) the Custody Agreement and the Power of Attorney of such Selling
Stockholder have been duly authorized, executed by it and are valid
and binding agreements of such Selling Stockholder; and
(v) delivery of the Shares to be sold by such Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and
clear of any security interests, claims, liens, equities and other
encumbrances.
(f) The Underwriters shall have received on the Closing Date an
opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the
Underwriters, dated the Closing Date, covering the matters referred to in
subparagraphs (vi), (vii), (ix) (but only as to the statements in the
Prospectus under "Description of Capital Stock -- Common Stock" and
"Underwriters") of paragraph (d) above and subparagraph (v) and the last
paragraph of paragraph (c) above.
With respect to the last paragraph of paragraph (c) above, Gibson,
Dunn & Crutcher LLP and Skadden, Arps, Slate, Meagher & Flom LLP may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof,
but are without independent check or verification, except as specified.
With respect to paragraphs (c) and (d) above, Gibson, Dunn & Crutcher LLP
or Joseph Salamunovich, as the case may be, may rely upon an opinion or
opinions of counsel for any Selling Stockholders and, with respect to
factual matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Stockholder contained herein and in the
Custody Agreement and Power of Attorney of such Selling Stockholder and in
other documents and instruments; PROVIDED that (A) each such counsel for
the Selling Stockholders is satisfactory to your counsel, (B) a copy of
each opinion so relied upon is delivered to you and is in form and
substance satisfactory to your counsel, (C) copies of such Custody
Agreements and Powers of Attorney and of any such other documents and
instruments shall be delivered to you and shall be in the form and
substance satisfactory to your counsel and (D) Gibson, Dunn & Crutcher LLP
or Joseph Salamunovich, as the case may be, shall state in their opinion
that they are justified in relying on each such opinion.
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The opinions described above, other than paragraph (f) shall be
rendered to the Underwriters at the request of the Company or one or more
of the Selling Stockholders, as the case may be, and shall so state
therein.
(g) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; PROVIDED that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(h) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and the holders of common stock, all
executive officers and directors of the Company relating to sales and
certain other dispositions of shares of Common Stock or certain other
securities, delivered to you on or before the date hereof, shall be in full
force and effect on the Closing Date.
(i) The Company shall have given the Subject Stockholders notice of
the "lock-up" agreement set forth in the third paragraph of Section 3 of
this Agreement.
(j) The Stockholders Agreement, substantially in the same form as it
is the date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such document as you may reasonably request with respect to the good standing
of the Company, the due authorization and issuance of the Additional Shares and
other matters related to the issuance of the Additional Shares.
7. COVENANTS OF THE SELLERS. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows (and the Selling Stockholders covenant with each
Underwriter as to subparagraph (f)(ii) below only):
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(a) To furnish to you, without charge, three signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 A.M. local time on the business day next succeeding
the date of this Agreement and during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any other dealers upon request, either amendments or
supplements to the Prospectus so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request, PROVIDED that the Company shall not be obligated to qualify as a
foreign corporation in any jurisdiction in which it is not so qualified or
to take any action that would subject it to general consent to service of
process in any jurisdiction in which it is now so subject.
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(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending December 31, 1997 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel, the Company's accountants and counsel for the Selling
Stockholders in connection with the registration and delivery of the Shares
under the Securities Act and all other fees or expenses in connection with
the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the
mailing and delivering of copies thereof to the Underwriters and dealers,
in the quantities hereinabove specified, (ii) all costs and expenses
related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, except for any of
the foregoing relating to Shares sold by Selling Stockholders, which shall
be the obligation of the respective Selling Stockholders, (iii) the cost of
printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities
laws and all expenses in connection with the qualification of the Shares
for offer and sale under state securities laws as provided in Section 7(d)
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky or Legal Investment memorandum, (iv) all
filing fees and disbursements of counsel to the Underwriters incurred in
connection with the review and qualification of the Public Offering by the
National Association of Securities Dealers, Inc., (v) all costs and
expenses incident to having the Shares accepted for quotation on the Nasdaq
National Market, (vi) the cost of printing certificates representing the
Shares, (vii) the costs and charges of any transfer agent, registrar or
depositary, (viii) the costs and expenses of the Company relating to
investor presentations on any "road show" undertaken in connection with the
marketing of the Public Offering, including, without limitation, reasonable
expenses associated with the production of road show slides and graphics,
fees and expenses of any consultants engaged in connection with the road
show presentations, travel and lodging expense of the representatives and
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officers of the Company and any such consultants, and one-half of the cost
of any aircraft chartered in connection with the road show, each with the
prior approval of the Company and (ix) all other costs and expenses
incident to the performance of the obligations of the Company hereunder for
which provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Section, Section 8 below, and the
last paragraph of Section 10 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel,
stock transfer taxes payable on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
8. INDEMNITY AND CONTRIBUTION. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
by any Underwriter or any such controlling person in connection with defending
or investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein.
(b) Each Selling Stockholder agrees, severally and not jointly,
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Underwriter or any such
controlling person in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereof,
any preliminary prospectus or the Prospectus (as amended or supplemented if the
Company shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state
23
<PAGE>
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, but only with reference to information
relating to such Selling Stockholder furnished in writing by or on behalf of
such Selling Stockholder expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto; PROVIDED, HOWEVER, that the aggregate liability of any Selling
Stockholder pursuant to the provisions of this paragraph shall be limited to
an amount equal to the aggregate purchase price received by such Selling
Stockholder from the sale of such Selling Stockholder's Shares hereunder.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Stockholders, the directors
of the Company, the officers of the Company who sign the Registration Statement
and each person, if any, who controls the Company or any Selling Stockholder
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnity from the Company
to such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company or any Selling Stockholder in writing by
such Underwriter through you expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to paragraph (a), (b) or (c) of this Section 8,
such person (the "INDEMNIFIED PARTY") shall promptly notify the person against
whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing and the
indemnifying party, upon receipt of such notice, shall retain counsel reasonably
satisfactory to the indemnified party to represent the indemnified party and any
others the indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for (i) the fees and expenses of more than one separate firm
24
<PAGE>
(in addition to any local counsel) for all Underwriters and all persons, if
any who control any Underwriter within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, (ii) the fees and
expenses of more than one separate firm (in addition to any local counsel)
for the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section and (iii) the fees and expenses of more than
one separate firm (in addition to any local counsel) for all Selling
Stockholders and all persons, if any, who control any Selling Stockholder
within the meaning of either such Section, and that all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be
designated in writing by Morgan Stanley & Co. Incorporated, in the case of
parties indemnified pursuant to Section 8(a), by the persons named as
attorneys-in-fact for the Selling Stockholders under the Powers of Attorney
in the case of parties indemnified pursuant to Section 8(b), and by the
Company, in the case of parties indemnified pursuant to Section 8(c). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this
paragraph, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 8 is unavailable to an indemnified
party or insufficient in respect of any losses, claims, damages or liabilities
referred to therein, then each indemnifying party under such paragraph, in lieu
of indemnifying such indemnified party thereunder, shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the
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<PAGE>
indemnifying party or parties on the one hand and the indemnified party or
parties on the other hand from the offering of the Shares or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
indemnifying party or parties on the one hand and of the indemnified parties
or party on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by
each Seller on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Sellers and the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate Public Offering Price of the Shares. The relative fault of the
Sellers on the one hand and the Underwriters on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Sellers or by
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Underwriters' respective obligations to contribute pursuant to this
Section 8 are several in proportion to the respective number of Shares they
have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 8 were determined
by PRO RATA allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (e) of this Section 8.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any legal or other expenses reasonably incurred by such indemnified party
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
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<PAGE>
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in
this Section 8 are not exclusive and shall not limit any rights or remedies
which may otherwise be available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements of the
Company and the Selling Stockholders contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter, any Selling Stockholder or any person
controlling any Selling Stockholder or by or on behalf of the Company, its
officers or directors or any person controlling the Company and (iii) acceptance
of and payment for any of the Shares.
9. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of
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<PAGE>
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set
forth opposite their respective names in Schedule I bears to the aggregate
number of Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase
the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; PROVIDED that in no event shall
the number of Shares that any Underwriter has agreed to purchase pursuant to
this Agreement be increased pursuant to this Section 10 by an amount in
excess of one-ninth of such number of Shares without the written consent of
such Underwriter. If, on the Closing Date, any Underwriter or Underwriters
shall fail or refuse to purchase Firm Shares and the aggregate number of Firm
Shares with respect to which such default occurs is more than one-tenth of
the aggregate number of Firm Shares to be purchased, and arrangements
satisfactory to you, the Company and the Selling Stockholders for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholders. In any
such case either you or the relevant Sellers shall have the right to postpone
the Closing Date, but in no event for longer than seven days, in order that
the required changes, if any, in the Registration Statement and in the
Prospectus or in any other documents or arrangements may be effected. If, on
the Option Closing Date, any Underwriter or Underwriters shall fail or refuse
to purchase Additional Shares and the aggregate number of Additional Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Additional Shares to be purchased, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation
hereunder to purchase Additional Shares or (ii) purchase not less than the
number of Additional Shares that such non-defaulting Underwriters would have
been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Sellers to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Sellers shall be unable to perform their obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
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<PAGE>
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York.
13. HEADINGS. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
<PAGE>
Very truly yours,
Aftermarket Technology Corp.
By__________________________________
Name:
Title:
The Selling Stockholders named in
Schedule II hereto, acting severally.
By___________________________________
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
William Blair & Company, L.L.C.
Donaldson, Lufkin & Jenrette Securities Corporation
Acting severally on behalf
of themselves and the
several Underwriters named
herein.
By: Morgan Stanley & Co. Incorporated
By____________________________________
Name:
Title:
<PAGE>
EXHIBIT 5.1
September 30, 1997
C 00610-00036
Aftermarket Technology Corp.
900 Oakmont Lane, Suite 100
Westmont, Illinois 60559
Re: REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 333-35543)
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 September 12, 1997 (Registration No. 333-35543), 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.
September 30, 1997
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
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement"), dated as of August 27,
1997, is made by and between Aftermarket Technology Corp.Company, a Delaware
corporation (the "Corporation"), and the individual who's signature appears at
the end hereof as "Indemnitee."
R E C I T A L S
A. Indemnitee is currently serving as, or is assuming the position of, a
director and/or officer of the Corporation and/or, at the Corporation's request,
a director, officer, employee and/or agent of another corporation, partnership,
joint venture, trust or other enterprise, and the Corporation wishes Indemnitee
to continue in such capacity(ies);
B. The Corporation and Indemnitee recognize that the present state of the
law is too uncertain to provide the Corporation's directors and officers with
adequate and reliable advance knowledge or guidance with respect to the legal
risks and potential liabilities to which they may become personally exposed as a
result of performing their duties for the Corporation;
C. The Certificate of Incorporation (the "Charter") and the Bylaws (the
"Bylaws") of the Corporation each provide that the Corporation may indemnify, to
the fullest extent permitted by law, certain persons, including directors,
officers, employees or agents of the Corporation, against specified expenses and
losses arising out of certain threatened, pending or completed actions, suits or
proceedings;
D. Section 145(f) of the Delaware General Corporation Law (the "DGCL")
expressly recognizes that the indemnification provided by the other
subsections of Section 145 of the DGCL shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official
capacity and as to action in another capacity while holding such office;
E. Indemnitee has indicated that he may not be willing to serve, or
continue to serve, as a director and/or officer of the Corporation and/or, at
the Corporation's request, as a director, officer, employee and/or agent of
another corporation, partnership, joint venture, trust or other enterprise in
the absence of an indemnification agreement from the Corporation;
F. The Board of Directors of the Corporation has concluded that, to
retain and attract talented and experienced individuals to serve as directors
and officers of the Corporation and to encourage such individuals to take the
business risks necessary for the success of the Corporation, it is necessary
for the Corporation to contractually indemnify them, and to assume for itself
liability for expenses and damages in connection with claims against them in
connection with their service to the Corporation, and has further concluded
<PAGE>
that the failure to provide such contractual indemnification could result in
great harm to the Corporation and its stockholders.
A G R E E M E N T
NOW, THEREFORE, the Corporation and Indemnitee agree as follows:
1. DEFINITIONS.
(a) "Expenses" means, for the purposes of this Agreement, all direct
and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants and
other experts and other out-of-pocket costs) actually and reasonably incurred by
Indemnitee in connection with the investigation, preparation, defense or appeal
of a Proceeding; PROVIDED, HOWEVER, that Expenses shall not include judgments,
fines, penalties or amounts paid in settlement of a Proceeding unless such
matters may be indemnified under applicable provisions of the DGCL.
(b) "Proceeding" means, for the purposes of this Agreement, any
threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including actions, suits or
proceedings brought by or in the right of the Corporation) in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, by reason of
any action taken by him or of any inaction on his part while acting as such
director or officer or by reason of the fact that he is or was serving at the
request of the Corporation as a director or officer of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise, or
was a director and/or officer of the foreign or domestic corporation which was a
predecessor corporation to the Corporation or of another enterprise at the
request of such predecessor corporation, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. To the fullest extent permitted by law,
the Corporation shall indemnify Indemnitee against Expenses and liabilities of
any type whatsoever (including, but not limited to, judgments, fines, penalties,
and amounts paid in settlement (if the settlement is approved in advance by the
Corporation)) actually and reasonably incurred by Indemnitee in connection with
a Proceeding (other than a Proceeding by or in the right of the Corporation) if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
Indemnitee's conduct was unlawful. The termination of any Proceeding by
judgment, order, settlement, conviction, or upon a plea of NOLO CONTENDERE or
its equivalent, shall not, of itself, create a presumption that Indemnitee did
not act in good faith and in a manner that Indemnitee reasonably believed to be
in, or not opposed to, the best interests of
2
<PAGE>
the Corporation, or, with respect to any criminal Proceeding, had reasonable
cause to believe that Indemnitee's conduct was unlawful. Notwithstanding the
foregoing, no indemnification shall be made in any criminal proceeding where
Indemnitee has been adjudged guilty unless a disinterested majority of the
directors determines that Indemnitee did not receive, participate in or share
in any pecuniary benefit to the detriment of the Corporation and, in view of
all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnification for Expenses or liabilities.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE CORPORATION. To the fullest extent
permitted by law, the Corporation shall indemnify Indemnitee against Expenses
actually and reasonably incurred by Indemnitee in connection with the defense
or settlement of a Proceeding by or in the right of the Corporation to
procure a judgment in its favor if Indemnitee acted in good faith and in a
manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Corporation. Notwithstanding the foregoing, no
indemnification shall be made in respect of any claim, issue or matter as to
which Indemnitee shall have been adjudged to be liable to the Corporation in
the performance of Indemnitee's duty to the Corporation unless and only to
the extent that the court in which such Proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnification for
Expenses and then only to the extent that the court shall determine.
(c) SCOPE. Notwithstanding any other provision of this Agreement other than
Sections 3 and 13, the Corporation shall indemnify Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by other provisions of this Agreement, the Charter,
the Bylaws or statute.
3. LIMITATIONS ON INDEMNIFICATION. Any other provision herein to the
contrary notwithstanding, the Corporation shall not be obligated pursuant to
the terms of this Agreement:
(a) EXCLUDED ACTS. To indemnify Indemnitee for any acts or
omissions or transactions from which a director may not be relieved of
liability under Section 102(b)(7) of the DGCL; or
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or
advance Expenses to Indemnitee with respect to Proceedings or claims
initiated or brought voluntarily by Indemnitee and not by way of defense,
except with respect to proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other statute or law or otherwise
as required under Section 145 of the DGCL, but such indemnification or
advancement of Expenses may be provided by the Corporation in specific cases
if a majority of the disinterested directors has approved the initiation or
bringing of such suit; or
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any Expenses
incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or
3
<PAGE>
interpret this Agreement, if a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee in such proceeding
was not made in good faith or was frivolous; or
(d) INSURED CLAIMS. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines or penalties, and amounts paid in settlement) that have been paid
directly to or on behalf of Indemnitee by an insurance carrier under a policy
of directors' and officers' liability insurance maintained by the Corporation
or any other policy of insurance maintained by the Corporation or Indemnitee;
or
(e) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Upon receipt of a
written claim addressed to the Board of Directors for indemnification
pursuant to Section 2 of this Agreement, the Corporation shall determine by
any of the methods set forth in Section 145(d) of the DGCL whether Indemnitee
has met the applicable standards of conduct that make it permissible under
applicable law to indemnify Indemnitee. If a claim under Section 2 of this
Agreement is not paid in full by the Corporation within 90 days after such
written claim has been received by the Corporation, Indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid
amount of the claim and, unless such action is dismissed by the court as
frivolous or brought in bad faith, Indemnitee shall be entitled to be paid
also the expense of prosecuting such claim. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its stockholders) to make a determination prior to the commencement of such
action that indemnification of Indemnitee is proper in the circumstances
because Indemnitee has met the applicable standard of conduct under
applicable law, nor an actual determination by the Corporation (including its
Board of Directors, independent legal counsel or its stockholders) that
Indemnitee has not met such applicable standard of conduct, shall create a
presumption that Indemnitee has not met the applicable standard of conduct.
The court in which such action is brought shall determine whether Indemnitee
or the Corporation shall have the burden of proof concerning whether
Indemnitee has or has not met the applicable standard of conduct.
5. ADVANCEMENT AND REPAYMENT OF EXPENSES. The Expenses incurred by
Indemnitee in defending and investigating any Proceeding shall be paid by the
Corporation prior to the final disposition of such Proceeding within 30 days
after receiving from Indemnitee copies of invoices presented to Indemnitee
for such Expenses and an undertaking by or on behalf of Indemnitee to the
Corporation to repay such amount to the extent it is ultimately determined
that Indemnitee is not entitled to indemnification. In determining whether
or not to make an advance hereunder, the ability of Indemnitee to repay shall
not be a factor. Notwithstanding the foregoing, in a proceeding brought by
the Corporation directly,
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<PAGE>
in its own right (as distinguished from an action brought derivatively or by
any receiver or trustee), the Corporation shall not be required to make the
advances called for hereby if a majority of the disinterested directors
determine that it does not appear that Indemnitee has met the standards of
conduct that made it permissible under applicable law to indemnify Indemnitee
and that the advancement of Expenses would not be in the best interests of
the Corporation and its stockholders.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification or advancement by the
Corporation of some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification
or advancement of the total amount thereof, the Corporation shall
nevertheless indemnify or pay advancements to Indemnitee for the portion of
such Expenses or liabilities to which Indemnitee is entitled.
7. NOTICE TO CORPORATION BY INDEMNITEE. Indemnitee shall notify the
Corporation in writing of any matter with respect to which Indemnitee intends
to seek indemnification hereunder as soon as reasonably practicable following
the receipt by Indemnitee of written notice thereof; provided that any delay
in so notifying the Corporation shall not constitute a waiver by Indemnitee
of his rights hereunder. The written notification to the Corporation shall
be addressed to the Board of Directors and shall include a description of the
nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court, if any, in which
the Proceeding is pending. In addition, Indemnitee shall give the
Corporation such information and cooperation as it may reasonably require and
as shall be within Indemnitee's power.
8. DEFENSE OF CLAIM. In the event that the Corporation shall be
obligated under Section 5 hereof to pay the Expenses of any Proceeding
against Indemnitee, the Corporation, if appropriate, shall be entitled to
assume the defense of such Proceeding, with counsel approved by Indemnitee,
which approval shall not be unreasonably withheld, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of
such notice, approval of such counsel by Indemnitee and the retention of such
counsel by the Corporation, the Corporation will not be liable to Indemnitee
under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same Proceeding; provided that (i) Indemnitee
shall have the right to employ his own counsel in any such Proceeding at
Indemnitee's expense, and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Corporation, or (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of such defense or (C) the
Corporation shall not, in fact, have employed counsel to assume the defense
of such Proceeding, then the fees and expenses of Indemnitee's counsel shall
be paid by the Corporation.
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9. ATTORNEYS' FEES. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover,
in addition to other amounts to which the prevailing party may be entitled,
actual attorneys' fees and court costs as may be awarded by the court.
10. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director or officer of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, fiduciary, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
and shall continue thereafter so long as Indemnitee shall be subject to any
possible Proceeding by reason of the fact that Indemnitee served in any
capacity referred to herein.
11. SUCCESSORS AND ASSIGNS. This Agreement establishes contract rights
that shall be binding upon, and shall inure to the benefit of, the
successors, assigns, heirs and legal representatives of the parties hereto.
12. NON-EXCLUSIVITY.
(a) The provisions for indemnification and advancement of expenses
set forth in this Agreement shall not be deemed to be exclusive of any other
rights that Indemnitee may have under any provision of law, the Charter or
Bylaws, the vote of the Corporation's stockholders or disinterested
directors, other agreements or otherwise, both as to action in his official
capacity and action in another capacity while occupying his position as a
director or officer of the Corporation.
(b) In the event of any changes, after the date of this Agreement,
in any applicable law, statute, or rule that expand the right of a Delaware
corporation to indemnify its directors and officers, Indemnitee's rights and
the Corporation's obligations under this Agreement shall be expanded to the
fullest extent permitted by such changes. In the event of any changes in any
applicable law, statute or rule, that narrow the right of a Delaware
corporation to indemnify a director and officer, such changes, to the extent
not otherwise required by such law, statute or rule to be applied to this
Agreement, shall have no effect on this Agreement or the parties' rights and
obligations hereunder.
13. EFFECTIVENESS OF AGREEMENT. This Agreement shall be effective as
of the date set forth on the first page hereof and may apply to acts or
omissions of Indemnitee that occurred prior to such date if Indemnitee was a
director or officer of the Corporation or its predecessor, or was serving at
the request of the Corporation or its predecessor as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
at the time such act or omission occurred.
14. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Corporation to do or fail to do any act
in violation of applicable
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law. The Corporation's inability, pursuant to court order, to perform its
obligations under this Agreement shall not constitute a breach of this
Agreement. The provisions of this Agreement shall be severable as provided
in this Section 14. If this Agreement or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify Indemnitee to the fullest extent
permitted by any applicable portion of this Agreement that shall not have
been invalidated, and the balance of this Agreement not so invalidated shall
be enforceable in accordance with its terms.
15. GOVERNING LAW. This Agreement shall be
interpreted and enforced in accordance with the laws of the State of Delaware
without regard to its rules pertaining to conflicts of laws. To the extent
permitted by applicable law, the parties hereby waive any provisions of law
that render any provision of this Agreement unenforceable in any respect.
16. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of
such receipt, or (ii) if delivered by facsimile transmission to the recipient
followed by a copy sent by mail on the same date as the facsimile
transmission, on the date of receipt of such facsimile transmission, or (iii)
if mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party
are as shown below, or as subsequently modified by written notice:
If to the Corporation:
Aftermarket Technology Corp.
900 Oakmont Lane, Suite 100
Westmont, Illinois 60559
Fax: (630) 455-2650
Attention: General Counsel
If to Indemnitee:
To the address set forth on the
signature page hereof.
17. MUTUAL ACKNOWLEDGMENT. Both the Corporation and Indemnitee
acknowledge that in certain instances federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers
under this Agreement or otherwise. Indemnitee understands and acknowledges
that the Corporation has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question
of indemnification to a court in certain circumstances for a determination of
the Corporation's right under public policy to indemnify Indemnitee.
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18. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed
by both parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
AFTERMARKET TECHNOLOGY CORP.
By:___________________________________
Stephen J. Perkins
President and
Chief Executive Officer
INDEMNITEE:
_____________________________________
[Name]
_____________________________________
_____________________________________
Address
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<PAGE>
EXHIBIT 10.47
BANK OF MONTREAL AMENDMENT AGREEMENT
To: BANK OF MONTREAL
Commercial Banking Unit MISSISSAUGA MAIN OFFICE
Amendment Number ONE
Branch of Account ONE ROBERT SPECK PARKWAY, MISSISSAUGA, ONTARIO
Date AUGUST 25TH, 1997
WHEREAS the undersigned has entered into a FirstBank OVERDRAFT LENDING
Agreement dated the 12th day of JUNE, 1996 as amended and supplemented from
time to time (the "Agreement") with the Bank of Montreal (the "Bank");
AND WHEREAS the undersigned and the Bank wish to amend the terms of the
Agreement in accordance herewith;
NOW THEREFORE, the undersigned agree with the Bank that the Agreement be
amended effective from the date hereof as follows:
1. Paragraph(s) 1.03 AND 1.04 of the Agreement is/are amended to read as
follows:
1.03 "LOAN LIMIT" SHALL MEAN ---THREE MILLION FIVE HUNDRED THOUSAND
--00/100 CANADIAN DOLLARS ($3,500,000.00) OR SUCH LESSER AMOUNT AS MAY BE
CALCULATED BY THE BANK OF MONTREAL FROM TIME TO TIME UNDER THE LENDING
MARGIN CALCULATION, IF ANY, SET OUT IN THE ADDENDUM HERETO.
1.04 "LOAN RATE" SHALL MEAN A RATE EQUAL TO THE BANK'S PRIME RATE PLUS
QUARTER PER CENT (0.25%) PER ANNUM.
2. The Addendum to the Agreement is amended to read as follows:
All other terms and conditions of the Agreement remain in full force and
effect.
MASCOT TRUCK PARTS INC.
/s/ Barry Schwartz
--------------------------------------
Name Barry Schwartz
Title President
/s/ John C. Kent
---------------------------------------
Name John C. Kent
Title Vice President
Page 1 of 1
<PAGE>
EXHIBIT 10.47
BANK OF MONTREAL AMENDMENT AGREEMENT
To: BANK OF MONTREAL
Commercial Banking Unit MISSISSAUGA MAIN OFFICE
Amendment Number ONE
Branch of Account ONE ROBERT SPECK PARKWAY, MISSISSAUGA, ONTARIO
Date AUGUST 25TH, 1997
WHEREAS the undersigned has entered into a FirstBank OVERDRAFT LENDING
Agreement dated the 12th day of JUNE, 1996 as amended and supplemented from
time to time (the "Agreement") with the Bank of Montreal (the "Bank");
AND WHEREAS the undersigned and the Bank wish to amend the terms of the
Agreement in accordance herewith;
NOW THEREFORE, the undersigned agree with the Bank that the Agreement be
amended effective from the date hereof as follows:
1. Paragraph(s) 1.03 AND 1.04 of the Agreement is/are amended to read as
follows:
1.03 "LOAN LIMIT" SHALL MEAN ---THREE MILLION FIVE HUNDRED THOUSAND
--00/100 CANADIAN DOLLARS ($3,500,000.00) OR SUCH LESSER AMOUNT AS MAY BE
CALCULATED BY THE BANK OF MONTREAL FROM TIME TO TIME UNDER THE LENDING
MARGIN CALCULATION, IF ANY, SET OUT IN THE ADDENDUM HERETO.
1.04 "LOAN RATE" SHALL MEAN A RATE EQUAL TO THE BANK'S PRIME RATE PLUS
QUARTER PER CENT (0.25%) PER ANNUM.
2. The Addendum to the Agreement is amended to read as follows:
All other terms and conditions of the Agreement remain in full force and
effect.
KING-O-MATIC INDUSTRIES LIMITED
/s/ Gordon King
--------------------------------------
Name Gordon King
Title President
/s/ John C. Kent
---------------------------------------
Name John C. Kent
Title Vice President
Page 1 of 1
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated February 14, 1997, in the Registration Statement
(Form S-1 No. 333-35543) and related Prospectus of Aftermarket Technology
Corp. dated October 1, 1997.
/s/ ERNST & YOUNG LLP
October 1, 1997
