<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
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
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE(3)
<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.
---------------------
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>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED SEPTEMBER , 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 11, 1997, THE LAST SALE PRICE OF
THE COMMON STOCK, AS REPORTED BY NASDAQ, WAS
$25 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" "Nissan Diesel"
"Saab" "Subaru" "Volvo"
-- picture of remanufactured engine
-- picture of remanufactured transmission
-- picture of transfer case
- -- right side of page:
-- "Independent Aftermarket"
-- "Ability to serve more than 70,000 transmission and general repair shops,
and over 40,000 retail stores"
-- picture of Intercont parts washer
-- picture of clutch kits and standard rebuild kits
-- picture of standard transmission parts
-- picture of remanufactured torque converter
-- picture of automatic transmission parts
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
<PAGE>
[INSERT GRAPHICS]
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.......................... 27
<CAPTION>
PAGE
----
<S> <C>
Management........................ 38
Principal and Selling
Stockholders.................... 45
Certain Transactions.............. 48
Description of Capital Stock...... 51
Description of Certain
Indebtedness.................... 53
Shares Eligible for Future Sale... 55
Certain United States Federal Tax
Consequences to Non-United
States Holders.................. 56
Underwriters...................... 59
Legal Matters..................... 60
Experts........................... 61
Available Information............. 61
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 $126 billion to $170 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 the issuance of
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 the "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
PRO FORMA YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------------------------- -------------------------------------------
1996 1997
1994 1995 1996 AS ADJUSTED 1996 1997 AS ADJUSTED
(1) (2) (3) (3)(4) (3) (5)(6) (4)(5)(6)
------------- ------------- ------------- ----------------- --------- ----------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales.............. $ 157,792 $ 210,820 $ 345,649 $ 345,649 $ 170,175 $ 195,812 $ 195,812
Cost of sales.......... 92,857 128,124 218,153 218,153 107,902 123,513 123,513
------------- ------------- ------------- -------- --------- ----------- --------
Gross profit........... 64,935 82,696 127,496 127,496 62,273 72,299 72,299
Selling, general and
administrative
expenses............. 30,361 43,189 67,793 67,793 31,516 39,076 39,076
Amortization of
intangible assets.... 3,057 3,751 5,137 5,137 2,573 2,566 2,566
------------- ------------- ------------- -------- --------- ----------- --------
Operating income....... 31,517 35,756 54,566 54,566 28,184 30,657 30,657
Interest expense,
net.................. 14,521 19,010 24,887 20,487 12,695 10,135 7,870
Income taxes........... 6,902 6,783 12,223 14,006 6,368 8,251 9,160
------------- ------------- ------------- -------- --------- ----------- --------
Income before
extraordinary item... 10,094 9,963 17,456 20,073 9,121 12,271 13,627
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 $ 13,627
------------- ------------- ------------- -------- --------- ----------- --------
------------- ------------- ------------- -------- --------- ----------- --------
Pro forma (8):
Income before
extraordinary item
per share.......... $ 1.11 $ 0.63
Shares used in
computation of
income before
extaordinary item
per share.......... 18,118 21,486
OTHER DATA:
Capital expenditures
(9).................. $ 3,186 $ 5,187 $ 7,843 $ 7,843 $ 3,541 $ 4,962 $ 4,962
</TABLE>
- ------------
(FOOTNOTES ON FOLLOWING PAGE)
6
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
PRO FORMA
AS ADJUSTED
DECEMBER 31, 1996 ACTUAL PRO FORMA (10)
----------------- --------- ----------- ---------------
(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 (11)............................ 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 excludes 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.
(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.
(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) As adjusted to give effect to the application of the estimated net proceeds
from this Offering. See "Use of Proceeds."
(11) Excludes deferred tax liabilities and deferred compensation. See Note 5 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 its product offerings, capture market share and improve
profitability. There can be no assurance that the Company will be able to
identify or reach mutually agreeable terms with acquisition candidates, or that
the Company will be able to manage additional businesses profitably or
successfully integrate such additional businesses into the Company without
substantial costs, delays or other problems. Acquisitions may involve a number
of special risks, including: initial reductions in the Company's reported
operating results; diversion of management's attention; unanticipated problems
or legal liabilities; and a possible reduction in reported earnings due to
amortization of acquired intangible assets in the event that such acquisitions
are made at levels that exceed the fair market value of net tangible assets.
Some or all of these items could have a material adverse effect on the Company.
There can be no assurance that businesses acquired in the future will achieve
sales and profitability that justify the investment therein. In addition, to the
extent that consolidation becomes more
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 $13.0 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, 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 19,445,578 shares of Common
Stock outstanding, of which approximately 10,787,000 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 exchangeable
10
<PAGE>
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, executive officers, warrant holders and certain of the
Original Stockholders 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, with subsequent 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.
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 (through September 11, 1997)..................................... 25 3/4 18 1/2
</TABLE>
On September 11, 1997, the last sale price of the Common Stock, as reported
by Nasdaq, was $25 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 (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 on 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."
(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 which 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 assumes
that the ATS and Trans Mart acquisitions occurred as of June 30, 1997. The
Unaudited Pro Forma Balance Sheet includes the Unaudited Consolidated Balance
Sheet of the Company, adjusted for the pro forma effects of the ATS and Trans
Mart acquisitions at 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 assume that the
1996 and 1997 Acquisitions occurred as of the beginning of the respective
periods. The Unaudited Pro Forma Statements of Income include the historical
consolidated statements of income of the Company, adjusted for the pro forma
effects of the 1996 and 1997 Acquisitions. 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 amounting to $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.
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. 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>
21
<PAGE>
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 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.
22
<PAGE>
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 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 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.
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.
23
<PAGE>
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 its 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 in 1995 primarily as a result of the acquisitions of
CRS, Mascot, and King-O-Matic. The three new acquisitions provided $24.7 million
in additional revenues. Net sales of remanufactured transmissions increased from
$68.4 million in 1994 to $85.9 million in 1995. The volume increase of
remanufactured transmissions resulted principally from the acquisitions of CRS
and Mascot, partially offset by a reduction in net sales of remanufactured
transmissions to Chrysler from $66.8 million in 1994 to $64.8 million in 1995.
Net sales to Chrysler reflected a decrease from $19.8 million during the third
quarter of 1994 to $13.2 million for the third quarter of 1995 as Chrysler
reduced its inventory of remanufactured transmissions, partially offset by an
increase from $16.4 million during the fourth quarter of 1994 to $18.9 million
for the fourth quarter of 1995. Net sales of repair kits, hard parts and other
drive train products increased $6.0 million from $69.0 million in 1994 to $75.0
million in 1995 primarily as a result of the Company's acquisition of
King-O-Matic. Net sales of remanufactured engines increased $4.6 million from
$15.2 million in 1994 to $19.8 million in 1995. The volume increase of
remanufactured engines resulted from increased demand from Western Auto at its
retail outlets, and the addition of new retail customers.
GROSS PROFIT. Gross profit as a percentage of net sales decreased from
41.1% in 1994 to 39.4% in 1995. The gross profit decrease of 1.7% of net sales
was due in large part to increased labor costs relating
24
<PAGE>
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
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 million
of Senior Notes offset by net borrowings of $19.0 million under the Credit
Facility. Subsequent to June 30, 1997, the 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 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 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
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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 July 1996, 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 C$3.0 million. 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. In pursuing acquisitions, the Company
will 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 financing.
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.
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 and expects to conduct selective
marketing studies in connection with this ongoing analysis.
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 $126 billion to $170 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, tested and
refurbished. 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 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 three years, the variety of engine models remanufactured by the
Company has increased from 50 to 75 as the Company has expanded the range of
engines offered to meet customer requirements.
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. 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 13 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 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
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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 shortage 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.
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
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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 salesforce
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 electronically 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 56 distribution
centers throughout the United States and Canada. Sales to Independent
Aftermarket customers accounted for 41.1% of the Company's revenues in 1996 and
43.9% 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. 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 higher quality of remanufactured components,
OEM dealers can enhance their cost competitiveness compared to independent
service centers through the increased use of remanufactured components as well
as providing end customers with a higher quality product. To the extent that OEM
dealers increase their level of post-warranty repairs, the Company is well
positioned to capitalize on this market growth. 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 transmission models that are not covered by
the current remanufacturing programs, although Chrysler has not released firm
orders for these transmission models.
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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 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 will leverage its breadth of products and distribution
network to supply "niche products" such as transmission filter kits and
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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
Jacksonville, Florida 12,000 1999 Distribution Center
</TABLE>
- ------------
(FOOTNOTE ON FOLLOWING PAGE)
34
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE LEASE EXPIRATION TYPE OF FACILITY/PRODUCTS
LOCATION SQ. FEET DATE MANUFACTURED
- ------------------------------------------------------- ------------- ------------------- -------------------------------
<S> <C> <C> <C>
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.
35
<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
36
<PAGE>
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.
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.
37
<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 46 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 64 Director
Mark C. Hardy 33 Director
Dr. Michael J. Hartnett 52 Director
Gerald L. Parsky 54 Director
Richard K. Roeder 47 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 1995 to 1996, Mr. Machota was Vice President -- Compensation for
Waste Management, Inc. and from 1993 to 1995 served as Waste Management's Vice
President -- Human Resource Services. From 1986 to 1993
38
<PAGE>
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 Inns
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,
39
<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. 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
40
<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 acquisition of
its first four subsidiaries.
(5) Includes five months' salary of $56,777 prior to the acquisition of CRS by
the Company in April 1995.
(6) Includes $86,759 of bonus earned prior to the acquisition of CRS by the
Company in April 1995.
41
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning grants of options issued by the
Company to the Named Executive Officers during the year ended December 31, 1996:
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM (2)
OPTIONS GRANTED TO EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME (#)(1) FISCAL YEAR ($/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
options accelerate 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
42
<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 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.
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<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.
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<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)........................................... 10,710,892 55.2 493,926(4) 9,845,966 50.6
Aurora Overseas Equity Partners I, L.P. (other beneficial
owners: Richard R. Crowell, Gerald L. Parsky and Richard
K. Roeder) (3)(5)........................................ 4,458,422 23.0 79,074(6) 4,008,348 20.6
General Electric Pension Trust (7)......................... 2,018,652 10.4 134,000(8) 1,884,652 9.7
3003 Summer Street
Stamford, CT 06905
Stephen J. Perkins (9)(10)................................. 166,000 * -- 166,000 *
John C. Kent (9)(11)....................................... 59,480 * -- 59,480 *
James R. Wehr (12)(13)..................................... 823,352 4.2 -- 823,352 4.2
Michael L. LePore (14)..................................... 23,392 * -- 23,392 *
400 Corporate Drive
Mahwah, NJ 07430
Kenneth A. Bear (13)(15)................................... 46,784 * -- 46,784 *
Robert Anderson (16)....................................... 14,628 * -- 14,628 *
10877 Wilshire Blvd.
Los Angeles, CA 90024
Richard R. Crowell (2)(5)(17)(18).......................... 11,899,042 61.4 573,000(19) 10,955,042 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)............................ 11,899,042 61.4 573,000(19) 10,955,042 56.3
Richard K. Roeder (2)(5)(17)(18)........................... 11,899,042 61.4 573,000(19) 10,955,042 56.3
William A. Smith (9)(22)................................... 755,981 3.9 56,000(23) 699,981 3.5
J. Richard Stonesifer (16)................................. -- -- -- -- --
812 Pitch Apple Lane
Naples, FL 34108
Somerville S Trust (18).................................... 341,928 1.8 237,000(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)........................................ 13,848,207 67.3 629,000(26) 13,219,207 64.2
</TABLE>
- ---------
* Less than 1%.
(FOOTNOTES ON FOLLOWING PAGE)
45
<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) 1,251,640 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
number of shares owned after this Offering excludes shares sold by GEPT and
the Somerville S Trust in this Offering. The proxy terminates upon the
transfer of such shares. AEP is a Delaware limited partnership the general
partner of which is ACP, a Delaware limited partnership whose general
partner is Aurora Advisors, Inc. ("AAI"). Messrs. Crowell, 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) 1,251,640 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 number of shares owned after
this Offering excludes shares sold by GEPT and the Somerville S Trust in
this Offering. The proxy terminates upon the transfer of such shares. AOEP
is a Cayman Islands limited partnership the general partner of which is
Aurora Overseas Capital Partners P.L. ("AOCP"), a Cayman Islands limited
partnership whose general partner is Aurora Overseas Advisors, Ltd.
("AOAL"). Messrs. Crowell, 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) Consists of 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.
46
<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 11,696 shares subject to options granted under the Stock
Incentive Plan that are not exercisable within 60 days of August 31, 1997.
(15) Consists of 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 1,187,898 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.
47
<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 has also agreed to pay to ACP a base annual management
fee of approximately $530,000 for advisory and consulting services pursuant to a
written management services agreement (the "Management Services Agreement"). ACP
is also entitled to reimbursements from the Company for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the performance of
its obligations under the Management Services Agreement. The base annual
management fee is subject to increase, at the discretion of the disinterested
members of the Company's Board of Directors, by up to an aggregate of $250,000
in the event the Company consummates one or more significant corporate
transactions. The base annual management fee was not increased as a result of
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
48
<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 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.
49
<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
Common Stock owned by it. See "Shares Eligible for Future Sale."
50
<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 of and number of shares constituting any wholly unissued series of
Preferred Stock. The issuance of Preferred Stock could adversely affect the
voting power and other rights of the holders of Common Stock. 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
51
<PAGE>
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 DGCL generally prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless (i) prior to the date of the business
combination, the transaction is approved by the board of directors of the
corporation, (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owns
at least 85% of the outstanding voting stock, or (iii) on or after the date such
stockholder became an interested stockholder, the business combination is
approved by the board and by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. A
"business combination" includes mergers, certain asset sales and certain other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years, did own) 15% or more of the corporation's voting stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a company will not be personally liable for monetary damages for
breach of their fiduciary duties as directors, except for liability for (i) any
breach of their duty of loyalty to the company or its stockholders, (ii) acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, (iii) unlawful payment of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the DGCL or (iv) any
transaction from which the director derived an improper personal benefit.
The Company's Bylaws provide that the Company shall pay all costs and
expenses (including legal expenses) incurred by and indemnify from any monetary
liability its present and former officers and directors who are named or
threatened to be named, a party to any administrative, civil, investigative or
criminal proceeding potentially seeking to impose liability on such person for
acts alleged to have been committed by such person while a director or officer
of the Company or while serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, unless a determination is made that the person did
not act in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, or, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. Such determination shall be made (i) by the Board by a majority vote
of a quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) of such a quorum is not obtainable, or even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written option, or (iii) by the stockholders of the Company. There is no action
or proceeding pending or, to the knowledge of the Company, threatened which may
result in a claim for indemnification by any director officer, employee or agent
of the Company.
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 which bear interest based upon the Alternate Base Rate are
due quarterly in arrears and on the Termination Date, and interest payments on
advances which bear interest based upon the Eurodollar Rate are due on the last
day of each relevant interest period (or, if such period exceeds three months,
quarterly after the first day of such period).
The 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 0.375% per annum 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 Company must also reimburse the
Bank for certain legal and other costs of the Bank and pay a fee on outstanding
letters of credit at a per annum equal to the applicable margin then in effect
for advances bearing interest at the Eurodollar Rate.
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In July 1996, the Company entered into a revolving credit agreement with
Bank of Montreal (the "BOM Revolving Credit Agreement") for a $3.0 million
Canadian revolving credit facility to accommodate the working capital needs of
the Company's Canadian subsidiaries. Subject to the satisfaction of customary
conditions, advances under the BOM Revolving Credit Agreement may be made, and
letters of credit may be issued, in each case up to an aggregate of $3.0 million
Canadian, due upon demand, and subject to annual review. The funds available to
be advanced may not exceed the aggregate of 75% of the eligible accounts
receivable of Mascot and King-O-Matic and 50% of the eligible inventory of
Mascot and King-O-Matic in each case as defined in the BOM Revolving Credit
Agreement. The amounts advanced under the BOM Revolving Credit Agreement bear
interest at the Bank of Montreal prime lending rate plus 0.25%. The agreement
contains certain 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. The
occurrence of this Offering will not constitute a "Change of Control" for
purposes of the Senior Notes.
In addition, indebtedness under the Indentures governing the Senior Notes
and the Credit Facility would be accelerated or a similar repurchase right would
be triggered upon a change of control, as defined in the relevant debt
instrument, and other debt the Company may incur could contain a similar
provision. In the event of any such occurrence, the Company would be required to
repay such indebtedness. See "Risk Factors -- Control of the Company,
Anti-Takeover Matters."
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this Offering, the Company will have 19,445,578 shares
of Common Stock outstanding, of which approximately 10,787,000 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
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 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 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.
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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,
executive officers, warrant holders and certain of the Original Stockholders
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.
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
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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
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
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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
has 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 will apply 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.
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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, 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 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.
61
<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
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<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>
[INSERT PROSPECTUS
INSIDE BACK COVER GRAPHICS]
<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>
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* 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.
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 (included on pages II-10 and II-11)
</TABLE>
- ---------
* To be filed by amendment.
(b) Financial Statement Schedules. The following financial statement
schedule is filed with Part II of this Registration Statement:
II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
applicable instructions or are inapplicable and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising out of the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the
II-8
<PAGE>
registrant in the successful defense in any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-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
September 12, 1997.
<TABLE>
<S> <C> <C>
AFTERMARKET TECHNOLOGY CORP.
By: /s/ STEPHEN J. PERKINS
-----------------------------------------
Stephen J. Perkins
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature to this
Registration Statement appears below hereby constitutes and appoints each of
John C. Kent and Joseph Salamunovich as such person's true and lawful
attorney-in-fact and agent with full power of substitution for such person and
in such person's name, place and stead, in any and all capacities, to sign and
to file with the Securities and Exchange Commission any and all amendments and
post-effective amendments to this Registration Statement, and any registration
statement in connection therewith which may be filed under Rule 462(b) under the
Securities Act, with exhibits thereto and other documents in connection
therewith, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes such
person might or could do in person, hereby ratifying and confirming all that
said attorney-in-fact and agent, or any substitute therefore, may lawfully do or
cause to be done by virtue thereof.
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>
/s/ STEPHEN J. PERKINS Chairman of the Board, President, Chief
------------------------------- Executive Officer (Principal Executive September 12, 1997
Stephen J. Perkins Officer)
/s/ JOHN C. KENT
------------------------------- Chief Financial Officer (Principal Financial September 12, 1997
John C. Kent Officer)
/s/ DANIEL C. BUIE
------------------------------- Corporate Controller (Principal Accounting September 12, 1997
Daniel C. Buie Officer)
/s/ ROBERT ANDERSON
------------------------------- Director September 12, 1997
Robert Anderson
</TABLE>
II-10
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------- ------------------------------------------------ ----------------------
<C> <S> <C>
/s/ RICHARD R. CROWELL
------------------------------- Director September 12, 1997
Richard R. Crowell
------------------------------- Director September 12, 1997
Dale F. Frey
/s/ MARK C. HARDY
------------------------------- Director September 12, 1997
Mark C. Hardy
/s/ MICHAEL J. HARTNETT
------------------------------- Director September 12, 1997
Michael J. Hartnett
/s/ GERALD L. PARSKY
------------------------------- Director September 12, 1997
Gerald L. Parsky
/s/ RICHARD K. ROEDER
------------------------------- Director September 12, 1997
Richard K. Roeder
/s/ WILLIAM A. SMITH
------------------------------- Chairman Emeritus of the Board of Directors September 12, 1997
William A. Smith
/s/ J. RICHARD STONESIFER
------------------------------- Director September 12, 1997
J. Richard Stonesifer
</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) 1,326,476
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>
BYLAWS
OF
AFTERMARKET TECHNOLOGY CORP.
Amended as of August 4, 1997
<PAGE>
AFTERMARKET TECHNOLOGY CORP.
(A DELAWARE CORPORATION)
BYLAWS
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of Aftermarket
Technology Corp. (hereinafter called the Corporation) in the State of
Delaware shall be at 1013 Centre Road, City of Wilmington, County of New
Castle, and the name of the registered agent in charge thereof shall be
Corporation Service Company.
SECTION 1.02 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the Board) may from
time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
SECTION 2.02 SPECIAL MEETINGS. A special meeting of the stockholders for
the transaction of any proper business may be called at any time by the Board
or by the President.
SECTION 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall
be held at such places, within or without the State of Delaware, as may from
time to time be designated by the person calling the respective meeting and
specified in the respective meeting and specified in the respective notices
or waivers of notice thereof.
SECTION 2.04 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall
be given not less than 10 nor more than 60 days before the date of the
meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid
envelope, directed to him at his post office address furnished by him to the
Secretary of the Corporation for such purpose or, if he shall not have
furnished to the Secretary his address for such purpose, then at his post
office address last known to the Secretary, or by transmitting a notice
thereof to him at
2
<PAGE>
such address by telegraph, cable, or wireless. Except as otherwise expressly
required by law, no publication of any notice of a meeting of the
stockholders shall be required. Every notice of a meeting of the
stockholders shall state the place, date and hour of the meeting, and, in the
case of a special meeting, shall also state the purpose or purposes for which
the meeting is called. Notice of any meeting of stockholders shall not be
required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment
is taken.
SECTION 2.05 QUORUM. Except in the case of any meeting for the election
of directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation
entitled to be voted thereat, present in person or by proxy, shall constitute
a quorum for the transaction of business at any meeting of the stockholders
of the Corporation or any adjournment thereof. In the absence of a quorum at
any meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or,
in the absence therefrom of all the stockholders, any officer entitled to
preside at, or to act as secretary of, such meeting may adjourn such meeting
from time to time. At any such adjourned meeting at which a quorum is present
any business may be transacted which might have been transacted at the
meeting as originally called.
SECTION 2.06 VOTING.
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share of fractional share of the
stock of the Corporation having voting rights on the matter in question and
which shall have been held by him and registered in his name on the books of
the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as
the record date for the determination of stockholders entitled to notice
of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (a) at
the close of business on the day next preceding the day on which notice
of the meeting shall be given or (b) if notice of the meeting shall be
waived, at the close of business on the day next preceding the day on
which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the
3
<PAGE>
pledgee to vote thereon, in which case only the pledgee, or his proxy, may
represent such stock and vote thereon. Stock having voting power standing of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants in common, tenants by entirety or otherwise, or
with respect to which two or more persons have the same fiduciary
relationship, shall be voted in accordance with the provisions of the General
Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from this date unless said
proxy shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect
of revoking the same unless he shall in writing so notify the secretary of
the meeting prior to the voting of the proxy. At any meeting of the
stockholders all matters, except as otherwise provided in the Certificate of
Incorporation, in these Bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present in person or by proxy
and entitled to vote thereat and thereon, a quorum being present. The vote at
any meeting of the stockholders of any question need not be by ballot, unless
so directed by the chairperson of the meeting. On a vote by ballot each
ballot shall be signed by the stockholder voting, or by his proxy, if there
be such proxy, and it shall state the number of shares voted.
SECTION 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation
shall prepare and make, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of the
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of a least 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected
by any stockholder who is present.
SECTION 2.08 JUDGES. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of
his ability. Such judges shall decide upon the qualification of the voters
and shall report the number of shares represented at the meeting and entitled
to vote on such question, shall conduct and accept the votes, and, when the
voting is completed, shall ascertain and report the number of shares voted
respectively for and against the question. Reports of judges shall be in
writing and subscribed and delivered by them to the Secretary of the
Corporation. The judges need not be stockholders of the Corporation, and any
officer of the Corporation may be a judge on any question other than a vote
for or against a proposal in which he shall have a material interest.
4
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.01 GENERAL POWERS. The property, business and affairs of
the Corporation shall be managed by the Board.
SECTION 3.02 NUMBER AND TERM OF OFFICE. The number of directors shall
be not less than one nor more than 15 until changed in accordance with
applicable law. The exact number of directors shall be fixed from time to
time, within the limits specified, by resolutions of the Board or the
stockholders. Subject to the foregoing provisions for changing the exact
number of directors, the number of directors of the Corporation shall be 10.
Directors need not be stockholders. Each of the directors of the Corporation
shall hold office until his successor shall have been duly elected and shall
qualify or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3.03 ELECTION OF DIRECTORS. The directors shall be elected
annually by the stockholders of the Corporation and the persons receiving
the greatest number of votes, up to the number of directors to be elected,
shall be the directors.
SECTION 3.04 RESIGNATIONS. Any director of the Corporation may resign
at any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately
upon its receipt; and unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 3.05 VACANCIES. Except as otherwise provided in the
Certificate of Incorporation, any vacancy in the Board, whether because of
death, resignation, disqualification, an increase in the number of directors,
or any other cause, may be filled by vote of the majority of the remaining
directors, although less than a quorum. Each director so chosen to fill a
vacancy shall hold office until his successor shall have been elected and
shall qualify or until he shall resign or shall have been removed in the manner
hereinafter provided.
SECTION 3.06 PLACE OF MEETING, ETC. The Board may hold any of its
meetings at such place or places within or without the State of Delaware as
the Board may from time to time by resolution designate or as shall be
designated by the person or persons calling the meeting or in the notice or a
waiver of notice of any such meeting. Directors may participate in any
regular or special meeting of the Board by means of conference telephone or
similar communications equipment pursuant to which all persons participating
in the meeting of the Board can hear each other, and such participation shall
constitute presence in person at such meeting.
SECTION 3.07 FIRST MEETING. The Board shall meet as soon as
practicable after each annual election of directors and notice of such first
meeting shall not be required.
SECTION 3.08 REGULAR MEETINGS. Regular meetings of the Board may be
held at such times as the Board shall from time to time by resolution
determine. If any day fixed for a
5
<PAGE>
regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting shall be held at the same hour and place on the
next succeeding business day not a legal holiday. Except as provided by law,
notice of regular meetings need not be given.
SECTION 3.09 SPECIAL MEETINGS. Special meetings of the Board shall be
held whenever called by the President or a majority of the authorized number
of directors. Except as otherwise provided by law or by these Bylaws, notice
of the time and place of each such special meeting shall be given to each
director in writing and delivered personally, mailed to his or her address
appearing on the records of the Corporation, or given by telegram, cable,
telephone, telecopy, facsimile or a nationally recognized overnight delivery
service.
(i) Notice to directors by mail shall be given at least two
business days before the meeting and shall be deemed to be given
when mailed to the director at his or her address appearing on the
records of the Corporation.
(ii) Notice to directors by telegram, cable, personal delivery,
telephone or wireless shall be given a reasonable time before the
meeting but in no event less than one hour before the meeting.
Notice by telegram or cable shall be deemed to be given when the
telegram or cable addressed to the director at his or her address
appearing on the records of the Corporation is delivered to the
telegraph company. Notice by telephone or wireless shall be deemed
to be given when transmitted by telephone or wireless to the
telephone number or wireless call designation appearing on the
records of the Corporation for the director (regardless of
whether the director shall have personally received such telephone
call or wireless message), provided confirmation of transmission
shall be made promptly by telegram or cable in the manner specified
above.
Except where otherwise required by law or by these Bylaws, notice of the
purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who is present at
such meeting, except a director who shall attend such meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 3.10 QUORUM AND MANNER OF ACTING. Except as otherwise provided
in these Bylaws or by law, the presence of a majority of the authorized
number of directors shall be required to constitute a quorum for the
transaction of business at any meeting of the Board, and all matters shall be
decided at any such meeting, a quorum being present, by the affirmative votes
of a majority of the directors present. In the absence of a quorum, a
majority of directors present at any meeting may adjourn the same from time
to time until a quorum shall be present. Notice of any adjourned meeting need
not be given. The directors shall act only as a Board, and the individual
directors shall have no power as such.
SECTION 3.11 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of
the Board or of such committee, as the case
6
<PAGE>
may be, and such written consent is filed with the minutes of proceedings of
the Board or committee.
SECTION 3.12 REMOVAL OF DIRECTORS. Subject to the provisions of the
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the voting power of the Corporation given at a special meeting of
the stockholders called for the purpose.
SECTION 3.13 COMPENSATION. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution
of the Board. The Board may also provide that the Corporation shall reimburse
each such director for any expense incurred by him on account of his
attendance at any meetings of the Board or Committees of the Board. Neither
the payment of such compensation nor the reimbursement of such expenses shall
be construed to preclude any director from serving the Corporation or its
subsidiaries in any other capacity and receiving compensation therefor.
SECTION 3.14 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of one or more of the directors of the Corporation. Any such
committee, to the extent provided in the resolution of the Board and except as
otherwise limited by law, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it. Any such committee shall keep written
minutes of its meetings and report the same to the board at the next regular
meeting of the Board. In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
ARTICLE IV
Officers
SECTION 4.01 NUMBER. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof and their
respective titles to be determined by the Board), a Secretary and a Chief
Financial Officer.
SECTION 4.02 ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The
officers of the Corporation, except such officers as may be appointed in
accordance with Section 4.03, shall be elected annually by the Board at
the first meeting thereof held after the election thereof. Each officer shall
hold office until his successor shall have been duly chosen and shall qualify
or until his resignation or removal in the manner hereinafter provided.
SECTION 4.03 ASSISTANTS, AGENTS AND EMPLOYEES, ETC. In addition to
the officers specified in Section 4.01, the Board may appoint other
assistants, agents and employees as it may deem necessary or advisable,
including one or more Assistant Secretaries, and one or more Assistant
Treasurers, each of whom shall hold office for such period, have such authority,
7
<PAGE>
and perform such duties as the Board may from time to time determine. The
Board may delegate to any officer of the Corporation or any committee of the
Board the power to appoint, remove and prescribe the duties of any such
assistants, agents or employees.
SECTION 4.04 REMOVAL. Any officer, assistant, agent or employee of the
Corporation may be removed, with or without cause, at any time: (i) in the
case of an officer, assistant, agent or employee appointed by the Board, only
by resolution of the Board; and (ii) in the case of an officer, assistant,
agent or employee, by any officer of the Corporation or committee of the
Board upon whom or which such power of removal may be conferred by the Board.
SECTION 4.05 RESIGNATIONS. Any officer or assistant may resign at any
time by giving written notice of his resignation to the Board or the
Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein, or, if the time be not specified, upon receipt
thereof by the Board or the Secretary, as the case may be; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 4.06 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 THE PRESIDENT. The President of the Corporation shall be
the chief executive officer of the Corporation and shall have, subject to the
Control of the Board, general and active supervision and management over the
business of the Corporation and over its several officers, assistants, agents
and employees.
SECTION 4.08 THE VICE PRESIDENTS. Each Vice President shall have such
powers and perform such duties as the Board may from time to time prescribe.
At the request of the President, or in case of the President's absence or
inability to act upon the request of the Board, a Vice President shall
perform the duties of the President and when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the President.
SECTION 4.09 THE SECRETARY. The Secretary shall, if present, record
the proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given
in accordance with these Bylaws and as required by law; he shall be custodian
of the seal of the Corporation and shall affix and attest the seal to all
documents to be executed on behalf of the Corporation under its seal; and, in
general, he shall perform all the duties incident to the office of Secretary
and such other duties as may from time to time be assigned to him by the
Board.
SECTION 4.10 THE CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall have the general care and custody of the funds and securities of the
Corporation, and shall deposit all such funds in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected by
the Board. He shall receive, and give receipts for, moneys
8
<PAGE>
due and payable to the Corporation from any source whatsoever. He shall
exercise general supervision over expenditures and disbursements made by
officers, agents and employees of the Corporation and the preparation of such
records and reports in connection therewith as may be necessary or
desirable. He shall, in general, perform all other duties incident to the
office of Chief Financial Officer and such other duties as from time to time
may be assigned to him by the Board.
SECTION 4.11 COMPENSATION. The compensation of the officers of the
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason
of the fact that he is also a director of the Corporation. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving proper
compensation therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
SECTION 5.01 EXECUTION OF CONTRACTS. The Board, except as in these
Bylaws otherwise provided, may authorize any officer or officers, agent or
agents, to enter into any contact or execute any instrument in the name of
and on behalf of the Corporation, and such authority may be general or
confined to specific instances; and unless so authorized to bind the
Corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or in any amount.
SECTION 5.02 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person
or persons and in such manner as, from time to time, shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney
shall give such bond, if any, as the Board may require.
SECTION 5.03 DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board
may select, or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to
whom such power shall have been delegated by the Board. For the purpose of
deposit and for the purpose of collection for the account of the Corporation,
the President, any Vice President or the Chief Financial Officer (or any
other officer or officers, assistant or assistants, agent or agents, or
attorney or attorneys of the Corporation who shall from time to time be
determined by the Board) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Corporation.
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SECTION 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board may from
time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the Board
may select or as may be selected by any officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation to
whom such power shall have been delegated by the Board. The Board may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which
they shall be issued and shall be signed in the name of the Corporation by
the President or a Vice President, and by the Secretary or an Assistant
Secretary or by the Chief Financial Officer or an Assistant Treasurer. Any
of or all of the signatures on the certificates may be a facsimile. In
case any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been placed upon, any such certificate, shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, such certificate may nevertheless be issued by the Corporation
with the same effect as though the person who signed such cerficiate, or
whose facsimile signature shall have been placed thereupon, were such officer,
transfer agent or registrar at the date of issue. A record shall be kept
of the respective names of the persons, firms or corporations owning the
stock represented by such certificates, the number and class of shares
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Corporation for exchange or transfer
shall be cancelled, and no new certificate or certificates shall be issued
in exchange for any existing certificate until such existing certificate shall
have been so cancelled, except in cases provided for in Section 6.04.
SECTION 6.02 TRANSFERS OF STOCK. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the Secretary, or with a
transfer clerk or a transfer agent appointed as provided in Section 6.03,
and upon surrender of the certificate or certificates for such shares properly
endorsed and the payment of all taxes thereon. The person in whose name
shares of stock stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation. Whenever any
transfer of shares shall be made for collateral security, and not absolutely,
such fact shall be so expressed in the entry of transfer if, when the
certificate or certificates shall be presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation
to do so.
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SECTION 6.03 REGULATIONS. The Board may make such rules and regulations
as it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of
the Corporation. It may appoint, or authorize any officer or officers to
appoint, one or more transfer clerks or one or more transfer agents and one
or more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them.
SECTION 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft,
destruction or mutilation and upon the giving of a bond of indemnity to the
Corporation in such form and in such sum as the Board may direct; provided,
however, that a new certificate may be issued without requiring any bond
when, in the judgment of the Board, it is proper so to do.
SECTION 6.05 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In
order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
other change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix, in advance, a record date, which shall not
be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If in any case involving the
determination of stockholders for any purpose other than notice of or voting
at a meeting of stockholders or expressing consent to corporate action
without a meeting the Board shall not fix such a record date, the record date
for determining stockholders for such purpose shall be the close of business
on the day on which the Board shall adopt the resolution relating thereto. A
determination of stockholders entitled to notice of or to vote at a meeting
of stockholders shall apply to any adjournment of such meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01 ACTION, ETC., OTHER THAN BY OR IN THE RIGHT OF THE
CORPORATION. The Corporation shall 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 (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he 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
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believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
SECTION 7.02 ACTIONS, ETC., BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with
the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
SECTION 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall
be made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 7.01 and 7.02. 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) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
SECTION 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful
on the merits or otherwise in defense of any action, suit or proceeding
referred to in Section 7.01 or 7.02, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
SECTION 7.05 PREPAID EXPENSES. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be
paid by the Corporation in advance of the final disposition of such action,
suit or proceeding as authorized by the Board in the specific case upon
receipt of an undertaking by or on behalf of the director or officer to repay
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such amount unless it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the Board deems appropriate.
SECTION 7.06 OTHER RIGHTS AND REMEDIES. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any Bylaws, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
SECTION 7.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and incurred
by him in any such capacity, or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
liability under the provisions of this Article.
SECTION 7.08 CONSTITUENT CORPORATIONS. For the purposes of this
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director, officer, employee
or agent of such a constituent corporation or is or was serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this
Article with respect to the resulting or surviving corporation as he would if
he had served the resulting or surviving corporation in the same capacity.
SECTION 7.09 OTHER ENTERPRISES, FINES AND SERVING AT CORPORATION'S
REQUEST. For purposes of this Article, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to any employee benefit plan;
and references to "serving at the request of the Corporation" shall include
any service as a director, officer, employee or agent of the Corporation
which imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 SEAL. The Board shall provide a corporate seal, which
shall be in the form of a circle and shall bear the name of the Corporation
and words and figures showing that the Corporation was incorporated in the
State of Delaware and the year of incorporation.
SECTION 8.02 WAIVER OF NOTICES. Whenever notice is required to be given
by these Bylaws or the Certificate of Incorporation or by law, the person
entitled to said notice may waive such notice in writing, either before or
after the time stated therein, and such waiver shall be deemed equivalent to
notice.
SECTION 8.03 AMENDMENTS. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of
a majority of the number of directors then in office as directors, acting at
any meeting of the Board, or (ii) by the stockholders, at any annual meeting
of stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any Bylaws made
or altered by the stockholders may be altered or repealed by either the Board
or the stockholders.
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CERTIFICATE OF SECRETARY
The undersigned, being the duly elected Secretary of Aftermarket
Technology Corp., a Delaware corporation, hereby certifies that the Bylaws to
which this Certificate is attached were duly adopted by the Board of
Directors of said Corporation and are in full force and effect as of
August 4, 1997.
/s/ Joseph Salamunovich
---------------------------------------
Joseph Salamunovich
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of
August 1, 1997 by and between William A. Smith, a natural person ("Executive"),
and Aftermarket Technology Corp., a Delaware corporation (the "Company").
R E C I T A L S
A. Executive and the Company entered into that certain Employment
Agreement dated July 29, 1994 (the "Prior Agreement") pursuant to which
Executive now serves as Chairman of the Board of Directors of the Company; and
B. Concurrently herewith, Executive is resigning as Chairman of the
Board and is becoming Chairman Emeritus of the Board ( and will still be a
director) and in connection therewith Executive and the Company desire to
terminate the Prior Agreement and Executive and the Company desire to enter into
this Agreement in replacement of the Prior Agreement;
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth below, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM.
(a) TIME AND BEST EFFORTS. Subject to the terms set forth
herein, the Company agrees to employ Executive as Chairman Emeritus of the Board
of Directors and Executive hereby accept such employment. During the term of
his employment, Executive will devote such time, efforts and attention as are
reasonably necessary to the performance of his duties hereunder and to the
business and affairs of the Company. The Company understands that concurrently
herewith Executive is entering into a management services agreement with Aurora
Capital Partners L.P. and agrees that Executive's duties hereunder will not
impair in any substantial way his ability to perform under such agreement.
(b) DUTIES. Executive shall serve in an executive capacity and
shall perform such duties as are customarily associated with his position as
Chairman Emeritus, consistent with the Bylaws of the Company and as required by
the Company's Board of Directors.
(c) COMPANY POLICIES. The employment relationship between the
parties shall be governed by the general employment policies and practices of
the Company, including but not limited to those relating to protection of
confidential information and assignment of inventions, except that when the
terms of this Agreement differ from or are in conflict with such employment
policies and practices, this Agreement shall control.
<PAGE>
(d) TERM. The term of employment of Executive under this
Agreement shall begin as of the date hereof and end on December 31, 1998,
subject to the provisions for termination contained in Section 4.
2. COMPENSATION AND BENEFITS.
(a) SALARY. Executive shall receive for services to be rendered
hereunder an annual salary of $126,224, payable on the Company's regular payroll
dates, subject to standard withholdings for taxes and social security and the
like. Effective January 1, 1998, Executive's salary will be increased by the
percentage increase in the United States Department of Labor's Bureau of Labor
Statistics, Consumer Price Index, All Urban Consumers, All Items, U.S. City
Average (or any successor to such index).
(b) PARTICIPATION IN BENEFIT PLANS. During the term hereof,
Executive shall be entitled to participate in any group insurance,
hospitalization, medical, dental, health and accident, disability or similar
plan or program of the Company now existing or established hereafter to the
extent that he is eligible under the general provisions thereof. The Company,
may, in its sole discretion and from time to time, establish additional senior
management benefit programs as it deems appropriate. Executive understands that
any such plans may be modified or eliminated in the Company's discretion in
accordance with applicable law.
(c) VACATION. Executive shall be entitled to a period of annual
vacation time equal to the greater of (i) the period provided to managers of
equal position by the Company's policies and procedures or (ii) four weeks. The
days selected for Executive's vacation must be mutually agreeable to the Company
and Executive.
(d) 401(K) PLAN. To the extent legally permitted, Executive
shall be entitled to place a portion of his salary in a 401(k) or other
qualified deferred tax annuity plan of the Company.
(e) LIFE INSURANCE. During the term hereof, the Company shall
pay for a $1,000,000 life insurance policy covering Executive, for the benefit
of such beneficiaries as Executive shall designate.
(f) BONUS. Executive may receive a bonus if and to the extent
determined by the Board of Directors in its sole discretion.
3. REASONABLE BUSINESS EXPENSES. Executive shall be reimbursed for
documented and reasonable business expenses in connection with the performance
of his duties hereunder.
4. TERMINATION OF EMPLOYMENT. The date on which Executive's
employment by the Company ceases, under any of the following circumstances,
shall be defined herein as the "Termination Date."
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(a) TERMINATION FOR CAUSE.
(i) TERMINATION; PAYMENT OF ACCRUED SALARY AND VACATION.
The Board may terminate Executive's employment with the Company at any time
for cause, immediately upon written notice to Executive of the
circumstances leading to such termination for cause. If Executive's
employment is terminated for cause, Executive shall receive payment for all
accrued salary and vacation time through the Termination Date, which in
this event shall be the date upon which notice of termination is given.
The Company shall have no obligation to pay severance of any kind nor to
make any payment in lieu of notice if Executive is terminated for cause.
(ii) DEFINITION OF CAUSE. "CAUSE" means the occurrence or
existence of any of the following with respect to Executive, as determined
by the Board in its sole discretion: (A) a material breach by Executive of
his duty not to engage in any transaction that represents, directly or
indirectly, self-dealing with the Company or any of its Affiliates which
has not been approved by the Board or of the terms of his employment, if in
any such case such material breach remains uncured after the lapse of 30
days following the date that the Company has given Executive written notice
thereof; (B) the repeated material breach by Executive of any duty referred
to in clause (A) above as to which at least one written notice has been
given pursuant to such clause (A); (C) any act of dishonesty,
misappropriation, embezzlement, intentional fraud or similar conduct
involving the Company or any of its Affiliates; (D) the conviction or the
plea of nolo contendere or the equivalent in respect of a felony involving
moral turpitude; (E) any intentional damage of a material nature to any
property of the Company or any of its Affiliates; or (F) the repeated
non-prescription use of any controlled substance or the repeated use of
alcohol or any other non-controlled substance which, in the reasonable
determination of the Board renders Executive unfit to serve in his capacity
as an officer or employee of the Company or its Affiliates.
(b) VOLUNTARY TERMINATION. Executive may voluntarily terminate
his employment with the Company at any time upon 30 days' prior written notice.
On the Termination Date, Executive shall receive payment for all accrued salary
and vacation time through the Termination Date, after which no further
compensation of any kind or severance payment will be payable under this
Agreement.
(c) TERMINATION UPON DISABILITY. The Company may terminate
Executive's employment in the event Executive suffers a disability that renders
Executive unable to perform the essential functions of his position, even with
reasonable accommodation in compliance with the Americans with Disabilities Act,
for four consecutive months within any eight-month period. After the
Termination Date, which in this event shall be the date upon which notice of
termination is given, no further compensation will be payable under this
Agreement, except that Executive shall be entitled to continued health coverage
at the Company's expense for 12 months following the Termination Date and such
other benefits as are provided under the Company's long-term disability plan, if
any, then in effect.
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(d) TERMINATION WITHOUT CAUSE.
(i) RIGHT TO TERMINATE; SEVERANCE. The Company may
terminate Executive's employment without "cause" (as defined above) at any
time upon 30 days' prior written notice. On the Termination Date,
Executive shall receive payment for all accrued salary and vacation time
through the Termination Date and thereafter the Company shall pay Executive
as severance an amount equal to Executive's salary for the period from the
Termination Date to December 31, 1998, less standard withholdings for taxes
and social security and the like. The severance shall be payable in equal
installments on each of the Company's regular payroll dates.
(ii) BENEFITS. All benefits provided under Section 2(b) and
2(e) shall be extended, at Executive's election and the Company's expense,
to the extent permitted by the Company's insurance policies and benefit
plans, until December 31, 1998, except (A) as required by applicable law
(E.G., COBRA ) or (B) to the extent that comparable benefits are provided
to Executive under any other arrangement with the Company or its affiliate.
(e) FUNDAMENTAL CHANGES. If the Company (i) materially
diminishes Executive's duties, authority, responsibility or compensation without
performance justification or (ii) breaches this Agreement in any material
respect, Executive may terminate his employment PROVIDED that Executive has
given the Company 15 days' written notice prior to such termination and the
Company has not cured such diminution or breach by the end of such 15-day
period. A termination in such circumstances shall be treated as a Company
termination without cause and Executive shall be entitled to the severance
payments provided in Section 5(d).
(f) TERMINATION UPON DEATH. If Executive dies prior to
December 31, 1998, the Company shall continue coverage of Executive's dependents
(if any) under all benefit plans or programs under Section 2(b) for a period of
12 months.
5. PROPRIETARY INFORMATION OBLIGATIONS. Prior to and during the
term of employment under this Agreement, Executive has had and/or will have
access to and has become and/or will become acquainted with the confidential and
proprietary information of the Company, including but not limited to
confidential and proprietary information or plans regarding the Company's
customer relationships, personnel, or sales, marketing, and financial operations
and methods; trade secrets; formulas; devices; secret inventions; processes and
other compilations of information, records, and specifications (collectively
"Proprietary Information"). Executive shall not disclose any of the Proprietary
Information directly or indirectly, or use it in any way, either during the term
of this Agreement, or at any time thereafter, except as required in the course
of his employment for the Company or as authorized in writing by the Company.
All files, records, documents, computer-recorded information, drawings,
specifications, equipment and similar items relating to the business of the
Company, whether prepared by Executive or otherwise coming into his possession,
shall remain the exclusive property of the Company and shall not be removed from
the premises of the Company under any circumstances whatsoever without the prior
written consent of the Company, except when (and only for the period)
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necessary to carry out Executive's duties hereunder, and if removed shall be
immediately returned upon any termination of his employment and no copies
thereof shall be kept by Executive.
6. NONINTERFERENCE. While employed by the Company, Executive agrees
not to interfere with the business of the Company by directly or indirectly
soliciting, attempting to solicit, inducing, or otherwise causing any employee
who is an employee of the Company at the time of such solicitation to terminate
his or her employment in order to become an employee, consultant or independent
contractor to or for any other employer.
7. NONCOMPETITION. Executive agrees that during the term of this
Agreement and, if this Agreement is terminated pursuant to Section 4(a) or 4(b),
for a period of 18 months after the Termination Date, he will not, without the
prior written consent of the Company, directly or indirectly, have an interest
in, be employed by, be connected with, or have an interest in, as an employee,
consultant, officer, director, partner, stockholder or joint venturer, in any
person or entity owning, managing, controlling, operating or otherwise
participating or assisting in any business that is similar to or in competition
with the business of the Company as it existed during the term of this Agreement
in any state in which the Company was conducting business on or before the
Termination Date and continues to do so thereafter; PROVIDED, HOWEVER, that the
foregoing shall not prevent Executive from being a stockholder of less than 1.0%
of the issued and outstanding securities of any class of a corporation listed on
a national securities exchange or designated as national market system
securities on an interdealer quotation system by the Nation Association of
Securities Dealers, Inc.
8. MISCELLANEOUS.
(a) NOTICES. Any notices provided hereunder must be in writing
and shall be deemed effective upon the earlier of personal delivery (including
personal delivery by telecopy, if a copy is sent by mail as follows) or the
third day after mailing by first class mail to the recipient at the address
indicated below:
To the Company:
Aftermarket Technology Corp.
900 Oakmont Lane, Suite 100
Westmont, Illinois 60559
Attention: Chairman of the Board
Facsimile: (630) 455-2650
To Executive:
William A. Smith
629 SW 293rd Street
Federal Way, Washington 98023
Facsimile: (253) 529-1472
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or to such other address or to the attention of such other person as the
recipient party will have specified by prior written notice to the sending
party.
(b) SEVERABILITY. If any term or provision (or any portion
thereof) of this Agreement is determined by a court to be invalid, illegal or
incapable of being enforced by any rule of law or public policy, all other terms
and provisions (or other portions thereof) of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or provision (or
any portion thereof), is invalid, illegal or incapable of being enforced, this
Agreement shall be deemed to be modified so as to effect the original intent of
the parties as closely as possible to the end that the transactions contemplated
hereby and the terms and provisions hereof are fulfilled to the greatest extent
possible.
(c) ENTIRE AGREEMENT. This Agreement constitutes the final,
complete, and exclusive embodiment of the entire agreement and understanding
between the parties related to the subject matter hereof and supersedes all
prior or contemporaneous understandings, agreements, or representations by or
between the parties, written or oral, including without limitation, the Prior
Agreement.
(d) COUNTERPARTS. This Agreement may be executed on separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
agreement.
(e) SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive and the Company, and
their respective successors and assigns, except that Executive may not assign
any of his duties hereunder and he may not assign any of his rights hereunder
without the prior written consent of the Company.
(f) ATTORNEY'S FEES. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement, or to recover damages for
breach therefore, the prevailing party shall be entitled to reasonable
attorney's fees, as well as costs and disbursements, in addition to any other
relief to which he or it may be entitled.
(g) AMENDMENTS; NO WAIVERS. Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by all parties hereto, or in the case of a
waiver, by the party against whom the waiver is to be effective. No waiver by a
party of any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior or
subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent occurrence. No failure or delay by a party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided shall be cumulative and not exclusive of any rights or
remedies provided by law.
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(h) GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal laws (without reference to choice
or conflict of laws) of the State of Delaware.
(i) CONSTRUCTION. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. Neither party hereto, nor its respective counsel, shall
be deemed the drafter of this Agreement, and all provisions of this Agreement
shall be construed in accordance with their fair meaning, and not strictly for
or against either party hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
/s/ William A. Smith
------------------------------------------
William A. Smith
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Stephen J. Perkins
---------------------------------------
Stephen J. Perkins
President and Chief Executive Officer
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EXHIBIT 10.40
AMENDMENT AND CONSENT
---------------------
AMENDMENT AND CONSENT, dated as of July 25, 1997 (this "AMENDMENT AND
CONSENT"), to the Credit Agreement, dated as of February 14, 1997 (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), among AFTERMARKET TECHNOLOGY CORP., a Delaware corporation (the
"BORROWER"), the several banks and other financial institutions from time to
time parties thereto (the "LENDERS") and THE CHASE MANHATTAN BANK, a New York
banking corporation, as agent (in such capacity, the "AGENT").
W I T N E S S E T H:
--------------------
WHEREAS, the Borrower, the Lenders and the Agent are parties to the
Credit Agreement;
WHEREAS, the Borrower has formed a new entity ATS Remanufacturing Inc.
("Newco") which is a wholly-owned subsidiary of CRS, Inc., a wholly-owned
subsidiary of the Borrower ("CRS");
WHEREAS, either Newco or CRS intends to purchase (the "ATS ACQUISITION")
certain assets of Automatic Transmission Shops Inc. for consideration of
approximately $30,700,000, approximately $12,000,000 of which will be payable
upon the closing of the ATS Acquisition and up to $18,700,000 of which will
be payable over the eight years following such closing;
WHEREAS, the Credit Agreement provides that acquisitions for
consideration in excess of $10,000,000 require the consent of the Required
Lenders; and
WHEREAS, the Borrower has requested that the Required Lenders consent to
the ATS Acquisition, and the Required Lenders are agreeable to such request
upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, and for other valuable consideration the receipt of which
is hereby acknowledged, the Borrower, the undersigned Lenders and the Agent
hereby agree as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement shall have
such defined meanings when used herein unless otherwise defined herein.
2. CONSENT UNDER SUBSECTION 8.10(j). Pursuant to subsection 8.10(j), the
undersigned Lenders hereby consent to the ATS Acquisition, PROVIDED that (i)
the aggregate consideration payable by the Borrower and its Subsidiaries does
not exceed $30,700,000, (ii) $12,000,000 of such amount is paid in cash at
the closing of the ATS Acquisition, which closing shall not occur later than
August 31, 1997, and (iii) additional amounts, consisting of (x) the deferred
purchase price, (y) deferred bonus payments and (z) deferred employee
payments, payable by the Borrower and its Subsidiaries under the agreements
related to the ATS Acquisition do not exceed $18,700,000 in the aggregate.
3. AMENDMENT OF SUBSECTION 8.2. Subsection 8.2 of the Credit Agreement
is hereby amended to insert at the end of subsection 8.2 the following new
8.2(i), with appropriate changes to the punctuation of such subsection to
reflect such change:
<PAGE>
"(i) Indebtedness of the Borrower and its Subsidiaries under the
definitive agreements related to the acquisition by ATS Remanufacturing Inc.
or CRS, Inc. of certain assets of Automatic Transmission Shops, Inc., as such
agreements are in effect on the date of the closing of such transaction, to
the extent that obligations thereunder to pay certain deferred consideration
and related amounts in an aggregate amount not to exceed $18,700,000 (as
reduced, from time to time, pursuant to payments thereof under, or otherwise
pursuant to the terms of, the definitive agreements referred to above)
constitute Indebtedness."
4. CONDITIONS TO EFFECTIVENESS. This Amendment and Consent shall become
effective upon (i) receipt by the Agent of counterparts hereof duly executed
by the Required Lenders and the Borrower, along with the Consent in the form
attached hereto executed by each of the Guarantors, (ii) satisfaction of the
conditions set forth in the proviso to subsection 8.10(j) and (iii)
satisfaction of the requirements of subsections 7.9(b) and 8.16 with respect
to Newco.
5. REPRESENTATIONS. On and as of the date hereof, the Borrower confirms,
reaffirms and restates that the representations and warranties set forth in
section 5 of the Credit Agreement and in the other Loan Documents are true and
correct in all material respects, PROVIDED that the references to the Credit
Agreement therein shall be deemed to be references to this Amendment and
Consent and to the Credit Agreement as affected by this Amendment and
Consent.
6. LIMITED CONSENT. Except as expressly waived and amended herein, the
Credit Agreement shall continue to be, and shall remain, in full force and
effect. This Amendment and Consent shall not be deemed to be a waiver of, or
consent to, or a modification or amendment of, any other term or condition of
the Credit Agreement or any other Loan Document or to prejudice any other
right or rights which the Lenders may now have or may have in the future
under or in connection with the Credit Agreement or any of the instruments or
agreements referred to therein, as the same may be amended from time to time.
7. COUNTERPARTS. This Amendment and Consent may be executed by one or
more of the parties hereto in any number of separate counterparts and all of
said counterparts taken together shall be deemed to constitute one and the
same instrument.
8. GOVERNING LAW. THIS AMENDMENT AND CONSENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Consent to be executed and delivered by their respective duly authorized
officers as of the date first above written.
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Stephen J. Perkins
-------------------------------
Title: President and CEO
THE CHASE MANHATTAN BANK, as
Agent and as a Lender
By: /s/ Julie S. Long
-------------------------------
Title: Vice President
<PAGE>
WELLS FARGO BANK, NA
By: /s/ Robert F. Banks
-------------------------------
Title: Vice President
FIRST NATIONAL BANK OF CHICAGO
By: /s/ Conformed Signature
-------------------------------
Title:
HARRIS TRUST & SAVINGS
By: /s/ Conformed Signature
-------------------------------
Title:
LASALLE NATIONAL BANK
By: /s/ Conformed Signature
-------------------------------
Title:
BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION,
D/B/A SEAFIRST BANK
By: /s/ Conformed Signature
-------------------------------
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Mark M. Harden
-------------------------------
Title: Vice President
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
July 31, 1997 among Automatic Transmission Shops Inc., a North Carolina
corporation ("Seller"), C.W. Smith, an individual and the sole stockholder of
Seller (the "Stockholder"), ATS Remanufacturing, Inc., a Delaware corporation
("Buyer"), and Aftermarket Technology Corp., a Delaware corporation and the sole
stockholder of Buyer ("ATC").
R E C I T A L S
WHEREAS, Seller is engaged in the remanufacture of transmissions and
related drive train components for General Motors vehicles (the "Business"); and
WHEREAS, Seller desires to sell and transfer to Buyer substantially
all of its assets related to the Business in consideration for the delivery by
Buyer to Seller of the purchase price provided for herein and on the other terms
and conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing premises, and the
mutual representations, warranties, covenants and agreements hereinafter set
forth, the parties hereto agree as follows.
ARTICLE I.
DEFINITIONS
1.01. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"AFFILIATE" means, with respect to any Person, any Person directly or
indirectly controlling, controlled by or under direct or indirect common control
with such other Person.
"APPLICABLE LAW" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, administrative
interpretation, regulation, order, writ, injunction, directive, judgment, decree
or other requirement of any Governmental Authority (including any Environmental
Law) applicable to such Person or any of its Affiliates or Plan Affiliates or
any of their respective properties, assets, officers, directors, employees,
consultants or agents (in connection with such officer's, director's,
employee's, consultant's or agent's activities on behalf of such Person or any
of its Affiliates or ERISA Affiliates).
"BENEFIT ARRANGEMENT" means any material benefit arrangement, other
than an Employee Benefit Plan, maintained by Seller or any ERISA Affiliate that
covers the employees, former employees, directors, or former directors of Seller
and their beneficiaries; such term shall include, without limitation, the
following to the extent material: (i) each employment or consulting agreement;
(ii) each arrangement providing for insurance coverage or workers' compensation
<PAGE>
benefits; (iii) each incentive bonus or deferred bonus arrangement; (iv) each
arrangement providing termination allowance, severance or similar benefits; (v)
each equity compensation plan; (vi) each deferred compensation plan; and
(vii) each compensation policy and practice.
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit Arrangement.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in Chicago, Illinois are authorized or required by law
to close.
"BUYER ENVIRONMENTAL LIABILITIES" means Environmental Liabilities
arising out of the actions or inactions of Buyer after the Closing Date.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" means all contracts, agreements, options, leases,
licenses, sales and purchase order, commitments and other instruments of any
kind, whether written or oral, to which Seller is a party on the Closing Date,
including the Scheduled Contracts and the Subsequent Material Contracts.
"DAMAGES" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement net of
insurance proceeds actually received, including without limitation (i) interest
on cash disbursements in respect of any of the foregoing at the per annum rate
of interest publicly announced from time to time by The Chase Manhattan Bank as
its prime rate (or reference rate) in effect from time to time, compounded
quarterly, from the date each such cash disbursement is made until the Person
incurring the same shall have been indemnified in respect thereof and
(ii) reasonable costs, fees and expenses of attorneys, accountants and other
agents of such Person. Any change in the rate referred to in clause (i) above
shall take effect at the opening of business on the day specified in the public
announcement of such change.
"EMPLOYEE" means any Person employed by Seller.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as defined in
Section 3(3) of ERISA, sponsored or contributed to by Seller or any ERISA
Affiliate thereof that covers employees or former employees of Seller.
"ENVIRONMENTAL LAWS" means all Applicable Laws relating to Hazardous
Substances, occupational health and safety, or the environment including,
without limitation, (i) all Applicable Laws pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, (ii) all Applicable Laws relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances, chemical substances, pollutants, contaminants or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature; and
(iii) the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Air
Act, the
<PAGE>
Water Pollution Control Act, the Safe Drinking Water Act, the Toxic
Substance Control Act ("TSCA") and all requirements promulgated pursuant to any
of these or analogous state or local statutes.
"ENVIRONMENTAL LIABILITIES" means Liabilities of a Person that arise
pursuant to or under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414 of the Code.
"GAAP" means generally accepted accounting principles in the
United States applied on a consistent basis.
"GM" means General Motors Corporation.
"GOVERNMENTAL AUTHORITY" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"GROUP HEALTH PLAN" means any group health plan, as defined in
Section 5000(b)(1) of the Code sponsored or contributed to by Seller or any
ERISA Affiliate that covers employees or former employees of Seller.
"HAZARDOUS SUBSTANCE" means any substance or material: (i) the
presence of which requires investigation or remediation under any Applicable
Law; or (ii) the generation, storage, treatment, transportation, disposal,
remediation, removal, handling or management of which is regulated by any
Environmental Law; or (iii) that is defined as a "hazardous waste" or "hazardous
substance" under any Applicable Law; or (iv) that is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic or mutagenic or
otherwise hazardous and is regulated by any Governmental Authority having or
asserting jurisdiction over the Business or any of the Transferred Assets; or
(v) the presence of which constitutes a nuisance, trespass or other tortious
condition; or (vi) the presence of which on adjacent properties constitutes a
trespass by Seller; or (vii) without limitation, that contains gasoline, diesel
fuel or other petroleum hydrocarbons, polychlorinated biphenols (PCBs) or
asbestos.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEMNIFYING PARTY" means: (i) Seller and the Stockholder, jointly
and severally, when any Buyer or ATC Indemnitee is asserting a claim under
Sections 9.01(a) or 11.11 or
<PAGE>
(ii) Buyer and ATC, jointly or severally, when any
Seller Indemnitee is asserting a claim under Sections 9.01(b) or 11.11.
"INDEMNITEE" means: (i) each of Buyer, ATC and their Affiliates with
respect to any claim for which Seller and the Stockholder are Indemnifying
Parties under Sections 9.01(a) or 11.11; or (ii) Seller, the Stockholder and
their Affiliates with respect to claims for which Buyer and ATC are Indemnifying
Parties under Sections 9.01(b) or 11.11.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means, with respect to any corporation, all things
actually known to the executive officers of such corporation.
"LIABILITY" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise and whether
or not the same is required to be accrued on the financial statements of such
Person and whether or not the same appears on any Schedule to this Agreement.
"LIEN" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such asset.
"MATERIAL ADVERSE EFFECT" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of the Business that results
in a material adverse effect on, or a material adverse change in, the
Transferred Assets taken as a whole, or a material adverse effect on the
Business taken as a whole.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 3(37) and 4001(a)(3) of ERISA.
"PERMITTED LIENS" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; and (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements.
Notwithstanding the foregoing, the following shall not be Permitted Liens:
(a) any Lien arising under the Code or ERISA with respect to the operation,
termination, restoration or funding of any Benefit Plan sponsored by, maintained
by or contributed to by Seller or any of its ERISA Affiliates or arising in
connection with any excise tax or penalty tax with respect to such Benefit Plan
and (b) any Lien arising under clause (i) or (ii) above that is the
<PAGE>
subject of a contest except and to the extent that the Taxes or sums in
questions have been reserved for on the 1996 Balance Sheet.
"PERSON" means an individual, corporation, partnership, association,
trust, estate or other entity or organization, including a Governmental
Authority.
"PROHIBITED TRANSACTION" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA, respectively.
"TAX" means all taxes imposed of any nature including federal, state,
local or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or gross
receipts tax, employment related tax (including employee withholding or employer
payroll tax, FICA or FUTA), real or personal property tax or ad valorem tax,
sales or use tax, excise tax, stamp tax or duty, any withholding or back up
withholding tax, value added tax, severance tax, prohibited transaction tax,
premiums tax, occupation tax, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax.
"TAX RETURN" means all returns, reports, forms or other information
required to be filed with respect to any Tax.
ARTICLE II.
TRANSFER OF ASSETS
2.01. TRANSFER OF ASSETS BY SELLER. Upon the terms and subject to
the conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees to purchase from Seller
and Seller agrees to sell or cause to be sold to Buyer at the Closing, free and
clear of all Liens, other than Permitted Liens, all the assets, properties,
rights, licenses, permits, contracts, causes of action and claims, of every kind
and description as the same shall exist on the Closing Date (other than the
Excluded Assets), wherever located, whether tangible or intangible, real,
personal or mixed, that are used, owned by, leased by or in the possession of
Seller, whether or not reflected on the books and records of Seller, including
all assets shown on the 1996 Balance Sheet and not disposed of in the ordinary
course of business or as permitted by this Agreement prior to the Closing Date
(the collective assets, properties, rights, licenses, permits, contracts, causes
of action and claims to be transferred to Buyer by Seller pursuant hereto are
referred to collectively herein as the "Transferred Assets") and including
without limitation all right, title and interest of Seller in, to and under the
following, to the extent used, owned by, leased by or in the possession of
Seller at the time of Closing:
(a) all real property and leases, capitalized or operating, of,
and other interests in, real property of Seller, in each case together with all
buildings, fixtures and improvements erected thereon and appurtenances thereto;
<PAGE>
(b) all machinery, equipment, furniture, office equipment,
computer equipment (including all hardware and software), communications
equipment, vehicles, storage tanks, spare and replacement parts, fuel and other
tangible property (and interests in any of the foregoing) of Seller
("Equipment");
(c) all items of inventory notwithstanding how classified in the
financial records of Seller, including all raw materials, purchased parts, work-
in-process, finished goods, supplies, spare parts and samples ("Inventory");
(d) all contracts, agreements, options, leases, licenses, sales
and purchase orders, commitments and other instruments of any kind, whether
written or oral, to which Seller is a party on the Closing Date, including the
Scheduled Contracts and the Subsequent Material Contracts (the "Contracts");
(e) all books, records, files and papers of Seller, whether in
hard copy or computer format, including books of account, invoices, engineering
information, sales and promotional literature, manuals and data, sales and
purchase correspondence, lists of present and former suppliers, personnel and
employment records of present and former employees, and documentation developed
or used for accounting, marketing, engineering, manufacturing or any other
purpose;
(f) all prepaid charges and expenses of Seller, including any
such charges and expenses with respect to ad valorem taxes, leases and rentals
and utilities;
(g) all rights of Seller under any insurance policy;
(h) all of Seller's rights, claims, credits, causes of action or
rights of set-off against third parties relating to the Business or the
Transferred Assets, whether liquidated or unliquidated, fixed or contingent,
including claims pursuant to all warranties, representations and guarantees made
by suppliers, manufacturers, contractors and other third parties in connection
with products or services purchased by or furnished to Seller affecting any of
the Transferred Assets;
(i) all of Seller's patents, copyrights, trademarks, trade
names, service marks, service names, designs, know-how, processes, trade
secrets, inventions, and other proprietary data;
(j) all transferable franchises, licenses, permits or other
authorizations issued or granted by any Governmental Authority that are owned
by, granted to or held or used by Seller in connection with the Business,
whether or not actually utilized by Seller;
(k) all lists of present customers and lists of former
customers;
(l) all goodwill associated with the Business or the Transferred
Assets;
(m) all product designations used in Seller's catalogs;
<PAGE>
(n) all accounts receivable and notes receivable (including,
without limitation, any Gainsharing payments), together with any unpaid interest
or fees accrued thereon or other amounts due with respect thereto, and any
security or collateral therefor; and
(o) except as specifically provided in Section 2.02, all other
assets and properties of Seller that exist on the Closing Date, whether tangible
or intangible, real or personal.
2.02. EXCLUDED ASSETS. Buyer expressly understands and agrees
that the following assets and properties of Seller (the "Excluded Assets") shall
be excluded from the Transferred Assets and shall be retained by Seller:
(a) all cash, cash equivalents and bank accounts;
(b) those assets listed on SCHEDULE 2.02; and
(c) the originals of Seller's books and records to the extent
that Seller provides copies thereof to Buyer.
2.03. ASSUMPTION OF LIABILITIES. Upon the terms and subject to
the conditions of this Agreement and in reliance upon the representations,
warranties and agreements herein set forth, Buyer agrees, effective at the time
of Closing, to assume and in due course perform, pay and discharge each of the
following (the "Assumed Liabilities"):
(a) all Liabilities and obligations of Seller arising after the
Closing under Contracts included in the Transferred Assets;
(b) those bonus arrangements described on SCHEDULE 2.03, which
will be paid as deferred compensation; and
(c) all Liability arising out of warranty claims relating to the
products of the Business where such claims are made after the Closing Date.
2.04. EXCLUDED LIABILITIES. Buyer does not hereby assume, and
shall not at any time hereafter (including on or after the Closing Date) become
liable for, any of the Liabilities of Seller or any of its Affiliates or any
ERISA Affiliate of any of the foregoing other than the Assumed Liabilities (the
"Excluded Liabilities"). The Excluded Liabilities shall include, without
limitation, the following Liabilities:
(a) any Liability of any of Seller or any of its Affiliates or
any ERISA Affiliate of any of the foregoing whether currently in existence or
arising hereafter that is not attributable to, or that does not arise out of the
conduct of, the Business;
(b) any Liability whether presently in existence or arising
hereafter relating to an Excluded Asset;
(c) any Environmental Liability, whether presently in existence
or arising hereafter, other than Buyer Environmental Liabilities;
<PAGE>
(d) any Liability whether currently in existence or arising
hereafter relating to fees, commissions or expenses owed to any broker, finder,
investment banker, attorney or other intermediary or advisor employed by Seller
or any of its Affiliates or their respective ERISA Affiliates in connection with
the transactions contemplated hereby or otherwise;
(e) any Liability the existence of which constitutes a breach of
any representation or warranty of Seller hereunder;
(f) any contingent Liabilities of Seller related to any
transactions by Seller prior to the date hereof except Liabilities that Buyer
has expressly agreed to assume pursuant to the terms of this Agreement;
(g) any Liability related to indebtedness of Seller for borrowed
money or capitalized leases, or the guarantee by Seller of the indebtedness of
any other Person;
(h) any Liability of Seller arising under this Agreement; and
(i) any account payable and payroll of Seller.
2.05. ASSIGNMENT OF CONTRACTS AND RIGHTS.
(a) With respect to any material Contract and any claim, right
or benefit arising thereunder or resulting therefrom that constitute Transferred
Assets, promptly after the date hereof, to the extent requested by Buyer, Seller
will use reasonable efforts to obtain the written consent of the other parties
to any such Contract to the assignment thereof to Buyer or written confirmation
from such parties reasonably satisfactory in form and substance to Buyer
confirming that such consent is not required.
(b) If such consent, waiver or confirmation is not obtained with
respect to any such Contract and notwithstanding the provisions of
Section 8.01(c) Buyer elects to consummate the Closing, Seller and Buyer shall
cooperate in an arrangement reasonably satisfactory to Buyer and Seller under
which Buyer would obtain, to the extent practicable, the claims, rights and
benefits and assume the corresponding obligations thereunder in accordance with
this Agreement, including subcontracting, sub-licensing or sub-leasing to Buyer,
or under which Seller would enforce for the benefit of Buyer, with Buyer
assuming Seller's obligations, any and all claims, rights and benefits of Seller
against a third party thereto. Seller will promptly pay to Buyer when received
all monies received by Seller under any Transferred Asset or any claim, right or
benefit arising thereunder not transferred to Buyer pursuant to this Section
2.05(b).
2.06. CLOSING.
(a) The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place Seller's offices, 1224 Isley Road, Gastonia,
North Carolina on July 31, 1997 or such other date as to which Buyer and Seller
may agree (the "Closing Date"). Notwithstanding the foregoing, pursuant to
Section 10.01(f) Seller or Buyer may terminate this Agreement if the Closing
shall not have been consummated by the Outside Date.
<PAGE>
(b) At the Closing, Buyer shall pay to Seller $12,000,000, in
cash by wire transfer of immediately available funds to a bank account or bank
accounts designated in writing by Seller prior to the Closing.
(c) Seller shall deliver to Buyer such bills of sale,
certificates of title, endorsements, consents, assignments and other good and
sufficient instruments of conveyance and assignment (which in the case of
Intellectual Property Rights, shall be documents immediately recordable in the
respective countries of origin) of such rights as the parties and their
respective counsel shall deem reasonably necessary or appropriate to vest in
Buyer all of Seller's right, title and interest in, to and under the Transferred
Assets.
2.07. POST-CLOSING PAYMENTS. As additional consideration for the
Transferred Assets, Buyer shall pay to Seller the amounts called for by this
Section 2.07:
(a) Buyer shall pay to Seller, within 30 days after each of the
first eight anniversaries of the Closing Date, the Post-Closing Payment (as
defined in Section 2.07(b)) for such anniversary by wire transfer of immediately
available funds to an account or accounts to be designated in writing by Seller
prior the time of payment. If a prior Post-Closing Payment is retroactively
increased pursuant to the last sentence of Section 2.07(b), the additional
payment shall be made at the same time that Buyer pays the then-current Post-
Closing Payment.
(b) The "Post-Closing Payment" for any anniversary shall be
equal to the amount set forth on SCHEDULE 2.07 for such anniversary; PROVIDED,
HOWEVER, that if Adjusted GM Sales (as defined in Section 2.07(c)) for the
Contract Year (as defined in Section 2.07(d)) then ended are less than
$12,000,000, the Post-Closing Payment shall be reduced by an amount equal to the
product of (i) $12,000,000 minus such Adjusted GM Sales multiplied by (ii) the
factor set forth on SCHEDULE 2.07 for such anniversary. A Post-Closing Payment
shall be retroactively increased if the corresponding Adjusted GM Sales are
retroactively increased pursuant to the last sentence of Section 2.07(c). Post-
Closing Payments may be reduced pursuant to Section 9.01(c).
(c) "Adjusted GM Sales" for any Contract Year shall be equal to
the sum of (i) the amount of sales to GM by ATC, Buyer and all other
subsidiaries of ATC during such Contract Year where the products sold to GM are
for use in its North American operations plus (ii) any Excess GM Sales (as
defined in Section 2.07(e)) that are not utilized to reduce a shortfall in the
amount of Adjusted GM Sales for any prior Contract Year. If Adjusted GM Sales
in any Contract Year are less than $12,000,000 and there are Excess GM Sales in
any subsequent Contract Year that have not been applied to prior Contract Years,
such Adjusted GM Sales will be retroactively increased by the lesser of (i) the
amount of such Excess GM Sales and (ii) the amount by which such Adjusted GM
Sales are less than $12,000,000. Notwithstanding the foregoing, Adjusted GM
Sales shall not include any Excluded GM Sales. As used herein, "Excluded GM
Sales" mean any sales to GM by any present or future subsidiary of ATC pursuant
to any contract or purchase order in effect prior to ATC's acquisition of such
subsidiary (or such subsidiary's acquisition of the assets that include such
contract or purchase order) but excluding any sales attributable to incremental
programs commenced under such contracts or purchase orders on or after the date
of such acquisition.
<PAGE>
(d) "Contract Year" shall mean a 12-month period ending on an
anniversary of the Closing Date.
(e) "Excess GM Sales" means the amount, if any, by which
Adjusted GM Sales during any Contract Year exceed $12,000,000.
(f) The sole consequence to Seller of the Adjusted GM Sales
being less than $12,000,000 for any or all of the Contract Years shall be
reduction of the Post-Closing Payments and Seller shall not be responsible to
Buyer for any shortfall in Adjusted GM Sales. The intent of this Section 2.07
is that if the total Adjusted GM Sales for the first eight Contract Years is at
least $96,000,000 in the aggregate, Seller shall receive total Post-Closing
Payments of $14,450,000 irrespective of in which of such Contract Years such
Adjusted GM Sales are achieved, subject to Section 9.01(c).
(g) On October 31, 1997, Buyer shall pay to Seller an amount
equal to the sum of all amounts received by Buyer in payment of accounts
receivable that constituted Transferred Assets. If after October 31, 1997
Buyer receives payment of any account receivable that constituted a Transferred
Asset, Buyer shall promptly pay to Seller an amount equal to such payment. Such
payments shall be made by wire transfer of immediately available funds to an
account or accounts to be designated in writing by Seller prior the time of
payment.
(h) If after the Closing Date Buyer receives any payment from GM
under any Gainsharing program approved as of the Closing Date, Buyer shall,
within 30 days after receipt thereof, pay to Seller the portion of such payment
that is attributable to sales to GM made on or before the Closing Date other
than such payments that are attributable to Excluded GM Sales.
2.08. PURCHASE PRICE ALLOCATION. Within 120 days after the
Closing Date, Buyer and Seller shall agree upon the final allocation of the
Purchase Price among the Transferred Assets for purposes of complying with
Section 1060 of the Code and making any required filings under state or local
law and shall set forth such allocation on a statement (the "Allocation
Statement"). After the Closing, from time to time, Buyer and Seller may agree
upon revisions to the Allocation Statement for tax purposes. Buyer and Seller
shall report the tax consequences of the transactions contemplated by this
Agreement in a manner consistent with the Allocation Statement, as it may be
revised from time to time, and shall not take any position inconsistent
therewith.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDER
As an inducement to Buyer and ATC to enter into this Agreement and to
consummate the transactions contemplated herein, Seller and the Stockholder
hereby jointly and severally represent and warrant to Buyer and ATC as follows:
<PAGE>
3.01. EXISTENCE AND POWER. Seller is a corporation duly organized
and validly existing and in good standing under the laws of the State of North
Carolina and has all corporate power and all governmental licenses,
authorizations, consents and approvals required to carry on the Business as now
conducted and to own and operate the Business as now owned and operated, except
for those instances where, in the aggregate, the failure to have such licenses,
authorizations, consents and approvals has not had, and is not reasonably
expected to have, a Material Adverse Effect. Seller is qualified to conduct
business in each jurisdiction where the nature of its activities in connection
with the conduct of the Business requires it to be so qualified. Seller is in
good standing in each state where it is qualified, except for those
jurisdictions where in the aggregate the failure to be so has not had, and is
not reasonably expected to have, a Material Adverse Effect.
3.02. AUTHORIZATION. The execution, delivery and performance by
Seller of this Agreement and the consummation by Seller of the transactions
contemplated hereby are within Seller's corporate powers and have been duly
authorized by all necessary corporate action on the part of Seller. This
Agreement has been duly and validly executed by Seller and the Stockholder and
constitutes the legal, valid and binding agreement of Seller and the
Stockholder, enforceable against each of them in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally and subject to
general principles of equity.
3.03. OWNERSHIP OF SELLER. The Stockholder owns all the issued
and outstanding shares of the capital stock of Seller, and all such shares are
free and clear of Liens, options, voting trusts and other agreements or
encumbrances of any kind. There are no outstanding subscription rights,
options, warrants, calls, commitments or agreements between Seller and any third
party regarding the issuance or sale of any shares of Seller's capital stock or
any security exercisable to acquire, or convertible into, or exchangeable for,
any such shares.
3.04. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Seller and the Stockholder of this Agreement and the other
agreements contemplated hereby require no action by, consent or approval of, or
filing with, any Governmental Authority other than (a) compliance with any
applicable requirements of the HSR Act and (b) any actions, consents, approvals
or filings otherwise expressly referred to in this Agreement or set forth on
SCHEDULE 3.04 or 3.14(b). To the Knowledge of Seller and the Stockholder, there
are no facts relating to the identity or circumstances of Seller or the
Stockholder that would prevent or materially delay obtaining any of the Required
Consents.
3.05. NON-CONTRAVENTION. The execution, delivery and performance
by Seller and the Stockholder of this Agreement and the other agreements
contemplated hereby do not and will not (a) contravene or conflict with the
Articles of Incorporation or Bylaws of Seller, true and correct copies of which
have been delivered to Buyer by Seller, (b) assuming receipt of the Required
Consents, contravene or conflict with or constitute a violation of any provision
of any Applicable Law binding upon or applicable to Seller, the Stockholder, the
Business or any of the Transferred Assets, (c) assuming receipt of the Required
Consents, constitute a default under or give rise to any right of termination,
cancellation or acceleration of, or to a loss of any benefit to which Seller is
entitled under, any material Contract or any Permit or similar authorization
relating
<PAGE>
to the Business or included in any of the Transferred Assets or by
which any of the Transferred Assets may be bound, or (d) result in the creation
or imposition of any Lien on any Transferred Asset, other than Permitted Liens.
3.06. FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) Attached hereto as EXHIBIT A are true and complete copies of
the unaudited balance sheet of Seller as at December 31, 1996 (the "1996 Balance
Sheet") and the unaudited statements of income and statements of cash flows of
Seller for the years ended December 31, 1995 and 1996 (collectively, the
"Financials").
(b) The Financials (i) have been prepared from the books and
records of Seller in accordance with GAAP in all material respects except as
described on SCHEDULE 3.06(b), (ii) present fairly the financial condition,
results of operations and statements of cash flow of Seller as of the dates
indicated or the periods indicated; and (iii) contain and reflect adequate
reserves for all reasonably anticipated material losses, liabilities and
obligations of any nature, whether absolute, contingent or otherwise.
(c) Except as set forth on SCHEDULE 3.06(c), there are no
material Liabilities relating to Seller other than:
(i) any Liability accrued as a Liability on the 1996 Balance
Sheet; and
(ii) Liabilities specifically disclosed and identified as such in
the schedules to this Agreement.
3.07. ABSENCE OF CERTAIN CHANGES. Except as set forth on
SCHEDULE 3.07, since December 31, 1996 the Business has been conducted in the
ordinary course, and none of the following events has occurred with respect to
the Business:
(a) any event, occurrence, development or state of circumstances
or facts or change in the Transferred Assets or the Business (including any
damage, destruction or other casualty loss, but excluding any event, occurrence,
development or state of circumstances or facts or change resulting from changes
in general economic conditions) affecting the Business or any Transferred Assets
that has had or that may be reasonably expected to have, either alone or
together with all such events, occurrences, developments, states of
circumstances or facts or changes, a Material Adverse Effect;
(b) (i) any incurrence, assumption or guarantee of any
indebtedness for borrowed money by Seller, (ii) any incurrence of any Liability
relating to a documentary or standby letter of credit by Seller, or (iii) any
change in any material Liability of Seller other than in the ordinary course of
business, or (iv) any incurrence of any other material Liability by Seller,
other than in the ordinary course of business;
(c) any creation, assumption or sufferance of the existence of
any Lien on any Transferred Asset, other than Permitted Liens;
<PAGE>
(d) any transaction or commitment made, or any Contract entered
into, by Seller (including the acquisition or disposition of any Transferred
Assets), or any waiver, amendment, termination or cancellation of any Contract
by Seller, or any relinquishment of any rights thereunder by Seller, or of any
other right or debt owed to Seller, other than in each such case actions taken
in the ordinary course of business consistent with past practice;
(e) except for actions taken in the ordinary course of business
consistent with the past practice of Seller that are not, in the aggregate,
material to the Business, and except as described on SCHEDULE 2.03, any
(i) grant of any severance, continuation or termination pay to any Employee,
(ii) entering into of any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) with any Employee,
(iii) increase in benefits payable or potentially payable under any severance,
continuation or termination pay policies or employment agreements with any
Employee, (iv) increase in compensation, bonus or other benefits payable or
potentially payable to any Employee, (v) change in the terms of any bonus,
pension, insurance, health or other Benefit Plan of Seller, or
(vi) representation by Seller to any Employee that Buyer would assume, continue
to maintain or implement any Benefit Plan after the Closing Date;
(f) any loan to or guarantee or assumption of any loan or
obligation on behalf of any Employee, except travel advances occurring in the
ordinary course of business consistent with past practice;
(g) any material change by Seller in its accounting principles,
methods or practices or in the manner it keeps its books and records or any
material change by Seller of its current practices with regards to sales,
receivables, payables or accrued expenses that would affect the timing of
collection of receivables or the payment of payables;
(h) the entering into of any Contract or other arrangement
between Seller and any officer, director, stockholder or Affiliate of Seller or
any of their respective Affiliates, to the extent any such Contract or other
arrangement relates to the conduct of the Business; or
(i) any payment, discharge or satisfaction of any Liabilities of
Seller, other than payments, discharges or satisfactions in the ordinary course
of business.
3.08. PROPERTIES; LEASES; TANGIBLE ASSETS.
(a) Seller does not own any Real Property. SCHEDULE 3.08(a)
sets forth a true and complete list of all real property leased by Seller (the
"Real Property), which list sets forth the location of each parcel of Real
Property, the record owner thereof, the acreage and a brief description of the
nature of the activities of Seller on such Real Property. Seller has a good and
valid leasehold interest in all of the Real Property, which constitutes all of
the real property used in the Business.
(b) SCHEDULE 3.08(b) sets forth a true and complete list of all
personal property leases or licenses to which Seller is a party or by which
Seller is bound that provide for
<PAGE>
annual payments by Seller in excess of $10,000 or that contain other
affirmative material obligations that cannot be terminated by Seller within
30 days (the "Personal Property Leases" and collectively with the leases for
the Real Property, the "Leases"). Each Lease is a binding obligation of
Seller and, to the Knowledge of Seller and the Stockholder, a binding
obligation of the other party thereto. Except as set forth on SCHEDULE
3.08(b), there exist no defaults by Seller or, to the Knowledge of Seller and
the Stockholder, any default or threatened default by the other party
thereto, that has affected or could reasonably be expected to materially
affect the rights and privileges thereunder of Seller. Except as set forth
on SCHEDULE 3.08(b), assuming the Required Consents are obtained, all Leases
to which Seller is a party or by which it is bound may be assigned,
transferred and conveyed to Buyer without default, penalty or modification
thereof.
(c) Except as disclosed in SCHEDULE 3.08(c) or SCHEDULE
3.20(c), Seller has not received notice of any pending zoning or other
land-use regulation proceedings or any proposed change in any Applicable Laws
that could reasonably be expected to materially and detrimentally affect the
use or operation of the Real Property, nor has Seller received notice of any
special assessment proceedings affecting the Real Property, or applied for
any change to the zoning or land use status of the Real Property.
3.09. SUFFICIENCY OF, TITLE TO, CONDITION OF AND BOOK VALUE OF THE
TRANSFERRED ASSETS. Seller has the right to sell, assign, transfer and convey,
and upon consummation of the transactions contemplated by this Agreement, will
have sold, assigned, transferred and conveyed, to Buyer all of the Transferred
Assets free and clear of all Liens, except for Permitted Liens, which
Transferred Assets constitute all of the properties and assets now held or
employed by Seller (other than the Excluded Assets). The Business is a going
concern, and, with the transfer of the Transferred Assets to Buyer pursuant to
this Agreement, Buyer will have all assets necessary to operate the Business as
a going concern with all operations of the Business unimpaired in any material
respect immediately after the Closing. Except as disclosed in SCHEDULE 3.09,
all the Transferred Assets are in good operating condition and repair. At the
Closing, the book value of the Equipment, as computed in accordance with GAAP,
will be at least $200,000.
3.10. AFFILIATES. Except as set forth in SCHEDULE 3.10,
neither Seller nor the Stockholder nor any officers or directors of Seller
(or any immediate family member of any such officer or director):
(a) now has or at any time subsequent to December 31, 1994,
had, either directly or indirectly, an equity or debt interest in any Person
which furnishes or sells or during such period furnished or sold services or
products to Seller or purchases or during such period purchased from Seller
any goods or services, or otherwise does or during such period did business
with Seller of a material nature or amount; PROVIDED, HOWEVER, that neither
Seller, nor the Stockholder nor any of Seller's officers and directors or
other Affiliates shall be deemed to have such an interest solely by virtue of
the ownership of less than five percent (5%) of the outstanding voting stock
or debt securities of any publicly held company, the stock or debt securities
of which are traded on a national stock exchange or quoted on the National
Association of Securities Dealers Automated Quotation System; or
<PAGE>
(b) now is or at any time subsequent to December 31, 1994, was,
a party to any contract, commitment or agreement relating to the Business to
which Seller is or during such period was a party or under which Seller is or
was obligated or bound or to which any of their respective properties may be or
may have been subject.
3.11. INVENTORY.
(a) Subject to any reserve therefore that is included in the
1996 Balance Sheet and except as disclosed in SCHEDULE 3.11(a), the Inventory
(i) has been acquired or manufactured or remanufactured in the ordinary
course of business, in accordance with Seller's normal inventory practices;
(ii) is of a quality usable (including processing into merchantable finished
inventories for sale in the ordinary course of business), free of any
material defect or deficiency in design, material or workmanship; (iii) is in
merchantable and undamaged condition and meets customer specifications; and
(iv) is not obsolete.
(b) SCHEDULE 3.11(b) is a true and correct list of all
consigned inventory (including cores, parts and finished goods) owned by GM
and held by Seller as of the date hereof.
3.12. LITIGATION. Except as disclosed on SCHEDULE 3.12, (i)
there are no actions, suits, hearings, arbitrations, proceedings (public or
private) or governmental investigations that have been brought by or against
any Governmental Authority or any other Person (collectively, "Proceedings")
pending or, to the Knowledge of Seller and the Stockholder, threatened
against or affecting Seller or any of the Transferred Assets or which seek to
enjoin or rescind the transactions contemplated by this Agreement or
otherwise prevent Seller from complying with the terms and provisions of this
Agreement; and (ii) there are no existing orders, judgments or decrees of any
Governmental Authority affecting Seller any of the Transferred Assets.
3.13. CONTRACTS.
(a) SCHEDULE 3.13(a) sets forth a complete list of the
following contracts, commitments and obligations (whether written or oral) of
Seller that are in connection with the Business (collectively with the
Leases, the "Scheduled Contracts"):
(i) each Contract between Seller and (A) each present or
former Employee, (B) any supplier of services or products to Seller whose
dollar volume of sales to Seller exceeded $25,000 in 1996 or is expected to
exceed $25,000 in 1997, and (C) any Person in which the aggregate payments
made or to be made to Seller under such Contract exceeded $25,000 in 1996
or is expected to exceed $25,000 in 1997;
(ii) each other agreement or arrangement of Seller that (y)
requires the payment or incurrence of Liabilities or the rendering of
services by Seller, subsequent to the date of this Agreement of more than
$25,000 and (z) cannot be terminated by Seller within 30 days;
(iii) all Contracts relating to, and evidences of or
guarantees of, or providing security for, indebtedness for borrowed money
or the deferred purchase price of property (whether incurred, assumed,
guaranteed or secured by any asset);
<PAGE>
(iv) all partnership, joint venture or other similar
Contracts, arrangements or agreements;
(v) to the extent that any of the following provide for
annual payments by Seller in excess of $25,000 and cannot be terminated by
Seller within 30 days, all license, distribution, commission, marketing,
agent, franchise, technical assistance or similar agreements relating to
or providing for the marketing and/or sale of the products or services to
which Seller is a party or by which Seller is otherwise bound; and
(vi) all other material contracts, commitments and
obligations that are not in the ordinary course of the Business.
(b) Except as disclosed in SCHEDULE 3.13(b), each Scheduled
Contract and Subsequent Material Contract is a legal, valid and binding
obligation of Seller and, to the Knowledge of Seller and the Stockholder,
each other party thereto, enforceable (except to the extent such
enforceability may be limited by bankruptcy, equity and creditors' rights
generally) against Seller and, to the Knowledge of Seller and the
Stockholder, each such other party in accordance with its terms, and neither
Seller nor, to the Knowledge of Seller or the Stockholder, any other party
thereto is in material default or has failed to perform any material
obligation thereunder. A complete and correct copy of each Scheduled
Contract has been delivered to Buyer.
(c) SCHEDULE 3.13(c) sets forth a list (by name, address and
persons to contact) of the 10 largest customers of Seller for each of the
12-month periods ended December 31, 1995 and 1996, and the five primary
vendors providing services to Seller for each of the 12-month periods ended
December 31, 1995 and 1996 together with the approximate dollar amount of
sales by Seller or services provided to Seller during said period and a
summary description of the services provided by such vendors.
3.14. PERMITS; REQUIRED CONSENTS.
(a) SCHEDULE 3.14(a) sets forth all material approvals,
authorizations, certificates, consents, licenses, orders and permits or other
similar authorizations of all Governmental Authorities and all other Persons
necessary for the operation of the Transferred Assets or the Business in
substantially the same manner as currently operated or affecting or relating in
any way to the Business (the "Permits").
(b) SCHEDULE 3.14(b) lists (i) each governmental or other
registration, filing, application, notice, transfer, consent, approval, order,
qualification and waiver (each, a "Required Governmental Approval") required
under Applicable Law to be obtained by Seller by virtue of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby to avoid the loss of any material Permit or otherwise, and (ii) each
Scheduled Contract with respect to which the consent of the other party or
parties thereto must be obtained by Seller by virtue of the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby to avoid the invalidity of the transfer of such Contract, the termination
thereof, a breach or default thereunder or any other change or
<PAGE>
modification to the terms thereof (each, a "Required Contractual Consent" and
collectively with the Required Governmental Approvals, the "Required
Consents"). Except as set forth in SCHEDULE 3.14(a) or (b) each Permit is
valid and in full force and effect in all material respects and, assuming the
related Required Consents have been obtained prior to the Closing Date, are
or will be transferable by Seller, and assuming the related Required Consents
have been obtained prior to the Closing Date, none of the Permits will be
terminated or become terminable or impaired in any material respect as a
result of the transactions contemplated hereby.
3.15. COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in
SCHEDULE 3.15, the operation of the Business by Seller and the condition of
the Transferred Assets have not violated or infringed, and do not violate or
infringe, any material Applicable Law, or any order, writ, injunction or
decree of any Governmental Authority.
3.16. EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL; AND EMPLOYEE
BENEFITS.
(a) SCHEDULE 3.16(a) sets forth all Benefit Plans. Seller
has made true and correct copies of all governing instruments and related
agreements pertaining to such Benefit Plans available to Buyer.
(b) Except as set forth on SCHEDULE 3.16(b) no individual
shall accrue or receive additional benefits, service or accelerated rights to
payments of benefits under any Benefit Plan, including the right to receive
any parachute payment, as defined in Section 280G of the Code, or become
entitled to severance, termination allowance or similar payments as a direct
result of the transactions contemplated by this Agreement.
(c) No Employee Benefit Plan has participated in, engaged in
or been a party to any non-exempt Prohibited Transaction, and neither Seller
nor any ERISA Affiliates has pending or, to the Knowledge of Seller or the
Stockholder, threatened against it any claim for taxes under Chapter 43 of
Subtitle D of the Code and Sections 5000 of the Code, or for penalties under
ERISA Section 502(c), (i) or (l), with respect to any Employee Benefit Plan
nor, to the Knowledge of Seller or the Stockholder, is there a basis for any
such claim. No officer, director or employee of Seller has committed a
material breach of any responsibility or obligation imposed upon fiduciaries
by Title I of ERISA with respect to any Employee Benefit Plan.
(d) There is no material claim pending or, to the Knowledge
of Seller or the Stockholder, threatened involving any Benefit Plan by any
Person against such plan or Seller or any ERISA Affiliate. There is no
pending or, to the Knowledge of Seller or the Stockholder, threatened
proceeding involving any Employee Benefit Plan before the IRS, the United
States Department of Labor or any other Governmental Authority.
(e) Each Benefit Plan has been maintained in all material
respects, by its terms and in operation, in accordance with ERISA and the
Code including, but not limited to, all applicable reporting and disclosure
requirements. Seller and each ERISA Affiliate have made full and timely
payment of all amounts required to be contributed under the terms of each
Benefit Plan and Applicable Law or required to be paid as expenses under such
Benefit Plan, and Seller and each ERISA Affiliate shall continue to do so
through the Closing.
<PAGE>
(f) With respect to any Group Health Plans maintained by
Seller or its ERISA Affiliates, Seller and its ERISA Affiliates have complied
in all material respects with the provisions of Part 6 Subtitle B of Title I
of ERISA and Section 4980B of the Code. Except as set forth on SCHEDULE
3.16(f), Seller is not obligated to provide health care benefits of any kind
to its retired employees pursuant to any Employee Benefit Plan, including
without limitation any Group Health Plan, or pursuant to any agreement or
understanding.
3.17. LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on SCHEDULE 3.17(a), with respect to
the Business, no collective bargaining agreement exists that is binding on
Seller and, except as described on SCHEDULE 3.17(a), no petition has been
filed or proceedings instituted by an employee or group of employees with any
labor relations board seeking recognition of a bargaining representative.
SCHEDULE 3.17(a) describes any organizational effort currently being made or,
to the Knowledge of Seller or the Stockholder, threatened by or on behalf of
any labor union to organize any Employees.
(b) Except as set forth on SCHEDULE 3.17(a), (i) there is no
labor strike, dispute, slow down or stoppage pending or, to the Knowledge of
Seller or the Stockholder, threatened against or directly affecting Seller,
(ii) no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is pending, and no claims therefor exist; and
(iii) neither Seller nor of its Affiliates has received any notice or has any
Knowledge of any threatened labor or civil rights dispute, controversy or
grievance or any other unfair labor practice proceeding or breach of contract
claim or action with respect to claims of, or obligations to, any employee or
group of Employees.
(c) Seller has complied and is currently complying, in all
material respects, in respect of all Employees, with all Applicable Laws
respecting employment and employment practices and the protection of the
health and safety of Employees. Except as set forth on SCHEDULE 3.19, since
January 1, 1994 Seller has not received any citation or other notification
regarding the violation of occupational and health safety laws or regulations.
(d) All individuals who are performing or have performed
services for Seller or any Affiliate of Seller and are or were classified by
Seller or any Affiliate as "independent contractors" qualify for such
classification under Section 530 of the Revenue Act of 1978 or Section 1706
of the Tax Reform Act of 1986, as applicable, except for such instances which
are not, in the aggregate, material.
(e) SCHEDULE 3.17(e) sets forth all Employees receiving or
seeking worker's compensation benefits, as well as the following for each
such Employee: (i) brief description of the injury; (ii) weekly
compensation; (iii) estimated benefit period; and (iv) estimate of medical
and other expenses payable.
<PAGE>
3.18. INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.18(a) sets forth a complete and correct list
of each patent, patent application and docketed invention, trademark, trade
name, trademark or trade name registration or application, copyright or
copyright registration or application for copyright registration, and each
license or licensing agreement for any of the foregoing relating to any
Transferred Asset or held by Seller or used in the Business (the
"Intellectual Property Rights").
(b) Except as disclosed in SCHEDULE 3.18(b), Seller has not
during the three years preceding the date of this Agreement been a party to
any Proceeding nor, to the Knowledge of Seller or the Stockholder, is any
Proceeding threatened as to which there is a reasonable possibility of a
determination adverse to Seller that involved or may involve a claim of
infringement by any Person (including any Governmental Authority) of any
Intellectual Property Right. Except as disclosed in SCHEDULE 3.18(b), no
Intellectual Property Right is subject to any outstanding order, judgment,
decree, stipulation or agreement restricting the use thereof by Seller, or
restricting the licensing thereof by Seller to any Person. The use of the
Intellectual Property Rights does not conflict with, infringe upon or violate
any patent, patent license, patent application, trademark, trade name,
trademark or trade name registration, copyright, copyright registration,
service mark, brand mark or brand name or any pending application relating
thereto, or any trade secret, know-how, programs or processes, or any similar
rights, of any Person.
(c) Except as set forth in SCHEDULE 3.18(c), Seller either
owns the entire right, title and interest in, to and under, or has the
legally enforceable right to use, all Intellectual Property Rights.
3.19. ADVISORY FEES. There is no investment banker, broker,
finder or other intermediary or advisor that has been retained by or is
authorized to act on behalf of Seller, the Stockholder or their Affiliates
who might be entitled to any fee, commission or reimbursement of expenses
from Buyer, ATC or any of their Affiliates upon consummation of the
transactions contemplated by this Agreement.
3.20. ENVIRONMENTAL COMPLIANCE.
(a) Except as disclosed in SCHEDULE 3.20(a), Seller has
obtained all material approvals, authorizations, certificates, consents,
licenses, orders and permits or other similar authorizations of all
Governmental Authorities, or from any other Person, that are required with
respect to the Business or the Transferred Assets or otherwise required of
Seller under any Environmental Law. SCHEDULE 3.20(a) sets forth all permits,
licenses and other authorizations issued under any Environmental Law to
Seller.
(b) Except as disclosed in SCHEDULE 3.20(b), Seller is in
compliance in all material respects with all terms and conditions of all
approvals, authorizations, certificates, consents, licenses, orders and
permits or other similar authorizations of all Governmental Authorities (and
all other Persons) required under any Environmental Law that is applicable to
Seller, the Business or the Transferred Assets, and is also in compliance in
all material respects
<PAGE>
with all other limitations, restrictions, conditions, standards,
requirements, schedules and timetables required or imposed under all
Environmental Laws.
(c) Except as disclosed in SCHEDULE 3.20(c), there are no
past or present events, conditions, circumstances, activities, practices,
incidents, actions, omissions or plans relating to or in any way affecting
Seller, the Business or the Transferred Assets that could reasonably be
expected to prevent, or make materially more expensive, continued compliance
with any Environmental Law by Buyer after the Closing, or that may give rise
to any Environmental Liability, or otherwise form the basis of any claim,
action, demand, suit, Proceeding, hearing, study or investigation (i) under
any Environmental Law, (ii) based on or related to the manufacture,
processing, distribution, use, treatment, storage (including without
limitation underground storage tanks), disposal, transport or handling, or
the emission, discharge, release or threatened release of any Hazardous
Substance, or (iii) resulting from exposure to workplace hazards.
3.21. TAX MATTERS. Except as set forth on SCHEDULE 3.21:
(a) Seller has timely filed all Tax Returns required to have
been filed by it, and has paid or accrued all Taxes due to any taxing
authority with respect to all taxable periods ending on or prior to the date
hereof, or otherwise attributable to all periods prior to the date hereof;
and all such Tax Returns are true, correct and complete in all respects.
Seller is not currently the beneficiary of any extension of time within which
to file any Tax Return.
(b) Seller has not received notice that the IRS or any other
taxing authority has asserted against Seller any deficiency in Taxes or claim
for additional Taxes in connection with any tax period. Except for Liens
arising from Taxes which are due but not yet payable, there are no Liens for
Taxes on any of Seller's assets.
(c) Seller has collected, withheld and paid over all Taxes
required to have been collected, withheld and paid over in connection with
amounts paid or owing to, or received from, any employee, independent
contractor, creditor, stockholder, or other Person;
(d) Seller has not been included in any consolidated,
combined or unitary Tax Return provided for under the laws of the United
States, any state or locality with respect to Taxes for any taxable period
for which the statute of limitations has not expired;
(e) There is no pending or, to the Knowledge of Seller or the
Stockholder, threatened action, audit, proceeding, or investigation with
respect to any Taxes or Tax Returns of Seller; and
(f) Seller has continuously been an S Corporation (as defined
in Section 1361) of the Code) since January 1, 1986 and will be an S
Corporation immediately prior to the Closing.
<PAGE>
3.22. INSURANCE.
(a) SCHEDULE 3.22 sets forth a complete and correct list of
all material insurance policies of any kind currently in force with respect
to Seller (the "Insurance Policies"), including all "occurrence based"
liability policies regardless of the periods to which they relate. SCHEDULE
3.22 sets forth for each Insurance Policy the type of coverage, the name of
the insureds, the insurer, the premium, the expiration date, the period to
which it relates, the deductibles and loss retention amounts and the amounts
of coverage. No cancellation or material amendment or increase of premiums
is pending or, to the Knowledge of Seller or the Stockholder, threatened with
respect to any of the Insurance Policies.
(b) No insurance company that issued any Insurance Policy,
Board of Fire Underwriters or similar body, or Governmental Authority has
issued a recommendation or requirement for any changes in the conduct of the
Business or any repairs or other work to be done on or with respect to any of
the Transferred Assets.
3.23. MATERIAL DISCLOSURES. No statement, representation or
warranty made by Seller or the Stockholder in this Agreement or in any
certificate, statement, list, schedule or other document furnished or to be
furnished to the Buyer hereunder contains, or when so furnished will contain,
any untrue statement of a material fact, or fails to state, or when so
furnished will fail to state, a material fact necessary to make the
statements contained herein or therein, in light of the circumstances in
which they are made, not misleading.
3.24. GAINSHARING PROGRAMS. SCHEDULE 3.24 sets forth a true
and complete list of all of the "gainsharing" programs currently approved
between Seller and GM ("Gainsharing").
3.25. LOCATION OF DISCLOSURE. So long as any information
called for by any provision of this Agreement is disclosed by Seller or the
Stockholder in the text of this Agreement or any Schedule hereto, such
information shall be considered disclosed for all purposes of this Agreement
notwithstanding that the information may have been more properly disclosed in
some other Schedule or provision of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND ATC
As an inducement to Seller and the Stockholder to enter into this
Agreement and to consummate the transactions contemplated herein, Buyer and
ATC hereby jointly and severally represent and warrant to Seller and the
Stockholder that:
4.01. ORGANIZATION AND EXISTENCE. Each of Buyer and ATC is a
corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware. Each of Buyer and ATC is duly qualified
to do business as a foreign corporation in each jurisdiction where the
character of the property owned or leased by it or the nature of its
activities makes such qualification necessary to carry on its business as now
conducted, except for those
<PAGE>
jurisdictions where the failure to be so qualified has not been, and may not
reasonably be expected to be, material.
4.02. CORPORATE AUTHORIZATION. The execution, delivery and
performance by each of Buyer and ATC of this Agreement and the consummation
by each of Buyer and ATC of the transactions contemplated hereby are within
the corporate powers of each of Buyer and ATC and have been duly authorized
by all necessary corporate action on the part of each of Buyer and ATC. This
Agreement constitutes the legal, valid and binding agreement of each of Buyer
and ATC, enforceable in accordance with its terms, except as may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting creditors' rights generally and subject to general principles
of equity.
4.03. GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by each of Buyer and ATC of this Agreement require no action by,
consent or approval of, or filing with, any Governmental Authority other than
as set forth in this Agreement.
4.04. NON-CONTRAVENTION. The execution, delivery and
performance by each of Buyer and ATC of this Agreement does not (a)
contravene or conflict with the Certificate of Incorporation or Bylaws of
Buyer or ATC, or (b) assuming compliance with the matters referred to in
Section 4.03, contravene or conflict with or constitute a violation of any
provision of any Applicable Law binding upon or applicable to Buyer or ATC.
4.05. ADVISORY FEES. Except for Aurora Capital Partners L.P.
(whose fees and expenses will be paid by Buyer), there is no investment
banker, broker, finder or other intermediary or advisor that has been
retained by or is authorized to act on behalf of Buyer or ATC who might be
entitled to any fee, commission or reimbursement of expenses from Seller or
any of its Affiliates upon consummation of the transactions contemplated by
this Agreement.
4.06. LITIGATION. There is no Proceeding pending against, or
to the Knowledge of Buyer or ATC, threatened against or affecting, Buyer or
ATC before any court or arbitrators or any governmental body, agency or
official that in any manner challenges or seeks to prevent, enjoin, alter or
materially delay the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF SELLER
5.01. CONDUCT OF THE BUSINESS. From the date hereof until the
Closing Date, Seller shall conduct the Business in the ordinary course and in
substantially the same manner as it has prior to the date of this Agreement
and agrees, other than in the ordinary course of business, not to enter into
any material agreements or take any other significant actions without the
prior written consent of Buyer, which shall not be unreasonably withheld or
delayed. Seller shall use its reasonable efforts to preserve intact the
Transferred Assets, the Business and the business organizations and
relationships and goodwill of Seller with third parties and keep available
the services of the present officers, employees, agents and other personnel
of Seller relating to the
<PAGE>
Business. Without limiting the generality of this Section 5.01(a) and except
as otherwise expressly provided in this Agreement, from the date hereof until
the Closing Date:
(a) Seller will, and the Stockholder will cause Seller to:
(i) (A) maintain the Transferred Assets in the
ordinary course of business consistent with past practice in operating
order and at least the condition in effect as of the date hereof,
reasonable wear and tear excepted, (B) promptly repair, restore or
replace any Transferred Assets in use on the date hereof except
Transferred Assets sold in the ordinary course of business consistent
with past practice, (C) upon any damage, destruction or loss to any of
the Transferred Assets, apply any and all insurance proceeds received
with respect thereto to the prompt repair, replacement and restoration
thereof to the condition of the Transferred Assets before such event,
(D) use its reasonable efforts to obtain, prior to the Closing Date, all
Required Consents, and (E) take all actions necessary to be in
compliance with, and to maintain the effectiveness of, all material
Permits;
(ii) comply with all material Applicable Laws;
(iii) promptly notify Buyer in writing of (A) any
action, event, condition or circumstance, or group of actions, events,
conditions or circumstances, that results in, or could reasonably be
expected to result in, a Material Adverse Effect, other than changes in
general economic conditions, (B) the commencement of any Proceeding by
or against Seller, or Seller becoming aware of any threat, claim,
action, suit, inquiry, proceeding, notice of violation, demand letter,
subpoena, government audit or disallowance that could reasonably be
expected to result in a Proceeding, and (C) the occurrence of any breach
by Seller of any representation or warranty, or any covenant or
agreement, contained in this Agreement.
(b) without Buyer's prior consent (which shall not
unreasonably be withheld or delayed), Seller will not, and the
Stockholder shall cause Seller not to:
(i) purchase or otherwise acquire assets that would
constitute Transferred Assets other than in the ordinary course of the
Business;
(ii) sell, assign, lease, license, transfer or otherwise
dispose of, or mortgage, pledge or encumber (other than with Permitted
Liens), any of the Transferred Assets except (A) pursuant to existing
obligations of Seller as set forth in SCHEDULE 3.08 or (B) in the ordinary
course of the Business;
(iii) enter any agreement or arrangement that requires or
allows payment, acceleration of payment or incurrence of Liabilities
relating to the Business, or the rendering of services by Seller outside
the ordinary course of the Business;
(iv) amend or modify in any material respect or terminate
any Scheduled Contract or any other Contract entered into by Seller after
the date hereof which, if in existence on the date hereof, would be
required to be set forth in the SCHEDULE 3.13(a) as a Scheduled Contract
(each, a "Subsequent Material Contract");
<PAGE>
(v) make or commit to make any capital expenditure, or
group of related capital expenditures relating to the Business, in
excess of $25,000, other than capital expenditures expressly required
under any Scheduled Contract;
(vi) enter into or commit or propose to enter into any
Subsequent Material Contract;
(vii) (A) increase the rate or terms of compensation payable
or to become payable to any Employee except in the ordinary course of
business, (B) pay or agree to pay any pension, retirement allowance or
other employee benefit to an Employee not provided for by any Employee
Plan, Benefit Arrangement or Employment Agreement set forth in the
Schedules hereto, (C) commit itself to any additional pension, profit
sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay,
continuation pay, termination pay, retirement or other employee benefit
plan, agreement or arrangement for Employees, or increase the rate or
terms of any Employee Plan or Benefit Arrangement, (D) enter into any
employment agreement with or for the benefit of any Employee, or (E)
increase the rate of compensation under or otherwise change the terms of
any Employment Agreement set forth in SCHEDULE 3.16(a); and
(viii) enter into any agreement to do any of the foregoing.
5.02. ACCESS TO INFORMATION. Subject to compliance with
Applicable Laws, from the date hereof until the Closing Date, Seller will
promptly: (a) give Buyer, ATC and their counsel, financial advisors,
auditors and other authorized representatives reasonable access to the
offices, properties, books and records relating to the Business and the
Transferred Assets upon reasonable prior notice, (b) furnish to Buyer, ATC
and their counsel, financial advisors, auditors and other authorized
representatives such information relating to the Business or the Transferred
Assets as Buyer or ATC may reasonably request and (c) instruct the directors,
officers, employees, counsel, auditors and financial advisors of Seller to
cooperate with Buyer, ATC and their counsel, financial advisors, auditors and
other authorized representatives in their investigation of the Business and
the Transferred Assets. Such investigation shall include, but shall not be
limited to:
(i) A review of the business and operations of the Business;
(ii) A review of the financial statements and related work
papers and tax returns and any tax audits, other Governmental
Authority audits or internal audits of Seller;
(iii) An environmental review as to the presence and nature
of any hazardous materials in or on any of the Real Property; and
(iv) A standard legal due diligence examination relating to
Seller and the Business.
<PAGE>
Buyer and ATC (x) shall conduct their investigation in such a way so as not
to be unduly disruptive to the conduct of Seller's business and (y) shall not
contact the employees of Seller prior to the Closing without the prior
consent of Seller.
5.03. COMPLIANCE WITH TERMS OF REQUIRED GOVERNMENTAL APPROVALS
AND REQUIRED CONTRACTUAL CONSENTS. On and after the Closing Date, Seller
shall comply at its own expense with all conditions and requirements
affecting Seller set forth in (a) all Required Governmental Approvals as
necessary to keep the same in full force and effect assuming continued
compliance with the terms thereof by Buyer and (b) all Required Contractual
Consents as necessary to keep the same effective and enforceable against the
Persons giving such Required Contractual Consents assuming continued
compliance with the terms thereof by Buyer.
5.04. MAINTENANCE OF INSURANCE POLICIES. On and after the date
hereof (including after the Closing Date), Seller shall not take or fail to
take any action if such action or inaction, as the case may be, would
adversely affect the applicability of any insurance in effect on the date
hereof that covers all or any part of the Transferred Assets or the Business
with respect to the period of time ending on the Closing Date.
Notwithstanding the foregoing, Seller shall not have any obligation to make
any monetary payment to maintain the effectiveness of any such insurance
policy after the Closing Date.
5.05. CONFIDENTIALITY.
(a) Seller and the Stockholder will, and will cause their
representatives to, treat any data and information obtained with respect to
Buyer, ATC or any of their Affiliates from any representative, officer,
director, or employee of Buyer or ATC, or from any books or records of Buyer
or ATC in connection with this Agreement, confidentially and with
commercially reasonable care and discretion, and will not disclose any such
information to third parties; PROVIDED, HOWEVER, that the foregoing shall not
apply to (i) information in the public domain or that becomes public through
disclosure by any party other than Seller, the Stockholder or their
Affiliates or representatives, so long as such other party is not in breach
of a confidentiality obligation, (ii) information that may be required to be
disclosed by Applicable Law or (iii) information required to be disclosed to
obtain any Required Consents.
(b) In the event that the Closing fails to take place and
this Agreement is terminated, Seller and the Stockholder, upon the written
request of Buyer or ATC, will, and will cause their representatives to,
promptly deliver to Buyer or ATC any and all documents or other materials
furnished by Buyer or ATC or any of their Affiliates to Seller or the
Stockholder in connection with this Agreement without retaining any copy
thereof. In the event of such request, all other documents, whether
analyses, compilations or studies, that contain or otherwise reflect the
information furnished by Buyer or ATC, shall be destroyed by Seller or the
Stockholder or shall be returned to Buyer or ATC, and Seller shall confirm to
Buyer in writing that all such materials have been returned or destroyed. No
failure or delay by Buyer or ATC in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
<PAGE>
(c) The parties hereto recognize and agree that in the event
of a breach of this Section 5.05, money damages would not be an adequate
remedy for such breach and, even if money damages were adequate, it would be
impossible to ascertain or measure with any degree of accuracy the damages
sustained therefrom. Accordingly, if there should be a breach or threatened
breach of the provisions of this Section 5.05, Buyer, ATC and their
Affiliates shall be entitled to an injunction restraining Seller and the
Stockholder from any breach without showing or proving actual damage
sustained by Buyer, ATC or their Affiliates, as the case may be. Nothing in
the preceding sentence shall limit or otherwise affect any remedies that
Buyer, ATC or their Affiliates may otherwise have under Applicable Law.
5.06. USE OF NAME. After the Closing Date, Seller shall not
use the name "ATS Remanufacturing" or any name substantially similar thereto,
except that Seller may use (i) payroll checks bearing the name "ATS
Remanufacturing" for a period not to exceed 90 days after the Closing and
(ii) other checks bearing the name "ATS Remanufacturing" for a period not to
exceed 30 days after the Closing.
5.07. PAYMENT AND DISCHARGE OF EXCLUDED LIABILITIES. After the
Closing Date, Seller shall pay and discharge all Excluded Liabilities
(including, without limitation, all accrued payroll) when due except for
Excluded Liabilities that are being contested in good faith.
5.08. REMEDIATION OF CERTAIN ENVIRONMENTAL CONDITIONS.
Promptly after the Closing Date, Seller shall perform the tasks set forth on
SCHEDULE 5.08, to the extent that such tasks are not completed prior to the
Closing. Seller shall perform such tasks in accordance with Applicable Law
(including, without limitation, all Environmental Laws) and in a commercially
reasonable manner.
5.09. ADMINISTRATION OF ACCOUNTS. All payments made to Seller
after the Closing Date with respect to Transferred Assets shall be held by
Seller in trust for the benefit of Buyer and, promptly after receipt by
Seller of any such payment, Seller shall pay, or cause to be paid, over to
Buyer the amount of such payment.
5.10. GAINSHARING PAYMENTS. If after the Closing Date Seller
or the Stockholder receives any payment from GM under any Gainsharing program
approved as of the Closing Date, Seller or the Stockholder, as the case may
be, shall promptly pay to Buyer the portion of such payment that is
attributable to sales to GM made after the Closing Date.
ARTICLE VI
COVENANTS OF BUYER AND ATC
6.01. CONFIDENTIALITY.
(a) Buyer and ATC will, and will cause their representatives
to, treat any data and information obtained with respect to Seller or the
Stockholder from any representative, officer, director or employee of Seller
or the Stockholder, or from any books or records of Seller in connection with
this Agreement, confidentially and with commercially
<PAGE>
reasonable care and discretion, and will not disclose any such information to
third parties; PROVIDED, HOWEVER, that the foregoing shall not apply to (i)
information in the public domain or that becomes public through disclosure by
any party other than Buyer or ATC or their Affiliates or representatives, so
long as such other party is not in breach of a confidentiality obligation,
(ii) information that may be acquired to be disclosed by Applicable Law,
(iii) information required to be disclosed to obtain any Required Consents;
or (iv) any information that is disclosed by Buyer or ATC or their Affiliates
to any of their actual or prospective lenders or investors in connection with
financing the transactions contemplated by this Agreement; PROVIDED, HOWEVER,
that in the event the Closing has occurred, this Section 6.01(a) shall cease
to be effective with respect to any data and information obtained with
respect to the Business.
(b) In the event that the Closing fails to take place and
this Agreement is terminated, Buyer and ATC, upon the written request of
Seller, will, and will cause their representatives to, promptly deliver to
Seller any and all documents or other materials furnished by Seller or the
Stockholder to Buyer or ATC in connection with this Agreement without
retaining any copy thereof. In event of such request, all other documents,
whether analyses, compilations or studies, that contain or otherwise reflect
the information furnished by Seller or the Stockholder, shall be destroyed by
Buyer or ATC or shall be returned to Seller, and Buyer and ATC shall confirm
to Seller in writing that all such materials have been returned or destroyed.
No failure or delay by Seller or the Stockholder in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any right, power or privilege hereunder.
(c) The parties hereto recognize and agree that in the event
of a breach of this Section 6.01, money damages would not be an adequate
remedy for such breach and, even if money damages were adequate, it would be
impossible to ascertain or measure with any degree of accuracy the damages
sustained by Seller therefrom. Accordingly, if there should be a breach or
threatened breach of provisions of this Section 6.01, Seller and the
Stockholder shall be entitled to an injunction restraining Buyer and ATC from
any breach without showing or proving actual damage sustained by Seller or
the Stockholder. Nothing in the preceding sentence shall limit or otherwise
affect any remedies that Seller or the Stockholder may otherwise have under
Applicable Law.
6.02. BULK SALES LAWS. Buyer waives compliance by Seller with
the provisions of all applicable provisions of Article 6 of the Uniform
Commercial Code as adopted in any state relating to bulk sales.
6.03. PAYMENTS TO CONTINUING EMPLOYEES.
(a) On the third anniversary of the Closing Date, Buyer shall
pay to each person listed on SCHEDULE 6.03 (a "Designated Person") the amount
set forth opposite such Designated Person's name on SCHEDULE 6.03 PROVIDED
that such Designated Person is then employed by Buyer. All payments under
this Section 6.03(a) will be made by check and will be subject to standard
withholding for income taxes, social security and the like. Notwithstanding
the foregoing, Buyer shall be under no obligation to retain any Designated
Person as an employee, and Buyer shall be free to terminate any Designated
Person at any time for cause or without
<PAGE>
cause, even though such termination would terminate such Designated Person's
right to receive payment under this Section 6.03(a) if it occurs prior to the
third anniversary of the Closing Date.
(b) At the time of the payments called for by Section
6.03(a), Buyer shall pay to the Stockholder in cash $33,333 plus the amount
otherwise payable to any Designated Person who is no longer employed by Buyer
on the third anniversary of the Closing Date.
6.04. RETURN OF USED WASTE OIL HEATERS. After the Closing,
Buyer intends to replace certain waste oil heaters at the primary facility at
which the Business is conducted. Buyer will deliver to Seller or Seller's
designee the waste oil heaters currently in place as they are replaced with
new ones. The costs of delivering such used heaters to Seller or its designee
shall be borne by Seller.
ARTICLE VII
COVENANTS OF ALL PARTIES
7.01. FURTHER ASSURANCES. Subject to the terms and conditions
of this Agreement, each party will use all reasonable efforts to take, or
cause to be taken, all actions and to do, or cause to be done, all things
necessary or desirable under Applicable Law to consummate the transactions
contemplated by this Agreement. Buyer, ATC, the Stockholder and Seller agree
to execute and deliver such other documents, certificates, agreements and
other writings and to take such other actions as may be reasonably necessary
or desirable in order to consummate or implement expeditiously the
transactions contemplated by this Agreement. Following the Closing, Buyer
shall make the employees and records of the Business reasonably available to
Seller during normal business hours, at no charge to Seller other than for
out of pocket expenses incurred by Buyer for items such as photocopying or
travel, for the purposes of providing accounting information reasonably
required by Seller, providing testimony or information in connection with any
legal proceeding or for any other appropriate purpose arising out of Seller's
ownership and operation of the Business.
7.02. CERTAIN FILINGS. The parties hereto shall cooperate with
one another in determining whether any action by or in respect of, or filing
with, any Governmental Authority is required or reasonably appropriate, or
any action, consent, approval or waiver from any party to any Contract is
required or reasonably appropriate, in connection with the consummation of
the transactions contemplated by this Agreement. Subject to the terms and
conditions of this Agreement, in taking such actions or making any such
filings, the parties hereto shall furnish information required in connection
therewith and seek timely to obtain any such actions, consents, approvals or
waivers. Without limiting the foregoing, the parties hereto shall each
promptly complete and file all reports and forms, and respond to all requests
or further requests for additional information, if any, as may be required or
authorized under the HSR Act.
7.03. PUBLIC ANNOUNCEMENTS. Up to (and including) the Closing
Date, the parties agree that they will not make any disclosure with respect
to this Agreement or the transactions contemplated hereby or cause to be
publicized in any manner whatsoever by way of interviews, responses to
questions or inquiries, press releases or otherwise any aspect of this
<PAGE>
Agreement or the transactions contemplated hereby without prior written
notice to and approval of the other parties hereto, unless such party
reasonably concludes that such release of information is required by
applicable law or stock exchange regulations, and the parties hereto cannot
reach agreement upon a mutually acceptable form of release. Notwithstanding
the foregoing, the parties hereto may, on a confidential basis, advise their
respective agents, accountants, attorneys and financing sources with respect
to the contents of this Agreement and the transactions contemplated hereby.
7.05. TAXES.
(a) All sales, value added and use Taxes imposed in
connection with the sale of the Transferred Assets shall be borne by Buyer.
(b) Seller agrees that no new elections with respect to Taxes
or any changes in current elections with respect to Taxes affecting the
Transferred Assets shall be made after the date of this Agreement without the
prior written consent of Buyer.
(c) Buyer and Seller shall (i) provide to each other such
assistance as may reasonably be requested in connection with the preparation
of any Tax Return relating to the Business and the conduct of any audit or
other examination by any taxing authority or in connection with judicial or
administrative proceedings relating to any liability for Taxes relating to
the Business, (ii) retain all records or other information that may be
relevant to the preparation of any Tax Returns relating to the Business, or
the conduct of any audit or examination, or other tax proceeding relating to
the Business, and (iii) retain all relevant documents, including prior year's
Tax Returns relating to the Business, supporting work schedules and other
records or information that may be relevant to such returns and shall not
destroy or otherwise dispose of any such records without the prior written
consent of the other party.
7.07. EMPLOYEES AND EMPLOYEE BENEFIT MATTERS.
(a) On or before the Closing Date, Buyer shall offer
employment to each person who is an employee of Seller immediately prior to
the Closing at a wage rate at least equal to the rate in effect for such
employee on the Closing Date.
(b) Buyer shall provide group insurance benefits (health,
dental, life) to employees of Seller who accept employment with Buyer, such
benefits to be substantially equivalent to the insurance benefits that are in
effect for the principal employee group of Seller immediately prior to the
Closing. Buyer shall waive all insurance waiting periods for those employees
who have already attained the required eligibility for insurance coverage as
of the Closing.
(c) Buyer will honor any earned but unused 1997 vacation time
for employees of Seller who accept employment with Buyer. Seller will
provide Buyer with a listing, by employee, that summarizes such earned but
unused 1997 vacation time as of the Closing Date.
<PAGE>
(d) For purposes of determining the seniority of any person
hired by Buyer pursuant to Section 7.07(a), such person will be credited with
the period of employment by Seller prior to the Closing.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01. CONDITIONS TO OBLIGATION OF BUYER. The obligation of
Buyer to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions:
(a) (i) Seller shall have performed and satisfied in all
material respects each of its material obligations hereunder required to be
performed and satisfied by it on or prior to the Closing Date, (ii) each of
the representations and warranties of Seller and the Stockholder contained in
this Agreement shall have been true and correct in all material respects when
made and shall contain no misstatement or omission that would make any such
representation or warranty materially misleading when made and shall be true
and correct in all material respects, and shall not contain any misstatement
or omission that would make any such representation or warranty materially
misleading, at and as of the Closing Date with the same force and effect as
if made as of the Closing Date and (iii) Buyer shall have received
certificates signed by the Stockholder and a duly authorized executive
officer of Seller to the foregoing effect and to the effect that to the
Knowledge of the Stockholder and such officer the conditions specified within
this Section 8.01 have been satisfied.
(b) All material Required Governmental Approvals for the
transactions contemplated by this Agreement shall have been obtained without
the imposition of any conditions that are or would become applicable to the
Business, the Transferred Assets or Buyer (or any of its Affiliates) after
the Closing that Buyer in good faith reasonably determines would be
materially burdensome upon the Business, the Transferred Assets or Buyer (or
any of its Affiliates) or their respective businesses substantially as such
businesses have been conducted prior to the Closing Date or as said
businesses, as of the date hereof, would be reasonably expected to be
conducted after the Closing Date. All such Required Governmental Approvals
shall be in effect, and no Proceedings shall have been instituted or
threatened by any Governmental Authority with respect thereto as to which, in
Buyer's good faith opinion, there is a material risk of a determination that
would terminate the effectiveness of, or otherwise materially and adversely
modify the terms of, any such Required Governmental Approval; all applicable
waiting periods with respect to such Required Governmental Approvals shall
have expired; and all conditions and requirements prescribed by Applicable
Law or by such Required Governmental Approvals to be satisfied on or prior to
the Closing Date shall have been satisfied to the extent necessary such that
all such Required Governmental Approvals are, and will remain, in full force
and effect assuming continued compliance with the terms thereof after the
Closing.
(c) All material Required Contractual Consents shall have
been obtained without the imposition of any conditions that are or would
become applicable to the Business, the Transferred Assets, Buyer or any of
its Affiliates after the Closing that Buyer in
<PAGE>
good faith determines would be materially burdensome upon the Business, the
Transferred Assets, Buyer or any of its Affiliates or their respective
businesses substantially as such businesses have been conducted prior to the
Closing Date or as said businesses, as of the date hereof, would be
reasonably expected to be conducted after the Closing Date. All such
Required Contractual Consents (and with respect to the Subsequent Material
Contracts, such other consents as may be required) shall be in effect. All
conditions and requirements prescribed by any Required Contractual Consent
(or any such other consent) to be satisfied on or prior to the Closing Date
shall have been satisfied to the extent necessary such that all such Required
Contractual Consents (and all such other consents) are effective and
enforceable, and will remain effective and enforceable against the Persons
giving such Required Contractual Consents (and such other consents) assuming
continued compliance with the terms thereof.
(d) The transactions contemplated by this Agreement and the
consummation of the Closing shall not violate any material Applicable Law.
No temporary restraining order, preliminary or permanent injunction, cease
and desist order or other order issued by any court of competent jurisdiction
or any competent Governmental Authority or any other legal restraint or
prohibition preventing the transfer and exchange contemplated hereby or the
consummation of the Closing, or imposing Damages in respect thereto, shall be
in effect, and there shall be no pending or threatened actions or proceedings
by any Governmental Authority (or determinations by any Governmental
Authority) or by any other Person (i) challenging or in any manner seeking to
restrict or prohibit the transfer and exchange contemplated hereby or the
consummation of the Closing, or to impose conditions that Buyer in good faith
determines would be materially burdensome upon the Business, the Transferred
Assets, Buyer or any of its Affiliates or their respective businesses
substantially as such businesses have been conducted prior to the Closing
Date or as said businesses, as of the date hereof, would be reasonably
expected to be conducted after the Closing Date.
(e) Since the date hereof, there shall not have been any
event, occurrence, development or state of circumstances or facts or change
in the Transferred Assets or the Business (including any damage, destruction
or other casualty loss, but excluding any event, occurrence, development or
state of circumstances or facts or change resulting from changes in general
economic conditions) affecting the Business or any Transferred Asset that has
had or that may be reasonably expected to have, either alone or together with
all such events, occurrences, developments, states of circumstances or facts
or changes, a Material Adverse Effect.
(f) The Stockholder shall have executed and delivered to
Buyer and ATC a Noncompetition Agreement in a form reasonably acceptable to
Buyer.
(g) The Stockholder shall have executed and delivered to
Buyer a lease in a form reasonably acceptable to Buyer for the facility at
which the Business is conducted.
(h) The Stockholder shall have executed and delivered to
Buyer a lease in a form reasonably acceptable to Buyer for the GM parts
storage facility.
(i) The Stockholder shall have executed and delivered to
Buyer a consulting agreement in a form reasonably acceptable to Buyer.
<PAGE>
(j) Buyer shall have received an opinion of counsel from
Horack, Talley, Pharr & Lowndes in a form reasonably acceptable to Buyer.
(k) Seller shall have executed and delivered a bill of sale
and such other documents of assignment, transfer and conveyance as Buyer
shall reasonably request to transfer to Buyer all right, title and interest
of Seller in and to the Transferred Assets.
(l) Buyer shall be reasonably satisfied that there has been
no material degradation of the Transferred Assets since the completion by
Buyer of its inspection of the Transferred Assets.
(m) Buyer shall have completed its customary due diligence as
contemplated by Section 5.02 and Buyer shall be satisfied, in its reasonable
judgment, with both the quantity and the substance of the information
provided to it.
(n) Buyer shall received a true and correct list of all
consigned inventory (including cores, parts and finished goods) owned by GM
and held by Seller as of the Closing Date.
(o) Palmer McKinney shall have executed and delivered to
Buyer a consulting agreement substantially in a form reasonably acceptable to
Buyer.
(p) H. Lee Curry shall have executed and delivered to Buyer a
consulting agreement in a form reasonably acceptable to Buyer.
(q) Martha Curry shall have executed and delivered to Buyer a
consulting agreement in a form reasonably acceptable to Buyer.
8.02. CONDITIONS TO OBLIGATION OF SELLER. The obligation of
Seller to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of each of the following conditions:
(a) (i) Buyer shall have performed and satisfied in all
material respects each of its material obligations hereunder required to be
performed and satisfied by it on or prior to the Closing Date, (ii) the
representations and warranties of Buyer and ATC contained in this Agreement
shall be true, complete and accurate in all material respects at and as of
the Closing Date, as if made at and as of such date and (iii) Seller shall
have received a certificate signed by a duly authorized executive officer of
Buyer and ATC to the foregoing effect and to the effect that to such
officers' Knowledge the conditions specified within this Section 8.02 have
been satisfied.
(b) All material Required Governmental Approvals for the
transactions contemplated by this Agreement shall have been obtained without
the imposition of any conditions that are or would become applicable to
Seller or any of its Affiliates after the Closing that Seller in good faith
reasonably determines would be materially burdensome upon such Person. All
such Required Governmental Approvals shall be in effect, and no Proceedings
shall have been instituted or threatened by any Governmental Authority with
respect thereto as to which, in Seller's good faith opinion, there is a
material risk of a determination that would
<PAGE>
terminate the effectiveness of, or otherwise materially and adversely modify
the terms of, any such Required Governmental Approval. All applicable
waiting periods with respect to such Required Governmental Approvals shall
have expired, and all conditions and requirements prescribed by Applicable
Law or by such Required Governmental Approvals to be satisfied on or prior to
the Closing Date shall have been satisfied to the extent necessary such that
all such Required Governmental Approvals are, and will remain, in full force
and effect assuming continued compliance with the terms thereof after the
Closing.
(c) All material Required Contractual Consents shall have
been obtained without the imposition of any conditions that are or would
become applicable to Seller. All such Required Contractual Consents (and
with respect to the Subsequent Material Contracts, such other consents) shall
be in effect, and no Proceeding shall have been instituted or threatened with
respect thereto that, in Seller's good faith judgment, creates a material
risk that any material Liability will be imposed on Seller. All conditions
and requirements prescribed by any such Required Contractual Consent (or any
such other consent) to be satisfied on or prior to the Closing Date shall
have been satisfied to the extent necessary such that no material Liability
will be imposed on Seller.
(d) The sale and transfer contemplated by this Agreement and
the consummation of the Closing shall not violate any Applicable Law. No
temporary restraining order, preliminary or permanent injunction, cease and
desist order or other order issued by any court of competent jurisdiction or
any competent Governmental Authority or any other legal restraint or
prohibition preventing the transfer and exchange contemplated hereby or the
consummation of the Closing, or imposing Damages in respect thereto, shall be
in effect, and there shall be no pending or threatened actions or proceedings
by any Governmental Authority (or determinations by any Governmental
Authority) or by any other Person challenging or in any manner seeking to
restrict or prohibit the transfer and exchange contemplated hereby or the
consummation of the Closing.
(e) Buyer shall have executed and delivered to the
Stockholder a lease in a form reasonably acceptable to the Stockholder for
the facility at which the Business is conducted.
(f) Buyer shall have executed and delivered to the
Stockholder a lease in a form reasonably acceptable to the Stockholder for
the GM parts storage facility.
(g) Buyer shall have executed and delivered to the
Stockholder a consulting agreement in a form reasonably acceptable to the
Stockholder.
(h) Seller shall have received an opinion of counsel from
Joseph Salamunovich, Esq., General Counsel of ATC, in a form reasonably
acceptable to Seller.
(i) Buyer shall have executed and delivered to Palmer
McKinney a consulting agreement in a form reasonably acceptable to Mr.
McKinney.
<PAGE>
(j) Buyer shall have executed and delivered to H. Lee Curry a
consulting agreement in a form reasonably acceptable to Mr. Curry.
(k) Buyer shall have executed and delivered to Martha Curry a
consulting agreement in a form reasonably acceptable to Ms. Curry.
ARTICLE IX
INDEMNIFICATION
9.01. AGREEMENT TO INDEMNIFY.
(a) Subject to the limitations provided herein, Buyer, ATC
and their Affiliates (collectively, the "Buyer Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this Article IX by
Seller and the Stockholder, jointly and severally, in respect of any Damages
reasonably and proximately incurred by any Buyer Indemnitee (i) as a result
of any inaccuracy or misrepresentation in or breach of or failure to perform
any representation, warranty, covenant, agreement or obligation of Seller or
the Stockholder in this Agreement, (ii) as a result of Buyer's waiver of
compliance with applicable "bulk sales" laws pursuant to Section 6.02 or
(iii) in connection with any Excluded Liability. Notwithstanding the
foregoing, Seller and the Stockholder shall not be liable as Indemnifying
Parties until all claims by the Buyer Indemnitees for indemnification exceed
$10,000 in the aggregate, and thereafter Seller and the Stockholder shall be
liable for all indemnification claims up to the aggregate liability set forth
in Section 9.01(c); PROVIDED, HOWEVER, that Seller and the Stockholder shall
be liable for all claims by the Buyer Indemnitees, regardless of amount,
arising out of (i) the fraud or willful misconduct of Seller or the
Stockholder or (ii) any Environmental Liability, other than Buyer
Environmental Liabilities.
(b) Seller, the Stockholder and their Affiliates
(collectively the "Seller Indemnitees") shall each be indemnified and held
harmless to the extent set forth in this Article IX by Buyer and ATC, jointly
and severally, in respect of any and all Damages reasonably and proximately
incurred by any Seller Indemnitee as a result of (i) any inaccuracy or
misrepresentation in or breach of or failure to perform any representation,
warranty, covenant, agreement or obligation of Buyer or ATC in this
Agreement, (ii) the conduct of the Business after the Closing or (iii)
Assumed Liabilities.
(c) Subject to the proviso to Section 9.01(a), Seller and the
Stockholder shall be liable under Section 9.01(a) for an amount in the
aggregate not to exceed the sum of all payments made by Buyer as of the time
in question pursuant to Article II, PROVIDED that any amount that Seller
and/or the Stockholder would be obligated to pay to or on behalf of a Buyer
Indemnity but for such limit will be netted against and reduce subsequent
Post-Closing Payments, if any.
<PAGE>
9.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND COVENANTS.
(a) The representations and warranties contained in this
Agreement shall survive as follows:
(i) Except as otherwise provided in Section 9.02(a)(ii),
(iii) or (iv), all representations and warranties shall expire on the first
anniversary of the Closing Date.
(ii) Notwithstanding Section 9.02(a)(i) the representations
and warranties of Seller and the Stockholder as an Indemnifying Party shall
survive the Closing Date until the expiration of any applicable statute of
limitations, including extensions thereof, with respect to: (1) the
inaccuracy or misrepresentation in or breach of any representation or
warranty made by Seller or the Stockholder in this Agreement arising out of
fraud or willful misconduct; and (2) any inaccuracy or misrepresentation in
or breach of any representation or warranty made in Sections 3.15, 3.20 and
3.21 regardless of whether such inaccuracy or misrepresentation or breach
arises out of fraud or willful misconduct.
(iii) Notwithstanding Section 9.02(a)(i), the representations
and warranties of Buyer and ATC as Indemnifying Parties shall survive the
Closing Date until the expiration of the applicable statute of limitations,
including extensions thereof, with respect to any inaccuracy or
misrepresentation in or breach of any representation or warranty made by
Buyer or ATC in this Agreement arising out of fraud or willful misconduct.
(iv) Notwithstanding Section 9.02(a)(i), the representations
and warranties of Seller and the Stockholder set forth in Sections 3.01,
3.02, 3.04, 3.05, 3.09, 3.12 and 3.14 shall survive without expiration.
Any cause of action for breach of a representation or warranty contained
herein shall expire and terminate unless the party claiming that such breach
occurred delivers to the other party written notice and a reasonably detailed
explanation of the alleged breach on or before 5:00 P.M., eastern time, on
the date on which such representation or warranty expires pursuant to this
Section 9.02(a).
(b) The covenants contained in this Agreement shall survive
without expiration unless otherwise expressly provided in such covenant.
9.03. CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall
believe that such Indemnitee is entitled to indemnification pursuant to this
Article IX in respect of any Damages, such Indemnitee shall give the
appropriate Indemnifying Party prompt written notice thereof. Any such
notice shall set forth in reasonable detail and to the extent then known the
basis for such claim for indemnification. The failure of such Indemnitee to
give notice of any claim for indemnification promptly shall not adversely
affect such Indemnitee's right to indemnity hereunder except to the extent
that such failure materially adversely affects the right of the Indemnifying
<PAGE>
Party to assert any reasonable defense to such claim. Each such claim for
indemnity shall expressly state that the Indemnifying Party shall have only
the ten (10) Business Day period referred to in the next sentence to dispute
or deny such claim. The Indemnifying Party shall have ten (10) Business Days
following its receipt of such notice either (a) to acquiesce in such claim by
giving such Indemnitee written notice of such acquiescence or (b) to object
to the claim by giving such Indemnitee written notice of the objection. If
the Indemnifying Party does not object thereto within such ten (10) Business
Day period, such Indemnitee shall be entitled to be indemnified for all
Damages reasonably and proximately incurred by such Indemnitee in respect of
such claim. If the Indemnifying Party objects to such claim in a timely
manner, and such Indemnitee and the Indemnifying Party are unable to resolve
their dispute within ten (10) Business Days following such objection (or such
additional period of time as may be mutually agreed to by such Persons), the
claim shall be submitted immediately to arbitration pursuant to Section 11.12.
9.04. DEFENSE OF CLAIMS.
(a) In connection with any claim which may give rise to
indemnity under this Article IX resulting from or arising out of any claim or
Proceeding against an Indemnitee by a Person that is not a party hereto, the
Indemnifying Party may, subject to Section 9.04(b), assume the defense of any
such claim or Proceeding (unless such Indemnitee elects not to seek indemnity
hereunder for such claim), upon written notice to the relevant Indemnitee, if
all Indemnifying Parties with respect to such claim or Proceeding jointly
acknowledge to the Indemnitee its right to indemnity pursuant hereto in
respect of the entirety of such claim (as such claim may have been modified
through written agreement of the parties or arbitration hereunder) and
provides assurances, reasonably satisfactory to such Indemnitee, that the
Indemnifying Parties will be financially able to satisfy such claim in full
if such claim or Proceeding is decided adversely. If the Indemnifying
Parties assume the defense of any such claim or Proceeding, the Indemnifying
Parties shall select counsel reasonably acceptable to such Indemnitee to
conduct the defense of such claim or Proceeding, shall take all steps
necessary in the defense or settlement thereof and shall at all times
diligently and promptly pursue the resolution thereof. If the Indemnifying
Parties shall have assumed the defense of any claim or Proceeding in
accordance with this Section 9.04, the Indemnifying Parties shall be
authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, without the prior written consent
of such Indemnitee; PROVIDED, HOWEVER, that the Indemnifying Parties shall
pay or cause to be paid all amounts arising out of such settlement or
judgment concurrently with the effectiveness thereof; PROVIDED, FURTHER, that
the Indemnifying Parties shall not be authorized to encumber any of the
assets of any Indemnitee or to agree to any restriction that would apply to
any Indemnitee or to its conduct of business; and PROVIDED, FURTHER, that a
condition to any such settlement shall be a complete release of such
Indemnitee and its Affiliates, officers, employees, consultants and agents
with respect to such claim. Subject to Section 9.04(b), such Indemnitee
shall be entitled to participate in (but not control) the defense of any such
action, with its own counsel and at its own expense and the Indemnifying
Parties shall provide such Indemnitee with reasonable access to all materials
relating to the defense of the action and otherwise cooperate with such
Indemnitee and its counsel in connection with the Indemnitee's participation
in such defense. Each Indemnitee shall, and shall cause each of its
Affiliates, officers, employees, consultants and agents to, cooperate fully
with the Indemnifying Parties in the defense of any claim or Proceeding being
defended by the Indemnifying Parties
<PAGE>
pursuant to this Section 9.04. If the Indemnifying Parties do not assume the
defense of any claim or Proceeding resulting therefrom in accordance with the
terms of this Section 9.04(a), such Indemnitee may defend against such claim
or Proceeding.
(b) Notwithstanding Section 9.04(a), the Indemnifying Parties
may not assume the defense of any claim or Proceeding and the Indemnitee may
at its own cost and expense assume such defense if, in the reasonable opinion
of the Indemnitee, (i) such claim or Proceeding involves an issue or matter
that, if determined adversely to the Indemnitee, is likely to have a material
adverse effect on the business, operations, assets, properties or prospects
of the Indemnitee, or (ii) there is one or more legal defenses available to
the Indemnitee that conflict with those available to an Indemnifying Party.
If the Indemnitee assumes defense of any such claim or Proceeding, (A) the
Indemnifying Parties may participate in, but not control, the defense of such
claim or Proceeding, and (B) if the Indemnitee receives a settlement proposal
from the Person asserting such claim or instituting such Proceeding and is
notified by an Indemnifying Party that such Indemnifying Party wants to
accept such settlement proposal, the liability of the Indemnifying Parties
with respect to such claim or Proceeding shall equal the lesser of (x) the
amount offered in such settlement proposal, (y) the amount of actual Damages
of the Indemnitee with respect to such claim or Proceeding or (z) the maximum
liability of the Indemnifying Parties pursuant to Section 9.01(a).
(c) If the Indemnitee elects to defend any claim or
Proceeding pursuant to the last sentence of Section 9.04(a) or pursuant to
Section 9.04(b), the Indemnitee shall conduct such defense in such manner as
it shall deem appropriate, including settling such claim or Proceeding after
giving notice of the same to the Indemnifying Parties, on such terms as such
Indemnitee shall deem appropriate. If the Indemnifying Parties seek to
question the manner in which such Indemnitee defended such claim or
Proceeding or the amount of or nature of any such settlement, the
Indemnifying Parties shall have the burden to prove by a preponderance of the
evidence that such Indemnitee did not defend such claim or Proceeding in a
reasonably prudent manner.
ARTICLE X
TERMINATION
10.01. GROUNDS FOR TERMINATION.
(a) This Agreement may be terminated at any time prior to the
Closing under the following circumstances:
(i) by mutual written agreement of all of the parties
hereto;
(ii) by either party if the other party has breached any of
its representations or warranties contained herein or materially defaulted
in the performance of any of its covenants or agreements contained herein
and such breach or default is not curable prior to the Outside Date; or
<PAGE>
(iii) by Buyer or by Seller, if the Closing shall not
have been consummated by September 30, 1997 (the "Outside Date"); PROVIDED,
HOWEVER, that neither Buyer nor Seller may terminate this Agreement
pursuant to this Section 10.01(a)(iii) if the Closing shall not have been
consummated within such time period by reason of the failure of such party
or any of its Affiliates to perform in all material respects any of its or
their respective covenants or agreements contained in this Agreement.
The party desiring to terminate this Agreement pursuant to Section
10.01(a)(ii) or (iii) shall give written notice of such termination to the
other party.
(b) This Agreement shall automatically terminate if any
Federal, state or foreign law or regulation thereunder shall hereafter be
enacted or become applicable that makes the transactions contemplated hereby
or the consummation of the Closing illegal or otherwise prohibited, or if any
judgment, injunction, order or decree enjoining either party hereto from
consummating the transactions contemplated hereby is entered, and such
judgment, injunction, order or decree shall become final and nonappealable.
10.02. EFFECT OF TERMINATION. If this Agreement is terminated
as permitted by Section 10.01, such termination shall be without liability of
any party to any other party to this Agreement; PROVIDED, HOWEVER, that if
such termination shall result from the breach by any party of its
representations, warranties or covenants contained in this Agreement, such
party shall be fully liable for any and all Damages incurred or suffered by
the other parties as a result of such failure or breach notwithstanding such
termination. The provisions of Sections 5.05, 6.01, 10.02, 11.03, 11.05
11.07, 11.08, 11.10, 11.11 and 11.13 shall survive any termination of this
Agreement pursuant to this Article X.
ARTICLE XI
MISCELLANEOUS
11.01. NOTICES. All notices, requests, demands, claims and
other communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly given
(i) if personally delivered, when so delivered, (ii) if mailed, two Business
Days after having been sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set
forth below, (iii) if given by telex or telecopier, once such notice or other
communication is transmitted to the telex or telecopier number specified
below and the appropriate answer back or telephonic confirmation is received,
PROVIDED that such notice or other communication is promptly thereafter
mailed in accordance with the provisions of clause (ii) above or (iv) if sent
through an overnight delivery service in circumstances to which such service
guarantees next day delivery, the day following being so sent:
<PAGE>
If to Seller:
Automatic Transmission Shops, Inc.
P.O. Box 548
Gastonia, North Carolina 28053-0548
Attn: C. W. Smith
Telecopier No.: (704) 866-9389
with a copy to:
Horack, Talley, Pharr & Lowndes
2600 One First Union Center
301 South College Street
Charlotte, North Carolina 28202-6038
Attn: Stephen L. Smith, Esq.
Telecopier No.: (704) 372-0448
If to Buyer:
ATS Remanufacturing, Inc.
c/o Aftermarket Technology Corp.
900 Oakmont Lane, Suite 100
Westmont, Illinois 60559
Attn: Chief Executive Officer and
General Counsel
Telecopier No: (630) 455-2650
Any party may give any notice, request, demand, claim or other communication
hereunder using any other means (including ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by
the individual for whom it is intended. Any party may change the address to
which notices, requests, demands, claims and other communications hereunder
are to be delivered by giving the other parties notice in the manner herein
set forth.
11.02. AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived
if, and only if, such amendment or waiver is in writing and signed, in the
case of an amendment, by all parties hereto, or in the case of a waiver, by
the party against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent occurrence. No failure or delay
by a party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise
<PAGE>
thereof or the exercise of any other right, power or privilege. The rights
and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
11.03. EXPENSES. Except as otherwise provided herein, Seller or
the Stockholder, on the one hand, and by Buyer or ATC, on the other hand,
shall bear their own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
11.04. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party hereto may assign either this
Agreement or any of its rights, interests or obligations hereunder without
the prior written approval of each other party, which approval shall not be
unreasonably withheld.
11.05. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal laws (without reference to
choice or conflict of laws) of the State of North Carolina.
11.06. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the
same instrument. This Agreement shall become effective when each party hereto
shall have received a counterpart hereof signed by the other parties hereto.
11.07. ENTIRE AGREEMENT. This Agreement (including the
Schedules and Exhibits referred to herein which are hereby incorporated by
reference) constitutes the entire agreement between the parties with respect
to the subject matter hereof and supersedes all prior agreements,
understandings and negotiations, both written and oral, between the parties
with respect to the subject matter of this Agreement.
11.08. CAPTIONS. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
11.09. SEVERABILITY. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the
date this Agreement was executed or last amended.
11.10. CONSTRUCTION.
(a) The language used in this Agreement will be deemed to be
the language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against either party. Any
reference to any Applicable Law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires
otherwise. Whenever required by the context, any gender shall include any
other gender,
<PAGE>
the singular shall include the plural and the plural shall include the
singular. The words "herein," "hereof," "hereunder," and words of similar
import refer to the Agreement as a whole and not to a particular section.
Whenever the word "including" is used in this Agreement, it shall be deemed
to mean "including, without limitation," "including, but not limited to" or
other words of similar import such that the items following the word
"including" shall be deemed to be a list by way of illustration only and
shall not be deemed to be an exhaustive list of applicable items in the
context thereof.
(b) The parties hereto intend that each representation,
warranty, and covenant contained herein shall have independent significance.
If any party has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) that the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.
11.11. DISPUTE RESOLUTION.
(a) If a dispute arises out of or relates to this Agreement
or the transactions contemplated hereby, and if such dispute cannot be
settled through negotiation, the parties agree to first try in good faith to
settle the dispute by mediation before resorting to some other dispute
resolution procedure. Such mediation shall be administered by the American
Arbitration Association under its Commercial Mediation Rules and shall be
conducted in Chicago, Illinois.
(b) Except as otherwise specifically provided elsewhere in
this Agreement, any dispute that the parties are unable to resolve pursuant
to Section 11.11(a) shall be submitted to and resolved by arbitration
pursuant to and in accordance with the Commercial Arbitration Rules of the
American Arbitration Association in effect on the date of the initial request
that gave rise to the dispute to be arbitrated (the "AAA Rules").
(c) Such arbitration shall be conducted by a panel of three
arbitrators, which shall be selected from a list of arbitrators pursuant to
and in accordance with the AAA Rules. Such arbitration proceeding shall be
conducted in Chicago, Illinois. The arbitrators shall not have the authority
to modify any term or provision of this Agreement. The arbitration
proceeding shall include an opportunity for the parties to conduct discovery
in advance of the proceeding, which discovery may be limited by rules
established by the arbitrators. Notwithstanding the foregoing, the parties
agree that they will attempt, and they intend that they and the arbitrators
should use their best efforts in that attempt, to conclude such arbitration
proceeding and have a final decision from the arbitrators within 90 days from
the date of selection of the arbitrators; provided, however, that the
arbitrators shall be entitled to extend such 90-day period one or more times
to the extent necessary for such arbitrators to place a dollar value on any
claim that may be unliquidated. The arbitrators shall promptly deliver a
written decision with respect to the dispute to each of the parties, which
shall promptly act in accordance therewith. Each party agrees that any
decision of the arbitrators shall be final, conclusive and binding, absent
fraud or manifest error, and that they will not contest any action by any
other party hereto in accordance with a decision of the arbitrators, except
on a basis of fraud or manifest error. It is
<PAGE>
specifically understood and agreed that any party may enforce any award
rendered pursuant to the arbitration provisions of this Section 11.11 by
bringing suit in any court of competent jurisdiction.
(d) All fees, costs and expenses (including attorneys' fees
and expenses) incurred by the party that prevails in any such arbitration
commenced pursuant to this Section 11.11 or any judicial action or proceeding
seeking to enforce the agreement to arbitrate disputes as set forth in this
Section 11.11 or seeking to enforce any order or award of any arbitration
commenced pursuant to this Section 11.11 may be assessed against the party or
parties that do not prevail in such arbitration in such manner as the
arbitrators or the court in such judicial action, as the case may be, may
determine to be appropriate under the circumstances. All costs and expenses
attributable to the arbitrators shall be allocated among the parties to the
arbitration in such manner as the arbitrators shall determine to be
appropriate under the circumstances.
11.12. CUMULATIVE REMEDIES. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
11.13. THIRD PARTY BENEFICIARIES. No provision of this
Agreement shall create any third party beneficiary rights in any Person,
including any employee of Buyer or employee or former employee of Seller or
any Affiliate thereof (including any beneficiary or dependent thereof).
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
AUTOMATIC TRANSMISSION SHOPS INC.
By: /S/ C.W. SMITH
-------------------------------------
C.W. Smith
President
THE STOCKHOLDER:
/S/ C.W. SMITH
----------------------------------------
C.W. Smith
ATS REMANUFACTURING INC.
By: /s/ Stephen J. Perkins
--------------------------------------
Stephen J. Perkins
Chief Executive Officer
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Stephen J. Perkins
--------------------------------------
Stephen J. Perkins
President and
Chief Executive Officer
<PAGE>
SCHEDULE 2.03
ASSUMED LIABILITIES
Seller has declared bonuses to each of H. Lee Curry, Palmer McKinney, Wayne
Wingard and Max Milford in consideration of their assistance in the
development of the Business and the sale of the Business to Buyer. Except as
otherwise provided below, the bonuses are payable in immediately available
funds within 30 days after the fifth anniversary of the Closing Date and are
to be in the following amounts:
Mr. Curry: The following amounts on each indicated anniversary of the Closing
Date:
Anniversary Payment
----------- --------
5th $100,000
6th $154,000
7th $148,000
8th $142,000
9th $136,000
10th $130,000
11th $124,000
12th $118,000
13th $112,000
14th $106,000
Mr. McKinney: An amount equal to $800,000 minus the product of (i) the amount,
if any, by which Adjusted GM Sales for the five Contract Years
ending on the fifth anniversary of the Closing Date (without
giving effect to any retroactive adjustments in such Adjusted
GM Sales due to Excess GM Sales after such fifth anniversary) are
less than $60,000,000 multiplied by (ii) 0.0242.
Mr. Wingard: An amount equal to $900,000 minus the product of (i) the amount,
if any, by which Adjusted GM Sales for the five Contract Years
ending on the fifth anniversary of the Closing Date (without
giving effect to any retroactive adjustments in such Adjusted
GM Sales due to Excess GM Sales after such fifth anniversary)
are less than $60,000,000 multiplied by (ii) 0.0273.
<PAGE>
Mr. Milford: An amount equal to $850,000 minus the product of (i) the amount,
if any, by which Adjusted GM Sales for the five Contract Years
ending on the fifth anniversary of the Closing Date (without
giving effect to any retroactive adjustments in such Adjusted
GM Sales due to Excess GM Sales after such fifth anniversary)
are less than $60,000,000 multiplied by (ii) 0.0258.
<PAGE>
SCHEDULE 2.07
POST-CLOSING PAYMENTS
ANNIVERSARY AMOUNT FACTOR
----------- ------ ------
1 $1,500,000 0.2560
2 $1,500,000 0.2560
3 $1,500,000 0.2560
4 $1,500,000 0.2560
5 $2,450,000 0.2560
6 $2,000,000 0.3333
7 $2,000,000 0.3333
8 $2,000,000 0.3333
<PAGE>
LEASE AGREEMENT
by and between
C. W. SMITH
and
ATS REMANUFACTURING, INC.
<PAGE>
INDEX
1. Description of Premises; Purpose. . . . . . . . . . . . . . . . . . . . 1
2. Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Acceptance of Premises. . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Rental. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Alterations and Improvements by Lessee. . . . . . . . . . . . . . . . . 3
6. Use of Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
8. Fire and Extended Coverage Insurance. . . . . . . . . . . . . . . . . . 4
9. Lessee's Covenant to Repair and Replace . . . . . . . . . . . . . . . . 4
10. Lessor's Covenant to Repair and Replace . . . . . . . . . . . . . . . . 5
11. Trade Fixtures and Equipment, Non-Liability for Certain Damages . . . . 5
12. Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
13. Damage or Destruction of Premises . . . . . . . . . . . . . . . . . . . 6
14. Mutual Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . 6
15. Signs and Advertising . . . . . . . . . . . . . . . . . . . . . . . . . 6
16. Indemnification, Liability Insurance, and Hazardous Substances. . . . . 7
17. Lessor's Right of Entry . . . . . . . . . . . . . . . . . . . . . . . . 10
18. Eminent Domain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
19. Events of Default and Remedies. . . . . . . . . . . . . . . . . . . . . 11
20. Defaults by Lessor. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
i
<PAGE>
21. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
22. Assigning and Subletting. . . . . . . . . . . . . . . . . . . . . . . . 13
23. Transfer of Lessor's Interest . . . . . . . . . . . . . . . . . . . . . 14
24. Covenant of Quiet Enjoyment . . . . . . . . . . . . . . . . . . . . . . 14
25. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 14
26. Protection Against Liens. . . . . . . . . . . . . . . . . . . . . . . . 14
27. Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
28. Nonwaiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
29. Landlord Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
30. Holding Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
31. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
32. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
33. GM Parts Shortage Facility. . . . . . . . . . . . . . . . . . . . . . . 17
ii
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (the "Lease") made and entered into as of the 31st day
of July, 1997, by and between
C.W. SMITH
800 South York Street
No. 2400 Ashley Arms
Gastonia, North Carolina 28052
hereinafter called "Lessor"; and
ATS REMANUFACTURING, INC.,
a Delaware corporation
900 Oakmont Lane, Suite 100
Westmont, Illinois 60559
hereinafter called "Lessee";
W I T N E S S E T H :
In consideration of the mutual covenants and agreements contained herein,
the parties agree for themselves, their successors, and assigns, as follows:
1. DESCRIPTION OF PREMISES; PURPOSE. Lessor hereby leases to Lessee, and
Lessee hereby accepts and rents from Lessor the property of Lessor located at
1224 ISLEY ROAD, Gastonia, Gaston County, North Carolina (the "Property");
together with the exclusive right to use all buildings, parking areas,
driveways, sidewalks, walkways, and other improvements and facilities located on
and at the Property (collectively with the Property, the "Premises").
2. TERM.
(a) INITIAL TERM. The term of this Lease (the "Initial Term") shall
commence as of August 1, 1997 (the "Lease Effective Date"), and unless
sooner terminated in accordance with this Lease, shall end at midnight on
July 31, 2002 (the "Lease Termination Date"). As used in this Lease, the
term "Lease Year" shall mean each year, or portion thereof, of the Term
commencing on the Lease Effective Date and thereafter on each successive
anniversary of the Lease Effective Date, and ending at the expiration of
twelve (12) months thereafter (or portion
<PAGE>
thereof if the remaining term of the Lease is less than twelve (12)
months) until the Lease Termination Date.
(b) RENEWAL TERM. At the expiration of the Initial Term of this
Lease, provided that Lessee is not in default hereunder, Lessee shall have
the right and option to renew this Lease for one (1) additional five (5)
year renewal term (the "Renewal Term"). Such Renewal Term shall commence
as of the end of the Initial Term of this Lease. During such Renewal Term,
the rights and obligations of Lessor and Lessee shall be those set forth in
this Lease except that Lessor shall have no obligation to make any
improvements in the Premises. If Lessee shall desire to exercise its right
and option with respect to the Renewal Term, it shall give Lessor notice of
the intent to renew in writing not less than six (6) months prior to the
expiration of the Initial Term of this Lease. If Lessee shall fail to give
such notice to Lessor within the time period, it shall be conclusively
deemed that Lessee has elected not to renew and extend the Term of this
Lease. During the Renewal Term, in addition to Base Rental, Lessee shall
continue to pay Taxes and Insurance Premiums described in Subsection 4(b)
of this Lease and as adjusted during the Renewal Term.
3. ACCEPTANCE OF PREMISES. Lessee shall have the right to make
improvements to the Premises in compliance with the "Description of Work" in
EXHIBIT B attached hereto, with such minor variations as Lessee may deem
advisable without the consent of Lessor. Lessee shall make no other
improvements or modifications to the Premises except with the prior written
consent of Lessor. All work done by Lessee shall be in full compliance with all
applicable laws, rules, codes and regulations, and Lessee shall pay when due all
sums due and owing with respect to this work. Lessee hereby indemnifies and
holds Lessor harmless from all loss, claim, liability or expense incurred in any
way, directly or indirectly, in connection with all work done by Lessee, or at
the request of Lessee, or for the benefit of Lessee, in and to the Premise
including, without limitation, reasonable attorneys fees.
4. RENTAL. Commencing on Lease Effective Date and continuing through the
full Term of this Lease, Lessee shall pay to Lessor at the address shown in
Section 31, or such other place as designated in writing by Lessor a rental
consisting of the sum total of the Base Rental as described in Subsection 4(a)
and shall in addition pay the Taxes and Insurance Premiums as described in
Subsection 4(b).
(a) BASE RENTAL. Monthly base rental (the "Base Rental") during the
Initial Term and the Renewal Term, if applicable, of this Lease shall be
$35,000.00. It is understood and agreed that the Base Rental shall
commence on the Lease Effective Date (the "Rent Commencement Date").
2
<PAGE>
Each payment of Base Rental, without notice, demand, reduction, setoff
or any defense, shall be made in advance on or before the first (1st) day
of each month. If the Rent Commencement Date is a date other than the
first day of a calendar month, the Base Rental shall be prorated daily from
such date to the first day of the next calendar month and paid on the Rent
Commencement Date, and Base Rental for any other partial month during the
Term shall be paid in advance at that daily rate equal to the monthly Base
Rental divided by the number of days in the month for which such Base
Rental is due.
(b) PAYMENT OF TAXES AND INSURANCE PREMIUMS. Commencing on the Lease
Effective Date and thereafter, Lessee shall pay, without limitation, all ad
valorem taxes assessed against the Property, and insurance premiums for
fire and extended coverage and liability insurance policies for the
Property (collectively, "Taxes and Insurance Premiums") within thirty (30)
days after receipt of the bills for same or sooner if necessary to avoid a
delinquency. Lessor and Lessee shall prorate the 1997 ad valorem tax as of
the Lease Effective Date.
(c) DATE DUE: LATE CHARGE. All Base Rental hereunder are due on the
first (1st) business day of each successive month and shall be past due on
the fifth (5th) business day of each successive month. If Lessee should
fail to pay to Lessor when due any installment of rental or other sum to be
paid hereunder, Lessee shall pay Lessor on demand a late charge of five
percent (5%) thereof. Failure to pay such late charge upon demand therefor
shall be an event of default hereunder. Provision for such late charge
shall be in addition to all other rights and remedies available to Lessor
hereunder or at law or in equity and shall not be construed as liquidated
damages or limiting Lessor's remedies in any manner; further provided that
such late charge shall automatically accrue notwithstanding whether Lessor
shall have given Lessee written notice of any such delay in payment.
5. ALTERATIONS AND IMPROVEMENTS BY LESSEE. No structural changes or
other material alterations, additions, or improvements may be made to the
Premises by Lessee without the prior written consent of Lessor, which consent
shall be as to the plans and specifications for such changes and as to the
contractor or subcontractor engaged to accomplish such changes; provided,
however, Lessor's consent to changes or material alterations or improvements to
the Premises, the plans and specifications for such changes and the contractor
or subcontractor of Lessee for such change shall not be unreasonably withheld.
All alterations, additions or improvements, including without limitation, all
walls, carpeting, floor and wall coverings and other permanent real estate
fixtures (excluding, however, Lessee's trade fixtures as described in paragraph
12 below) made by, for, or at the direction of Lessee, upon the expiration or
earlier termination of this Lease shall become the property of Lessor and shall
remain upon the Premises, unless
3
<PAGE>
Lessor shall require Lessee to remove same at the sole expense of Lessee at the
end of the Initial Term or Renewal Term.
6. USE OF PREMISES. Lessee shall use the Premises only for the Lessee
Operations (as later defined) and for no other purpose and shall comply with all
laws, ordinances, orders, regulations or zoning classifications of any lawful
governmental authority, agency or other public or private regulatory authority
(including insurance underwriters or rating bureaus) having jurisdiction over
the Premises. Lessee shall save Lessor harmless from any penalties, fines,
costs, expenses or damages resulting from failure to so comply. As used herein,
the term "Lessee Operations" shall mean the conduct of a manufacturing,
machining, warehousing and distribution operation and office and related
facilities. Lessee shall not do any act or follow any practice relating to the
Premises which shall constitute a nuisance or detract in any way from the
reputation of the Premises.
7. TAXES. Lessee shall pay any taxes or assessments of any nature
imposed or assessed upon its trade fixtures, equipment, machinery, inventory,
merchandise or other personal property located on the Premises and owned by or
in the custody of Lessee as promptly as all such taxes or assessments may become
due and payable without any delinquency. Lessee shall be responsible for the
payment of all ad valorem property taxes which are now or hereafter assessed
upon the Premises, as Section 4.
8. FIRE AND EXTENDED COVERAGE INSURANCE. Subject to the provisions of
Section 4, Lessor shall maintain and pay for a policy or policies of fire,
property insurance, and extended coverage, insuring the Premises in such amounts
and types as Lessor may deem advisable. If Lessee uses the Premises for any
purpose or in any manner which causes an increase in Lessor's insurance rates,
Lessee shall pay all additional premiums attributable to this use within thirty
(30) days after demand from Lessor in addition to all other payments due under
this Lease. Lessee shall maintain and pay for all fire and extended coverage
insurance on the contents of the Premises, including trade fixtures, equipment,
machinery, merchandise or other personal property belonging to or in the custody
of Lessee.
9. LESSEE'S COVENANT TO REPAIR AND REPLACE. Lessee shall be responsible
for all maintenance, repairs or replacements to the Premises of $5,000.00 or
less during the first lease year and for all maintenance, repairs or
replacements to the Premises after the first lease year, including, but not
limited to, the heating and air conditioning systems, roof, exterior walls,
structural members, including foundation and subflooring of the Premises, office
fronts, plate glass windows, doors, door closure devices, window and door
frames, mailing, locks and hardware and painting or other treatment of interior
and exterior walls.
4
<PAGE>
Lessee's repairs and replacement shall be made promptly within a reasonable
time after written notice from Lessor of the need for repairs. At the end of
the term of this Lease, Lessee shall return the Premises to Lessor in as good
condition as on the Occupancy Date, excepting normal wear and tear and acts of
God.
10. LESSOR'S COVENANT TO REPAIR AND REPLACE. During the first year of
this Lease, Lessor shall be responsible for all maintenance, repairs or
replacements to the Premises in excess of $5,000.00, including, but not limited
to, the heating and air conditioning systems, roof, exterior walls, structural
members, including foundation and subflooring of the Premises, office fronts,
plate glass windows, doors, door closure devices, window and door frames,
mailing, locks and hardware and painting or other treatment of interior and
exterior walls.
Lessor's repairs and replacement shall be made promptly within a reasonable
time after written notice from Lessee of the need for repairs. At the end of
the first year of this Lease, Lessee shall be responsible for repair and
replacement pursuant to Paragraph 9 herein.
11. TRADE FIXTURES AND EQUIPMENT, NON-LIABILITY FOR CERTAIN DAMAGES.
(a) So long as Lessee is not in default under this Lease, any trade
fixtures and equipment installed in the Premises at Lessee's expense shall
remain Lessee's personal property and Lessee shall have the right at any
time during the term to remove such fixtures and equipment. Upon removal
of any fixtures or equipment, Lessee shall immediately restore the Premises
to substantially the same condition as they were when received by Lessee,
ordinary wear and tear and acts of God alone excepted. Any trade fixtures
and equipment not removed by Lessee at the expiration or an earlier
termination of the Lease shall at Lessor's option, either: (i) become the
property of Lessor or (ii) be removed by Lessor at Lessee's expense.
(b) Lessor and Lessor's agents and employees shall not be liable to
Lessee for any injury to person or damage to property caused by defect in
or failure of equipment, pipes or wiring, or broken glass, or by the
backing up of drains, or by gas, water, steam, electricity or oil leaking,
escaping or flowing into the Premises; nor shall Lessor be liable to Lessee
for any loss or damage that may be occasioned by or through the acts or
omissions of other lessees of Lessor's adjacent property or of any other
persons or entities whomsoever, excepting only duly authorized employees
and agents of Lessor. Lessor shall not be liable to Lessee for any
compensation, damages or reduction of rent by reason of inconvenience,
annoyance or loss of business arising from power losses or shortages, or
from the necessity of Lessor's entering the Premises for any of the
purposes authorized in this Lease (assuming that such entries are planned
by Lessor so as
5
<PAGE>
to minimize any interference with the conduct of Lessee's business),
including repair of the Premises.
12. UTILITIES. Lessee shall pay for all utilities or services related to
its use of the Premises including electricity, gas, telephone and janitorial
services.
Lessor shall not be responsible for the stoppage or interruption of
utilities services.
13. DAMAGE OR DESTRUCTION OF PREMISES. If the Premises are damaged by
fire or other casualty, but are not rendered untenantable for Lessee's business,
either in whole or in part, Lessor shall cause such damage to be repaired
without unreasonable delay and the Annual Rent shall not be abated. If by any
reason of such casualty, the Premises are rendered untenantable for Lessee's
business, either in whole or in part, Lessor shall cause the damage to be
repaired or replaced without unreasonable delay, and in the interim, the Annual
Rental shall be equitably reduced as to such portion of the Premises as is
rendered untenantable. Any such abatement of rent shall not, however, create an
extension of the Term of this Lease. Provided, however, if by reason of such
casualty, the Premises are rendered substantially untenantable, and Lessor is
unable to give reasonable assurances that the amount of time required to repair
the damage shall not exceed one hundred eighty (180) days, then either party
shall have the right to terminate this Lease by giving written notice of
termination within sixty (60) days after the date of casualty. Notwithstanding
anything to the contrary contained in this paragraph, in the event of a casualty
loss to the Premises equal to 50% or more of the replacement value for the
Premises during the last Lease Year of the Term or the Renewal Term, either
party may, at its option, terminate this Lease by giving written notice within
60 days after the date of the casualty and rent shall abate as of the date of
such notice. Except as provided herein, there shall be no obligation of Lessor
to rebuild or repair in case of fire or other casualty, and no termination
pursuant to this paragraph shall affect any rights of Lessor or Lessee hereunder
arising from prior defaults of the other party. Lessee shall give Lessor
immediate notice of any fire or other casualty in the Premises.
14. MUTUAL WAIVER OF SUBROGATION. For the purpose of waiver of
subrogation, the parties mutually release and waive unto the other, all rights
to claim damages, costs or expense for any injury to persons (including death)
or property caused by a casualty of any type whatsoever in, on or about the
Premises if the amount of such damage, cost or expenses has been paid to such
damaged party under the terms of any policy of insurance. All insurance
policies carried with respect to this Lease, if permitted under applicable law,
shall contain a provision whereby the insurer waives prior to loss all rights of
subrogation against either Lessor or Lessee.
15. SIGNS AND ADVERTISING. No sign shall be placed upon the Premises or
the Property by Lessee other than signage described on EXHIBIT C attached
hereto.
6
<PAGE>
16. INDEMNIFICATION, LIABILITY INSURANCE, AND HAZARDOUS SUBSTANCES.
(a) INDEMNIFICATION BY LESSEE. Lessee shall indemnify and save
Lessor harmless against any and all claims, suits, demands, actions, fines,
damages, and liabilities, and all cost and expenses thereof (including
without limitation reasonable attorneys' fees) arising out of injury to
persons (including death) or property occurring in, on or about, or arising
out of, the Premises if caused by or occasioned wholly or in part by any
willful or negligent act or omission of Lessee, its agents, subtenants,
licensees, invitees, contractors, or employees (respectively, an "Event of
Tenant Misconduct"). Lessee shall also pay all costs, expenses and
reasonable attorneys' fees which may be incurred by Lessor in enforcing the
agreements of this Lease, whether incurred as a result of litigation or
otherwise. Lessee shall give Lessor immediate written notice of any such
occurrence causing material injury to persons or property.
(b) INDEMNIFICATION BY LESSOR. Lessor shall indemnify and save
Lessee harmless against any and all claims, suits, demands, actions, fines,
damages, and liabilities, including the cost and expenses thereof
(including reasonable attorneys' fees) arising out of injury to persons
(including death) or property occurring in, on or about, or arising out of,
the Premises if such damage or injury is caused by any willful or negligent
act or omission of Lessor, its agents or employees. Lessor shall pay all
costs, expenses and reasonable attorney's fees that may be incurred by
Lessee in enforcing the agreements of this Lease, whether incurred as a
result of litigation or otherwise.
(c) INSURANCE. At all times during the term of this Lease, Lessee
shall at its own expense keep in force public liability insurance in such
amounts and with such companies as shall from time to time be acceptable to
Lessor (and to any Lender having a mortgage interest in the Premises) and
naming as insured both Lessor and Lessee. The amounts of such coverage,
until changed at Lessor's reasonable request, shall be $3,000,000.00 with
respect to bodily injury or death of one person as a result of any one
accident and in amounts sufficient to cover the replacement value with
respect to damage to property. In addition thereto, Lessee shall provide
for "umbrella coverage" in the amount of $10,000,000.00. Lessee shall
first furnish to Lessor copies of policies or certificates of insurance
evidencing the required coverage and naming the Lessor as additional
insured under said policies, prior to the Occupancy Date and thereafter at
least ten (10) days prior to each policy renewal date. All policies
required of Lessee hereunder shall contain a provision whereby the insurer
is not allowed to cancel or materially change the coverage without first
giving 30 days written notice to Lessor.
7
<PAGE>
(d) PRESENCE AND USE OF HAZARDOUS SUBSTANCES. Lessee shall not,
without Lessor's prior written consent, keep on or around the Premises for
use, disposal, treatment, generation, storage or sale, any substances
designated as, or containing components designated as hazardous, dangerous,
toxic or harmful (collectively referred to as "Hazardous Substances"),
and/or any substance that is subject to regulation by any then current
federal, state or local law, statute or ordinance and the rules and
regulations implementing them, including, but not limited to, the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 ET SEQ.); the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. Section 9601 ET SEQ.); the Clean Water Act (33 U.S.C. Section 1251
ET SEQ.); the Clean Air Act (42 U.S.C. Section 7401 ET SEQ.); and the
Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.). Lessor is
hereby deemed to have consented to Lessee keeping on or around the Premises
those Hazardous Substances kept on or around the Premises by Automatic
Transmission Shops, Inc. during the lease that is being terminated on the
date hereof. With respect to any such Hazardous Substance, Lessee shall:
(1) Comply promptly, timely and in all material respects with
all governmental requirements for reporting, keeping and submitting
manifests, and obtaining and keeping current identification numbers;
(A) Submit to Lessor true and correct copies of all
reports, manifests and identification numbers at the same time as they
are required to be and/or are submitted to the appropriate
governmental authorities;
(2) Within ten (10) days of Lessor's request, submit written
reports to Lessor regarding Lessee's use, storage, treatment,
transportation, generation, disposal or sale of Hazardous Substances
and provide evidence satisfactory to Lessor of Lessee's compliance
with the applicable government regulations:
(3) Allow Lessor or Lessor's agent or representative to come on
the Premises at all reasonable times and after reasonable notice to
check Lessee's compliance with all applicable governmental regulation
regarding Hazardous Substances;
(4) Comply with minimum levels, standards or other performance
standards or requirements which may be set forth or established for
certain Hazardous Substances (if minimum standards or levels are
applicable to Hazardous Substances present on the Premises, such
levels or standards
8
<PAGE>
shall be established by an on-site inspection by the appropriate
governmental authorities and shall be set forth in an addendum to the
Lease);
(5) Comply with all applicable governmental rules, regulations
and requirements regarding the proper and lawful use, sale,
transportation, generation, treatment and disposal of Hazardous
Substances; and
(6) Pay to Lessor upon demand as additional rent any and all
costs reasonably incurred by Lessor and associated with Lessor's
inspection of Lessee's Premises pursuant to this subparagraph and
Lessor's monitoring of Lessee's compliance with this subparagraph,
including Lessor's reasonable attorneys' fees and costs, payment of
which expenses shall only be due if incurred by Lessor after Lessor's
having reasonable belief that Lessee is not in compliance with this
subparagraph and Lessor's having communicated notice of noncompliance
to Lessee with Lessee having failed to comply, or commence compliance,
within ten (10) days of receipt of such notice from Lessor.
(e) UNAUTHORIZED RELEASES; CLEANUP COSTS; DEFAULT AND INDEMNIFICATION
SUBJECT TO PARAGRAPH (f).
(1) Lessee shall give immediate written notice to Lessor of any
release, spill, discharge or threatened discharge of any Hazardous
Substance at the Premises or surrounding environment, which release
was not made pursuant to or in conformance with the terms of any
permit or license issued to Lessee by the appropriate governmental
authority. This notice shall include a description of measures taken
or proposed to be taken by Lessee to contain and/or remedy the release
and any resultant damage to property, persons, the Premises and/or the
environment. Lessee shall also give immediate written notice to
Lessor of any private or governmental investigation relating to
Hazardous Materials on or about the Premises.
(2) At Lessee's own expense, Lessee shall promptly take all
steps necessary to contain and remedy any release of Hazardous
Substances to or in the Premises or surrounding environment, and all
resultant damage or injury to property, persons, and the environment.
Lessor shall have the right, but not the obligation, to participate in
and approve any environmental assessment or remedial cleanup plan for
the Premises. Lessee, its employees, agents and contractors shall
fully cooperate with any and all federal, state and local governmental
officials having jurisdiction over the Premises in resolving any
situation referring to the presence of Hazardous Substances on or
about the Premises.
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(3) Lessee shall be fully and completely liable to Lessor for
any and all cleanup costs, and any and all other charges, fees,
penalties (civil and criminal) imposed by any governmental authority
with respect to Lessee's use, generation, handling, storage,
containment, disposal, transportation, and/or sale of Hazardous
Substances.
(f) Lessee shall indemnify, defend and save Lessor harmless from any
and all of the costs, fees, penalties and charges assessed against or
imposed upon Lessor (as well as Lessor's attorneys' fees and costs) as a
result of Lessee's use, generation, handling, storage, containment,
disposal, transportation, and/or sale of Hazardous Substances. With regard
to this subparagraph (e), Lessee's obligations hereunder shall survive the
expiration or earlier termination of this Lease.
(1) Upon Lessee's default under subparagraphs (d) or (e), and in
addition to the rights and remedies set forth elsewhere in this Lease,
Lessor shall be entitled to the following rights and remedies.
(i) At Lessor's option, to terminate this Lease immediately;
and
(ii) To recover any and all damages associated with the
default, including, but not limited to, cleanup costs and
charges, civil and criminal penalties and fees, loss of business
by Lessor, and any and all damages and claims asserted by third
parties and Lessor's attorneys' fees and costs.
(g) LIMITATIONS. Notwithstanding subparagraph (f), Lessee shall have
not liability to Lessor with respect to any Environmental Liabilities (as
defined in the Asset Purchase Agreement of even date herewith among Lessor,
Automatic Transmission Shops, Inc., Lessee and Aftermarket Technology
Corp.) unless and to the extent that Environmental Liabilities constitute
Buyer Environmental Liabilities (as defined in such Asset Purchase
Agreement).
17. LESSOR'S RIGHT OF ENTRY.
(a) Lessor, and those persons authorized by Lessor shall have the
right to enter the Premises at all reasonable times and upon reasonable
notice for the purposes of making inspections or showing the same to
prospective purchaser and/or lenders.
10
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Further, during the last six (6) months of the Initial Term or of the
Renewal Term, Lessor and those persons authorized by it shall have the right at
reasonable times and upon reasonable notice to show the Premises to prospective
lessee.
18. EMINENT DOMAIN.
(a) If the whole of the Premises, or portion of the Premises as shall
substantially interfere with Lessee's use and occupancy of the Premises, is
taken under the power of eminent domain (including any conveyance made in
lieu thereof) then either party shall have the right to terminate this
Lease by giving written notice of such termination within 30 days after
notice of such taking. If neither party elects to terminate this Lease,
Lessor shall repair and restore the Premises to the best possible
tenantable condition and the Annual Rental shall be equitably reduced. All
compensation awarded for any taking or the proceeds of a private sale in
lieu thereof shall be the property of Lessor, whether such award is for
compensation for damages to the Lessor's or Lessee's interest in the
Premises, and Lessee hereby assigns all of its interest in any such award
to Lessor; provided, however, Lessor shall not have interest in any
separate award made to Lessee for loss of business, moving expense or the
taking of Lessee's trade fixtures or equipment if a separate award for such
items are made to Lessee.
(b) In the event a substantial portion, as reasonably determined by
Lessor, of the Premises is so taken by eminent domain, Lessor may, by
written notice to Lessee, terminate this Lease within thirty (30) days
after notice of such taking.
(c) In the event of a taking of the Premises which does not
substantially interfere with Lessee's use and occupancy of the Premises, or
in the event other portions of the Premises are taken and Lessor elects not
to terminate this Lease, Lessor shall promptly proceed to restore the
Premises (if affected) to substantially their condition prior to such
taking, and Rent shall be abated proportionately to that portion of the
Premises which is subject to such taking.
19. EVENTS OF DEFAULT AND REMEDIES.
(a) Upon the occurrence of any one or more of the following events
(the "Events of Default"), Lessor shall have the right to exercise any
rights or remedies available in this Lease, at law or in equity. Events of
Default shall be:
(i) Lessee's failure to pay when due any rental or other sum of
money payable hereunder within fifteen (15) days after such payment
becomes due;
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<PAGE>
(ii) Failure by Lessee to perform any other of the terms,
covenants or conditions contained in this Lease if not remedied within
thirty (30) days after written notice thereof;
(iii) Lessee becomes bankrupt or insolvent, or files any debtor
proceedings, or files pursuant to any statute a petition in bankruptcy
or insolvency or for reorganization, or files a petition for the
appointment of a receiver or trustee for all or substantially all of
Lessee's assets, and such petition or appointment is not set aside
within sixty (60) days from the date of such petition or appointment,
or Lessee makes an assignment for the benefit of creditors; or
(iv) Lessee vacates, abandons, or fails to operate in the
Premises or any substantial part thereof for thirty (30) or more
consecutive days or allows its leasehold estate to be taken under any
writ of execution and such writ is not vacated or set aside within
thirty (30) days.
(b) In addition to its other remedies, Lessor, upon an Event of
Default by Lessee, shall have the immediate right to reenter the Premises
provided such reentry can be accomplished without a breach of the peace.
If Lessor reenters the Premises, it may either terminate this Lease or from
time to time without terminating the Lease make such alterations and
repairs as may be necessary or appropriate to relet the Premises, and relet
the Premises upon such terms and conditions as Lessor deems advisable under
general market conditions. No retaking of possession of the Premises by
Lessor shall be deemed as an election to terminate this Lease; however, the
entering into of a new lease by Lessor for the Premises shall be deemed a
termination of the Lease. Lessee shall, however, remain liable for rentals
due up to the time of such termination, all shortages in rentals due after
the time of such termination and shall also be responsible for costs and
expenses including, but not limited to, reasonable attorneys' fees,
incurred by Lessor in connection with the retaking of the Premises. Formal
notice of termination of the Lease may also be given at any time by Lessor
to Lessee in writing following an Event of Default by Lessee.
20. DEFAULTS BY LESSOR. In the event Lessor shall at any time be in
default under the observance or performance of any covenant or agreement
required to be performed or observed by Lessor hereunder and such default shall
continue for a period of thirty (30) days after written notice to Lessor from
Lessee specifying the violation (or if such default is not capable of being
cured in a reasonable manner within thirty (30) days, then if lessor has failed
to commence to cure the same within said thirty (30) day period and thereafter
diligently prosecuted the same to completion), then Lessee shall have the right
to cure Lessor's breach default and/or perform such obligations on Lessor's
behalf
12
<PAGE>
and recover from Lessor all reasonable costs and expenses incurred in connection
with such cure; or, alternatively, Lessee shall be entitled to all remedies
otherwise available in law or equity under the laws of the United States of the
State or North Carolina. In no event, however, shall Tenant be entitled to
terminate this Lease by reason of Lessor's default, except as otherwise provided
herein, except pursuant to a judgment of a court of competent jurisdiction
providing for such termination.
21. SUBORDINATION. This Lease is subject and subordinate to any and all
mortgages or deeds of trust now or hereafter placed upon the property of which
the Premises are a part, and this clause shall be self-operative without any
further instrument necessary to effect such subordination; however if requested
by Lessor, Lessee shall promptly execute and deliver to Lessor any such
certificate or certificates as Lessor may reasonably request evidencing
subordination of this Lease to the assignment of this Lease as additional
security for such mortgages or deeds of trust, including, without limitation a
subordination agreement; provided, however, in each case, the holder of the
mortgage or deed of trust (a "Mortgagee") shall agree that Lessee's rights to
quiet enjoyment and possession under this Lease shall not be divested by
foreclosure or other default proceedings thereunder so long as Lessee shall not
be in default under the terms of this Lease. Lessee shall continue its
obligations under this Lease in full force and effect notwithstanding any such
foreclosure or default proceedings by a Mortgagee. Lessee will, upon request by
Lessor, execute and deliver to Lessor or to any other person designated by
Lessor, any instrument or instruments required to give effect to the provisions
of this paragraph.
22. ASSIGNING AND SUBLETTING. Lessee shall not assign, sublet, mortgage,
pledge or encumber this Lease, the Premises, or any interest in the whole or in
any portion thereof, without the prior written consent of Lessor, the
determination as to which the judgment of Lessor shall be conclusive. If Lessee
makes any such assignment, mortgage, sublease or pledge with Lessor's written
consent, Lessee will still remain primarily liable for the performance and
observation of all of the terms of this Lease required to be observed or
performed by the Lessee hereunder. Lessor shall have the option, in its sole
discretion, to terminate this Lease effective as of the proposed effective date
of the assignment or subletting, by giving Lessee written notice thereof within
thirty (30) days after Lessor's receipt of said notice from Lessee (in the event
Lessee shall propose to sublet only a portion of the Premises, Lessor shall have
the additional option to terminate this Lease as to that portion of the Premises
proposed to be sublet). Should Lessor not elect to so terminate this lease in
connection with any proposed subletting or assignment, Lessor shall continue to
have the right to disapprove same. Upon any subletting or assignment by Lessee
without Lessor's written consent, any renewal options, expansion options, and/or
rights of first refusal granted herein shall become null and void. Consent by
Lessor to one or more assignments or sublettings shall not operate as a waiver
of Lessor's rights as to any subsequent assignments or sublettings. Lessor
understands that
13
<PAGE>
on or after the date hereof Lessee is granting or will grant to The Chase
Manhattan Bank and certain other banks a security interest in, among other
things, all of Lessee's Documents, Equipment, General Intangibles, Instruments
and Inventory (as each of those terms is defined in the Uniform Commercial Code)
as collateral for Lessee's guarantee of the obligations of Aftermarket
Technology Corp. under that certain Revolving Credit Agreement dated as of
February 14, 1997 among such banks and Aftermarket Technology Corp. (as the same
may be amended or replaced from time to time) and Lessor hereby consents to the
granting of such security interest to the extent that it constitutes a security
interest in this Lease, the Premises or any interest in the whole or in any
portion thereof.
23. TRANSFER OF LESSOR'S INTEREST. Provided Lessor is not in default
hereunder, if Lessor shall sell, assign or transfer all or any part of its
interest in the Premises or in this Lease to a successor in interest which
expressly assumes the obligations of Lessor hereunder, then Lessor shall
thereupon be released or discharged from all covenants and obligations hereunder
and Lessee shall look solely to Lessor's successor in interest for performance
of all of Lessor's obligations. Lessee's obligations under this Lease shall in
no manner be affected by Lessor's assignment hereunder, and Lessee shall
thereafter attorn and look solely to such successor in interest as the Lessor
hereunder.
24. COVENANT OF QUIET ENJOYMENT. Lessor represents that it has full right
and authority to lease the Premises and Lessee shall peacefully and quietly hold
and enjoy the Premises for the full term hereof so long as it does not default
in the performance of any of the terms hereof.
25. ESTOPPEL CERTIFICATES. Within fifteen (15) days after a request by
Lessor, Lessee shall deliver a written estoppel certificate, in form supplied by
or acceptable to Lessor, certifying any facts that are then true with respect to
this Lease, including without limitation that this Lease is in full force and
effect, that no default exists on the part of Lessor or Lessee, that Lessee is
in possession, that Lessee has commenced the payment of rent, and that there are
no defenses or offsets claimed by Lessee with respect to payment of rentals
under this Lease.
26. PROTECTION AGAINST LIENS. Subject to paragraph 22, Lessee shall do
all things necessary to prevent the filing of any mechanics', materialmen's or
other types of liens whatsoever, against all or any part of the Premises by
reason of any claims made by, against, through or under Lessee. If any such
lien is filed against the Premises, Lessee shall either cause the same to be
discharged of record within thirty (30) days after filing or, if Lessee, in its
discretion and in good faith, determines that such lien should be contested, it
shall furnish such security as may be necessary to prevent any foreclosure
proceedings against the Premises during the pendency of such contest. If Lessee
shall fail to discharge such lien within said time period or fail to furnish
such security, then, Lessor may at its election, in addition to any other right
or remedy available to it,
14
<PAGE>
discharge the lien by paying the amount claimed to be due or by procuring the
discharge by giving security or in such other manner as may be allowed by law.
If Lessor acts to discharge or secure the lien then Lessee shall immediately
reimburse Lessor for all sums paid and all costs and expenses (including
reasonable attorneys' fees) incurred by Lessor involving such lien together with
interest on the total expenses and costs at the maximum lawful rate.
27. FORCE MAJEURE. In the event Lessor or Lessee shall be delayed,
hindered or prevented from the performance of any act required hereunder, by
reason of governmental restrictions, scarcity of labor or materials, strikes,
fire, or any other reasons beyond its control, the performance of such act shall
be excused for the period of delay, and the period for performance of any such
act shall be extended as necessary to complete performance after the delay
period.
28. NONWAIVER. No course of dealing between Lessor and Lessee, or any
delay or omission of Lessor in exercising any right arising from the Lessee's
default, shall impair such right or be construed to be a waiver of a default.
29. LANDLORD LIABILITY. All obligations of Lessor hereunder will be
construed as covenants, not conditions, and all such obligations will be binding
upon Lessor only during the period of its ownership and possession of the
Premises and not thereafter. The term "Lessor" shall mean only the owner, for
the time being of the Premises and the Property, and in the event of the
transfer by such owner of its interest in the Premises or the Property, such
owner shall thereupon be released and discharged from all covenants and
obligations of the Lessor thereafter accruing, but such covenants and
obligations shall be binding during the lease term upon each new owner for the
duration of such owner's ownership. In the event of any breach or default by
Lessor in any term or provision of this Lease, Lessee agrees to look solely to
the equity or interest then owned by Lessor in the land and improvements which
constitute the Premises or the Property; however, in no event, shall any
deficiency judgment or any money judgment of any kind be sought or obtained
against any Lessor which is now or hereafter a party to this Lease.
30. HOLDING OVER. If Lessee remains in possession of the Premises or any
part thereof after the expiration of the term of this Lease without Lessor's
acquiescence, Lessee shall be deemed only a tenant at will and there shall be no
renewal of this Lease without a written agreement signed by both parties
specifying such renewal; in addition, the Base Rental required to be paid under
this Lease shall automatically become the amount of one hundred fifty percent
(150%) of the Base Rental payable with respect to the last calendar month of the
term of this Lease.
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<PAGE>
31. NOTICES. Any notice allowed or required by this Lease shall be deemed
to have been sufficiently served if the same shall be in writing and placed in
the United States Mail, via certified mail or registered mail, return receipt
requested, with proper postage prepaid and addressed as follows:
AS TO LESSOR: C. W. Smith
800 South York Street
No. 2400 Ashley Arms
Gastonia, North Carolina 28052
AS TO LESSEE: ATS Manufacturing, Inc.
400 Corporate Drive
Mahwah, New Jersey 07430
Attention: Chief Financial Officer
The addresses of Lessor and Lessee and the party, if any, to whose
attention a notice or copy of same shall be directed may be changed or added
from time to time by either party giving notice to the other in the prescribed
manner.
32. MISCELLANEOUS.
(a) BROKERAGE. Each party warrants to the other that no person or
entity is entitled to or has a claim for commission or related fee arising
out of this Lease. Accordingly, Lessor shall and does hereby indemnify and
hold Lessee harmless from and against any claim for commission which may be
payable in connection with this Lease and asserted by any party arising out
of any act or agreement by Lessor. Lessee shall and does hereby indemnify
and hold harmless Lessor from and against any claim for any commission
which may be payable in connection with this Lease and asserted by any
party arising out of any act or agreement by Lessee.
(b) EVIDENCE OF AUTHORITY. If requested by Lessor, Lessee shall
furnish appropriate legal documentation evidencing the valid existence and
good standing of Lessee and the authority of any parties signing this Lease
to act for Lessee.
(c) NATURE AND EXTENT OF AGREEMENT. This Lease, together with all
exhibits hereto and the Asset Purchase Agreement referred to in paragraph
16(f), contains the complete agreement of the parties concerning the
subject matter, and there are no oral or written understandings,
representations, or agreements pertaining thereto which have not been
incorporated herein. This Lease creates only the relationship of lessor
and tenant between the parties, and nothing herein shall impose upon either
party any powers, obligations or restrictions not
16
<PAGE>
expressed herein. This Lease shall be construed and governed by the laws
of the state of North Carolina.
(d) BINDING EFFECT. This Lease shall be binding upon and shall inure
to the benefit of the parties hereto and their respective heirs, successors
and assigns. This Lease shall not be binding on Lessor until executed by
Lessor and delivered to Lessee. No amendment or modification of this Lease
shall be binding upon Lessor unless same is in writing and executed by
Lessor.
(e) CAPTIONS AND HEADINGS. The captions and headings in this Lease
are for convenience and reference only, and they shall in no way be held to
explain, modify, or construe the meaning of the terms of this Lease.
(f) LEASE REVIEW. The submission of this Lease to Lessee for review
does not constitute a reservation for or option for the Premises, and this
Lease shall become effective as a contract only upon execution and delivery
by Lessor and Lessee.
(g) MEMORANDUM OF LEASE. Upon the request of either party, the other
party shall join in the execution of a Memorandum of this Lease in
recordable form. Either party may record the Memorandum in the appropriate
public registry, at its own expense. Neither party shall record the Lease
itself without the written consent of the other party.
33. GM PARTS SHORTAGE FACILITY. Lessor currently rents (the "GM Lease")
on a month-to-month basis from Lessor property known as the GM Parts Storage
Facility, 2015 North Chester Street, Gastonia, North Carolina (the "GM Space")
for the storage of parts. As a material consideration hereunder, Lessee shall,
at the time it makes the Base Rental payments to Lessor, provide to Lessor the
number of square feet used by GM to store parts (the "Square Foot Number") in
the GM Space for the month proceeding the month that a particular Base Rental
payment is due. Lessor and Lessee acknowledge that the Square Foot Number is
used in calculating the rent owed by GM to Lessor under the GM Lease.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
and sealed pursuant to authority duly given as of the day and year first above
written.
LESSOR:
/s/ C. W. Smith (SEAL)
-------------------------------------------
C. W. Smith
LESSEE:
ATS REMANUFACTURING, INC.,
a Delaware corporation
By: /s/ Stephen J. Perkins
----------------------------------------
Name: Stephen J. Perkins
Title: Chief Executive Officer
ATTEST:
/s/ Joseph Salamunovich
- ------------------------------
Joseph Salamunovich, Secretary
(CORPORATE SEAL)
18
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF GASTON
Before me, the undersigned Notary Public in and for the County and State
aforesaid, personally came C. W. SMITH and acknowledged the due execution of the
foregoing instrument in writing for the purposes therein expressed.
WITNESS my hand and notarial seal, this 31st day of July, 1997.
/s/ Martha S. Curry
-------------------------------------------
Notary Public
My Commission Expires:
19
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF GASTON
This 31st day of July, 1997, before me, the undersigned Notary Public in
and for the County and State aforesaid, personally came Stephen J. Perkins, who,
being duly sworn, says that he is Chief Executive Officer of ATS
REMANUFACTURING, INC., and that the seal affixed to the foregoing instrument in
writing is the corporate seal of said corporation, and that he signed and sealed
said instrument on behalf of said corporation by its authority duly given. And
the said Stephen J. Perkins acknowledged said instrument to be the act and deed
of said corporation.
WITNESS my hand and seal this 31st day of July, 1997.
/s/ Martha S. Curry
-------------------------------------------
Notary Public
My Commission Expires:
20
<PAGE>
GUARANTY OF LEASE
LESSOR: C. W. SMITH SHOPPING CENTER:
1224 ISLEY RD.
LESSEE: ATS REMANUFACTURING, INC. LEASE DATED: JULY 31, 1997
FOR VALUE RECEIVED, and in consideration of and as an inducement for the
execution and delivery of the Lease referred to above between Lessor and Lessee,
the undersigned Guarantor hereby guarantees to Lessor, the full and prompt
payment of all Rent, and any and all other sums and charges payable by Lessee
under the Lease, and the full and timely performance and observance of all the
covenants, terms, conditions and agreements in the Lease to be performed and
observed by the Lessee. Guarantor hereby covenants and agrees that if default
shall at any time be made by the Lessee in the payment of any such Rent or of
the covenants, terms, conditions or agreements in the Lease, the Guarantor will
promptly pay such Rent and other sums and charges to the Lessor, and/or perform
and fulfill all of such terms, covenants, conditions and agreements, and will
pay the Lessor all damages and expenses, including attorneys' fees, that may
arise in consequence of any default by the Lessee under the Lease of by the
enforcement of this Guaranty.
This Guaranty in any absolute and unconditional guaranty of payment and of
performance. It shall be enforceable against the Guarantor, without the
necessity of any suit or proceedings on the Lessor's part of any kind or nature
whatsoever against the Lessee and without the necessity of any notice of non-
payment, non-performance, non-observance, acceptance of this Guaranty, or any
other notice or demand to which the Guarantor hereby expressly waives. The
Guarantor hereby expressly agrees that the validity of this Guaranty and the
obligations of the Guarantor hereunder shall in no way be terminated, affected,
diminished or impaired by reason of the assertion or failure to assert by the
Lessor against the Lessee any of the rights and remedies available to the Lessor
or by relief of Lessee from any of the Lessee's obligations under this Lease by
the rejection of the Lease in connection with proceedings under the Bankruptcy
laws now or hereafter in effect or otherwise.
This Guaranty shall be a continuing guaranty and the liability of the
Guarantor hereunder shall in no way be affected, modified or diminished by
reason of any assignment, renewal, modification or extension of the Lease or by
reason of any modification or waiver of or change in any of the terms,
covenants, conditions or provisions of the Lease, or by reason on any extensions
of time that may be granted by the Lessor to the Lessee or by reason of a change
for different use of the Demised Premises or by reason of any dealings or
transactions or matters or things occurring
<PAGE>
between Lessor and the Lessee, whether or not the Guarantor has knowledge or
notice thereof. Lessor reserves the right to obtain credit report.
The assignment by Lessor of the Lease and/or the Rents and other receipts
thereof made either with or without the Guarantor's knowledge or notice shall in
no manner whatsoever release the Guarantor from any liability as Guarantor.
This Guaranty may be assigned by Lessor.
All the Lessor's rights and remedies under the said Lease or under this
Guaranty are intended to be distinct, separate and cumulative and no such right
and remedy therein or herein mentioned is intended to be an exclusion or a
waiver of any of the others. This Guaranty shall be binding upon the Lessor and
Lessee and their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned has executed this Guaranty of Lease as
of the day and year set forth below.
GUARANTOR:
AFTERMARKET TECHNOLOGY CORP,
a Delaware Corporation
By: /s/ Stephen J. Perkins
---------------------------------
____________President
ATTEST:
/s/ Joseph Salamunovich
- -----------------------------------
___________ Secretary
(Corporate Seal)
2
<PAGE>
STOCK PURCHASE AGREEMENT
BY AND AMONG
GARY A. GAMBLE,
JAMES E. HENDERSON,
TRANS MART, INC.,
TM-AL ACQUISITION, INC.
AND
AFTERMARKET TECHNOLOGY CORP.
DATED AS OF JULY 21, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . 6
2.01. Purchase of Shares from Shareholders. . . . . . . . . . . . . . . 6
2.02. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.03. Calculation of Indebtedness . . . . . . . . . . . . . . . . . . . 7
2.04. Changes to Gross-Up Amount. . . . . . . . . . . . . . . . . . . . 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND TRANS MART . 8
3.01. Representations Regarding the Shares. . . . . . . . . . . . . . . 8
3.02. Existence and Power . . . . . . . . . . . . . . . . . . . . . . . 9
3.03. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.04. Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . 9
3.05. Governmental Authorization. . . . . . . . . . . . . . . . . . . . 10
3.06. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.07. Sufficiency of and Title to Assets. . . . . . . . . . . . . . . . 10
3.08. Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.09. Financial Statements; Undisclosed Liabilities . . . . . . . . . . 10
3.10. Absence of Certain Changes. . . . . . . . . . . . . . . . . . . . 11
3.11. Properties; Leases; Tangible Assets . . . . . . . . . . . . . . . 12
3.12. Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.13. Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3.14. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.15. Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.16. Permits; Required Consents. . . . . . . . . . . . . . . . . . . . 15
3.17. Compliance with Applicable Laws . . . . . . . . . . . . . . . . . 15
3.18. Employment Agreements; Change in Control; and Employee
Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.19. Labor and Employment Matters. . . . . . . . . . . . . . . . . . . 17
3.20. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . 17
3.21. Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.22. Environmental Compliance. . . . . . . . . . . . . . . . . . . . . 18
3.23. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.24. Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.25. Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.26. Material Disclosures. . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER AND ATC. . . . . . . . . 21
4.01. Organization and Existence. . . . . . . . . . . . . . . . . . . . 21
4.02. Corporate Authorization . . . . . . . . . . . . . . . . . . . . . 21
4.03. Governmental Authorization. . . . . . . . . . . . . . . . . . . . 21
4.04. Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . 21
4.05. Advisory Fees . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.06. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE V. COVENANTS OF SHAREHOLDERS AND TRANS MART. . . . . . . . . . . . . 22
5.01. Conduct of the Business; Distributions. . . . . . . . . . . . . . 22
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5.02. Access to Information . . . . . . . . . . . . . . . . . . . . . . 24
5.03. Compliance with Terms of Required Governmental Approvals
and Required Contractual Consents . . . . . . . . . . . . . . 25
5.04. Maintenance of Insurance Policies . . . . . . . . . . . . . . . . 25
5.05. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.06. Transactions Affecting the Shares . . . . . . . . . . . . . . . . 26
5.07. Issuance of Dividend Note . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VI. COVENANTS OF BUYER AND ATC . . . . . . . . . . . . . . . . . . . 26
6.01. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.02. Access to Information . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VII. COVENANTS OF ALL PARTIES. . . . . . . . . . . . . . . . . . . . 28
7.01. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . 28
7.02. Certain Filings . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.03. Public Announcements. . . . . . . . . . . . . . . . . . . . . . . 28
7.04. Administration of Accounts. . . . . . . . . . . . . . . . . . . . 28
7.05. Taxes and Section 338(h)(10) Election . . . . . . . . . . . . . . 28
7.06. Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.07. TransShop Management System, Inc. . . . . . . . . . . . . . . . . 31
ARTICLE VIII. CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . 31
8.01. Conditions to Obligation of Buyer and ATC . . . . . . . . . . . . 31
8.02. Conditions to Obligation of Shareholders. . . . . . . . . . . . . 33
8.03. Exception to Conditions to Obligation of Buyer. . . . . . . . . . 34
8.04. Exception to Conditions to Obligation of Shareholders . . . . . . 35
ARTICLE IX. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . 35
9.01. Agreement to Indemnify. . . . . . . . . . . . . . . . . . . . . . 35
9.02. Survival of Representation, Warranties and Covenants. . . . . . . 36
9.03. Claims for Indemnification. . . . . . . . . . . . . . . . . . . . 37
9.04. Defense of Claims . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE X. TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.01. Grounds for Termination. . . . . . . . . . . . . . . . . . . . . 38
10.02. Effect of Termination. . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE XI. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.01. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.02. Amendments; No Waivers . . . . . . . . . . . . . . . . . . . . . 41
11.03. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
11.04. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 41
11.05. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.06. Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . 42
11.07. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 42
11.08. construction . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.09. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.10. Third Party Beneficiaries. . . . . . . . . . . . . . . . . . . . 42
11.11. Arbitration of Claims. . . . . . . . . . . . . . . . . . . . . . 42
11.12. Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . 43
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DEFINED TERMS
"1997 Balance Sheet" . . . . . . . . . . . . . . . . . . . . . . . .Section 3.08
"AAA Rules". . . . . . . . . . . . . . . . . . . . . . . . . . .Section 11.11(a)
"Agreement". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
"Aggregate Gross-Up Amount". . . . . . . . . . . . . . . . . . . Section 2.02(b)
"Allocation Statement" . . . . . . . . . . . . . . . . . . .Section 7.05(b)(iii)
"Annual Statements". . . . . . . . . . . . . . . . . . . . . . . . .Section 3.09
"ATC". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
"Business" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
"Buyer Indemnitees". . . . . . . . . . . . . . . . . . . . . . . Section 9.01(a)
"Buyer". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.02(a)
"Closing". . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2.02(a)
"Distributions". . . . . . . . . . . . . . . . . . . . . . . . . Section 3.10(h)
"Encumbrances" . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11(a)
"Financial Statements" . . . . . . . . . . . . . . . . . . . . . . .Section 3.09
"GAG". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
"Indebtedness Certificate". . . . . . . . . . . . . . . . . . . Section 2.03(a)
"Insurance Policies" . . . . . . . . . . . . . . . . . . . . . . . .Section 3.23
"Intellectual Property Rights" . . . . . . . . . . . . . . . . . Section 3.20(a)
"Interim Statements" . . . . . . . . . . . . . . . . . . . . . . . .Section 3.09
"JEH". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
"Leased Real Property" . . . . . . . . . . . . . . . . . . . . . Section 3.11(a)
"Leases" . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.11(b)
"Other Trustee Documents". . . . . . . . . . . . . . . . . . . .Section 11.14(a)
"Permits". . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3.16(a)
"Personal Property Leases" . . . . . . . . . . . . . . . . . . . Section 3.11(b)
"Proceedings". . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 3.14
"Real Property Leases" . . . . . . . . . . . . . . . . . . . . . Section 3.11(b)
"Required Consents". . . . . . . . . . . . . . . . . . . . . . . Section 3.16(b)
"Required Contractual Consent" . . . . . . . . . . . . . . . . . Section 3.16(b)
"Required Governmental Approval" . . . . . . . . . . . . . . . . Section 3.16(b)
"S corporation". . . . . . . . . . . . . . . . . . . . . . . . . Section 3.24(k)
"Scheduled Contracts". . . . . . . . . . . . . . . . . . . . . . Section 3.15(a)
"Section338(h)(10) Elections". . . . . . . . . . . . . . . . .Section 7.05(b)(i)
Section 8.03 Statement . . . . . . . . . . . . . . . . . . . . . Section 8.03(b)
"Share Encumbrances" . . . . . . . . . . . . . . . . . . . . . . Section 3.01(a)
"Shareholder Indemnitees". . . . . . . . . . . . . . . . . . . . Section 9.01(b)
"Shareholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
"Shares" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals
"Subsequent Material Contract" . . . . . . . . . . . . . . . Section 5.01(b)(iv)
"Trans Mart" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
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EXHIBITS
Exhibit A. . . . . . . . . . . . . . . . . . . . . . . . . . Ownership of Shares
Exhibit B. . . . . . . . . . . . . . . . . . . . . .Gross-Up Calculation Example
Exhibit C. . . . . . . . . . . . . . . . . . . . . . . . . . . Annual Statements
Exhibit D. . . . . . . . . . . . . . . . . . . . . . . . . Form of Dividend Note
Exhibit E. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form of Lease
Exhibit F. . . . . . . . . . . . . . . . . . . . .Form of Noncompetion Agreement
Exhibit G. . . . . . . . . . . . . . . . . . . . . .Form of Employment Agreement
SCHEDULES
Schedule 3.01(a) . . . . . . . . . . . . . . . . . . . . . . .Share Encumbrances
Schedule 3.02. . . . . . . . . . . . . . . . . . . .Qualification to do Business
Schedule 3.05. . . . . . . . . . . . . . . . . . . . Governmental Authorizations
Schedule 3.08. . . . . . . . . . . . . . . . . . . . . . . . .Share Encumbrances
Schedule 3.10. . . . . . . . . . . . . . . . . . . . .Absence of Certain Changes
Schedule 3.11(a) . . . . . . . . . . . . . . . . . . . . . .Leased Real Property
Schedule 3.11(b) . . . . . . . . . . . . . . . . . . . .Personal Property Leases
Schedule 3.11(c) . . . . . . . . . . . . . . . . . . . . . . Land-Use Regulation
Schedule 3.12. . . . . . . . . . . . . . . . . . . . . . .Affiliate Transactions
Schedule 3.13. . . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories
Schedule 3.14. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Litigation
Schedule 3.15(a) . . . . . . . . . . . . . . . . . . . . . . Scheduled Contracts
Schedule 3.15(b) . . . . . . . . . . . . . . . . Non-Binding Scheduled Contracts
Schedule 3.15(c) . . . . . . . . . . . . . . . . Primary Customers and Suppliers
Schedule 3.16(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permits
Schedule 3.16(b) . . . . . . . . . . . . . . . . . . . . . . . Required Consents
Schedule 3.17. . . . . . . . . . . . . . . . . . Compliance with Applicable Laws
Schedule 3.18(a) . . . . . . . . . . . . . . . . . . . . . . . . . Benefit Plans
Schedule 3.18(f) . . . . . . . . . . . . . . . . . . . . . . . .Accrued Benefits
Schedule 3.19. . . . . . . . . . . . . . . . . . . .Labor and Employment Matters
Schedule 3.20(a) . . . . . . . . . . . . . . . . . . . . . Intellectual Property
Schedule 3.20(b) . . . . . . . . Proceedings Applicable to Intellectual Property
Schedule 3.20(c) . . . . . . . . . . . Ownership of Intellectual Property Rights
Schedule 3.22(a) . . . . . . . . . . . . . . . . . . . . . Environmental Permits
Schedule 3.22(b) . . . . . . . . . . . . . . . . . . . .Environmental Compliance
Schedule 3.22(c) . . . . . . . . . Continuing Compliance with Environmental Laws
Schedule 3.23. . . . . . . . . . . . . . . . . . . . . . . . .Insurance Policies
Schedule 3.24. . . . . . . . . . . . . . . . . . . . . . . . . . . . Tax Matters
Schedule 3.25. . . . . . . . . . . . . . . . . . . . . . . . . . .Long-Term Debt
Schedule 5.01(b)(v). . . . . . . . . . . . . . . . . . . . .Capital Expenditures
Schedule 5.01(b)(vii). . . . . . . . . . . . . . . . . . . . . . . Distributions
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is entered into as of
July 21, 1997 by and among Gary A. Gamble, an individual ("GAG"), James E.
Henderson, an individual ("JEH" and collectively with GAG, "Shareholders" and
individually, each a "Shareholder"), Trans Mart, Inc., an Alabama corporation
("Trans Mart"), TM-AL Acquisition, Inc., a Delaware corporation ("Buyer"), and
Aftermarket Technology Corp., a Delaware corporation ("ATC").
R E C I T A L S
WHEREAS, Trans Mart is engaged in the sourcing, distribution and sale
of automotive and light truck component parts (the "Business");
WHEREAS, each Shareholder owns the number of issued and outstanding
shares (collectively the "Shares") of Trans Mart's Common Stock, $5.00 par value
per share, (the "Common Stock"), set forth opposite such Shareholder's name on
EXHIBIT A hereto, which Shares in the aggregate represent all of the issued and
outstanding shares of Trans Mart's capital stock; and
WHEREAS, Buyer desires to purchase and Shareholders desire to sell the
Shares on the terms and conditions set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises, and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows.
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. The following terms, as used herein, have the
following meanings:
"AFFILIATE" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Act of 1934, as amended. Without limiting the
generality of the foregoing, after the Closing Date the Affiliates of Buyer
shall include Trans Mart.
"APPLICABLE LAW" means, with respect to any Person, any domestic or
foreign, federal, state or local statute, law, ordinance, rule, administrative
interpretation, regulation, policy, guidance, order, writ, injunction,
directive, judgment, decree or other requirement of any Governmental Authority
(including any Environmental Law) applicable to such Person or any of its
Affiliates or Plan Affiliates or any of their respective properties, assets,
officers, directors, employees, consultants or agents (in connection with such
officer's, director's, employee's,
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consultant's or agent's activities on behalf of such Person or any of its
Affiliates or Plan Affiliates).
"ASSOCIATE" or "ASSOCIATED WITH" means, when used to indicate a
relationship with any Person, (a) any other Person of which such Person is an
officer or partner or is, directly or indirectly, the beneficial owner of 10% or
more of any class of equity securities issued by such other Person, (b) any
trust or other estate in which such Person has a beneficial interest of more
than 50% or as to which such Person serves as trustee or in a similar fiduciary
capacity, and (c) any parent, grandparent, aunt, uncle, sibling, child or spouse
of such Person, or any relative of such spouse who has the same home as such
Person or who is a director or officer of such Person or any Affiliate thereof.
"BENEFIT ARRANGEMENT" means any material benefit arrangement, other
than an Employee Benefit Plan, maintained by Trans Mart or any ERISA Affiliate
of Trans Mart covering the employees, former employees, directors and former
directors of Trans Mart and the beneficiaries of any of them, including, without
limitation, (i) each material employment or consulting agreement, (ii) each
arrangement providing for material insurance coverage for employees or workers'
compensation benefits, (iii) each material incentive bonus or deferred bonus
arrangement, (iv) each arrangement providing material termination allowance,
severance or similar benefits, (v) each material equity compensation plan,
(vi) each material deferred compensation plan and (vii) each material
compensation policy and practice.
"BENEFIT PLAN" means an Employee Benefit Plan or Benefit Arrangement.
"BUSINESS DAY" means a day other than a Saturday, Sunday or other day
on which commercial banks in Chicago, Illinois are authorized or required by law
to close.
"CODE" means the Internal Revenue Code of 1986, as amended.
"CONTRACTS" means all contracts, agreements, options, leases,
licenses, sales and purchase order, commitments and other instruments of any
kind, whether written or oral, to which Trans Mart is a party on the Closing
Date, including the Scheduled Contracts and the Subsequent Material Contracts.
"DAMAGES" means all demands, claims, actions or causes of action,
assessments, losses, damages, costs, expenses, liabilities, judgments, awards,
fines, sanctions, penalties, charges and amounts paid in settlement, net of
insurance proceeds actually received, including without limitation (i) interest
on cash disbursements in respect of any of the foregoing, at the Prime Rate in
effect from time to time, from the date each such cash disbursement is made
until the Person incurring the same shall have been indemnified in respect
thereof and (ii) reasonable costs, fees and expenses of attorneys, accountants
and other agents of such Person. In determining Damages, tax effects shall be
considered and appropriate adjustments made for the tax consequences of such
Damages.
"DISTRIBUTABLE EARNINGS" means the net income of Trans Mart for the
period from May 25, 1997 to the Closing Date plus the amount of all incentives
and rebates earned by Trans
2
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Mart for volume purchases from its suppliers to the extent that the
merchandise purchased is sold by Trans Mart during such period.
"EMPLOYEE BENEFIT PLAN" means any employee benefit plan, as defined in
Section 3(3) of ERISA, that is sponsored or contributed to by Trans Mart or any
ERISA Affiliate thereof covering employees or former employees of Trans Mart.
"EMPLOYEE PENSION BENEFIT PLAN" means any employee pension benefit
plan, as defined in Section 3(2) of ERISA, that is subject to Title IV of ERISA,
including a Multiemployer Plan.
"ENVIRONMENTAL LAWS" means all Applicable Laws relating to Hazardous
Substances, occupational health and safety, or the environment including,
without limitation, (i) all Applicable Laws pertaining to reporting, licensing,
permitting, controlling, investigating or remediating emissions, discharges,
releases or threatened releases of Hazardous Substances, chemical substances,
pollutants, contaminants or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature, into the air, surface water, groundwater or
land, (ii) all Applicable Laws relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances, chemical substances, pollutants, contaminants or toxic
substances, materials or wastes, whether solid, liquid or gaseous in nature; and
(iii) the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the Clean Air
Act, the Water Pollution Control Act, the Safe Drinking Water Act, the Toxic
Substance Control Act ("TSCA") and all requirements promulgated pursuant to any
of these or analogous state or local statutes.
"ENVIRONMENTAL LIABILITIES" means Liabilities of a Person that arise
under any Environmental Law.
"EQUIPMENT" means all machinery, equipment, furniture, office
equipment, communications equipment, vehicles, storage tanks, spare and
replacement parts and other tangible property (and interests in any of the
foregoing) of Trans Mart.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" of any Person means any other Person that, together
with such Person as of the relevant measuring date under ERISA, was or is
required to be treated as a single employer under Section 414(b), (c), (m) or
(o) of the Code.
"EXCLUDED ENVIRONMENTAL LIABILITY" means Environmental Liabilities
arising as a result of the actions or inactions of Buyer, ATC or Trans Mart
after the Closing Date.
"GAAP" means generally accepted accounting principles in the
United States as in effect at the time the relevant financial statement is
prepared, applied on a consistent basis.
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"GOVERNMENTAL AUTHORITY" means any foreign, domestic, federal,
territorial, state or local governmental authority, quasi-governmental
authority, instrumentality, court, government or self-regulatory organization,
commission, tribunal or organization or any regulatory, administrative or other
agency, or any political or other subdivision, department or branch of any of
the foregoing.
"GROUP HEALTH PLAN" means any group health plan, as defined in
Section 5000(b)(1) of the Code.
"HAZARDOUS SUBSTANCE" means any substance or material: (i) the
presence of which requires investigation or remediation under any Applicable
Law; or (ii) the generation, storage, treatment, transportation, disposal,
remediation, removal, handling or management of which is regulated by any
Environmental Law; or (iii) that is defined as a "hazardous waste" or "hazardous
substance" under any Applicable Law; or (iv) that is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic or mutagenic or
otherwise hazardous and is regulated by any Governmental Authority having or
asserting jurisdiction over the Business or any of the Transferred Assets; or
(v) the presence of which constitutes a nuisance, trespass or other tortious
condition; or (vi) the presence of which on adjacent properties constitutes a
trespass by Seller; or (vii) without limitation, that contains gasoline, diesel
fuel or other petroleum hydrocarbons, polychlorinated biphenols (PCBs) or
asbestos.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"INDEBTEDNESS" means all liabilities and obligations, contingent or
otherwise, of Trans Mart (i) in respect of borrowed money, (ii) evidenced by
bonds, notes, debentures or similar instruments (including, without limitation,
the notes delivered pursuant to Section 5.01(b)(vii)), (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
other than those incurred in the ordinary course of its business that constitute
trade payables to trade creditors (so long as such trade payables are not past
due beyond customary payment terms), (iv) evidenced by a bankers' acceptance or
similar instrument issued or accepted by banks, (v) for the capitalized amount
of a lease that is required to be capitalized for financial reporting purposes
in accordance with GAAP, (vi) evidenced by a letter of credit or a reimbursement
obligation of Trans Mart with respect to any letter of credit, and (vii) any of
the foregoing of another Person as to which Trans Mart is a guarantor or
otherwise liable (except endorsements of customer checks in the ordinary course
of business).
"INDEMNIFYING PARTY" means: (1) Shareholders when any Buyer
Indemnitee is asserting a claim under Sections 9.01(a) or 11.11 or (2) Buyer and
ATC when any Shareholder Indemnitee is asserting a claim under Sections 9.01(b)
or 11.11.
"INDEMNITEE" means: (1) each of Buyer and its Affiliates (including,
without limitation, ATC) with respect to any claim for which any Shareholder is
an Indemnifying Party under Sections 9.01(a) or 11.11; or (2) Shareholders and
their Affiliates with respect to claims for which Buyer and ATC are Indemnifying
Parties under Sections 9.01(b) or 11.11.
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"INVENTORY" means all items of inventory notwithstanding how
classified in the financial records of Trans Mart, including all raw materials,
work-in-process, finished goods, supplies, spare parts, samples, cores and
stores of Trans Mart.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE" means, with respect to Trans Mart, all things actually
known by any of GAG, JEH, Drew Parkhurst or Bobby Rich and, with respect to any
other corporation, all things actually known to the executive officers of such
corporation.
"LIABILITY" means, with respect to any Person, any liability or
obligation of such Person of any kind, character or description, whether known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, secured or unsecured, joint or several, due or to become due,
vested or unvested, executory, determined, determinable or otherwise, whether or
not the same is required to be accrued on the financial statements of such
Person and whether or not the same is disclosed on any schedule to this
Agreement.
"LIEN" means, with respect to any asset, any mortgage, title defect or
objection, lien, pledge, charge, security interest, hypothecation, restriction,
encumbrance or charge of any kind in respect of such asset.
"MATERIAL ADVERSE EFFECT" means a change in, or effect on, the
operations, affairs, prospects, financial condition, results of operations,
assets, Liabilities, reserves or any other aspect of Trans Mart or the Business
that results in a material adverse effect on, or a material adverse change in,
the Business taken as a whole.
"MULTIEMPLOYER PLAN" means a multiemployer plan, as defined in
Section 3(37) and 4001(a)(3) of ERISA.
"OUTSIDE DATE" means September 30, 1997, PROVIDED that if the reason
that the transactions contemplated hereby have not been consummated is either
(i) the failure of the waiting period under the HSR Act to have expired or
(ii) the existence of any violation or potential violation of any Environmental
Laws, the Outside Date shall be October 31, 1997.
"PERMITTED LIENS" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for Taxes
the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons and other Liens
imposed by Applicable Law incurred in the ordinary course of business for sums
not yet delinquent or being contested in good faith; (iii) Liens relating to
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security or to
secure the performance of leases, trade contracts or other similar agreements;
(iv) Liens and Encumbrances specifically identified in the 1997 Balance Sheet;
and (v) Liens securing executory obligations under any Lease that constitutes an
"operating lease" under GAAP; PROVIDED, HOWEVER, that to the extent that any
such Encumbrance or Lien arose prior to the date of the 1997 Balance Sheet and
relates to, or secures the payment
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of, a Liability that is required to be accrued under GAAP, such Encumbrance
or Lien shall not be a Permitted Lien unless adequate accrual for such
Liability has been established therefor on the 1997 Balance Sheet in
conformity with GAAP. Notwithstanding the foregoing, no Lien arising under
the Code or ERISA with respect to the operation, termination, restoration or
funding of any Benefit Plan sponsored by, maintained by or contributed to by
Trans Mart or any of its ERISA Affiliates or arising in connection with any
excise tax or penalty tax with respect to such Benefit Plan shall be a
Permitted Lien.
"PERSON" means an individual, corporation, partnership, association,
trust, estate or other entity or organization, including a Governmental
Authority.
"PLAN AFFILIATE" means, with respect to any Person, any Benefit Plan
sponsored by, maintained by or contributed to by such Person, and with respect
to any Benefit Plan, any Person sponsoring, maintaining or contributing to such
Benefit Plan.
"PRIME RATE" means per annum rate of interest publicly announced from
time to time by The Chase Manhattan Bank as its prime rate (or reference rate).
Any change in the Prime Rate shall take effect at the opening of business on the
day specified in the public announcement of such change.
"PROHIBITED TRANSACTION" means a transaction that is prohibited under
Section 4975 of the Code or Section 406 of ERISA and not exempt under
Section 4975 of the Code or Section 408 of ERISA, respectively.
"TAX" means all taxes imposed of any nature including federal, state,
local or foreign net income tax, alternative or add-on minimum tax, profits or
excess profits tax, franchise tax, gross income, adjusted gross income or gross
receipts tax, employment related tax (including employee withholding or employer
payroll tax, FICA or FUTA), real or personal property tax or ad valorem tax,
sales or use tax, excise tax, stamp tax or duty, any withholding or back up
withholding tax, value added tax, severance tax, prohibited transaction tax,
premiums tax, occupation tax, together with any interest or any penalty,
addition to tax or additional amount imposed by any governmental authority
(domestic or foreign) responsible for the imposition of any such tax.
"TAX RETURN" means all returns, reports, forms or other information
required to be filed with respect to any Tax.
ARTICLE II
PURCHASE AND SALE
2.01 PURCHASE OF SHARES FROM SHAREHOLDERS. On the terms and subject
to the conditions set forth herein, at the Closing each Shareholder shall sell,
transfer, convey, assign and deliver to Buyer, free and clear of all Share
Encumbrances, and Buyer shall purchase, acquire and accept from each
Shareholder, all the Shares owned by such Shareholder. At the Closing, each
Shareholder shall deliver to Buyer certificates evidencing the Shares owned by
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such Shareholder duly endorsed for transfer and such other instruments as may be
reasonably requested by Buyer to transfer full legal and beneficial ownership of
the Shares to Buyer, free and clear of all Share Encumbrances. Buyer shall pay
the purchase price for the Shares in accordance with the terms of
Section 2.02(b).
2.02 CLOSING.
(a) The closing (the "Closing") of the transactions contemplated
by this Agreement shall take place at the offices of Timothy K. Corley, P.C.,
Sun Trust Bank Building, 201 South Court Street, Florence, Alabama on
(i) August 14, 1997, or (ii) if later, the date on which the last of the
conditions to Closing set forth in Sections 8.01 and 8.02 have been satisfied or
waived by the party or parties entitled to waive the same or (iii) such other
date as to which Buyer and Trans Mart may agree (the "Closing Date"); PROVIDED,
HOWEVER, that, as provided in Section 10.01(f), Shareholders or Buyer may
terminate this Agreement if the Closing shall not have been consummated by the
Outside Date.
(b) Subject to Section 8.03(c), at the Closing Buyer shall pay
to Shareholders, in cash by wire transfer of immediately available funds to a
bank account or bank accounts designated in writing by Shareholders, an
aggregate amount equal to (i) $22,000,000 minus the amount, if any, by which the
Indebtedness, if any, as of the Closing Date exceeds $5,000,000 plus (ii) the
amount calculated as the "Gross-Up Amount" in accordance with the example set
forth on EXHIBIT B plus any comparable amount relating to state income taxes
(the aggregate amount payable pursuant to this Section 2.02(b) being the
"Aggregate Gross-Up Amount"). The payment shall be allocated between
Shareholders as set forth in EXHIBIT A.
2.03 CALCULATION OF INDEBTEDNESS.
(a) For purposes of determining the purchase price to be paid
by Buyer pursuant to Section 2.02(b), Trans Mart shall deliver at the Closing
a certificate, executed by an officer of Trans Mart, setting forth Trans
Mart's good faith estimate of the amount of Indebtedness as of the Closing
Date, broken down by type of Indebtedness (the "Indebtedness Certificate").
If Buyer disputes the Indebtedness Certificate, it must do so in writing to
Shareholders within 30 days after the Closing, setting forth in such notice
the grounds for the dispute, but shall nevertheless pay the amount set forth
in Section 2.o2(b). If Shareholders and Buyer are unable to resolve the
dispute within 15 days of Shareholders' receipt of such notice, the dispute
shall be referred for final and conclusive resolution to Deloitte & Touch LLP
or, if such firm is not available, such other independent accounting firm of
national reputation selected by the mutual agreement of Shareholders and
Buyer. The fees and expenses of the accounting firm resolving the dispute
shall be paid by Shareholders and/or Buyer as such firm shall determine.
(b) If it is ultimately determined that the amount of
Indebtedness as of the Closing Date is other than as set forth in the
Indebtedness Certificate, then:
(i) Shareholders shall pay to Buyer cash in the amount, if
any, by which the Indebtedness as of the Closing Date exceeds the amount set
forth in the
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Indebtedness Certificate, each Shareholder being responsible for the portion
of such payment set forth on EXHIBIT A; or
(ii) Buyer shall pay to Shareholders cash in the amount,
if any, by which the Indebtedness as of the Closing Date is less than the
amount set forth in the Indebtedness Certificate, each Shareholder to receive
the portion of such payment set forth on EXHIBIT A.
The payment called for by this Section 2.03(b), together with interest from the
Closing Date to the date of payment at the Prime Rate, shall be made within five
Business Days after the ultimate determination of the amount of Indebtedness as
of the Closing Date and shall be in immediately available funds by wire transfer
to an account designated in writing by the recipient.
2.04 CHANGES TO GROSS-UP AMOUNT.
(a) If Buyer elects or is required to alter the allocation MADE
FOR THE PURPOSE OF THE SECTION 338(h)(10) ELECTIONS and/or there is an
adjustment to the amount of Indebtedness pursuant to Section 2.03 and as a
result thereof Shareholders will incur an amount of federal, state and local
income taxes greater than the amount of such taxes assumed to be due for
purposes of computing the Aggregate Gross-Up Amount, Buyer shall pay to
Shareholders an amount equal to such additional amount of taxes.
(b) If Buyer elects or is required to alter the allocation MADE
FOR THE PURPOSE OF THE SECTION 338(h)(10) ELECTIONS and/or there is an
adjustment to the amount of Indebtedness pursuant to Section 2.03 and as a
result thereof Shareholders will incur an amount of federal, state and local
income taxes less than the amount of such taxes assumed to be due for purposes
of computing the Aggregate Gross-Up Amount, Shareholders shall pay to Buyer an
amount equal to the reduction in the amount of taxes.
The payment called for by this Section 2.04, together with interest from the
Closing Date to the date of payment at the Prime Rate, shall be made within five
Business Days after the determination of the change in the Aggregate Gross-Up
Amount and shall be in immediately available funds by wire transfer to an
account designated in writing by the recipient.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
AND TRANS MART
As an inducement to Buyer and ATC to enter into this Agreement and to
consummate the transactions contemplated herein, Shareholders and Trans Mart
represent and warrant to Buyer and ATC as follows:
3.01 REPRESENTATIONS REGARDING THE SHARES.
(a) Each Shareholder has good and marketable title to the Shares
that are to be transferred to Buyer by such Shareholder pursuant hereto as set
forth in EXHIBIT A free
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and clear of any and all covenants, conditions, restrictions (other than
restrictions under federal or state securities laws), voting trust
arrangements, rights of first refusal, options, Liens and adverse claims or
rights whatsoever (collectively, "Share Encumbrances"), except as set forth
in SCHEDULE 3.01(a); and on the Closing Date, each Shareholder will have, and
will deliver to Buyer, good and marketable title to the Shares free and clear
of any and all Share Encumbrances (including without limitation those set
forth in SCHEDULE 3.01(a)).
(b) Each Shareholder has the full right, power and authority to
enter into this Agreement and to transfer, convey and sell to Buyer at the
Closing the Shares to be sold to Buyer by such Shareholder hereunder, and upon
consummation of the purchase contemplated hereby, Buyer will acquire from such
Shareholder good and marketable title to the Shares to be sold to Buyer by such
Shareholder, free and clear of all Share Encumbrances except those created or
permitted by Buyer.
(c) Each Shareholder is not a party to, subject to, or bound by,
any judgment, order, writ, prohibition, injunction or decree of any court or
other governmental body, or any agreement, which would prevent the execution or
delivery of this Agreement by such Shareholder to Buyer or the transfer,
conveyance and sale of the Shares to be sold by such Shareholder to Buyer
pursuant to the terms hereof.
3.02 EXISTENCE AND POWER. Trans Mart is a corporation duly
organized and validly existing and in good standing under the laws of the
State of Alabama and has all corporate power and all governmental licenses,
authorizations, consents, approvals and qualifications required to carry on
the Business as now conducted and to own and operate its assets as now owned
and operated except where, in the aggregate, the failure to have such
licenses, authorizations, consents, approvals and qualifications would not
have a Material Adverse Effect. Trans Mart is duly qualified to do business
as a foreign corporation in each jurisdiction where the character of the
property owned or leased by it or the nature of its activities makes such
qualification necessary to carry on its business as now conducted, except for
those jurisdictions where the failure to be so qualified has not been, and
may not reasonably be expected to be, material. SCHEDULE 3.02, sets forth
those states in which Trans Mart is duly qualified to do business and in good
standing.
3.03 AUTHORIZATION. The execution, delivery and performance by Trans
Mart and Shareholders of this Agreement and the consummation thereby of the
transactions contemplated hereby are within each of Trans Mart's and
Shareholders' powers and have been duly authorized by all necessary corporate
action on the part of Trans Mart. This Agreement has been duly and validly
executed by Trans Mart and Shareholders and constitutes the legal, valid and
binding agreement of Trans Mart and Shareholders, enforceable against each of
them in accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and subject to general principles of equity.
3.04 NON-CONTRAVENTION. The execution, delivery and performance by
Trans Mart and Shareholders of this Agreement do not and will not (a) contravene
or conflict with the
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Articles of Incorporation or Bylaws of Trans Mart, true and correct copies of
which have been delivered to Buyer by Trans Mart, (b) assuming receipt of the
Required Consents, contravene or conflict with or constitute a violation of
any provision of any Applicable Law binding upon or applicable to Trans Mart,
Shareholders, the Business or the Shares, (c) assuming receipt of the
Required Consents, constitute a default under or give rise to any right of
termination, cancellation or acceleration of, or to a loss of any benefit to
which Trans Mart is entitled under, any material Contract or any Permit or
similar authorization relating to Trans Mart, the Business or the Shares by
which Trans Mart, the Business or the Shares may be bound, or (d) result in
the creation or imposition of any Lien on any assets of Trans Mart (other
than Permitted Liens) or any Share Encumbrance.
3.05 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Trans Mart and Shareholders of this Agreement require no action
by, consent or approval of, or filing with, any Governmental Authority other
than any actions, consents, approvals or filings otherwise expressly referred to
in this Agreement or set forth on SCHEDULE 3.05 or SCHEDULE 3.16(b). To the
Knowledge of Trans Mart and Shareholders, there are no facts relating to the
identity or circumstances of Trans Mart or Shareholders that would prevent or
materially delay obtaining any of the Required Consents.
3.06 SUBSIDIARIES. Trans Mart does not have any subsidiaries.
3.07 SUFFICIENCY OF AND TITLE TO ASSETS. Trans Mart has, and as of
the Closing Date will have, title to, or the right to use, all assets, whether
tangible or intangible, necessary to operate the Business as a going concern.
3.08 CAPITAL STOCK. The authorized capital stock of Trans Mart
consists solely of 5,000 shares of Common Stock, 960 shares of which are issued
and outstanding on the date hereof. All such issued and outstanding shares of
Common Stock have been validly authorized and issued and are validly
outstanding, fully paid and nonassessable. The Shares represent all of the
issued and outstanding shares of Trans Mart's capital stock and are held as set
forth on EXHIBIT A. Except as set forth on SCHEDULE 3.08, there are not, and on
the Closing Date there will not be, outstanding (a) any options, warrants or
other rights to purchase from Trans Mart or any Shareholder any capital stock of
Trans Mart, (b) any securities convertible into or exchangeable for shares of
such stock or (c) any other commitments of any kind for the issuance of
additional shares of capital stock or options, warrants or other securities of
Trans Mart.
3.09 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Attached hereto
as EXHIBIT C are true and complete copies of the balance sheet and related
statement of operations and retained earnings for Trans Mart for the years ended
December 31, 1994, 1995 and 1996 (the "Annual Statements") and the balance
sheets and statements of operations for each month of 1997 ending on or before
May 25, 1997 (collectively, the "Interim Statements" and, together with the
Annual Statements, the "Financial Statements"). The May 25, 1997 balance sheet
is referred to herein as the "1997 Balance Sheet." Each of the Financial
Statements (i) has been prepared based on the books and records of Trans Mart in
accordance with GAAP (except for the omission of footnote disclosure required by
GAAP in the case of Interim Financials and except
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that the Interim Financials omit and are subject to normal year-end accruals)
and Trans Mart's normal accounting practices, consistent with past practice
and with each other, and present fairly the financial condition and results
of operations of Trans Mart as of the dates indicated or for the periods
indicated.
3.10 ABSENCE OF CERTAIN CHANGES. Except as set forth on
SCHEDULE 3.10, since the date of the 1997 Balance Sheet, the Business has been
conducted in the ordinary course, and there has not been:
(a) any event, occurrence, development or state of circumstances
or facts or change in Trans Mart or the Business (including any damage,
destruction or other casualty loss, but excluding any event, occurrence,
development or state of circumstances or facts or change resulting from changes
in general economic conditions) affecting Trans Mart or the Business that has
had or that may be reasonably expected to have, either alone or together with
all such events, occurrences, developments, states of circumstances or facts or
changes, a Material Adverse Effect;
(b) (i) any incurrence, assumption or guarantee of any
Indebtedness for borrowed money by Trans Mart, (ii) any incurrence of any
Liability relating to a documentary or standby letter of credit by Trans Mart,
(iii) any change in any material Liability other than in the ordinary course of
business, or (iv) any incurrence of any other Liability by Trans Mart, other
than in the ordinary course of business;
(c) any creation, assumption or sufferance of the existence of
any Lien on any of Trans Mart's assets, other than Permitted Liens;
(d) any material transaction or commitment made, or any material
Contract entered into, by Trans Mart, or any waiver, amendment, termination or
cancellation of any material Contract by Trans Mart, or any relinquishment of
any rights thereunder by Trans Mart, or of any other material right or debt owed
to Trans Mart, other than in each such case actions taken in the ordinary course
of business consistent with past practice;
(e) except for actions taken in the ordinary course of business
consistent with the past practice of Trans Mart that are not, in the aggregate,
material, any (i) grant of any severance, continuation or termination pay to any
director, officer, stockholder or employee of Trans Mart or any Associate of any
of the foregoing, (ii) entering into of any employment, deferred compensation or
other similar agreement (or any amendment to any such existing agreement) with
any director, officer, stockholder or employee of Trans Mart or any Associate of
any of the foregoing, (iii) increase in benefits payable or potentially payable
under any severance, continuation or termination pay policies or employment
agreements with any director, officer, stockholder or employee of Trans Mart or
any Associate of any of the foregoing, (iv) except as required by Applicable
Law, increase in compensation, bonus or other benefits payable or potentially
payable to directors, officers, stockholders or employees of Trans Mart or any
Associate of any of the foregoing, (v) except as required by Applicable Law,
change in the terms of any bonus, pension, insurance, health or other Benefit
Plan of Trans Mart, or
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(vi) representation of Trans Mart to any employee or former employee of Trans
Mart that Buyer would assume, continue to maintain or implement any Benefit
Plan after the Closing Date;
(f) any loan to or guarantee or assumption of any loan or
obligation on behalf of any stockholder, director, officer or employee of Trans
Mart or to any Associate of any of the foregoing, except travel advances
occurring in the ordinary course of business consistent with past practice;
(g) any material change by Trans Mart in its accounting
principles, methods or practices or in the manner it keeps its books and records
or any material change by Trans Mart of its current practices with regard to
sales, receivables, payables or accrued expenses that would affect the timing of
collection of receivables or the payment of payables;
(h) any distribution, dividend, bonus or other payment by Trans
Mart to any officer, director, stockholder or Affiliate of Trans Mart or any of
their respective Affiliates or Associates, (collectively, "Distributions"),
except to the extent permitted by Section 5.01(b)(vii);
(i) the entering into of any Contract or other arrangement
between Trans Mart and any officer, director or stockholder of Trans Mart or any
of their respective Affiliates or Associates; or
(j) any payment, discharge or satisfaction of any Liabilities of
Trans Mart, other than payments, discharges or satisfactions in the ordinary
course of business.
3.11 PROPERTIES; LEASES; TANGIBLE ASSETS.
(a) Trans Mart does not own any real property and does not have
a leasehold interest in any real property other than the real property
identified on SCHEDULE 3.11(a) (the "Leased Real Property"), which constitutes
all of the real property used in the Business. Trans Mart has a good and valid
leasehold interest in the Leased Real Property and the property subject to the
Personal Property Leases and has good and valid title to its other tangible
assets. Trans Mart holds title to each such property and asset free and clear
of all Liens, adverse claims, easements, rights of way, servitudes, zoning or
building restrictions, or any other rights of others or other adverse interests
of any kind, including chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements (collectively, "Encumbrances"), except the Leases and Permitted
Liens.
(b) SCHEDULE 3.11(b) sets forth a true and complete list of
(i) all personal property leases or licenses (A) to which Trans Mart is a party
or by which Trans Mart is bound and (B) that provide for annual payments by
Trans Mart in excess of $10,000 or that contain other affirmative material
obligations that cannot be terminated by Trans Mart within 30 days (the
"Personal Property Leases") and (ii) all leases or licenses of Leased Real
Property that provide for annual payments by Trans Mart in excess of $10,000 or
that cannot be terminated by Trans Mart within 30 days (the "Real Property
Leases" and collectively with the Personal Property Leases, the "Leases"). With
respect to the Leases, except as set forth on
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SCHEDULE 3.11(b), there exist no defaults by Trans Mart, or, to the Knowledge
of Trans Mart, any default or threatened default by any lessor or third party
thereunder, that has materially affected or could reasonably be expected to
materially affect the rights and privileges thereunder of Trans Mart.
Assuming the Required Consents are obtained, the consummation of the
transactions contemplated hereby will not result in a breach of, or give any
Person the right to terminate, any Lease to which Trans Mart is a party with
non-Affiliates or by which it is bound.
(c) Except as disclosed in SCHEDULE 3.11(c) or SCHEDULE 3.22(c),
Trans Mart has not received notice of any pending zoning or other land-use
regulation proceedings or any proposed change in any Applicable Laws that could
reasonably be expected to detrimentally affect the use or operation of any
Leased Real Property, nor has Trans Mart received notice of any special
assessment proceedings affecting the Leased Real Property, or applied for any
change to the zoning or land use status of the Leased Real Property.
3.12 AFFILIATES.
(a) Except as set forth in SCHEDULE 3.12, neither Trans Mart nor
any Shareholder or any officers or directors of Trans Mart (or any immediate
family member of any such officer or director) now has or at any time subsequent
to December 31, 1995, had, either directly or indirectly, an equity or debt
interest in any Person that furnishes or sells or during such period furnished
or sold services or products to Trans Mart or purchases or during such period
purchased from Trans Mart any goods or services, or otherwise does or during
such period did business with Trans Mart of a material nature or amount;
PROVIDED, HOWEVER, that neither Trans Mart, nor any stockholder of Trans Mart
nor any of Trans Mart's officers and directors or other Affiliates shall be
deemed to have such an interest solely by virtue of the ownership of less than
five percent of the outstanding voting stock or debt securities of any publicly
held company, the stock or debt securities of which are traded on a national
stock exchange or quoted on the National Association of Securities Dealers
Automated Quotation System.
(b) Except as set forth in SCHEDULE 3.12, neither Trans Mart nor
any Shareholder or any officers or directors of Trans Mart (or any immediate
family member of any such officer or director) now is or at any time subsequent
to December 31, 1995, was, a party to any contract, commitment or agreement to
which Trans Mart is or during such period was a party or under which Trans Mart
is or was obligated or bound or to which any of their respective properties may
be or may have been subject, other than through Trans Mart.
3.13 INVENTORIES. Subject to any reserve therefor that is included in
the 1997 Balance Sheet and except as disclosed in SCHEDULE 3.13; all Inventories
of Trans Mart (a) have been acquired or manufactured in the ordinary course of
business, in accordance with Trans Mart's normal inventory practices; (b) are of
a quality usable (including processing into merchantable finished inventories
for sale in the ordinary course of business), free of any material defect or
deficiency; and (c) are in merchantable and undamaged condition and meet
customer specifications. Concurrently herewith, Trans Mart is delivering to
Buyer a list of the number of days' worth of all Inventories of Trans Mart
(based on sales during the year to date) by part number as of May 31, 1997,
which list is accurate in all material respects.
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3.14 LITIGATION. Except as disclosed on SCHEDULE 3.14, (i) there are
no actions, suits, hearings, arbitrations, proceedings (public or private) or
governmental investigations that have been brought by or against any
Governmental Authority or any other Person (collectively, "Proceedings") pending
or, to the Knowledge of Trans Mart or Shareholders, threatened, against or
affecting Trans Mart, the Business, Shareholders or the Shares or which seek to
enjoin or rescind the transactions contemplated by this Agreement or otherwise
prevent Trans Mart or Shareholders from complying with the terms and provisions
of this Agreement; and (ii) there are no existing orders, judgments or decrees
of any Governmental Authority affecting any of Trans Mart, the Business,
Shareholders or the Shares.
3.15 CONTRACTS.
(a) SCHEDULE 3.15(a) sets forth a complete list of the following
contracts, commitments and obligations (whether written or oral) of Trans Mart
(collectively with the Leases and the Employment Agreements, the "Scheduled
Contracts"):
(i) each Contract between Trans Mart and (A) each present
or former director, officer or other member of management or other personnel of
Trans Mart, (B) any supplier of services or products to Trans Mart whose dollar
volume of sales to Trans Mart exceeded $10,000 in 1996, and (C) any Person in
which the aggregate payments made to Trans Mart under such Contract exceeded
$10,000 in 1996;
(ii) each other agreement or arrangement of Trans Mart that
(A) requires the payment or incurrence of Liabilities or the rendering of
services by Trans Mart, subsequent to the date of this Agreement, of more than
$10,000 and (B) cannot be terminated by Trans Mart within 30 days;
(iii) all Contracts relating to, and evidences of or
guarantees of, or providing security for, indebtedness for borrowed money or the
deferred purchase price of property (whether incurred, assumed, guaranteed or
secured by any asset);
(iv) all partnership, joint venture or other similar
Contracts, arrangements or agreements;
(v) to the extent that any of the following provide for
annual payments by Trans Mart in excess of $10,000 and cannot be terminated by
Trans Mart within 30 days, all license, distribution, commission, marketing,
agent, franchise, technical assistance or similar agreements relating to or
providing for the marketing and/or sale of the products or services to which
Trans Mart is a party or by which Trans Mart is otherwise bound; and
(vi) all other contracts, commitments and obligations that
are not in the ordinary course of the Business.
(b) Except as disclosed in SCHEDULE 3.15(b), each Scheduled
Contract and Subsequent Material Contract is a legal, valid and binding
obligation of Trans Mart and, to the Knowledge of Trans Mart and Shareholders,
each other party thereto, enforceable (except to
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the extent such enforceability may be limited by bankruptcy, equity and
creditors' rights generally) against Trans Mart and, to the Knowledge of
Trans Mart and Shareholders, each such other party in accordance with its
terms, and neither Trans Mart nor, to the Knowledge of Trans Mart and
Shareholders, any other party thereto is in material default or has failed to
perform any material obligation thereunder. Complete and correct copies of
each written Scheduled Contract have been delivered to Buyer.
(c) SCHEDULE 3.15(c) sets forth a list (by name, address and
persons to contact) of the 10 largest customers of and the 10 primary vendors
providing services to Trans Mart for each of the 12-month periods ended
December 31, 1995 and 1996 together with the approximate dollar amount of sales
by or services provided to Trans Mart during said period and a summary
description of the services provided by such vendors.
3.16 PERMITS; REQUIRED CONSENTS.
(a) SCHEDULE 3.16(a) sets forth all material approvals,
authorizations, certificates, consents, licenses, orders, permits,
qualifications or other similar authorizations of all Governmental Authorities
(and all other Persons) necessary for the operation of the Business or Trans
Mart's assets in substantially the same manner as currently operated or
affecting or relating in any way to the Business or such assets (the "Permits").
(b) SCHEDULE 3.16(b) lists (i) each governmental or other
registration, filing, application, notice, transfer, consent, approval, order,
qualification and waiver (each, a "Required Governmental Approval") required
under Applicable Law to be obtained by Trans Mart or Shareholders by virtue of
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby to avoid the loss of any material Permit or
otherwise, and (ii) each Scheduled Contract with respect to which the consent of
the other party or parties thereto must be obtained by Trans Mart or
Shareholders by virtue of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby to avoid the invalidity of
such Contract, the termination thereof, a breach or default thereunder or any
other change or modification to the terms thereof (each, a "Required Contractual
Consent" and collectively with the Required Governmental Approvals, the
"Required Consents"). Except as set forth in SCHEDULE 3.16(a) OR (b) each
Permit is valid and in full force and effect in all material respects and,
assuming the related Required Consents have been obtained prior to the Closing
Date, none of the Permits will be terminated or become terminable or impaired in
any material respect as a result of the transactions contemplated hereby.
3.17 COMPLIANCE WITH APPLICABLE LAWS. Except as set forth in
SCHEDULE 3.17, the operation of the Business has not violated or infringed, and
does not violate or infringe, any material Applicable Law, or any order, writ,
injunction or decree of any Governmental Authority.
3.18. EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL; AND EMPLOYEE
BENEFITS.
(a) SCHEDULE 3.18(a) sets forth all Benefit Plans. Trans Mart
has made true and correct copies of all governing instruments and related
agreements pertaining to such
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Benefit Plans available to Buyer. Trans Mart has made available to Buyer a
copy of the three (3) most recently filed Federal Form 5500 series and
accountant's opinion, if applicable, for each Employee Benefit Plan.
(b) Except as set forth on SCHEDULE 3.18(a), neither Trans Mart
nor any ERISA Affiliates of Trans Mart sponsors or has within the last five
years sponsored, maintained, contributed to, or incurred an obligation to
contribute to, any Employee Pension Benefit Plan.
(c) Except as set forth in SCHEDULE 3.18(f), no individual shall
accrue or receive additional benefits, service or accelerated rights to payments
of benefits under any Benefit Plan, including the right to receive any parachute
payment, as defined in Section 280G of the Code, or become entitled to
severance, termination allowance or similar payments as a direct result of the
transactions contemplated by this Agreement.
(d) No Employee Benefit Plan has participated in, engaged in or
been a party to any non-exempt Prohibited Transaction, and neither Trans Mart
nor any ERISA Affiliates of Trans Mart has had asserted against it any claim for
taxes under Chapter 43 of Subtitle D of the Code and Sections 5000 of the Code,
or for penalties under ERISA Section 502(c), (i) or (l), with respect to any
Employee Benefit Plan nor, to the Knowledge of Trans Mart or Shareholders, is
there a basis for any such claim. No officer, director or employee of Trans
Mart has committed a material breach of any responsibility or obligation imposed
upon fiduciaries by Title I of ERISA with respect to any Employee Benefit Plan.
(e) Other than routine claims for benefits, there is no claim
pending or to the Knowledge of Trans Mart threatened, involving any Benefit Plan
by any Person against such plan or Trans Mart or any ERISA Affiliate. There is
no pending or, to the Knowledge of Trans Mart or Shareholders, threatened
proceeding involving any Employee Benefit Plan before the IRS, the United States
Department of Labor or any other Governmental Authority.
(f) Except as set forth on SCHEDULE 3.18(f), each Benefit Plan
has at all times prior hereto been maintained in all material respects, by its
terms and in operation, in accordance with ERISA and the Code, including, but
not limited to, all applicable reporting and disclosure requirements. Trans
Mart and each ERISA Affiliate have made full and timely payment of all amounts
required to be contributed under the terms of each Benefit Plan and Applicable
Law or required to be paid as expenses under such Benefit Plan, and Trans Mart
and each ERISA Affiliate shall continue to do so through the Closing.
(g) With respect to any Group Health Plans maintained by Trans
Mart or its ERISA Affiliate, whether or not for the benefit of Trans Mart and
its ERISA Affiliate, Trans Mart and its ERISA Affiliates have complied in all
material respects with the provisions of Part 6 of Title I of ERISA and
Section 4980B of the Code. Trans Mart is not obligated to provide health care
benefits of any kind to its retired employees pursuant to any Employee Benefit
Plan, including, without limitation, any Group Health Plan, or pursuant to any
agreement or understanding.
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3.19 LABOR AND EMPLOYMENT MATTERS.
(a) Except as set forth on SCHEDULE 3.19, no collective
bargaining agreement exists that is binding on Trans Mart and, except as
described on SCHEDULE 3.19, no petition has been filed or proceedings instituted
by an employee or group of employees with any labor relations board seeking
recognition of a bargaining representative. SCHEDULE 3.19 describes any
organizational effort currently being made or, to the Knowledge of Trans Mart or
Shareholders, threatened by or on behalf of any labor union to organize any
employees of Trans Mart.
(b) Except as set forth on SCHEDULE 3.19, (i) there is no labor
strike, dispute, slow down or stoppage pending or, to the Knowledge of Trans
Mart or Shareholders, threatened against or directly affecting the Business,
(ii) no grievance or arbitration proceeding arising out of or under any
collective bargaining agreement is pending, and no claims therefor exist; and
(iii) neither Trans Mart nor Shareholders, nor any of their Affiliates has
received any notice or has any Knowledge of any threatened labor or civil rights
dispute, controversy or grievance or any other unfair labor practice proceeding
or breach of contract claim or action with respect to claims of, or obligations
to, any employee or group of employees of Trans Mart.
(c) Trans Mart has complied and is currently complying, in all
material respects, in respect of all employees of Trans Mart, with all
Applicable Laws respecting employment and employment practices and the
protection of the health and safety of employees, from whatever source such law
may be derived, including, without limitation, statutes, ordinances, laws,
rules, regulations, policies, standards, judicial or administrative precedents,
judgments, orders, decrees, awards, citations, licenses, official
interpretations and guidelines. Except as set forth on SCHEDULE 3.19, since
January 1, 1994 Trans Mart has not received any citation or other notification
for the violation of occupational and health safety laws or regulations.
(d) All individuals who are performing or have performed
services for Trans Mart and are or were classified by Trans Mart as "independent
contractors" qualify for such classification under Section 530 of the Revenue
Act of 1978 or Section 1706 of the Tax Reform Act of 1986, as applicable, except
for such instances which are not, in the aggregate, material.
3.20 INTELLECTUAL PROPERTY.
(a) SCHEDULE 3.20(a) sets forth a complete and correct list of
each patent, patent application and docketed invention, trademark, trade name,
trademark or tradename registration or application, copyright or copyright
registration or application for copyright registration, and each license or
licensing agreement for any of the foregoing relating to the Business or held by
Trans Mart (the "Intellectual Property Rights").
(b) Except as disclosed in SCHEDULE 3.20(b), Trans Mart has not
during the three years preceding the date of this Agreement been a party to any
Proceeding nor, to the Knowledge of Trans Mart or Shareholders, is any
Proceeding threatened as to which there is a
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reasonable possibility of a determination adverse to Trans Mart that involved
or may involve a claim of infringement by any Person (including any
Governmental Authority) of any Intellectual Property Right. Except as
disclosed in SCHEDULE 3.20(b), no Intellectual Property Right is subject to
any outstanding order, judgment, decree, stipulation or agreement restricting
the use thereof by Trans Mart, or restricting the licensing thereof by Trans
Mart to any Person. The use of the Intellectual Property Rights does not
conflict with, infringe upon or violate any patent, patent license, patent
application, trademark, tradename, trademark or tradename registration,
copyright, copyright registration, service mark, brand mark or brand name or
any pending application relating thereto, or any trade secret, know-how,
programs or processes, or any similar rights, of any Person.
(c) Except as set forth in SCHEDULE 3.20(c), Trans Mart either
owns the entire right, title and interest in, to and under, or has acquired in
connection with the acquisition of Equipment or Inventory an implied license to
use, any and all inventions, processes, computer programs, know-how, formulae,
trade secrets, patents, chip designs, mask works, trademarks, tradenames, brand
names and copyrights that are necessary for the conduct of the Business in the
manner that the Business has heretofore been conducted. No other inventions,
processes, computer programs, know-how, formulae, trade secrets, patents, chip
designs, mask works, trademarks, tradenames, brand names, copyrights, licenses
or applications for any of the foregoing are necessary for the unimpaired
continued operation of the Business in the manner that the Business has
heretofore been conducted.
3.21 ADVISORY FEES. Except for Niederhoffer, Henkel & Co. L.L.C.
(whose fees and expenses will be paid by Shareholders), there is no investment
banker, broker, finder or other intermediary or advisor that has been retained
by or is authorized to act on behalf of Trans Mart, Shareholders or their
Affiliates who might be entitled to any fee, commission or reimbursement of
expenses from Buyer or any of its Affiliates or any of their respective
Associates upon consummation of the transactions contemplated by this Agreement.
3.22 ENVIRONMENTAL COMPLIANCE.
(a) Except as disclosed in SCHEDULE 3.22(a), Trans Mart has
obtained all material approvals, authorizations, certificates, consents,
licenses, orders and permits or other similar authorizations of all Governmental
Authorities, or from any other Person, that are required under any Environmental
Law. SCHEDULE 3.22(a) sets forth all material permits, licenses and other
authorizations issued under any Environmental Law to Trans Mart.
(b) Except as disclosed in SCHEDULE 3.22(b), Trans Mart is in
compliance in all material respects with all terms and conditions of all
approvals, authorizations, certificates, consents, licenses, orders and permits
or other similar authorizations of all Governmental Authorities (and all other
Persons) required under all Environmental Laws and is also in compliance in all
respects with all other material limitations, restrictions, conditions,
standards, requirements, schedules and timetables required or imposed under all
Environmental Laws.
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(c) Except as disclosed in SCHEDULE 3.22(c), there are no past
or present events, conditions, circumstances, activities, practices, incidents,
actions, omissions or plans relating to or in any way affecting Trans Mart or
the Business that could reasonably be expected to prevent, or make more
expensive, continued compliance with any Environmental Law by Buyer or Trans
Mart after the Closing, or that may give rise to any Environmental Liability, or
otherwise form the basis of any claim, action, demand, suit, Proceeding,
hearing, study or investigation (i) under any Environmental Law, (ii) based on
or related to the manufacture, processing, distribution, use, treatment, storage
(including without limitation underground storage tanks), disposal, transport or
handling, or the emission, discharge, release or threatened release of any
Hazardous Substance, or (iii) resulting from exposure to workplace hazards.
3.23 INSURANCE.
(a) SCHEDULE 3.23 sets forth a complete and correct list of all
material insurance policies of any kind currently in force with respect to Trans
Mart (the "Insurance Policies"), including all "occurrence based" liability
policies regardless of the periods to which they relate. SCHEDULE 3.23 sets
forth for each Insurance Policy the type of coverage, the name of the insureds,
the insurer, the premium, the expiration date, the period to which it relates,
the deductibles and loss retention amounts and the amounts of coverage. No
cancellation or material amendment or increase of premiums is pending or, to the
Knowledge of Trans Mart or Shareholders, threatened with respect to any of the
Insurance Policies.
(b) No insurance company that issued any Insurance Policy, Board
of Fire Underwriters or similar body, or Governmental Authority has issued a
recommendation or requirement for any changes in the conduct of the Business or
any repairs or other work to be done on or with respect to any assets of Trans
Mart.
3.24 TAX MATTERS. Except as set forth on SCHEDULE 3.24:
(a) Trans Mart has timely filed all Tax Returns required to have
been filed by it, and has paid or accrued all Taxes due to any taxing authority
(whether or not shown on any Tax Return) with respect to all taxable periods
ending on or prior to the Closing Date, or otherwise attributable to all periods
prior to the Closing Date; and all such Tax Returns are true, correct and
complete in all material respects. Trans Mart is not currently the beneficiary
of any extension of time within which to file any Tax Return.
(b) Trans Mart has not received notice that the IRS or any other
taxing authority has asserted against Trans Mart any deficiency in Taxes or
claim for additional Taxes in connection with any tax period. Except for liens
arising from Taxes which are due but not yet payable, there are no liens for
Taxes on any of Trans Mart's assets.
(c) Trans Mart is not a party to an agreement extending the time
within which to file any Tax Return or extending the statute of limitations for
any period with respect to any Tax to which Trans Mart may be subject. No claim
has ever been made by any
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Taxing Authority in a jurisdiction in which Trans Mart does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.
(d) Trans Mart has withheld or collected and paid over all Taxes
required to have been withheld or collected and paid over in connection with
amounts or paid or owing to, or received from, any employee, independent
contractor, creditor, stockholder, or other Person;
(e) Trans Mart has not been included in any consolidated,
combined or unitary Tax Return provided for under the laws of the United States,
any state or locality with respect to Taxes for any taxable period for which the
statute of limitations has not expired.
(f) Trans Mart has not made any payments, is not obligated to
make any payments, and is not a party to any agreement that under certain
circumstances could require it to make any payments, that are not deductible
under Section 280G of the Code.
(g) None of the assets of Trans Mart constitutes tax-exempt bond
financed property or tax-exempt use property, with the meaning of Section 168 of
the Code. Trans Mart is not a party to any "safe harbor lease" that is subject
to the provisions of Section 168(f)(8) of the Internal Revenue Code as in effect
prior to the Tax Reform Act of 1986.
(h) Trans Mart is not a party to any joint venture, partnership
or other arrangement that is treated as a partnership for federal income Tax
purposes.
(i) Trans Mart does not have any liability for Taxes of any
person (1) under Section 1.1502-6 of the Treasury Regulations (or any similar
provision of state, local or foreign law), (2) as a transferee or successor, (3)
by contract or (4) otherwise.
(j) Trans Mart is not a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during any
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(k) Trans Mart made and continues to have in effect a valid and
timely election to be treated as an "S corporation" under Section 1361 ET. SEQ.
of the Code (and any corresponding provisions of all applicable state and local
income tax laws) for all taxable years beginning on and after January 1, 1991
(which is the date Trans Mart elected to be treated as an S corporation), and
Trans Mart will be treated as an S corporation under the Code and all such state
and local tax laws for all taxable years or portions thereof ending on or prior
to the Closing Date.
(l) Trans Mart does not have any unpaid liability for Taxes
under Sections 1363(d), 1374, or 1375 of the Code (or any successor or
predecessor provision) or any similar provision of state or local law for any
period on or prior to or including the Closing Date, except for any such
liability as may arise as a result of the consummation of the transactions
contemplated by this Agreement.
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3.25 LONG-TERM DEBT. Except as set forth on SCHEDULE 3.25, Trans Mart
has, and as of the Closing Date will have, no debt with a stated maturity of 12
months or longer.
3.26 MATERIAL DISCLOSURES. No statement, representation or warranty
made by Trans Mart or Shareholders in this Agreement or in any certificate,
statement, list, schedule or other document furnished or to be furnished to
Buyer hereunder contains, or when so furnished will contain, any untrue
statement of a material fact, or fails to state, or when so furnished will fail
to state, a material fact necessary to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
Matters disclosed on one or more schedules attached hereto and made a part
hereof shall be deemed to have been disclosed on each and every relevant
schedule to the extent necessary to make any other statement, representation or
warranty contained herein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND ATC
As an inducement to Shareholders and Trans Mart to enter into this
Agreement and to consummate the transactions contemplated herein, Buyer and ATC
hereby represent and warrant to Shareholders and Trans Mart that:
4.01 ORGANIZATION AND EXISTENCE. Each of Buyer and ATC is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all corporate power and authority to enter
into this Agreement and consummate the transactions contemplated hereby. Each
of Buyer and ATC is duly qualified to do business as a foreign corporation in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary to carry on its
business as now conducted, except for those jurisdictions where the failure to
be so qualified has not been, and may not reasonably be expected to be,
material.
4.02 CORPORATE AUTHORIZATION. The execution, delivery and performance
by Buyer and ATC of this Agreement and the consummation by Buyer and ATC of the
transactions contemplated hereby are within the corporate powers of Buyer and
ATC and have been duly authorized by all necessary corporate action. This
Agreement constitutes a legal, valid and binding agreement of each of Buyer and
ATC, enforceable against each of them in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally and subject to general
principles of equity.
4.03 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Buyer and ATC of this Agreement require no action by, consent or
approval of, or filing with, any Governmental Authority other than as set forth
in this Agreement.
4.04 NON-CONTRAVENTION. The execution, delivery and performance by
Buyer and ATC of this Agreement does not (a) contravene or conflict with the
Certificate of Incorporation or Bylaws of Buyer or ATC, or (b) assuming
compliance with the matters referred
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to in Section 4.03, contravene or conflict with or constitute a violation of
any provision of any Applicable Law binding upon or applicable to Buyer or
ATC.
4.05 ADVISORY FEES. There is no investment banker, broker, finder or
other intermediary or advisor that has been retained by or is authorized to act
on behalf of Buyer who might be entitled to any fee, commission or reimbursement
of expenses from Trans Mart or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
4.06 LITIGATION. There is no Proceeding pending against, or to the
Knowledge of Buyer or ATC, threatened against or affecting, Buyer or ATC before
any court or arbitrators or any governmental body, agency or official that in
any matter challenges or seeks to prevent, enjoin, alter or materially delay the
transactions contemplated by this Agreement.
ARTICLE V
COVENANTS OF SHAREHOLDERS AND TRANS MART
5.01 CONDUCT OF THE BUSINESS; DISTRIBUTIONS. From the date hereof
until the Closing Date, Trans Mart shall, and Shareholders shall cause Trans
Mart to, conduct the Business in the ordinary course and in substantially in the
same manner as it has prior to the date of this Agreement and agrees, other than
in the ordinary course of business, not to enter into any material agreements or
take any other significant actions without the prior written consent of Buyer,
which shall not be unreasonably withheld. Trans Mart shall use its reasonable
efforts to preserve intact the Business and the business organizations and
relationships and goodwill of Trans Mart with third parties and keep available
the services of the present officers, employees, agents and other personnel of
Trans Mart. Without limiting the generality of the foregoing and except as
otherwise expressly provided in this Agreement, from the date hereof until the
Closing Date:
(a) Trans Mart will, and Shareholders will cause Trans Mart to:
(i) (A) maintain the assets of Trans Mart in the ordinary
course of business consistent with past practice in operating order and
condition, reasonable wear and tear excepted, (B) promptly repair, restore or
replace any assets of Trans Mart in the ordinary course of business consistent
with past practice, (C) upon any damage, destruction or loss to any of the
assets of Trans Mart, apply any and all insurance proceeds received with respect
thereto to the prompt repair, replacement and restoration thereof to the
condition of the assets of Trans Mart before such event or set such proceeds
aside for application by Trans Mart after the Closing, (D) use its best efforts
to obtain, prior to the Closing Date, all Required Consents, and (E) take all
actions necessary to be in compliance with, and to maintain the effectiveness
of, all material Permits;
(ii) comply with all material Applicable Laws;
(iii) promptly notify Buyer in writing of (A) any
action, event, condition or circumstance, or group of actions, events,
conditions or circumstances, that results
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in, or could reasonably be expected to result in, a Material Adverse Effect,
other than changes in general economic conditions, (B) the commencement of
any Proceeding by or against Trans Mart or Shareholders, or Trans Mart or
Shareholders becoming aware of any threat, claim, action, suit, inquiry,
proceeding, notice of violation, demand letter, subpoena, government audit or
disallowance that could reasonably be expected to result in a Proceeding, and
(C) the occurrence of any breach by Trans Mart or Shareholders of any
representation or warranty, or any covenant or agreement, contained in this
Agreement.
(b) without Buyer's prior consent, Trans Mart will not, and
Shareholders shall not permit Trans Mart to, do any of the following and will
not agree to:
(i) purchase or otherwise acquire assets from any other
Person other than in the ordinary course of business;
(ii) sell, assign, lease, license, transfer or otherwise
dispose of, or mortgage, pledge or encumber (other than with Permitted Liens),
any of the assets of Trans Mart, including Leased Real Property, except in the
ordinary course of business;
(iii) enter any agreement or arrangement that requires
or allows payment, acceleration of payment or incurrence of Liabilities, or the
rendering of services by Trans Mart outside the ordinary course of business;
(iv) amend or modify in any material respect or terminate
any Scheduled Contract or any other Contract entered into by Trans Mart after
the date hereof which, if in existence on the date hereof, would be required to
be set forth in the SCHEDULE 3.15(a) as a Scheduled Contract (each, a
"Subsequent Material Contract");
(v) make or commit to make any capital expenditure, or
group of related capital expenditures, in excess of $10,000, other than
(A) capital expenditures set forth on SCHEDULE 5.01(b)(v) and (B) capital
expenditures expressly required under any Scheduled Contract;
(vi) enter into or commit or propose to enter into any
Subsequent Material Contract;
(vii) except as set forth on SCHEDULE 5.01(b)(vii), make
any distribution, dividend, bonus or other payment to any officer, director,
stockholder or Affiliate of Trans Mart or any of their respective Affiliates or
Associates except for (A) salary, benefit or lease payments in the ordinary
course and due or to become due under arrangements in existence prior to
December 31, 1996 and (B) dividends to Shareholders that do not exceed, in the
aggregate, the Distributable Earnings;
(viii) (A) create, incur, assume, or guarantee any
indebtedness for borrowed money or (B) incur any Liability relating to a
documentary or standby letter of credit, other than in the ordinary course of
business where the aggregate dollar amount of all of the foregoing does not
exceed $10,000;
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(ix) (A) increase the rate or terms of compensation payable
or to become payable to its employees except in the ordinary course of business,
(B) pay or agree to pay any pension, retirement allowance or other employee
benefit not provided for by any Employee Plan, Benefit Arrangement or Employment
Agreement set forth in the Schedules hereto, (C) commit itself to any additional
pension, profit sharing, bonus, incentive, deferred compensation, stock
purchase, stock option, stock appreciation right, group insurance, severance
pay, continuation pay, termination pay, retirement or other employee benefit
plan, agreement or arrangement, or increase the rate or terms of any Employee
Plan or Benefit Arrangement, (D) enter into any employment agreement with or for
the benefit of any Person, or (E) increase the rate of compensation under or
otherwise change the terms of any Employment Agreement set forth in
SCHEDULE 3.15(a);
(x) repay any Long-Term Debt other than scheduled payments
that are required to be made during such period so as not to be in default with
respect to such Long-Term Debt; and
(xi) issue or sell any (A) shares of capital stock of Trans
Mart, (B) options, warrants or other rights to purchase from Trans Mart shares
of its capital stock, (C) securities convertible into or exchangeable for shares
of its capital stock or (D) any other commitments of any kind for the issuance
or sale of additional shares of capital stock or options, warrants or other
securities of Trans Mart.
5.02 ACCESS TO INFORMATION. Subject to compliance with Applicable
Laws, from the date hereof until the Closing Date, Trans Mart will, and
Shareholders will cause Trans Mart to, and Shareholders will, promptly:
(a) give Buyer and its counsel, financial advisors, auditors and other
authorized representatives reasonable access to the offices, properties, books
and records relating to Trans Mart or the Business upon reasonable prior notice,
(b) furnish to Buyer and its counsel, financial advisors, auditors and other
authorized representatives such information relating to Trans Mart or the
Business as Buyer may reasonably request and (c) instruct the directors,
officers, employees, counsel, auditors and financial advisors of Trans Mart and
Shareholders to cooperate with Buyer and its counsel, financial advisors,
auditors and other authorized representatives in their investigation of Trans
Mart and the Business. Such investigation shall include, but shall not be
limited to:
(i) A business and financial performance review of the Business;
(ii) A review of the financial statements and tax returns of Trans
Mart;
(iii) An environmental review as to the presence and nature of any
Hazardous Substance in or on any real property owned or leased by Trans
Mart; and
(iv) A standard legal due diligence examination relating to Trans Mart
and the Business.
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5.03 COMPLIANCE WITH TERMS OF REQUIRED GOVERNMENTAL APPROVALS AND
REQUIRED CONTRACTUAL CONSENTS. On and after the Closing Date, Shareholders
shall comply at their own expense with all conditions and requirements affecting
Trans Mart set forth in (a) all Required Governmental Approvals as necessary to
keep the same in full force and effect assuming continued compliance with the
terms thereof by Buyer and Trans Mart and (b) all Required Contractual Consents
as necessary to keep the same effective and enforceable against the Persons
giving such Required Contractual Consents assuming continued compliance with the
terms thereof by Buyer and Trans Mart.
5.04 MAINTENANCE OF INSURANCE POLICIES. Between the date hereof and
the Closing Date, Trans Mart shall not, and Shareholders shall cause Trans Mart
to not, take or fail to take any action if such action or inaction, as the case
may be, would adversely affect the applicability of any insurance in effect on
the date hereof that covers all or any part of the assets of Trans Mart or the
Business with respect to the period of time ending on the Closing Date.
5.05 CONFIDENTIALITY.
(a) Trans Mart and Shareholders will, and will cause their
representatives to, treat any data and information obtained with respect to
Buyer or any of its Affiliates from any representative, officer, director, or
employee of Buyer, or from any books or records of Buyer in connection with this
Agreement, confidentially and with commercially reasonable care and discretion,
and will not disclose any such information to third parties; PROVIDED, HOWEVER,
that the foregoing shall not apply to (i) information in the public domain or
that becomes public through disclosure by any party other than Trans Mart,
Shareholders or their Affiliates or representatives, so long as such other party
is not in breach of a confidentiality obligation, (ii) information available to
Trans Mart or Shareholders on a non-confidential basis prior to its disclosure
pursuant to this Agreement, (iii) information that is required to be disclosed
by Applicable Law, (iv) information required to be disclosed to obtain any
Required Consents, or (v) any disclosure of such information in litigation
between the parties hereto in the course of such litigation.
(b) In the event that the Closing fails to take place and this
Agreement is terminated, Trans Mart and Shareholders, upon the written request
of Buyer, will, and will cause their representatives to, promptly deliver to
Buyer any and all documents or other materials furnished by Buyer or any of its
Affiliates to Trans Mart or Shareholders in connection with this Agreement
without retaining any copy thereof. In the event of such request, all other
documents, whether analyses, compilations or studies, that contain or otherwise
reflect the information furnished by Buyer to Trans Mart or Shareholders shall
be destroyed by Trans Mart and Shareholders or shall be turned over to Buyer,
and Trans Mart and Shareholders shall confirm to Buyer in writing that all such
materials have been turned over or destroyed. No failure or delay by Buyer in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any right, power or privilege
hereunder.
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(c) The parties hereto recognize and agree that in the event of
a breach of this Section 5.05, money damages would not be an adequate remedy to
Buyer or its Affiliates for such breach and, even if money damages were
adequate, it would be impossible to ascertain or measure with any degree of
accuracy the damages sustained therefrom. Accordingly, if there should be a
breach or threatened breach of this Section 5.05, Buyer and its Affiliates shall
be entitled to an injunction restraining Trans Mart and Shareholders from any
breach without showing or proving actual damage sustained by Buyer or its
Affiliates, as the case may be. Nothing in the preceding sentence shall limit
or otherwise affect any remedies that Buyer and its Affiliates may otherwise
have under Applicable Law.
5.06 TRANSACTIONS AFFECTING THE SHARES. From the date hereof until
the Closing Date, Shareholders will:
(a) take all action necessary so that the Share Encumbrances set
forth in SCHEDULE 3.01(a) are eliminated prior to the Closing Date; and
(b) not (whether voluntarily or involuntarily (except in the
case of the death of a Stockholder, in which case this Agreement shall be
binding on and inure to the benefit of the estate of such Stockholder), and
whether currently or prospectively) sell, transfer or otherwise dispose of any
of the Shares, or create (or permit the creation of) any Share Encumbrance on
any of the Shares.
5.07 ISSUANCE OF DIVIDEND NOTE. Immediately prior to the Closing,
Trans Mart shall declare and pay a dividend to Stockholders in an aggregate
amount equal to the Distributable Earnings minus the amount of any cash
distributions previously made pursuant to Section 5.01(b)(vii). The dividend
shall be paid by delivering promissory notes in the form attached hereto as
EXHIBIT D to Stockholders.
ARTICLE VI
COVENANTS OF BUYER AND ATC
6.01 CONFIDENTIALITY.
(a) Buyer and ATC will, and will cause their representatives to,
treat any data and information obtained with respect to Trans Mart or
Shareholders from any representative, officer, director or employee of Trans
Mart or Shareholders, or from any books or records of Trans Mart or Shareholders
in connection with this Agreement, confidentially and with commercially
reasonable care and discretion, and will not disclose any such information to
third parties; PROVIDED, HOWEVER, that the foregoing shall not apply to
(i) information in the public domain or that becomes public through disclosure
by any party other than Buyer or its Affiliates or representatives, so long as
such other party is not in breach of a confidentiality obligation,
(ii) information available to Buyer, its Affiliates or representatives on a non-
confidential basis prior to its disclosure pursuant to this
Agreement,(iii) information that is required to be disclosed by Applicable Law,
(iv) information required to be disclosed to obtain any Required Consents;
(v) any information that is disclosed by Buyer or its Affiliates to any of their
actual or
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prospective lenders in connection with financing the transactions
contemplated by this Agreement; or (vi) any information that is disclosed by
Buyer after the Closing shall have occurred; PROVIDED, HOWEVER, that in the
event the Closing has occurred, this Section 6.01(a) shall cease to be effective
with respect to any data and information obtained with respect to Trans Mart.
(b) In the event that the Closing fails to take place and this
Agreement is terminated, Buyer, upon the written request of Trans Mart, will,
and will cause their representatives to, promptly deliver to Trans Mart any and
all documents or other materials furnished by Trans Mart or Shareholders to
Buyer in connection with this Agreement without retaining any copy thereof. In
event of such request, all other documents, whether analyses, compilations or
studies, that contain or otherwise reflect the information furnished by Trans
Mart or Shareholders to Buyer shall be destroyed by Buyer or shall be turned
over to Trans Mart, and Buyer shall confirm to Trans Mart and Shareholders in
writing that all such materials have been turned over or destroyed. No failure
or delay by Trans Mart and Shareholders in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any right, power or privilege hereunder.
(c) The parties hereto recognize and agree that in the event of
a breach of this Section 6.01, money damages would not be an adequate remedy to
Trans Mart and Shareholders for such breach and, even if money damages were
adequate, it would be impossible to ascertain or measure with any degree of
accuracy the damages sustained by Trans Mart and Shareholders therefrom.
Accordingly, if there should be a breach or threatened breach of this
Section 6.01, Trans Mart and Shareholders shall be entitled to an injunction
restraining Buyer from any breach without showing or proving actual damage
sustained by Trans Mart and Shareholders. Nothing in the preceding sentence
shall limit or otherwise affect any remedies that Trans Mart and Shareholders
may otherwise have under Applicable Law.
6.02 ACCESS TO INFORMATION. Subject to compliance with Applicable
Laws, from the Closing Date until December 31, 2002, Trans Mart will, and Buyer
will cause Trans Mart to, and Buyer will, promptly: (a) furnish to Shareholders
and their counsel, financial advisors, auditors and other authorized
representatives such information relating to Trans Mart or the Business as
Shareholders may reasonably request in connection with the preparation of Tax
Returns and (b) instruct the directors, officers, employees, counsel, auditors
and financial advisors of Trans Mart and Buyer to cooperate in all reasonable
respects with Shareholders and their counsel, financial advisors, auditors and
other authorized representatives in connection with the preparation of Tax
Returns. After the Closing Date, in the event that Trans Mart intends to
destroy any documents that contain or otherwise reflect information in
connection with the Business for any period prior to the Closing Date, Trans
Mart will provide written notice to Shareholders of its intention to destroy
such documents and provide Shareholders with the opportunity to request that
such documents instead be delivered to Shareholders. Any information or
documents provided to Shareholders pursuant to this Section 6.02 shall be held
by Shareholders pursuant to Section 5.05.
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ARTICLE VII
COVENANTS OF ALL PARTIES
7.01 FURTHER ASSURANCES. Subject to the terms and conditions of this
Agreement, each party will use all reasonable efforts to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary or
desirable under Applicable Law to consummate the transactions contemplated by
this Agreement. Buyer, ATC, Trans Mart and Shareholders agree to execute and
deliver such other documents, certificates, agreements and other writings and to
take such other actions as may be reasonably necessary or desirable in order to
consummate or implement expeditiously the transactions contemplated by this
Agreement.
7.02 CERTAIN FILINGS. The parties hereto shall cooperate with one
another in determining whether any action by or in respect of, or filing with,
any Governmental Authority is required or reasonably appropriate, or any action,
consent, approval or waiver from any party to any Contract is required or
reasonably appropriate, in connection with the consummation of the transactions
contemplated by this Agreement. Subject to the terms and conditions of this
Agreement, in taking such actions or making any such filings, the parties hereto
shall furnish information required in connection therewith and seek timely to
obtain any such actions, consents, approvals or waivers. Without limiting the
foregoing, the parties hereto shall each promptly complete and file all reports
and forms, and respond to all requests or further requests for additional
information, if any, as may be required or authorized under the HSR Act.
7.03 PUBLIC ANNOUNCEMENTS. Up to (and including) the Closing Date, the
parties agree that they will not make any disclosure with respect to this
Agreement or the transactions contemplated hereby or cause to be publicized in
any manner whatsoever by way of interviews, responses to questions or inquiries,
press releases or otherwise any aspect of this Agreement or the transactions
contemplated hereby without prior written notice to and approval of the other
parties hereto, unless such party reasonably concludes that such release of
information is required by Applicable Law or Nasdaq regulations, and the parties
hereto cannot reach agreement upon a mutually acceptable form of release.
Notwithstanding the foregoing, the parties hereto may, on a confidential basis,
advise their respective agents, accountants, attorneys and financing sources
with respect to the contents of this Agreement and the transactions contemplated
hereby.
7.04 ADMINISTRATION OF ACCOUNTS. All payments and reimbursements
received by Shareholders after the Closing Date from any third party in the name
of or to Trans Mart shall be held by Shareholders in trust for the benefit of
Trans Mart and, immediately upon receipt by Shareholders of any such payment or
reimbursement, Shareholders shall pay, or cause to be paid, over to Trans Mart
the amount of such payment or reimbursement without right of set off.
7.05 TAXES AND SECTION 338(h)(10) ELECTION.
(a) All sales, value added, use, registration, stamp and similar
Taxes imposed in connection with the sale of the Shares shall be borne by Buyer
and all transfer and similar Taxes imposed in connection with the sale of the
Shares shall be borne by Shareholders.
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(b) (i) If Buyer, in Buyer's sole discretion, shall request,
Shareholders shall (A) join Buyer in making the election permitted to be made
under Section 338(h)(10) of the Code and any corresponding or similar provisions
of state or local law (the "Section 338(h)(10) Elections"), (B) cooperate with
Buyer to take all actions necessary to effect and preserve timely such Section
338(h)(10) Elections in accordance with Treasury Regulation Section 1.338(h)(10)
(and any comparable provisions of state and local law and any successor
provisions thereto) and (C) take no position inconsistent with treating the
purchase of the capital stock of Trans Mart as a Section 338(h)(10) Election.
Shareholders shall assist Buyer in the preparation of Form 8023-A and any
accompanying schedules required under Section 338(h)(10) of the Code and any
corresponding or similar provisions of state or local law and Shareholders agree
that Buyer may make any determination or election required or permitted to be
made in connection with the Section 338(h)(10) Elections. Shareholders shall
execute Form 8023-A and any accompanying schedules and such other documents or
forms at the Closing or at such other time as Buyer may request or as required
by the Code in order to effectuate the Section 338(h)(10) Elections. Buyer and
Shareholders shall file all Tax Returns in a manner consistent with the Section
338(h)(10) Elections, Form 8023-A and any accompanying schedules and such other
documents and forms as are requested by Buyer to effectuate the Section
338(h)(10) Elections.
(ii) Shareholders shall jointly and severally indemnify and
hold harmless Buyer and its Affiliates in respect of Damages resulting from the
Section 338(h)(10) Election being invalid or unavailable due to Trans Mart not
being treated as an "S corporation" under the Code.
(c) (i) Shareholders shall have the exclusive authority and
obligation and shall be responsible for the correct and timely filing of all
Tax Returns of Trans Mart with respect to income taxes imposed by the Federal
government or any state or political subdivision thereof for all periods
ending on or prior to the Closing Date, and, after the Closing Date, Trans
Mart shall, and Buyer shall cause Trans Mart to, provide reasonable access to
such books and records of Trans Mart as necessary to prepare such Tax Returns
which may be reviewed and copied at Shareholders' sole expense. Such
authority shall include, but not be limited to, the determination of the
manner in which any items of income, gain, deduction, loss or credit arising
out of the income, properties and operations of Trans Mart shall be reported
or disclosed on such Tax Returns; PROVIDED, HOWEVER, that Shareholders shall
provide Buyer with draft Tax Returns of Trans Mart with respect to income
taxes imposed by the Federal government or any state or any political
subdivision thereof for the short taxable year ending on the Closing Date at
least 20 days prior to the due date for filing such Tax Returns. In the
event Buyer has any objection to any items set forth on such draft Tax
Returns, Buyer and Shareholders agree to consult and resolve in good faith
any such objections, it being understood and agreed that in the absence of
any such resolution, any and all such objections shall be resolved in a
manner substantially consistent with the past practices with respect to such
items.
(ii) Buyer shall have the exclusive authority and obligation
and shall be responsible for the correct and timely filing of all Tax Returns of
Trans Mart for any taxable period beginning after the Closing Date. Such
authority shall include, but not be limited
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to, the determination of the manner in which any items of income, gain,
deduction, loss or credit arising out of the income, properties and
operations of Trans Mart shall be reported or disclosed on such Tax Returns.
(d) (i) After giving effect to all payments in respect thereof
which have been made or accrued (to the extent that such accrued Taxes arise in
the ordinary course of business and are not income Taxes) prior to the Closing
Date, Shareholders shall be responsible and liable for the timely payment of any
unpaid Taxes imposed on or with respect to the properties, income and operations
of Trans Mart for all periods ending on or prior to the Closing Date, except any
Tax arising under Section 1374 of the Code.
(ii) Buyer shall be responsible and liable for the timely
payment of all Taxes imposed on or with respect to the properties, income and
operations of Trans Mart for all periods beginning after the Closing Date.
(e) (i) Shareholders, at their sole expense, shall have the
exclusive authority to represent Trans Mart before any taxing authority or any
court regarding the Tax consequences of the operations of Trans Mart for all
periods ending on or prior to the Closing Date; PROVIDED, HOWEVER, that
Shareholders shall not enter into any settlement of any contest or otherwise
compromise any issue that affects or may affect the Tax Liability of Trans Mart
for any period beginning after the Closing Date without the prior written
consent of Buyer, which shall not be unreasonably withheld. Shareholders shall
keep Buyer fully and timely informed with respect to the commencement, status
and nature of any administrative or judicial proceedings involving any Tax
Liability of Trans Mart for all taxable periods.
(ii) Except as provided in Section 7.05(e)(i), Buyer shall
have the sole right to control any audit or examination by any taxing authority,
initiate any claim for refund or amend any Tax Return, and contest, resolve and
defend against any assessment for additional Taxes, notice of Tax deficiency or
other adjustment of Taxes of, or relating to, Trans Mart; PROVIDED, HOWEVER,
that with respect to any audit or examination by any taxing authority regarding
the Tax consequences of the operations of Trans Mart for all periods ending on
or prior to the Closing Date, Trans Mart shall, and Buyer shall cause Trans Mart
to, notify Shareholders thereof and keep them reasonably informed, and PROVIDED
FURTHER, that Buyer shall not enter into any settlement of any contest or
otherwise compromise any issue that affects or may affect the Tax Liability of
Trans Mart or Shareholders for any period ending prior to the Closing Date
without the prior written consent of Shareholders, which shall not be
unreasonably withheld.
7.06 LEASES.
(a) At the Closing, Shareholders will cause J&G Rental, as
lessor, to enter into leases in the form of EXHIBIT E hereto with Trans Mart, as
lessee, for those locations of Leased Real Property listed on SCHEDULE 7.06 and
the lease previously in effect with respect to each such location shall
terminate as of the Closing Date. The monthly rental rate for each scheduled
location shall be equal to the "market rate" as established by a MAI appraiser
selected by the mutual agreement of Shareholders and Buyer and having experience
in appraising properties in the area of the location in question. The appraiser
may not be Associated With
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Trans Mart, either Shareholder, Buyer or ATC. The fee of the appraiser shall
be shared equally by Buyer on the one hand and Shareholders on the other.
(b) The lease in effect with respect to each location of Leased
Real Property that is not listed on SCHEDULE 7.06, other than the lease with
respect to Trans Mart's Jacksonville, Florida and Las Vegas, Nevada facilities,
shall remain in effect until, and shall terminate on, the later of (i) the date
after the Closing Date on which Trans Mart completes the removal of all of its
assets from such location or (ii) 60 days after the Closing Date.
(c) The lease in effect with respect to Trans Mart's
Jacksonville, Florida and Las Vegas, Nevada facilities shall remain in effect
after the Closing Date pursuant to its terms.
7.07 TRANSSHOP MANAGEMENT SYSTEM, INC. Shareholders shall take all
actions necessary to cause TransShop Management System, Inc. to be a wholly
owned subsidiary of Trans Mart on the Closing Date free of all Share
Encumbrances. Prior to the Closing, ATC and Shareholders shall use their
reasonable best efforts to negotiate the terms of an agreement pursuant to which
ATC will pay a royalty to Shareholders for a period of time after the Closing
based on distribution of the software package currently being developed by
TransShop Management System, Inc.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01 CONDITIONS TO OBLIGATION OF BUYER AND ATC. The obligation of
Buyer and ATC to consummate the transactions contemplated hereby is subject to
the satisfaction of each of the following conditions:
(a) (i) Trans Mart and Shareholders shall each have performed
and satisfied in all material respects each of their material obligations
hereunder required to be performed and satisfied by any of them on or prior to
the Closing Date, (ii) subject to Section 8.03, each of the representations and
warranties of Trans Mart and Shareholders contained in this Agreement shall have
been true and correct in all material respects when made and shall contain no
misstatement or omission that would make any such representation or warranty
materially misleading when made and shall be true and correct in all material
respects, and shall not contain any misstatement or omission that would make any
such representation or warranty materially misleading, at and as of the Closing
Date with the same force and effect as if made as of the Closing Date and
(iii) Buyer shall have received certificates signed by Shareholders and a duly
authorized executive officer of Trans Mart to the foregoing effect and to the
effect that the conditions specified within this Section 8.01 have been
satisfied.
(b) All Required Consents (including such consents as are
required under Subsequent Material Contracts) shall have been obtained without
the imposition of any conditions that are or would become applicable to Trans
Mart, the Business, the Shares, Buyer or any of its Affiliates after the Closing
that Buyer in good faith reasonably determines would be
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materially burdensome upon Trans Mart, the Business, the Shares, Buyer or any
of its Affiliates or their respective businesses substantially as such
businesses have been conducted prior to the Closing Date. All such Required
Consents shall be in effect, and no Proceedings shall have been instituted or
threatened by any Governmental Authority with respect thereto as to which, in
Buyer's good faith opinion, there is a material risk of a determination that
would terminate the effectiveness of, or otherwise materially and adversely
modify the terms of, any such Required Consent; all applicable waiting
periods with respect to such Required Consents shall have expired; and all
conditions and requirements prescribed by Applicable Law or by such Required
Consents to be satisfied on or prior to the Closing Date shall have been
satisfied to the extent necessary such that all such Required Consents are,
and will remain, in full force and effect assuming continued compliance with
the terms thereof after the Closing.
(c) The transactions contemplated by this Agreement and the
consummation of the Closing shall not violate any Applicable Law. No temporary
restraining order, preliminary or permanent injunction, cease and desist order
or other order issued by any court of competent jurisdiction or any competent
Governmental Authority or any other legal restraint or prohibition preventing
the transfer and exchange contemplated hereby or the consummation of the
Closing, or imposing Damages in respect thereto, shall be in effect, and there
shall be no pending or threatened actions or proceedings by any Governmental
Authority (or determinations by any Governmental Authority) or by any other
Person (i) challenging or in any manner seeking to restrict or prohibit the
transfer and exchange contemplated hereby or the consummation of the Closing, or
to impose conditions that Buyer in good faith determines would be materially
burdensome upon Trans Mart, the Business, the Shares, Buyer or any of its
Affiliates or their respective businesses substantially as such businesses have
been conducted prior to the Closing Date or as such businesses, as of the date
hereof, would be reasonably expected to be conducted after the Closing Date.
(d) Since the date hereof, there shall not have been any event,
occurrence, development or state of circumstances or facts or change in Trans
Mart or the Business (including any damage, destruction or other casualty loss,
but excluding any event, occurrence, development or state of circumstances or
facts or change resulting from changes in general economic conditions) affecting
Trans Mart or the Business that has had or that may be reasonably expected to
have, either alone or together with all such events, occurrences, developments,
states of circumstances or facts or changes, a Material Adverse Effect.
(e) Each Shareholder shall have executed and delivered to Buyer
a Noncompetition Agreement in the form of EXHIBIT F hereto.
(f) GAG shall have executed and delivered to Buyer an Employment
Agreement in the form of EXHIBIT G hereto.
(g) JEH shall have executed and delivered to Buyer an Employment
Agreement in the form of EXHIBIT G hereto.
(h) Buyer shall have received an opinion of Timothy K. Corley,
Esq. in a form reasonably acceptable to Buyer.
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(i) J&G Rental, as lessor, shall have executed and delivered to
Trans Mart the lease agreements called for by Section 7.06(a).
(j) As of the Closing Date, there shall exist no Liens on any
assets of Trans Mart, other than Permitted Liens, nor any Share Encumbrances.
(k) Buyer shall have completed its customary due diligence as
contemplated by Section 5.02(c) and Buyer shall be satisfied, in its sole
discretion, with both the quantity and the substance of the information provided
to it.
(l) This Agreement and the transactions contemplated hereby
shall have been approved by the Boards of Directors of Buyer and ATC.
(m) ATC has received all appropriate and/or required approvals
from its commercial bank lenders so that Buyer can pay the purchase price for
the Shares with borrowings under ATC's existing line of credit.
8.02 CONDITIONS TO OBLIGATION OF SHAREHOLDERS. The obligation of
Shareholders to consummate the transactions contemplated hereby is subject to
the satisfaction of each of the following conditions:
(a) (i) Buyer shall have performed and satisfied in all material
respects each of its material obligations hereunder required to be performed and
satisfied by it on or prior to the Closing Date, and the aggregate effect of all
failures to perform or satisfy all obligations of Buyer on or prior to the
Closing Date shall not be materially adverse to Shareholders; (ii) the
representations and warranties of Buyer contained in this Agreement shall be
true, complete and accurate in all material respects at and as of the Closing
Date, as if made at and as of such date and (iii) Shareholders shall have
received a certificate signed by a duly authorized executive officer of Buyer to
the foregoing effect and to the effect that to such officer's Knowledge the
conditions specified within this Section 8.02 have been satisfied.
(b) All material Required Consents (including such consents as
are required under Subsequent Material Contracts) for the transactions
contemplated by this Agreement shall have been obtained without the imposition
of any conditions that are or would become applicable to Shareholders or any of
their respective Affiliates after the Closing that Shareholders in good faith
reasonably determine would be materially burdensome upon such Person. All such
Required Consents that relate to Shareholders' sale of the Shares shall be in
effect, and no Proceedings shall have been instituted or threatened by any
Governmental Authority with respect thereto as to which, in Shareholders' good
faith opinion, there is a material risk of a determination that would terminate
the effectiveness of, or otherwise materially and adversely modify the terms of,
any such Required Consent. All applicable waiting periods with respect to such
Required Consents shall have expired, and all conditions and requirements
prescribed by Applicable Law or by such Required Consents to be satisfied on or
prior to the Closing Date shall have been satisfied to the extent necessary such
that all such Required Consents are, and will remain, in full force and effect
assuming continued compliance with the terms thereof after the Closing.
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(c) The sale and transfer contemplated by this Agreement and the
consummation of the Closing shall not violate any Applicable Law. No temporary
restraining order, preliminary or permanent injunction, cease and desist order
or other order issued by any court of competent jurisdiction or any competent
Governmental Authority or any other legal restraint or prohibition preventing
the transfer and exchange contemplated hereby or the consummation of the
Closing, or imposing Damages in respect thereto, shall be in effect, and there
shall be no pending or threatened actions or proceedings by any Governmental
Authority (or determinations by any Governmental Authority) or by any other
Person challenging or in any manner seeking to restrict or prohibit the transfer
and exchange contemplated hereby or the consummation of the Closing.
(d) Shareholders shall have received an opinion of Joseph
Salamunovich, Esq. in a form reasonably acceptable to Shareholders.
(e) Buyer shall have executed and delivered to GAG an Employment
Agreement in the form of EXHIBIT G hereto.
(f) Buyer shall have executed and delivered to JEH an Employment
Agreement in the form of EXHIBIT G hereto.
(g) Trans Mart, as lessee, shall have executed and delivered to
J&G Rental the lease agreements called for by Section 7.06(a).
(h) ATC shall have executed and delivered to Shareholders the
royalty agreement called for by Section 7.07.
8.03 EXCEPTION TO CONDITIONS TO OBLIGATION OF BUYER.
(a) With respect to Buyer's obligation to consummate the
transactions contemplated hereby, the condition set forth in Section 8.01(a)(ii)
shall be deemed satisfied notwithstanding any failure of any representation or
warranty of Trans Mart or Shareholders to be true and correct as of the Closing
Date if (i) the aggregate amount of Damages that could reasonably be expected to
arise as a result of such failures would not exceed $3,000,000 and
(ii) Shareholders provide the escrow referred to in Section 8.03(c).
(b) At the Closing, Buyer shall provide to Shareholders a
written statement (the "Section 8.03 Statement") setting forth any
representation or warranty of Trans Mart or Shareholders that Buyer believes to
have been breached as of the Closing Date, and either (i) Buyer's good faith
estimate of the amount of Damages that Buyer believes will result therefrom or
(ii) Buyer's waiver of such breach. The delivery of the Section 8.03 Statement
and Buyer's consummation of the transactions contemplated hereby notwithstanding
the breach or breaches asserted in the Section 8.03 Statement shall not
adversely affect the right of any Buyer Indemnitee to indemnification under
Section 9.01(a) after the Closing Date with respect to (x) the breach of any
representation or warranty of Trans Mart or Shareholders, whether or not
identified on the Section 8.03 Statement (except to the extent that such breach
is expressly
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waived in the Section 8.03 Statement), or (y) Damages in excess of
those estimated on the Section 8.03 Statement.
(c) If the estimate set forth in the Section 8.03 Statement is
greater than $500,000, at the Closing Buyer shall deposit into escrow on behalf
of Shareholders a portion of the purchase price called for by Section 2.02(b)
equal to the amount of such estimate minus $500,000. Such amount shall be
disbursed from the escrow account upon the resolution of the matters identified
in the Section 8.03 Statement pursuant to the terms of an escrow agreement
containing such terms as the parties agree to prior to the Closing. The escrow
agent shall be a financial institution mutually acceptable to the parties and
its fees shall be paid by Buyer on the one hand and Shareholders on the other in
inverse proportion to the amount of funds that each receives out of the escrow
account.
8.04 EXCEPTION TO CONDITIONS TO OBLIGATION OF SHAREHOLDERS. If Buyer
believes that any representation or warranty of Trans Mart or Shareholders has
been breached as of the Closing Date but Buyer elects to waive the condition set
forth in Section 8.03(a)(ii), Shareholders shall not be obligated to consummate
the transactions contemplated hereby notwithstanding such waiver if, in Buyer's
good faith estimate, the amount of Damages that Buyer believes will result from
all such breaches is greater than $3,000,000, excluding estimated Damages
relating to breaches that are waived by Buyer and estimated Damages relating to
breaches where Shareholders or Trans Mart had or, after the exercise of
reasonable inquiry, should have had Knowledge that the representations and
warranties were wrong at the time that they were made.
ARTICLE IX
INDEMNIFICATION
9.01 AGREEMENT TO INDEMNIFY.
(a) Subject to the limitations provided herein, ATC and the
direct and indirect subsidiaries of ATC (including Buyer and, after the Closing
has occurred, Trans Mart) (collectively, the "Buyer Indemnitees") shall each be
indemnified and held harmless to the extent set forth in this Article IX on a
joint and several basis by Shareholders in respect of any Damages reasonably and
proximately incurred by any Buyer Indemnitee (i) as a result of any inaccuracy
or misrepresentation in or breach of or failure to perform any representation,
warranty, covenant, agreement or obligation of Trans Mart or Shareholders in
this Agreement or (ii) in connection with any Environmental Liability other than
Excluded Environmental Liabilities. The aggregate liability of Shareholders
collectively under this Section 9.01(a) of this Agreement shall not exceed the
purchase price paid for the Shares pursuant to Section 2.02(b), except in the
case of Damages due to Shareholders' fraud or willful misconduct.
(b) Shareholders and their Affiliates (collectively the
"Shareholder Indemnitees") shall each be indemnified and held harmless to the
extent set forth in this Article IX on a joint and several basis by Buyer and
ATC in respect of any and all Damages reasonably and proximately incurred by any
Shareholder Indemnitee as a result of (i) any
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inaccuracy or misrepresentation in or breach of or failure to perform any
representation, warranty, covenant, agreement or obligation of Buyer or ATC
in this Agreement or (ii) Trans Mart's conduct of the Business after the
Closing.
(c) Notwithstanding the foregoing, Buyer Indemnitees may not
seek indemnification hereunder from Shareholders unless and until the claims in
the aggregate exceed $25,000, provided that if such threshold is exceeded, Buyer
Indemnitees may seek indemnification hereunder for any and all claims.
(d) From and after the Closing Date, Trans Mart shall have no
liability to Shareholders for contribution or reimbursement due to, or other
Damages arising out of, liability incurred by Shareholders pursuant to
Section 9.01(a) notwithstanding that such liability may have arisen out of a
misrepresentation or breach by Trans Mart.
(e) Any amounts payable pursuant to Section 9.01(a) shall be
paid from the escrowed funds referred to in Section 8.03(c) prior to
Shareholders being required to make any payments directly (unless such escrowed
funds are not then available for payment due to investment, interpleader or
otherwise).
9.02 SURVIVAL OF REPRESENTATION, WARRANTIES AND COVENANTS.
(a) Except as hereinafter provided in this Section 9.02, all
representations, warranties, covenants, agreements and obligations of each
Indemnifying Party contained herein and all claims of any Indemnitee in respect
of any breach of any representation, warranty, covenant, agreement or obligation
of any Indemnifying Party contained in this Agreement, shall survive the Closing
and shall expire on the second (2nd) anniversary of the Closing Date.
(b) Notwithstanding Section 9.02(a) the representations,
warranties, covenants, agreements and obligations of Shareholders as
Indemnifying Parties shall survive the Closing Date until the expiration of 60
days following any applicable statute of limitations, including extensions
thereof with respect to: (i) the inaccuracy or misrepresentation in or breach
of any representation, warranty, covenant or agreement made by Shareholders in
this Agreement arising out of fraud or willful misconduct; (ii) any inaccuracy
or misrepresentation in or breach of any representation or warranty made in
Sections 3.17, 3.22 and 3.24 regardless of whether such inaccuracy or
misrepresentation or breach arises out of fraud or willful misconduct; (iii) the
breach or failure to perform by Shareholders after the Closing Date of any of
the covenants, agreements or obligations of such Person contained in this
Agreement or in the Exhibits attached hereto; and (iv) any Environmental
Liability other than Excluded Environmental Liabilities.
(c) Notwithstanding Section 9.02(a), each of the following
representations, warranties, covenants, agreements and obligations of Buyer and
ATC as Indemnifying Parties shall survive the Closing Date until the expiration
of 60 days following the applicable statute of limitations, including extensions
thereof: (i) any inaccuracy or misrepresentation in or breach of any
representation, warranty, covenant or agreement made by Buyer or ATC in this
Agreement arising out of fraud or willful misconduct; and (ii) the breach or
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failure to perform by Buyer or ATC after the Closing Date of any of the
covenants, agreements or obligations of such Person contained in this Agreement
or in the Exhibits attached hereto.
9.03 CLAIMS FOR INDEMNIFICATION. If any Indemnitee shall believe that
such Indemnitee is entitled to indemnification pursuant to this Article IX in
respect of any Damages, such Indemnitee shall give the appropriate Indemnifying
Party prompt written notice thereof. Any such notice shall set forth in
reasonable detail and to the extent then known the basis for such claim for
indemnification. The failure of such Indemnitee to give notice of any claim for
indemnification promptly shall not adversely affect such Indemnitee's right to
indemnity hereunder except to the extent that such failure materially adversely
affects the right of the Indemnifying Party to assert any reasonable defense to
such claim. The Indemnifying Party shall have 30 days following its receipt of
such notice either (a) to acquiesce in such claim by giving such Indemnitee
written notice of such acquiescence or (b) to object to the claim by giving such
Indemnitee written notice of the objection. If the Indemnifying Party does not
object thereto within such 30-day period, such Indemnitee shall be entitled to
be indemnified for all Damages reasonably and proximately incurred by such
Indemnitee in respect of such claim. If the Indemnifying Party objects to such
claim in a timely manner, and such Indemnitee and the Indemnifying Party are
unable to resolve their dispute within 30 days following such objection (or such
additional period of time as may be mutually agreed to by such Persons), the
claim shall be submitted immediately to arbitration pursuant to Section 11.11.
9.04 DEFENSE OF CLAIMS.
(a) In connection with any claim that may give rise to indemnity
under this Article IX resulting from or arising out of any claim or Proceeding
against an Indemnitee by a Person that is not a party hereto, the Indemnifying
Party may, subject to Section 9.04(b), assume the defense of any such claim or
Proceeding (unless such Indemnitee elects not to seek indemnity hereunder for
such claim), upon written notice to the relevant Indemnitee, if all Indemnifying
Parties with respect to such claim or Proceeding jointly acknowledge to the
Indemnitee its right to indemnity pursuant hereto in respect of the entirety of
such claim (as such claim may have been modified through written agreement of
the parties or arbitration hereunder) and provides assurances, reasonably
satisfactory to such Indemnitee, that the Indemnifying Parties will be
financially able to satisfy such claim in full if such claim or Proceeding is
decided adversely. Prior to the assumption by an Indemnifying Party of the
defense of any claim or Proceeding, the Indemnitee may make such appearances and
filings with respect thereto as the Indemnitee reasonably determines to be
necessary or appropriate. If the Indemnifying Parties assume the defense of any
such claim or Proceeding, the Indemnifying Parties shall select counsel
reasonably acceptable to such Indemnitee to conduct the defense of such claim or
Proceeding, shall take all steps necessary in the defense or settlement thereof
and shall at all times diligently and promptly pursue the resolution thereof.
If the Indemnifying Parties shall have assumed the defense of any claim or
Proceeding in accordance with this Section 9.04, the Indemnifying Parties shall
be authorized to consent to a settlement of, or the entry of any judgment
arising from, any such claim or Proceeding, without the prior written consent of
such Indemnitee, PROVIDED that (i) the Indemnifying Parties shall pay or cause
to be paid all amounts arising out of such settlement or judgment concurrently
with the effectiveness thereof, (ii) the
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Indemnifying Parties shall not be authorized to encumber any of the assets of
any Indemnitee or to agree to any restriction that would apply to any
Indemnitee or to its conduct of business, and (iii) a condition to any such
settlement shall be a complete release of such Indemnitee and its Affiliates,
officers, employees, consultants and agents with respect to such claim.
Subject to Section 9.04(b), such Indemnitee shall be entitled to participate
in (but not control) the defense of any such action, with its own counsel and
at its own expense. Each Indemnitee shall, and shall cause each of its
Affiliates, officers, employees, consultants and agents to, cooperate fully
with the Indemnifying Parties in the defense of any claim or Proceeding being
defended by the Indemnifying Parties pursuant to this Section 9.04. If the
Indemnifying Parties do not assume the defense of any claim or Proceeding
resulting therefrom in accordance with the terms of this Section 9.04(a),
such Indemnitee may defend against such claim or Proceeding.
(b) Notwithstanding Section 9.04(a), the Indemnifying Parties
may not assume the defense of any claim or Proceeding and the Indemnitee may
assume such defense if, in the reasonable opinion of the Indemnitee, (i) such
claim or Proceeding involves an issue or matter that, if determined adversely to
the Indemnitee, is likely to have a material adverse effect on the business,
operations, assets, properties or prospects of the Indemnitee, or (ii) there is
one or more legal defenses available to the Indemnitee that conflict with those
available to an Indemnifying Party. If the Indemnitee assumes defense of any
such claim or Proceeding, (A) the Indemnifying Parties may participate in, but
not control, the defense of such claim or Proceeding, and (B) if the Indemnitee
receives a settlement proposal from the Person asserting such claim or
instituting such Proceeding and is notified by an Indemnifying Party that such
Indemnifying Party wants to accept such settlement proposal, the liability of
the Indemnifying Parties with respect to such claim or Proceeding shall equal
the lesser of (x) the amount offered in such settlement proposal, (y) the amount
of actual Damages of the Indemnitee with respect to such claim or Proceeding or
(z) the maximum liability of the Indemnifying Parties pursuant to
Section 9.01(a) and any such settlement shall expressly release the Indemnifying
Parties from any further liability with respect to the claim.
(c) If the Indemnitee elects to defend any claim or Proceeding
pursuant to the last sentence of Section 9.04(a) or pursuant to Section 9.04(b),
the Indemnitee shall conduct such defense in such manner as it shall deem
appropriate, including settling such claim or Proceeding after giving notice of
the same to the Indemnifying Parties, on such terms as such Indemnitee shall
deem appropriate, PROVIDED that such settlement expressly releases the
Indemnifying Parties from any further liability with respect to the claim. If
the Indemnifying Parties seek to question the manner in which such Indemnitee
defended such claim or Proceeding or the amount of or nature of any such
settlement, the Indemnifying Parties shall have the burden to prove by a
preponderance of the evidence that such Indemnitee did not defend such claim or
Proceeding in a reasonably prudent manner.
ARTICLE X
TERMINATION
10.01 GROUNDS FOR TERMINATION. This Agreement may be terminated
at any time prior to the Closing:
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(a) by mutual written agreement of all of the parties hereto;
(b) by a party at any time following the expiration of 15 days
from the date that such party has given notice to another party of any one or
more inaccuracies or misrepresentations in or breaches of the representations or
warranties made by the recipient of such notice contained in this Agreement
that, if not cured prior to the Closing Date, would give the notifying party
grounds not to close under Section 8.01 when taken into account with all other
uncured inaccuracies or misrepresentations in or breaches of such
representations or warranties as to which the notifying party shall have given
notice to previously pursuant to this clause (b); PROVIDED, HOWEVER, that no
termination under this clause (b) shall take effect if such inaccuracies,
misrepresentations or breaches shall have been cured in all material respects
within such 15-day period;
(c) by a party at any time following the expiration of 15 days
from the date that such party has given written notice to another party of the
failure by recipient of such notice to perform and satisfy in any material
respect any of his or its material obligations under this Agreement required to
be performed and satisfied by him or it on or prior to the Closing Date, or the
failure to perform and satisfy any other obligations of the recipient of such
notice under this Agreement if the aggregate of all such other failures shall be
material; PROVIDED, HOWEVER, that no termination under this clause (c) shall
take effect if such breaches or failures shall have been cured in all material
respects within such 15-day period;
(d) by any party hereto, if the Closing shall not have been
consummated by the Outside Date; PROVIDED, HOWEVER, that a party may not
terminate this Agreement pursuant to this clause (d) if the Closing shall not
have been consummated within such time period by reason of the failure of such
party or any of its Affiliates to perform in all material respects any of its or
their respective covenants or agreements contained in this Agreement;
(e) by any party hereto if any Federal, state or foreign law or
regulation thereunder shall hereafter be enacted or become applicable that makes
the transactions contemplated hereby or the consummation of the Closing illegal
or otherwise prohibited, or if any judgment, injunction, order or decree
enjoining either party hereto from consummating the transactions contemplated
hereby is entered, and such judgment, injunction, order or decree shall become
final and nonappealable;
(f) by any party hereto at any time after August 14, 1997 if the
Closing has not occurred by August 14, 1997 due to the failure of any of the
conditions set forth in Section 8.01(k), 8.01(l) or 8.01(m) to be satisfied or
waived; PROVIDED, HOWEVER, that a party may not terminate this Agreement
pursuant to this clause (f) if such party or any of its Affiliates has failed to
perform in all material respects any of its or their respective covenants or
agreements contained in this Agreement; and
(g) by Shareholders pursuant to Section 8.04.
39
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10.02 EFFECT OF TERMINATION. If this Agreement is terminated as
permitted by Section 10.01, such termination shall be without liability of any
party to any other party to this Agreement; PROVIDED, HOWEVER, that if such
termination shall result from the breach by any party of its representations,
warranties or covenants contained in this Agreement, such party shall be fully
liable for any and all Damages incurred or suffered by the other parties as a
result of such failure or breach notwithstanding such termination, except that
if Shareholders terminate this Agreement pursuant to Section 10.01(g), they will
not be liable for Damages relating to the breaches giving rise to their right of
termination. The provisions of Sections 5.05, 6.01, 10.02, 11.01, 11.03, 11.05
11.07, 11.08, 11.10, 11.11 and 11.12 shall survive any termination of this
Agreement pursuant to Article X.
ARTICLE XI
MISCELLANEOUS
11.01 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be deemed duly given
(i) when delivered by personal delivery, (ii) two Business Days after having
been sent by registered or certified mail, return receipt requested, postage
prepaid and addressed to the intended recipient as set forth below, (iii) the
day following being sent through an overnight delivery service in circumstances
in which such service guarantees next day delivery, or (iv) once such notice or
other communication is transmitted to the telecopier number specified below and
the appropriate answer back or telephonic confirmation is received, PROVIDED
that such notice or other communication is promptly thereafter mailed in
accordance with the provisions of clause (ii) above:
If to Trans Mart, GAG or JEH:
c/o Parkhurst & Norvell, C.P.A.
2009 Darby Drive
P.O. Drawer B
Florence, Alabama 35631
Telecopier No.: (205) 767-5979
Attention: Andrew P. Parkhurst
with a copy to:
Timothy K. Corley, P.C.
Sun Trust Bank Building
201 South Court Street
P.O. Box 1168
Florence, Alabama 35631
Telecopier No.: (205) 760-0083
Attn: Timothy K. Corley, Esq.
40
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If to Buyer or ATC:
Aftermarket Technology Corp.
900 Oakmont Lane, Suite 900
Westmont, Illinois 60559
Telecopier No: (630) 455-2650
Attn: Stephen J. Perkins and Joseph Salamunovich
Any party may give any notice, request, demand, claim or other communication
hereunder using any other means (including ordinary mail or electronic mail),
but no such notice, request, demand, claim or other communication shall be
deemed to have been duly given unless and until it actually is received by the
individual for whom it is intended. Any party may change the address to which
notices, requests, demands, claims and other communications hereunder are to be
delivered by giving the other parties notice in the manner herein set forth.
11.02 AMENDMENTS; NO WAIVERS.
(a) Any provision of this Agreement may be amended or waived if,
and only if, such amendment or waiver is in writing and signed, in the case of
an amendment, by all parties hereto, or in the case of a waiver, by the party
against whom the waiver is to be effective.
(b) No waiver by a party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation or
breach of warranty or covenant hereunder or affect in any way any rights
arising by virtue of any prior or subsequent occurrence. No failure or delay
by a party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies herein provided shall be
cumulative and not exclusive of any rights or remedies provided by law.
11.03 EXPENSES. Except as otherwise provided herein, all costs
and expenses incurred in connection with this Agreement shall be paid by the
party incurring such cost or expense. Without limiting the generality of the
foregoing, Shareholders shall pay (i) the fees and expenses of Niederhoffer,
Henkel & Co. L.L.C. and (ii) all legal, accounting and other fees and expenses
incurred by Shareholders and/or Trans Mart prior to the Closing Date in
connection with the negotiation, execution, delivery and performance of this
Agreement.
11.04 SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party hereto may assign either this
Agreement or any of its rights, interests or obligations hereunder without the
prior written approval of each other party, which approval shall not be
unreasonably withheld.
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11.05 GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by the internal laws (without reference to choice
or conflict of laws) of the State of Alabama.
11.06 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become effective when each party hereto shall have received
a counterpart hereof signed by the other parties hereto.
11.07 ENTIRE AGREEMENT. This Agreement (including the Schedules
and Exhibits referred to herein which are hereby incorporated by reference)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior oral and written and all contemporaneous
oral agreements, understandings and negotiations between the parties with
respect to the subject matter of this Agreement. Neither this Agreement nor any
provision hereof is intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
11.08 CONSTRUCTION. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. All references to an Article or Section include all
subparts thereof. Neither party hereto, nor its respective counsel, shall be
deemed the drafter of this Agreement, and all provisions of this Agreement shall
be construed in accordance with their fair meaning, and not strictly for or
against either party hereto.
11.09 SEVERABILITY. If any provision of this Agreement, or the
application thereof to any Person, place or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other Persons,
places and circumstances shall remain in full force and effect only if, after
excluding the portion deemed to be unenforceable, the remaining terms shall
provide for the consummation of the transactions contemplated hereby in
substantially the same manner as originally set forth at the later of the date
this Agreement was executed or last amended.
11.10 THIRD PARTY BENEFICIARIES. No provision of this Agreement
shall create any third party beneficiary rights in any Person, including any
employee of Buyer or employee or former employee of Trans Mart or any Affiliate
thereof (including any beneficiary or dependent thereof).
11.11 ARBITRATION OF CLAIMS.
(a) Except as otherwise specifically provided elsewhere in this
Agreement, any dispute or difference between or among the parties arising out of
this Agreement or the transactions contemplated hereby, including, without
limitation, any dispute between any Indemnitee and any Indemnifying Party under
Article IX which the parties are unable to resolve themselves, shall be
submitted to and resolved by arbitration pursuant to and in accordance with
42
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the Commercial Arbitration Rules of the American Arbitration Association in
effect on the date of the initial request that gave rise to the dispute to be
arbitrated (the "AAA Rules").
(b) Such arbitration shall be conducted by a panel of three
arbitrators, which shall be selected from a list of arbitrators pursuant to and
in accordance with the AAA Rules. Such arbitration proceeding shall be
conducted in Cook County, Illinois. The arbitrators shall not have the
authority to modify any term or provision of this Agreement. The arbitration
proceeding shall include an opportunity for the parties to conduct discovery in
advance of the proceeding, which discovery may be limited by rules established
by the arbitrators. Notwithstanding the foregoing, the parties agree that they
will attempt, and they intend that they and the arbitrators should use their
best efforts in that attempt, to conclude such arbitration proceeding and have a
final decision from the arbitrators within 90 days from the date of selection of
the arbitrators; provided, however, that the arbitrators shall be entitled to
extend such 90-day period one or more times to the extent necessary for such
arbitrators to place a dollar value on any claim that may be unliquidated. The
arbitrators shall promptly deliver a written decision with respect to the
dispute to each of the parties, which shall promptly act in accordance
therewith. Each party agrees that any decision of the arbitrators shall be
final, conclusive and binding, absent fraud or manifest error, and that they
will not contest any action by any other party hereto in accordance with a
decision of the arbitrators, except on a basis of fraud or manifest error. It
is specifically understood and agreed that any party may enforce any award
rendered pursuant to the arbitration provisions of this Section 11.11 by
bringing suit in any court of competent jurisdiction.
(c) All fees, costs and expenses (including attorneys' fees and
expenses) incurred by the party that prevails in any such arbitration commenced
pursuant to this Section 11.11 or any judicial action or proceeding seeking to
enforce the agreement to arbitrate disputes as set forth in this Section 11.11
or seeking to enforce any order or award of any arbitration commenced pursuant
to this Section 11.11 may be assessed against the party or parties that do not
prevail in such arbitration in such manner as the arbitrators or the court in
such judicial action, as the case may be, may determine to be appropriate under
the circumstances. All costs and expenses attributable to the arbitrators shall
be allocated among the parties to the arbitration in such manner as the
arbitrators shall determine to be appropriate under the circumstances.
11.12 CUMULATIVE REMEDIES. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
SHAREHOLDERS:
/s/ Gary A. Gamble
---------------------------------------
Gary A. Gamble
/s/ James E. Henderson
---------------------------------------
James E. Henderson
TRANS MART, INC.
By: /s/ Gary A. Gamble
---------------------------------------
Gary A. Gamble
President
TM-AL ACQUISITION, INC.
By: /s/ Joseph Salamunovich
---------------------------------------
Joseph Salamunovich
Vice President
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Joseph Salamunovich
---------------------------------------
Joseph Salamunovich
Vice President
44
<PAGE>
AMENDMENT NO. 1 TO
STOCK PURCHASE AGREEMENT
This Amendment No. 1 to Stock Purchase Agreement (this "Amendment") is
entered into as of August 15, 1997 by and among Gary A. Gamble, an individual,
James E. Henderson, an individual, Trans Mart, Inc., an Alabama corporation,
TM-AL Acquisition, Inc., a Delaware corporation, and Aftermarket Technology
Corp., a Delaware corporation.
WHEREAS, the parties hereto are parties to that certain Stock Purchase
Agreement dated as of July 21, 1997 (the "Agreement") and the parties desire to
make certain changes to the Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth below, the parties hereto agree as follows.
1. AMENDMENT OF SECTION 2.02(b). Section 2.02(b) of the Agreement
is hereby amended by deleting "$22,000,000" and inserting "$21,995,000" in its
place.
2. AMENDMENT OF SECTION 7.07. Section 7.07 of the Agreement is
hereby amended to read in its entirety as follows:
"7.07 TRANSSHOP MANAGEMENT SYSTEM, INC. At the Closing,
Shareholders shall sell all the issued and outstanding capital stock of
TransShop Management System, Inc. ("TransShop") to Buyer pursuant to a purchase
and royalty agreement to be entered into between the parties providing for (i) a
purchase price of $____ for all the issued and outstanding capital stock,
(ii) royalty payments by ATC to Shareholders for a period of time after the
Closing based on distribution of the software package currently being developed
by TransShop and (iii) such other terms as the parties may agree."
3. ADDITION OF SECTION 8.01(n). Section 8.01(n) is added to the
Agreement to read in its entirety as follows:
"(n) Shareholders shall have executed and delivered to Buyer
the purchase and royalty agreement called for by Section 7.07 together with
the certificates evidencing all of the issued and outstanding capital stock
of TransShop and duly endorsed stock powers."
4. AMENDMENT OF SECTION 8.02(h). Section 8.02(h) of the Agreement is
hereby amended to read in its entirety as follows:
"(h) ATC shall have executed and delivered to Shareholders the
purchase and royalty agreement called for by Section 7.07 and paid the purchase
price called for thereby."
<PAGE>
5. GROSS-UP PAYMENTS. The parties agree that the purchase price
allocation that gives rise to the determination of the Gross-Up Amount will be
conducted after the Closing and therefore, the Gross-Up Amount to be paid at
Closing will equal zero and will be adjusted and paid after the Closing pursuant
to Section 2.04.
6. U.P.S. C.O.D. PAYMENTS. If the cash payments to be made at
Closing are reduced because the Indebtedness as of the Closing Date exceeds
$5,000,000, promptly after the Closing Buyer shall pay to each Shareholder an
amount equal to 50.0% of the lesser of (i) the amount of the reduction in the
Closing payments or (ii) the amount of cash received by Trans Mart on the
Closing Date from United Parcel Service as payment of C.O.D. collections made by
United Parcel Service.
7. RATIFICATION OF OTHER TERMS. Except as provided above, all the
terms of the Agreement are hereby ratified and confirmed.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SHAREHOLDERS:
/s/ GARY A. GAMBLE
---------------------------
Gary A. Gamble
/s/ JAMES E. HENDERSON
---------------------------
James E. Henderson
TRANS MART, INC.
By: /s/ GARY A. GAMBLE
---------------------------
Gary A. Gamble
President
TM-AL ACQUISITION, INC.
By:/s/ STEPHEN J. PERKINS
---------------------------
Stephen J. Perkins
President and
Chief Executive Officer
AFTERMARKET TECHNOLOGY CORP.
By: /s/ STEPHEN J. PERKINS
-----------------------------
Stephen J. Perkins
President and
Chief Executive Officer
<PAGE>
AMENDMENT NO. 2 TO
STOCK PURCHASE AGREEMENT
This Amendment No. 2 to Stock Purchase Agreement (this "Amendment") is
entered into as of August 15, 1997 by and among Gary A. Gamble, an individual,
James E. Henderson, an individual, Trans Mart, Inc., an Alabama corporation,
TM-AL Acquisition, Inc., a Delaware corporation, and Aftermarket Technology
Corp., a Delaware corporation.
WHEREAS, the parties hereto are parties to that certain Stock Purchase
Agreement dated as of July 21, 1997 (the "Agreement") and the parties desire to
make certain changes to the Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth below, the parties hereto agree as follows.
1. AMENDMENT OF SECTION 6 OF AMENDMENT NO. 1. Section 6 of
Amendment No. 1 to the Agreement is hereby amended to read in its entirety as
follows:
"If the cash payments to be made at Closing are reduced because
the Indebtedness as of the Closing Date exceeds $5,000,000, promptly
after the Closing Buyer shall pay to each Shareholder an amount equal
to 50.0% of the lesser of (i) the amount of the reduction in the
Closing payments, as the same is adjusted pursuant to Section 2.03(b),
or (ii) Trans Mart's cash balance as of the Closing Date (as deter-
mined in accordance with GAAP) minus $10,000."
2. AMENDMENT OF SECTION 7.07. Section 7.07 of the Agreement is
hereby amended by changing all references to "TransShop Management System,
Inc." to "TranShop Management System, Inc."
3. RATIFICATION. Except as provided above, all the terms of the
Agreement are hereby ratified and confirmed.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SHAREHOLDERS:
/s/ Gary A. Gamble
------------------------------
Gary A. Gamble
/s/ James E. Henderson
------------------------------
James E. Henderson
TRANS MART, INC.
By: /s/ Gary A. Gamble
------------------------------
Gary A. Gamble
President
TM-AL ACQUISITION, INC.
By: /s/ Joseph Salamunovich
------------------------------
Joseph Salamunovich
Vice President
AFTERMARKET TECHNOLOGY CORP.
By: /s/ Joseph Salamunovich
------------------------------
Joseph Salamunovich
Vice President
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
SUBSIDIARIES OF AFTERMARKET TECHNOLOGY CORP.
Aaron's Automotive Products, Inc.
CRS Holdings Corp.
Diverco Acquisition Corp.
H.T.P., Inc.
King-O-Matic Industries Limited
Mamco Converters, Inc.
Mascot Truck Parts Inc.
RPM Merit, Inc.
Repco Acquisition Corp.
TM-AL Acquisition Corp.
Tranzparts Acquisition Corp.
10469 Newfoundland Inc.
10468 Newfoundland Inc.SUBSIDIARIES OF CRS HOLDINGS CORP.
Component Remanufacturing Specialists, Inc.
SUBSIDIARIES OF COMPONENT REMANUFACTURING SPECIALISTS, INC.
ATS Remanufacturing, Inc.
SUBSIDIARIES OF DIVERCO ACQUISITION CORP.
Diverco, Inc.
SUBSIDIARIES OF REPCO ACQUISITION CORP.
Replacement & Exchange Parts Co., Inc.
SUBSIDIARIES OF RPM MERIT, INC.
Partes Remanufacturadas de Mexico
SUBSIDIARIES OF TM-AL ACQUISITION CORP.
Trans Mart, Inc.
TranShop Management System, Inc.
SUBSIDIARIES OF TRANZPARTS ACQUISITION CORP.
Tranzparts, Inc.
<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- ) and related Prospectus of Aftermarket Technology
Corp. dated September 12, 1997.
/s/ ERNST & YOUNG LLP
September 12, 1997
