Asset Contribution Agreement

Exhibit 10.3


ASSET CONTRIBUTION AGREEMENT


BY AND AMONG


CITY TRUCK AND TRAILER PARTS, INC.


AND

STONE HEAVY DUTY, INC.,


ASHLAND AUTOMOTIVE PARTS, INC.


FRED A. STONE, JR.,
JAMES T. STONE AND
THOMAS D. STONE


DATED JUNE 19, 1998.


TABLE OF CONTENTS


PAGE ARTICLE I. CONTRIBUTION OF ASSETS.......................................... 1


1.1. Contribution to City.................................................. 1 1.2. Transfer of Assets.................................................... 2 1.3. Tax-Free Contribution................................................. 2 1.4. Liabilities........................................................... 2 1.5. One-Time Make-Whole Payment........................................... 2


ARTICLE II. CLOSING........................................................ 3


2.1. Closing............................................................... 3


2.2. Conveyances at Closing................................................ 3


ARTICLE III. REPRESENTATIONS AND WARRANTIES OF STONE AND ASHLAND........... 4


3.1. Corporate Organization and Standing................................... 4 3.2. Authorization......................................................... 4 3.3. No Conflict or Violation.............................................. 4 3.4. Facilities............................................................ 5 3.5. Assets................................................................ 6 3.6. Financial Statements.................................................. 6 3.7. Books and Records..................................................... 7 3.8. Litigation............................................................ 7 3.9. Licenses and Permits; Compliance with Laws............................ 7 3.10. Tax Matters.......................................................... 8 3.11. Brokers, Finders..................................................... 10 3.12. Absence of Certain Changes or Events................................. 10 3.13. Material Contracts................................................... 12 3.14. Proprietary Rights................................................... 13 3.15. Labor Matters........................................................ 14 3.16. Consents............................................................. 14 3.17. Employee Benefit Plans; Employment Agreements........................ 14 3.18. Compliance With Environmental Laws................................... 17 3.19. Certain Business Relationships with the Existing Shareholders........ 19 3.20. Undisclosed Liabilities.............................................. 19 3.21. Insurance............................................................ 19 3.22. Accounts Receivable.................................................. 20 3.23. Inventory............................................................ 20 3.24. Payments............................................................. 20 3.25. Customers, Distributors and Suppliers................................ 21 3.26. Banking Relationships................................................ 21 3.27. Investment........................................................... 21 3.28. MATERIAL MISSTATEMENTS OR OMISSIONS.................................. 22


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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF CITY......................... 22


4.1. Corporate Organization and Standing................................... 22 4.2. Authorization......................................................... 22 4.3. No Conflict or Violation.............................................. 22 4.4. Litigation............................................................ 22 4.5. Brokers, Finders...................................................... 23 4.6. Approvals, Etc........................................................ 23 4.7. Material Misstatements or Omissions................................... 23 4.8. Stock................................................................. 23 4.9. Capitalization........................................................ 23


ARTICLE V. CONDUCT OF BUSINESS PENDING CLOSING AND POST-CLOSING
COVENANTS....................................................... 23


5.1. Further Assurances.................................................... 23 5.2. No Solicitation and Confidentiality................................... 24 5.3. Disclosures........................................................... 24 5.4. Notification of Certain Matters....................................... 25 5.5. Investigation by City and Its Representatives......................... 25 5.6. Conduct of Business................................................... 26 5.7. Non-Compliance With and Termination of This Agreement................. 28 5.8. Covenant Regarding Environmental Remediation and Compliance........... 28


ARTICLE VI. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS
BY CITY........................................................ 29


6.1. No Injunctive Proceedings............................................. 29 6.2. Representations and Warranties; Disclosure Schedule................... 29 6.3. Performance of Agreements............................................. 29 6.4. Compliance Certificate................................................ 29 6.5. Material Changes...................................................... 29 6.6. Opinion of Counsel.................................................... 29 6.7. Consents, Etc......................................................... 30 6.8. Ancillary Agreements.................................................. 30 6.9. Escrow Agreement...................................................... 30 6.10. Loans and Advances................................................... 30 6.11. Name Change.......................................................... 30 6.12. Nonforeign Affidavit................................................. 30 6.13. Management Continuity Agreements..................................... 30


ARTICLE VII. CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS................ 31
BY STONE AND ASHLAND.......................................... 31


7.1. No Injunctive Proceedings............................................. 31 7.2. Representations and Warranties........................................ 31 7.3. Performance of Agreements; Instruments of Transfer.................... 31 7.4. Compliance Certificates............................................... 31


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7.5. Ancillary Agreements.................................................. 31 7.6. Opinion of Counsel.................................................... 31 7.7. Amended and Restated Articles of Incorporation........................ 31


ARTICLE VIII. ACTIONS BY CITY, STONE AND ASHLAND AFTER THE CLOSING......... 32


8.1. Collection of Accounts Receivable and Letters of Credit............... 32 8.2. Consents to Assignment................................................ 32 8.3. Indemnification by Stone, Ashland and the Existing Shareholders....... 32 8.4. Indemnification by City............................................... 33 8.5. Survival of Representations, Warranties and Covenants................. 33 8.6. Threshold; Deductible................................................. 33 8.7. Notice and Opportunity to Defend...................................... 34 8.8. Indemnification Payments through Surrender of City Stock.............. 34 8.9. Stone Incentive Plans................................................. 34 8.10. Employment Matters and Severance Benefits............................ 35 8.11. Shareholder Representative........................................... 35


ARTICLE IX. MISCELLANEOUS.................................................. 36


9.1. Expenses.............................................................. 36 9.2. Notices............................................................... 36 9.3. Counterparts.......................................................... 37 9.4. Entire Agreement...................................................... 37 9.5. Headings.............................................................. 37 9.6. Assignment; Amendment of Agreement.................................... 37 9.7. Governing Law......................................................... 37 9.8. Further Assurances.................................................... 38 9.9. No Third-Party Rights................................................. 38 9.10. Non-Waiver........................................................... 38 9.11. Severability......................................................... 38 9.12. Incorporation of Exhibits and Schedules.............................. 38 9.13. Knowledge............................................................ 39 9.14. Arbitration.......................................................... 39


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ASSET CONTRIBUTION AGREEMENT

THIS ASSET CONTRIBUTION AGREEMENT ("Agreement") is entered into as of June 19, 1998, by and among CITY TRUCK AND TRAILER PARTS, INC., an Alabama corporation ("City"), STONE HEAVY DUTY, INC., a North Carolina corporation ("Stone"), the following stockholders of Stone: FRED A. STONE, JR., JAMES T. STONE AND THOMAS D. STONE (COLLECTIVELY, THE "EXISTING SHAREHOLDERS"), AND ASHLAND AUTOMOTIVE PARTS, INC., A SOUTH CAROLINA CORPORATION ("ASHLAND" AND TOGETHER WITH STONE AND THE EXISTING SHAREHOLDERS, THE "SELLING PARTIES"). CITY, STONE, THE EXISTING SHAREHOLDERS AND ASHLAND ARE SOMETIMES REFERRED TO HEREIN INDIVIDUALLY AS A "PARTY" AND COLLECTIVELY AS THE "PARTIES."


RECITALS


A. WHEREAS, Stone and Ashland own certain assets listed on Annex A (the "Assets") which are used in connection with or useful to their business of distributing aftermarket parts and services to the domestic heavy duty vehicle market (the "Business");


B. WHEREAS, upon the terms but subject to the conditions of this Agreement, City desires to acquire such Assets from Stone and Ashland, and Stone and Ashland desire to contribute such Assets to City.


AGREEMENT


NOW THEREFORE, in consideration of the respective covenants and promises contained herein and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Parties agree as follows:


ARTICLE I.


CONTRIBUTION OF ASSETS


1.1. Contribution to City.
--------------------


(a) Upon the terms and subject to the conditions set forth herein, Stone agrees to contribute to City the Assets owned by Stone in exchange for the issuance and/or delivery to Stone of the "Stone Price" as follows: (i) Twenty Three Million Seventy Seven Thousand Dollars ($23,077,000) in cash payable by wire transfer of immediately available funds to Stone, as decreased by the aggregate amount of the distributions made to the Existing Shareholders on or about June 15, 1998 to enable them to pay income taxes relating to income arising out of the Business, (ii) One Hundred Fifty Thousand Dollars ($150,000) to be retained by City pursuant to Section 5.8 hereof; (iii) 6,867 shares of Common Stock of City, par value $.01 per share (the "Common Stock"), and (iv) 29,931.328 shares of Series B Preferred Stock of City, par value $.01 per share (the "Series B Preferred Stock"), in each case equaling 60% of the number of such shares retained by Larry Clayton and his affiliates after the purchase by BABF City Corp. from them on May 29, 1998.


(b) Upon the terms and subject to the conditions set forth herein, Ashland agrees to contribute to City the Assets owned by Ashland in exchange for the


issuance and/or delivery to Ashland of the "Ashland Price" as follows: (i) Four Hundred Thirty Nine Thousand Dollars ($439,000) in cash payable by wire transfer of immediately available funds to Ashland.


(c) Schedule 1.1 to be mutually agreed upon and which is reasonably satisfactory to City, Stone and Ashland sets forth the amount of the Stone Price and the Ashland Price allocable to the various Assets.


1.2. Transfer of Assets. Upon the terms and subject to the conditions set
------------------ forth herein, at the Closing, Stone and Ashland will contribute to City, and City will acquire from Stone and Ashland, the Assets, free and clear of all encumbrances other than Permitted Encumbrances (as defined herein).


1.3. Tax-Free Contribution. The transactions hereunder are intended to be
--------------------- free from United States federal income taxes pursuant to Section 351 of the Code, except with respect any payments thereon made to Stone and Ashland in partial consideration of the contribution of the Assets to City.


1.4. Liabilities. Upon the terms and subject to the conditions set forth
----------- herein, at the Closing, City shall assume all liabilities and contractual obligations of Stone and Ashland, other than certain excluded liabilities listed on Schedule 1.4 and those listed below (collectively, the "Excluded Liabilities") (such liabilities other than the "Excluded Liabilities," the "Assumed Liabilities"), including, without limitation:


(a) Any liability of Stone or Ashland in respect of any Income Tax; and


(b) Any liability which was required to be disclosed on a Schedule to this Agreement and was not so disclosed;


The liabilities assumed pursuant to this Section 1.4 are called "Assumed Liabilities."


1.5. One-Time Make-Whole Payment. In connection with the transaction
--------------------------- contemplated under this Agreement, the cash portion of the Stone Price shall be increased by a one-time make-whole payment equal to the difference to the Existing Shareholders between income taxes at ordinary income tax rates and income taxes at capital gains tax rates (each for federal and state income tax purposes) attributable to the transaction being structured as an asset purchase or partially taxable (S)351 transaction versus a stock purchase including, without limitation, depreciation recapture, LIFO recapture and Stone distribution of subchapter "C" corporation earnings after the Closing to the Existing Shareholders. The preliminary calculation of the make-whole payment shall be increased to compensate for federal and state income taxes payable on the make-whole payment (but not for taxes on such increase), and then such increased amount will be reduced by a percentage equal to the percentage of the total consideration to be paid pursuant to Section 1.1(a) which consists of stock. The result of these calculations shall be the amount of the actual make- whole payment and shall be payable upon determination but no later than September 30, 1998.


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ARTICLE II.


CLOSING


2.1. Closing. The Closing of the transactions contemplated herein (the
------- "Closing") shall be held at 9:00 a.m. local time on June 19, 1998 (the "Closing Date"), unless the Parties otherwise agree.


2.2. Conveyances at Closing.
----------------------


(a) Instruments and Possession. To effect the sale and transfer of
-------------------------- Assets referred to in Section 1.3 hereof, Stone and Ashland will, at the Closing, execute and deliver to City:


(i) one or more Bills of Sale, in the form attached hereto as Exhibit A, conveying in the aggregate all of the personal property owned by Stone and Ashland included in the Assets;


(ii) subject to Section 8.3, Assignments of Lease in the form attached hereto as Exhibit B with respect to the Leases;


(iii) subject to Section 8.3, Assignments of Contract Rights in the form attached hereto as Exhibit C with respect to all contracts which City shall assume unless listed on Schedule 1.4;


(iv) subject to Section 8.3, Assignments of Patents and Trademarks and other Proprietary Rights (including an assignment of all rights, title and interest of Stone and Ashland to the names "Stone Heavy Duty and "Ashland Auto Parts," respectively and all variations thereof) each in the form attached hereto as Exhibit D, in recordable form to the extent necessary to assign such rights; and


(v) such other instruments as shall be requested by City to vest in City title in and to the Assets in accordance with the provisions hereof.


(b) Assumption Document. Upon the terms and subject to the
------------------- conditions set forth herein, at the Closing, City shall deliver to Stone and Ashland an instrument of assumption substantially in the form attached hereto as Exhibit E, evidencing City's assumption of all liabilities of Stone and Ashland, pursuant to Section 1.4 hereof, excluding the Excluded Liabilities (the "Assumption Document").


(c) Form of Instruments. To the extent that a form of any document
------------------- to be delivered hereunder is not attached as an Exhibit hereto, such documents shall be in form and substance, and shall be executed and delivered in a manner reasonably satisfactory to City and Stone.


(d) Certificates; Opinions. City, Stone and Ashland shall deliver
---------------------- the certificates, opinions of counsel and other matters described in Articles VI and VII.


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(e) Consents. Stone and Ashland shall deliver all Permits (as
-------- defined herein) and any other third party consents required for the valid transfer of the Assets as contemplated by this Agreement.


ARTICLE III.


REPRESENTATIONS AND WARRANTIES OF STONE AND ASHLAND


Stone and Ashland hereby represent and warrant to City as follows, except as otherwise set forth in a disclosure schedule ("Schedule") attached hereto, incorporated by reference herein and made a part hereof, the number of each Schedule corresponding to the Section number to which it refers:


3.1. Corporate Organization and Standing. Stone and Ashland are each a
----------------------------------- corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and each has all requisite corporate power and authority to own or lease its properties and to carry on its business as presently conducted. Stone has delivered to City or its representatives complete and correct copies of its Articles of Incorporation and Bylaws (or other charter documents) and all amendments thereto. Stone and Ashland are each duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the nature of the business as now being conducted by it or the property owned or leased by it makes such qualification necessary. Schedule 3.1 hereto contains a true, correct and complete list of all jurisdictions in which Stone or Ashland is qualified to do business as a foreign corporation.


3.2. Authorization. This Agreement, the Ancillary Agreements, and the
------------- transactions contemplated hereby and thereby have been duly authorized, executed and delivered by each of Stone, Ashland and the Existing Shareholders, and are the legal, valid and binding obligations of each of Stone, Ashland and the Existing Shareholders, enforceable against it, him or her in accordance with their terms, except as enforcement may be limited by equitable principles limiting the right to obtain specific performance or other equitable remedies, or by applicable bankruptcy or insolvency laws and related decisions affecting creditors' rights generally.


3.3. No Conflict or Violation. Except as set forth on Schedule 3.3,
------------------------ neither the execution and delivery of this Agreement, the Ancillary Agreements nor the consummation of the transactions contemplated hereby or thereby will (i) violate, conflict with or result in or constitute a default under or result in the termination or the acceleration of, or the creation in any party of any right (whether or not with notice or lapse of time or both) to declare a default, accelerate, terminate or cancel any indenture, contract, lease, sublease, loan agreement, note or other obligation or liability ("Contractual Obligation") to which Stone or Ashland is a party or by which any of them is bound or to which any of their assets is subject or result in the creation of any lien or encumbrance upon any of said assets, (ii) violate, conflict with or result in a breach of or constitute a default under any provision of the Articles of Incorporation or Bylaws of Stone or Ashland, (iii) violate, conflict with or result in a breach of or constitute a default under any judgment, order, decree, rule or regulation of any court or governmental agency to which Stone or Ashland is subject, or would, in the case of clause (i), constitute a default with respect to a Material Contract (as defined below) or (iv) violate, conflict with or result in a breach of any


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applicable federal or state rule or regulation, which violation, conflict or breach would have a Material Adverse Effect (as defined herein).


3.4. Facilities. Schedule 3.4 contains a complete and accurate list of
---------- all real property used in connection with the Business ("Real Property"), all of which are leased ("Leased Real Property"). Neither Stone nor Ashland owns any Real Property except for leasehold improvements.


(a) Actions. There are no pending or, to the best knowledge of Stone
------- or Ashland, threatened, condemnation proceedings or other actions, claims, suits, litigation, proceedings, notices of violation, inquiry or investigations (collectively, "Actions") relating to any facility located on Real Property used by Stone or Ashland in connection with the Business ("Facility"), except as set forth on Schedule 3.4.


(b) Leases or Other Agreements. There are no leases, subleases,
-------------------------- licenses, occupancy agreements, options, rights, concessions or other agreements or arrangements, written or oral, granting to any person (other than Stone or Ashland) the right to purchase, use or occupy any Facility or any Real Property or any portion thereof, or interest in any such Facility or Real Property.


(c) Facility Leases and Leased Real Property. With respect to each
---------------------------------------- Facility lease, Stone has an unencumbered interest in its applicable leasehold estate and enjoys peaceful and undisturbed possession of its applicable Leased Real Property.


(d) Certificate of Occupancy. To the best knowledge of Stone or
------------------------ Ashland, all Facilities have received all required approvals of governmental authorities (including, without limitation, permits and a certificate of occupancy or similar certificate permitting lawful occupancy of the Facilities) required in connection with the operation thereof and are and have been operated and maintained in accordance with applicable regulations.


(e) Utilities. All Facilities are supplied with all utilities
--------- necessary to the operation of such Facilities (including, without limitation, water, sewage, disposal, electricity, gas and telephone) as currently operated, and, to the best knowledge of Stone or Ashland, there is no condition which would reasonably be expected to result in the termination of the present access from any Facility to such utility services.


(f) Improvements, Fixtures and Equipment. The improvements
------------------------------------ constructed on the Facilities, including, without limitation, all leasehold improvements, and all fixtures and equipment and other tangible assets owned, leased or used by Stone or Ashland at the Facilities are (i) insured to the extent reflected in Schedule 3.21, (ii) sufficient for the operation of Stone or Ashland as presently conducted and (iii) in conformity with all applicable regulations.


(g) No Special Assessment. Neither Stone nor Ashland has received
--------------------- notice of any special assessment relating to any Facility or any portion thereof, and, to the best knowledge of Stone or Ashland, there is no pending or threatened special assessment.


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3.5. Assets. Excluding the Leased Real Property, Stone and Ashland have
------ and will transfer to City good and marketable title to the Assets, free and clear of any encumbrances, except for minor liens which in the aggregate are not substantial in amount, do not materially detract from the value or transferability of the Assets subject thereto taken as a whole or interfere in any material respect with the present use and have not arisen other than in the ordinary course of business ("Permitted Encumbrances"). All tangible assets and properties which are part of the Assets are in good operating condition and repair, ordinary wear and tear excepted, and are usable in the ordinary course of business and conform in all material respects to all applicable regulations (including Environmental Laws (as defined herein)) relating to their use and operation.


3.6. Financial Statements.
--------------------


(a) The audited combined balance sheets of Stone and Ashland dated as of December 31, 1997 and the reviewed combined balance sheets of Stone and Ashland dated as of December 31,1996 and 1995, respectively, and the unaudited combined balance sheets of Stone and Ashland for the three-month period ended March 31, 1998 (the balance sheets dated 1997, 1996, 1995 and March 31, 1998, the "1997 Balance Sheets," the "1996 Balance Sheets", the "1995 Balance Sheets" and the March 31, 1998 Balance Sheet, respectively, or collectively, the "Balance Sheets") were prepared in accordance with generally accepted accounting principles ("GAAP") consistently applied (excluding footnotes and year-end adjustments) and fairly present the financial condition of Stone and Ashland in all material respects as of their respective dates. Neither Stone nor Ashland had any material liabilities of any nature as of such respective dates, whether absolute, accrued, asserted or unasserted or contingent or whether due or to become due which should have been recorded or reserved for on the Balance Sheets and were not so recorded or reserved.


(b) The audited combined statements of earnings and retained earnings and statements of cash flows of Stone and Ashland for the fiscal year ended December 31, 1997 and the reviewed combined statements of earnings and retained earnings and statement ...