<PAGE> 1
As filed with the Securities and Exchange Commission on June 24, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
GROUP 1 AUTOMOTIVE, INC.
(Name of Registrant as specified in its charter)
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<C> <C> <C>
DELAWARE 5511 76-0506313
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
950 ECHO LANE, SUITE 350
HOUSTON, TEXAS 77024
(713) 467-6268
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
B. B. HOLLINGSWORTH, JR.
950 ECHO LANE, SUITE 350
HOUSTON, TEXAS 77024
(713)467-6268
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
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<C> <C>
JOHN S. WATSON PATRICIA A. CERUZZI
VINSON & ELKINS L.L.P. SULLIVAN & CROMWELL
1001 FANNIN STREET, 36TH FLOOR 125 BROAD STREET
HOUSTON, TEXAS 77002 NEW YORK, NEW YORK 10004
(713) 758-2222 (212) 558-4000
</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 registered on this Form are being 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
================================================================================
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<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.01 par value per share............... $55,000,000 $16,667
- ---------------------------------------------------------------------------------------------------------------
Preferred Share Purchase Rights...................... None None
===============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933.
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 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
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.
SUBJECT TO COMPLETION, DATED JUNE 24, 1997
SHARES
[LOGO] GROUP 1 AUTOMOTIVE, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------
Of the shares of Common Stock offered hereby,
shares are being sold by the Company and shares are being sold by the
Selling Stockholder. See "Principal and Selling Stockholders". The Company will
not receive any of the proceeds from the sale of the shares being sold by the
Selling Stockholder.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price per share will be between $ and $ . For factors to be
considered in determining the initial public offering price, see "Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "GPI".
---------------------
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.
---------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT(1) COMPANY(2) STOCKHOLDERS(2)
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
Total(3)......................... $ $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company and
$ payable by the Selling Stockholder.
(3) The Company has granted the Underwriters an option for 30 days to purchase
up to an additional shares at the initial public offering price
per share, less the underwriting discount, solely to cover over-allotments.
If such option is exercised in full, the total initial public offering
price, underwriting discount and proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting".
---------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1997 against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
---------------------
The date of this Prospectus is , 1997.
<PAGE> 3
[GRAPHICS]
This Prospectus includes statistical data regarding the automotive
retailing industry. Unless otherwise indicated, such data is taken or derived
from information published by (i) the Industry Analysis Division of the National
Automobile Dealers Association ("NADA") in its NADA Data 1996, (ii) Crain
Communications Inc. in its Automotive News 100-Year Almanac, 1996 Market Data
Book and 1997 Market Data Book or (iii) ADT Automotive, Inc. in its 1996 Used
Car Market Report.
NO MANUFACTURER (AS DEFINED IN THIS PROSPECTUS) HAS BEEN INVOLVED, DIRECTLY
OR INDIRECTLY, IN THE PREPARATION OF THIS PROSPECTUS OR IN THE OFFERING BEING
MADE HEREBY. NO MANUFACTURER HAS MADE ANY STATEMENTS OR REPRESENTATIONS IN
CONNECTION WITH THE OFFERING OR PROVIDED ANY INFORMATION OR MATERIALS THAT WERE
USED IN CONNECTION WITH THE OFFERING, AND NO MANUFACTURER HAS ANY RESPONSIBILITY
FOR THE ACCURACY OR COMPLETENESS OF THIS PROSPECTUS. THE COMPANY HAS AGREED TO
INDEMNIFY EACH MANUFACTURER WITH WHICH IT HAS A FRANCHISE AGREEMENT AGAINST
CERTAIN LIABILITIES THAT MAY BE INCURRED IN CONNECTION WITH THE OFFERING,
INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
Immediately prior to the closing of the offering made hereby (the
"Offering"), Group 1 Automotive, Inc. will acquire, in separate simultaneous
transactions (collectively, the "Acquisitions") in exchange for cash and shares
of its Common Stock, par value $.01 per share ("Common Stock"), 13 corporations
(each a "Founding Company" and, collectively, the "Founding Companies") that own
automobile dealerships and related operations that are currently part of four
separate dealership groups (the "Founding Groups"). The Offering is conditioned
on the consummation of the Acquisitions. Unless otherwise indicated, all
references to "Group 1 Automotive" herein mean Group 1 Automotive, Inc. prior to
consummation of the Acquisitions, and all references to the "Company" herein
mean Group 1 Automotive, Inc., as consolidated with the Founding Groups
following consummation of the Acquisitions.
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all share, per share
and financial information set forth herein (i) have been adjusted retroactively
to give effect to (a) the Acquisitions and (b) a 900-for-one split of the
outstanding shares of Common Stock of Group 1 Automotive effected on December
13, 1996, and (ii) assume no exercise of the Underwriters' over-allotment
option. See "Underwriting". Investors should carefully consider the information
set forth in "Risk Factors".
THE COMPANY
The Company was founded to become a leading operator and consolidator in
the highly fragmented automotive retailing industry. The Company owns 30
automobile dealerships and five collision service centers located in Texas and
Oklahoma, and sells new and used cars and light trucks, provides maintenance and
repair services, sells replacement parts and provides related financing,
insurance and service contracts. The Company represents 21 American and Asian
brands including Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda, Isuzu,
Jeep, Kia, Lexus, Lincoln, Mazda, Mercury, Mitsubishi, Nissan, Oldsmobile,
Plymouth, Pontiac, Suzuki and Toyota. The Company's dealerships include the
second largest Toyota dealership in the United States as measured by new retail
unit sales and one of the largest dealership groups in Oklahoma. The Company is
experiencing significant momentum in its financial results. From 1994 to 1996,
the Company's revenues increased by $172.1 million, or 26.4%, to $824.8 million
from $652.7 million. During this period gross profit increased $27.0 million, or
32.1%, to $111.0 million from $84.0 million, or to 13.5% from 12.9% of revenues.
The principals of the Founding Groups have over 90 years of combined
experience in the automotive retailing industry with family ownership dating
back as far as 1917. In addition, the principals of the Founding Groups have
been recognized as leaders in the automotive retailing industry, serving at
various times in leadership positions in state and national industry
organizations. The Company's dealerships have also received numerous awards
based on various performance measures. The principals of the Founding Groups
will continue to manage their businesses and play a significant role in the
Company's operating and acquisition strategies.
The Company believes that its structural, managerial and operational
strengths include (i) brand and geographic diversity; (ii) the ability to
capitalize on regional economies of scale; (iii) cost savings derived from
nationally centralized financing and administrative functions; (iv) the
experience of the Company's senior management in successfully consolidating and
operating in highly fragmented industries; (v) the reputations, experience and
performance of the Company's management and principals as leaders in the
automotive retailing industry; (vi) the established customer base and local name
recognition of the Company's dealerships; (vii) the Company's proven ability to
source high quality used vehicles cost-effectively through trade-ins and
off-lease programs; and (viii) access to equity incentives to attract and retain
high quality personnel.
The Company will pursue a growth strategy led by a management team with
extensive experience in consolidation and the management of growth companies.
B.B. Hollingsworth, Jr., Chairman of the Board, President and Chief Executive
Officer of the Company, has experience not only in the automotive retailing
3
<PAGE> 5
industry, but also in consolidating a major national industry, having served in
various senior management capacities, including President, of Service
Corporation International during its early growth period as the world's leading
consolidator of the funeral industry.
The U.S. automotive retailing industry is estimated to have annual sales in
excess of $600 billion, with the 100 largest dealer groups generating less than
10% of total sales revenue and controlling approximately 5% of the 22,000
existing franchised dealerships. It is estimated that sales by franchised
automobile dealers account for one-fifth of the nation's total retail sales of
all products and merchandise. The Company believes that the enormous size and
the fragmentation of the industry, together with increasing capital costs of
operating automobile dealerships, lack of a viable exit strategy (especially for
larger dealerships) and the aging of dealership owners provide an attractive
environment for consolidation opportunities. In addition, many successful and
entrepreneurial, private "megadealers" have expressed interest in expanding
their operations, but have been restrained by a lack of capital. The Company
believes that it provides an attractive opportunity for these megadealers due to
the Company's formation by a consolidation of similar megadealers, its access to
the public capital markets, and its position as a vehicle for growth.
BUSINESS STRATEGY
The Company plans to achieve its goal of becoming a leading consolidator,
while maintaining its high operating standards in the automotive retailing
industry, by (i) enhancing growth through acquisitions and (ii) implementing an
operating strategy that focuses on decentralized dealership operations,
nationally centralized administrative functions, the expansion of higher margin
businesses, a commitment to customer service and the implementation of new
technology initiatives. By complementing the Company's industry leaders,
management talent and proven operating capabilities with its corporate
management team which is experienced in achieving and managing long-term growth
in a consolidation environment, the Company believes that it is in a strong
position to execute this strategy.
GROWTH THROUGH ACQUISITIONS
The Company intends to implement an aggressive, yet disciplined,
acquisition program by pursuing (i) large, profitable and well managed
"platform" acquisitions in large metropolitan and high-growth suburban
geographic markets that the Company does not currently serve and (ii) smaller
"add-on" acquisitions that will allow the Company to increase brand diversity,
capitalize on regional economies of scale and offer a greater breadth of
products and services in each of the markets in which it operates. In this
regard, the Company is currently negotiating for a $75 million credit facility
with a major bank which will be used, in combination with the Company's common
stock, for acquisitions.
ENTERING NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets it does not currently serve by acquiring large, profitable
and well established megadealers that, like the Founding Groups, are leaders in
their regional markets. The Company will target new platform megadealers having
superior operational and financial management personnel which the Company will
seek to retain. The Company believes that retaining existing high quality
management will enable acquired megadealers to continue to operate effectively
with management personnel who understand the local market, while allowing the
Company to source future acquisitions more effectively and expand its operations
without having to employ and train untested new personnel. Moreover, the Company
believes that it is well positioned to pursue larger, well established
acquisition candidates as a result of its depth of management, the Company's
capital structure and the reputation of the principals of the Founding Groups as
leaders in the automotive retailing industry.
EXPANDING WITHIN EXISTING MARKETS. The Company plans to acquire additional
dealerships in each of the markets in which it operates, including acquisitions
that increase the brands, products or services offered in that market. The
Company believes that these acquisitions will facilitate operating efficiencies
and cost savings on a regional level in areas such as facility and personnel
utilization, vendor consolidation and advertising.
4
<PAGE> 6
OPERATING STRATEGY
The Company intends to implement an operating strategy that focuses on
decentralized dealership operations, nationally centralized administrative
functions, expansion of higher margin businesses, commitment to customer service
and new technology initiatives.
The Company has formed an operations committee comprised of the chief
operating officers of the Founding Groups and the general managers of the
dealerships in order to identify and share best practices. The Company intends
to incorporate the key officers and management of future acquisitions into this
operations committee. The Company believes that this operations committee will
promote the widespread application of the Company's broad strategic initiatives,
facilitate the integration of the Founding Groups and future acquisitions and
improve operating efficiency and overall customer satisfaction.
DECENTRALIZED DEALERSHIP OPERATIONS. The Company believes that
decentralizing its dealership operations on a regional, or platform, basis will
enable it to provide superior customer service and a focused, market-specific
responsiveness to sales, service, marketing and inventory control. Local
presence and an in-depth knowledge of customers' needs and preferences are
important in generating internally-driven market share growth. By coordinating
certain operations on a platform basis, the Company believes that it will
achieve cost savings in such areas as vendor consolidation, facility and
personnel utilization and advertising. In addition, the Company believes that
significant cost savings will be achieved by consolidating certain
administrative functions on a regional basis that would not be efficient on a
national basis such as accounting, information systems, title work, credit and
collection. The Company intends to create incentives for entrepreneurial
management teams and sales forces at the regional level through the use of stock
options and/or cash bonus programs.
NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. The consolidation of
purchasing power on a centralized basis in the area of financing should result
in significant cost savings. The Company is negotiating with several lenders to
refinance its floorplan debt on more favorable terms. Since the Company's credit
quality is expected to be enhanced by the Acquisitions and the Offering,
management expects the interest rate on its floorplan debt to decrease as
compared to the interest rates currently being charged to the Founding Groups.
In addition, the Company expects that significant cost savings can be achieved
through the consolidation of administrative functions such as employee benefits,
risk management and employee training on a centralized basis. For example, the
Founding Groups each currently purchase insurance from separate sources. The
Company is working with a national insurance firm to develop an overall risk
management strategy that will efficiently protect the Company's assets and
minimize future liabilities.
EXPAND HIGHER MARGIN ACTIVITIES. The Company is focused on leveraging its
new vehicle franchises by expanding its higher margin businesses such as used
vehicle retail sales, service and parts and finance and insurance. While each of
the Company's platforms will be able to operate independently in a manner
consistent with its specific market's characteristics, each platform will pursue
an integrated strategy to grow each of these higher margin businesses to enhance
profitability and stimulate internal growth. With a competitive advantage in
sourcing, the ability to provide manufacturer-backed extended service contracts,
and attractive lease financing, new vehicle franchises are especially well
positioned to capitalize on industry growth in used vehicle sales. In addition,
each of the Company's dealerships offers an integrated service and parts
department, which provides an important source of recurring higher margin
revenues. The Company also has the opportunity on each new or used vehicle sold
to generate incremental revenues from the sale of extended service contracts,
credit insurance policies and finance and lease contracts. Each of these
business areas will be a focus of internal growth.
5
<PAGE> 7
FOUNDING GROUPS
The Company was formed by a consolidation of the businesses of the
following previously separate dealership groups:
HOWARD GROUP. This group is one of the largest dealership groups in
Oklahoma, consisting of Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda,
Isuzu, Jeep, Mazda, Plymouth, Pontiac and Toyota dealerships located in Oklahoma
City (the "Howard Group"). Additionally, the Howard Group expects to enter into
an agreement to purchase a Chevrolet dealership in Tulsa, Oklahoma. Robert E.
Howard II, the principal owner, has been involved in the automotive retailing
industry for over 28 years. In 1996, the Howard Group sold 8,181 new vehicles.
From 1994 to 1996, the Howard Group's revenues increased by $54.7 million, or
24.1%, to $282.0 million from $227.3 million. During this period, gross profit
increased $9.3 million, or 32.9%, to $37.6 million from $28.3 million.
MCCALL GROUP. This group consists of the second largest Toyota dealership
in the United States, as ranked by 1996 new unit sales, and a Lexus dealership,
both located in Houston, Texas (the "McCall Group"). Sterling B. McCall, Jr.,
the principal owner, has been involved in the automotive retailing industry for
more than 27 years, having been granted the first stand-alone exclusive Toyota
dealership in Houston. In 1996, the McCall Group sold 6,458 new vehicles. From
1994 to 1996, the McCall Group's revenues increased by $111.2 million, or 62.7%,
to $288.5 million from $177.3 million. During this period, gross profit
increased $14.3 million, or 57.9%, to $39.0 million from $24.7 million.
SMITH GROUP. This group consists of an Acura dealership in Houston, Texas,
Honda, GMC, Oldsmobile, Mitsubishi, Lincoln, Mercury and Kia dealerships in
Beaumont, Texas, a Nissan dealership in Richardson, Texas (a suburb of Dallas)
and two Nissan dealerships, one Mitsubishi dealership and one Suzuki dealership
in the Austin, Texas area (the "Smith Group"). The Smith family has been in the
automotive retailing business since 1917. In 1996, the Smith Group sold 5,983
new vehicles. From 1994 to 1996, the Smith Group's revenues increased by $1.2
million, or 0.6%, to $218.3 million from $217.1 million. During this period,
gross profit increased $1.9 million, or 7.0%, to $29.1 million from $27.2
million.
KINGWOOD GROUP. This group consists of one Honda and one Isuzu dealership
in Kingwood, Texas, a suburb of Houston (the "Kingwood Group"). The Honda
dealership was established in 1989 and the Isuzu dealership was established in
1996. Mr. Hollingsworth, and John H. Duncan, a director of the Company, own
interests in these dealerships. In 1996, the Kingwood Group sold 756 new
vehicles. From 1994 to 1996, the Kingwood Group's revenues increased by $4.9
million, or 15.8%, to $35.9 million from $31.0 million. During this period,
gross profit increased $1.5 million, or 39.5%, to $5.3 million from $3.8
million.
Group 1 Automotive was incorporated in Delaware in December 1995, and its
principal executive offices are located at 950 Echo Lane, Suite 350, Houston,
Texas. Its telephone number is (713) 467-6268.
6
<PAGE> 8
THE OFFERING (1)
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Common Stock offered by the Company................... shares
Common Stock offered by the Selling Stockholder....... shares
Total............................................ shares
Common Stock to be outstanding after the
Offering(2)......................................... shares
Proposed NYSE Symbol.................................. GPI
Use of Proceeds....................................... The estimated net proceeds to the Company of
the Offering will be $ million, of
which approximately $5.4 million will be used
to pay the cash portion of the Acquisitions
and approximately $ million will be
used to repay outstanding indebtedness. The
balance will be used for working capital and
general corporate purposes, including
potential acquisitions. See "Certain
Transactions" and "Use of Proceeds".
</TABLE>
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(1) Assumes that the Underwriters' over-allotment option is not exercised.
(2) Includes 9,123,890 shares of Common Stock to be issued in connection with
the Acquisitions. Excludes 565,000 shares of Common Stock subject to options
granted under the Company's 1996 Stock Incentive Plan, shares of
Common Stock subject to options to be granted under the Company's 1996 Stock
Incentive Plan upon completion of the Offering and an additional
shares of Common Stock reserved for issuance under the 1996
Stock Incentive Plan. See "Management -- 1996 Stock Incentive Plan".
RISK FACTORS
See "Risk Factors" beginning on page 11 for a description of certain risks
relevant to an investment in the Common Stock.
7
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SUMMARY FINANCIAL DATA
Group 1 Automotive will acquire the Founding Groups immediately prior to
the consummation of the Offering. For financial statement purposes, the Howard
Group, has been identified as the accounting acquiror. The following summary
financial data presents, for the year ended December 31, 1996, and as of and for
the three months ended March 31, 1997, certain historical and pro forma data for
the Founding Groups. See "Selected Financial Data" and the Pro Forma Financial
Statements and the notes thereto included elsewhere in this Prospectus.
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FOR THE YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------
HOWARD MCCALL SMITH KINGWOOD PRO FORMA(1)
-------- -------- -------- -------- ------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME STATEMENT DATA(2):
Revenues
New vehicle sales............... $164,979 $166,382 $124,174 $13,784 $469,318
Used vehicle sales.............. 88,477 90,895 60,579 18,075 258,027
Parts & service sales........... 21,173 24,454 28,631 2,925 77,184
Other dealership revenues,
net.......................... 7,387 6,811 4,895 1,165 21,117
-------- -------- -------- ------- --------
Total revenues............... 282,016 288,542 218,279 35,949 825,646
Cost of sales..................... 244,396 249,560 189,169 30,640 712,772
-------- -------- -------- ------- --------
Gross profit................. 37,620 38,982 29,110 5,309 112,874
Goodwill amortization............. 98 -- 67 -- 1,039
Selling, general and
administrative expenses......... 30,670 35,072 23,644 3,997 93,566
-------- -------- -------- ------- --------
Income from operations....... 6,852 3,910 5,399 1,312 18,269
Other income and expense
Interest expense, net........... (1,194) (2,748) (1,710) (439) (2,582)
Other income (expense), net..... (69) (45) 223 67 175
-------- -------- -------- ------- --------
Income before taxes.......... 5,589 1,117 3,912 940 15,862
Provision for income taxes........ 382 178 678 41 6,635
-------- -------- -------- ------- --------
Net income................... $ 5,207 $ 939 $ 3,234 $ 899 $ 9,227
======== ======== ======== ======= ========
Earnings per share................
Weighted average shares
outstanding.....................
OTHER DATA:
Gross margin...................... 13.3% 13.5% 13.3% 14.8% 13.7%
Operating margin.................. 2.4% 1.4% 2.5% 3.6% 2.2%
Pre-tax margin.................... 2.0% 0.4% 1.8% 2.6% 1.9%
Retail new vehicles sold.......... 8,181 6,458 5,983 756 21,378
Retail used vehicles sold......... 7,779 4,496 3,844 1,101 17,220
</TABLE>
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<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
----------------------------------------------------------
HOWARD MCCALL SMITH KINGWOOD PRO FORMA(1)
-------- -------- -------- --------- ------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
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INCOME STATEMENT DATA(2):
Revenues
New vehicle sales.................. $38,248 $39,028 $36,149 $3,993 $117,418
Used vehicle sales................. 25,606 26,949 16,377 4,285 73,216
Parts & service sales.............. 5,413 6,011 6,983 623 19,030
Other dealership revenues, net..... 1,841 1,764 1,425 251 5,638
------- ------- ------- ------ --------
Total revenues.................. 71,108 73,752 60,934 9,152 215,302
Cost of sales........................ 61,756 63,953 52,484 7,805 185,726
------- ------- ------- ------ --------
Gross profit.................... 9,352 9,799 8,450 1,347 29,576
Goodwill amortization................ 10 -- 7 -- 254
Selling, general and administrative
expenses........................... 8,012 8,911 6,868 1,134 25,288
------- ------- ------- ------ --------
Income from operations.......... 1,330 888 1,575 213 4,034
Other income and expense
Interest expense, net.............. (379) (283) (447) (64) (305)
Other income (expense), net........ 14 (31) (5) -- (22)
------- ------- ------- ------ --------
Income before taxes............. 965 574 1,123 149 3,707
Provision (benefit) for income
taxes.............................. (39) 230 209 7 1,558
------- ------- ------- ------ --------
Net income...................... $ 1,004 $ 344 $ 914 $ 142 $ 2,149
======= ======= ======= ====== ========
Earnings per share...................
Weighted average shares..............
OTHER DATA:
Gross margin......................... 13.2% 13.3% 13.9% 14.7% 13.7%
Operating margin..................... 1.9% 1.2% 2.6% 2.3% 1.8%
Pre-tax margin....................... 1.4% 0.8% 1.8% 1.6% 1.7%
Retail new vehicles sold............. 1,864 1,447 1,933 207 5,451
Retail used vehicles sold............ 2,041 1,135 1,039 264 4,479
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------------
PRO FORMA
PRO FORMA(3) AS ADJUSTED(4)(5)
------------ -----------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 1,613
Inventories................................................. 123,650
Total assets................................................ 233,025
Total debt.................................................. 121,965
Stockholders' equity........................................ 57,123
</TABLE>
- ---------------
(1) Pro forma information gives effect to (i) the Acquisitions on an historical
basis, (ii) the consummation of the Offering and (iii) certain pro forma
adjustments to the historical financial statements. See Pro Forma Financial
Statements and the notes thereto beginning on page F-3 for a description of
the pro forma adjustments.
(2) The individual Founding Groups' Income Statement Data do not total to the
Pro Forma total since such individual Founding Groups' Income Statement Data
represent historical information before Pro Forma entries.
(3) Gives effect to the Acquisitions on an historical basis and certain pro
forma adjustments. See Pro Forma Financial Statements and the notes thereto
beginning on page F-3 for a description of the pro forma adjustments.
(4) Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting".
(5) Gives effect to the sale of the shares offered by the Company hereby and the
application of the net proceeds therefrom. See "Use of Proceeds".
9
<PAGE> 11
SUMMARY INDIVIDUAL FOUNDING GROUP FINANCIAL DATA
The following table presents certain summary financial data for each of the
Founding Groups.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995(1) 1996(1) 1996 1997(1)
-------- -------- -------- -------- --------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
HOWARD GROUP:
Revenues.......................... $227,259 $254,003 $282,016 $62,533 $71,108
Gross profit...................... 28,267 32,230 37,620 8,654 9,352
Selling, general and
administrative expenses........ 24,253 26,166 30,768 6,818 8,022
Income from operations............ 4,014 6,064 6,852 1,836 1,330
MCCALL GROUP:
Revenues.......................... $177,320 $218,888 $288,542 $62,693 $73,752
Gross profit...................... 24,747 30,157 38,982 8,660 9,799
Selling, general and
administrative expenses........ 22,477 27,752 35,072 7,835 8,911
Income from operations............ 2,270 2,405 3,910 825 888
SMITH GROUP:
Revenues.......................... $217,077 $221,258 $218,279 $49,746 $60,934
Gross profit...................... 27,157 28,593 29,110 6,919 8,450
Selling, general and
administrative expenses........ 21,727 22,824 23,711 5,577 6,875
Income from operations............ 5,430 5,769 5,399 1,342 1,575
KINGWOOD GROUP:
Revenues.......................... $ 31,036 $ 34,459 $ 35,949 $ 8,542 $ 9,152
Gross profit...................... 3,837 4,589 5,309 1,327 1,347
Selling, general and
administrative expenses........ 3,277 3,569 3,997 966 1,134
Income from operations............ 560 1,020 1,312 361 213
</TABLE>
- ---------------
(1) The Company anticipates reductions in selling, general and administrative
expenses and cost of sales and increases in other dealership revenue from
reductions in salary, benefits and other payments to the owners of the
Founding Groups to which the owners have agreed to upon the consummation of
the Acquisitions. These reductions are not reflected in the financial data
presented and would have resulted in a reduction in expenses of the combined
Founding Groups of approximately $4.3 million in 1995 and $5.1 million in
1996 and $1.1 million for the three months ended March 31, 1997.
10
<PAGE> 12
RISK FACTORS
Prospective purchasers should carefully consider the following factors, as
well as the other information and financial data contained in this Prospectus,
before purchasing the shares of Common Stock offered hereby.
ABSENCE OF COMBINED OPERATING HISTORY
Group 1 Automotive, which was incorporated in December 1995, has conducted
no operations to date other than in connection with the Acquisitions and the
Offering. The Founding Groups have been operated and managed as separate
independent entities to date, and the Company's future operating results will
depend in part on its ability to integrate the operations of these businesses
and manage the combined enterprise. The Company's management group has been
assembled only recently, and there can be no assurance that the management group
will be able to effectively and profitably integrate the Founding Groups and any
future acquisitions, or to effectively manage the combined entity. The inability
of the Company to do so could have a material adverse effect on the Company's
business, financial condition and results of operations.
MANUFACTURERS' CONTROL OVER DEALERSHIPS
Each of the Company's dealerships sells automobiles pursuant to franchise
agreements with automobile manufacturers or authorized distributors of the
manufacturers ("Manufacturers"). Through the terms and conditions of these
franchise agreements, Manufacturers exert considerable influence over the
operations of the Company's dealerships. Each of the franchise agreements
includes provisions for the termination or non-renewal of the
manufacturer-dealer relationship for a variety of causes including any
unapproved change of ownership or management and other material breaches of the
franchise agreement. The loss of one or more of the Company's franchise
agreements could have a material adverse effect on the Company's business,
financial condition and results of operations.
A number of Manufacturers impose restrictions on the Company. These
restrictions include prohibitions on (i) the acquisition of 20% or more of the
Common Stock by any one person who in the opinion of the Manufacturer is
unqualified to own a dealership of such Manufacturer or has interests
incompatible with the Manufacturer, (ii) certain extraordinary corporate
transactions such as a merger, sale of a material amount of assets or change in
the Board of Directors or management of the Company which could have a material
adverse effect on the Manufacturer's image or reputation or could be materially
incompatible with the Manufacturer's interests; (iii) the removal of a
dealership general manager without the consent of the Manufacturer; and (iv) the
use of dealership facilities to sell or service new vehicles of other
Manufacturers. If the Company is unable to comply with these restrictions, the
Company generally must (i) sell the assets of the dealerships to the
Manufacturer or to a third party acceptable to the Manufacturer, or (ii)
terminate the dealership agreements with the Manufacturer.
Unlike any of the other Manufacturers, American Honda Motor Co., Inc.
("American Honda") has stated to the Company that its policy on public ownership
requires that (i) public ownership of the Common Stock of the Company not exceed
49% of the outstanding Common Stock of the Company; (ii) more than 50% of the
Common Stock of the Company be owned by persons approved by American Honda and
transfer of any of these shares be subject to American Honda's prior approval;
(iii) American Honda has the right to approve each stockholder of the Company
who owns 5% or more of the Company's Common Stock; and (iv) certain individuals
must personally indemnify American Honda for any stockholder litigation in
connection with the registration of the Company's securities. Although the
Company has notified American Honda that these restrictions impose an
unreasonable burden on the Company and its principal stockholders, the Company
and American Honda are continuing to negotiate with respect to these matters.
Except for the restrictions listed above, the Company has generally agreed with
the other requirements of American Honda's policy on public ownership. If the
Company is unable to negotiate a satisfactory agreement with American Honda,
American Honda may withhold its consent to the acquisition of the Honda
dealerships by the Company. If the Company is required to dispose of its
11
<PAGE> 13
Honda dealerships or terminate its franchise agreements with American Honda, any
such requirement could have a material adverse effect on the Company.
Many Manufacturers attempt to measure customers' satisfaction with
automobile dealerships through systems generally known as the customer
satisfaction index ("CSI"). These Manufacturers may use a dealership's CSI
scores as a factor in evaluating applications for additional dealership
acquisitions and other matters, including the participation by a dealership in
incentive programs. Certain dealerships of the Company have had difficulty from
time to time meeting their Manufacturers' CSI standards. The components of the
various Manufacturer CSI scores have been modified from time to time in the
past, and there is no assurance that such components will not be further
modified or replaced by different systems in the future. Failure of the
Company's dealerships to comply with the CSI standards imposed by the
Manufacturers at any given time may have a material adverse effect on the
Company.
Prior approval of the relevant Manufacturers is required with respect to
acquisitions of automobile dealerships, and a Manufacturer may deny the
Company's application to make an acquisition or seek to impose further
restrictions on the Company as a condition to granting approval of an
acquisition. See "-- Dependence on Acquisitions for Growth". Certain state laws,
however, limit the ability of the Manufacturers to reject proposed transfers of
dealerships, notwithstanding the terms of any dealer or franchise agreement. See
"Business -- Franchise Agreements".
DEPENDENCE ON AUTOMOBILE MANUFACTURERS
The success of each of the Company's dealerships is highly dependent upon
the overall success of the line of vehicles that each dealership sells. New
vehicles manufactured by Toyota Motor Corp. ("Toyota Motor"), General Motors
Corporation ("GM"), Honda Motor Co., Ltd. ("Honda Motor"), Nissan Motor Co.,
Ltd. ("Nissan Motor"), and Chrysler Corporation accounted for approximately 34%,
17%, 16%, 14% and 9%, respectively, of the Company's new vehicle sales for 1996.
No other Manufacturer accounted for more than 3% of new vehicle sales revenues
of the Company during 1996.
The Company's business is affected to varying degrees by the demand for its
Manufacturers' vehicles, and by the financial condition, management, marketing,
production and distribution capabilities of such Manufacturers. In addition, the
timing, structure and amount of Manufacturer incentives may impact the timing
and profitability of the Company's sales transactions. Events such as labor
disputes and other production disruptions, that may adversely affect a
Manufacturer may also adversely affect the Company. Similarly, the delivery of
vehicles from Manufacturers later than scheduled, which may occur particularly
during periods of new product introductions, can lead to reduced sales during
such periods. Moreover, any event that causes adverse publicity involving such
Manufacturers may have an adverse effect on the Company regardless of whether
such event involves any of the Company's dealerships.
The Company also depends on its Manufacturers to provide it with a
desirable mix of new vehicles. The most popular vehicles generally produce the
highest profit margins and are frequently the most difficult to obtain from the
Manufacturers. In some instances, in order to obtain additional allocations of
these vehicles, the Company may elect to purchase a larger number of less
desirable models than it would otherwise purchase. Sales of less desirable
models may result in lower profit margins than sales of the more popular
vehicles. If the Company is unable to obtain sufficient quantities of the most
popular models its profitability may be adversely affected.
The Company's franchise agreements with its Manufacturers do not give the
Company the exclusive right to sell a Manufacturer's product within a given
geographic area. Accordingly, a Manufacturer could grant another dealer a
franchise to start a new dealership in proximity to one or more of the Company's
locations or an existing dealer could move its dealership to a location which
would compete directly with the Company, although certain state laws provide a
mechanism for challenging such action in advance through administrative or legal
proceedings. If the Company cannot prevent a Manufacturer from granting a new
franchise near to one of the Company's dealerships, such grant could have a
material adverse effect on the Company and its operations.
12
<PAGE> 14
DEPENDENCE ON ACQUISITIONS FOR GROWTH
Growth in the Company's revenues and earnings will depend significantly on
the Company's ability to acquire and consolidate profitable dealerships. There
can be no assurance that the Company will be able to identify, acquire or
profitably manage and integrate additional dealerships, if any, into the
Company, or that it will be able to do so without substantial costs, delays or
other operational or financial problems. In addition, increased competition for
acquisition candidates may develop, which could result in fewer acquisition
opportunities available to the Company and/or higher acquisition prices.
Further, acquisitions involve a number of special risks, including possible
adverse effects on the Company's operating results, diversion of resources and
management's attention, inability to retain key acquired personnel, risks
associated with unanticipated events or liabilities and amortization of acquired
intangible assets, some or all of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company is required to obtain the consent of the applicable
Manufacturer prior to the acquisition of any dealership franchise. In
determining whether to approve an acquisition, the Manufacturers may consider
many factors, including the financial condition, ownership structure and CSI
scores of the Company. In addition, Manufacturers may limit the number of such
Manufacturers' dealerships that may be owned by the Company or the number that
may be owned in a particular geographic area. For example, Toyota Motor
currently limits the number of dealerships which may be owned by any one group
to seven Toyota and three Lexus dealerships and restricts the number of
dealerships that may be owned within certain geographic areas. Toyota Motor
further requires that at least nine months elapse between acquisitions.
Similarly, it is currently the policy of American Honda to restrict any company
from holding more than seven Honda or more than three Acura franchises and to
restrict the number of franchises held within certain geographic areas. Toyota
Motor and American Honda also prohibit ownership of contiguous dealerships and
the dualing of a franchise with any other brand without their consent. Ford
Motor Company ("Ford Motor") currently limits the number of dealerships to the
greater of (a) 15 Ford and 15 Lincoln Mercury dealerships, or (b) the number of
dealerships with total retail sales of new vehicles in the preceding calendar
year that would equal not more than 5% of total Ford and Lincoln Mercury
vehicles sold at retail in the United States during that year, which number may
not exceed 33 1/3% of the dealerships in any Ford Motor defined market area.
Chrysler Corporation currently limits the number of dealerships that may be
owned by the Company to a total of ten dealerships selling Chrysler Corporation
vehicles in the United States, with no more than six dealerships in the same
sales zone and no more than two dealerships in the same metropolitan market,
provided that such two dealerships are different vehicle brands. The Company
currently owns two Toyota, one Lexus, three Honda, two Acura, one Lincoln, one
Mercury, one Dodge, one Jeep, one Chrysler, one Plymouth and one Eagle
franchise. The Company's ability to obtain consents from Manufacturers to
acquire their franchises will directly affect its ability to implement its
growth strategy.
RISKS RELATED TO ACQUISITION FINANCING; FUTURE CAPITAL REQUIREMENTS
The Company currently intends to finance future acquisitions by issuing
shares of its Common Stock as full or partial consideration for acquired
dealerships. The extent to which the Company will be able or willing to issue
Common Stock for acquisitions will depend on the market value of the Common
Stock from time to time and the willingness of potential acquisition candidates
to accept Common Stock as part of the consideration for the sale of their
businesses. Since the Company will focus initially on large "platform"
acquisitions, it is possible that the Company will issue a significant number of
additional shares of Common Stock in connection with such acquisitions in the
near future. Such additional shares of Common Stock could be as much as, or more
than, the number of outstanding shares of Common Stock after giving effect to
the Offering. To the extent that the Company is unable or unwilling to do so,
the Company may be required to use available cash or other sources of debt or
equity financings. The Company is currently negotiating a bank credit facility
(the "Credit Facility") with a major bank. It is anticipated that the facility
will provide the Company with an unsecured revolving line of credit of up to $75
million which may be used for general corporate purposes, acquisitions, capital
expenditures and
13
<PAGE> 15
working capital. No assurance can be given that the net proceeds from the
Offering, other existing resources and the Credit Facility will be sufficient to
fund its acquisition program and other cash needs, or that the Company will be
able to obtain adequate additional capital from other sources. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined Founding Groups".
RELIANCE ON KEY PERSONNEL
The Company depends to a large extent upon the abilities and continued
efforts of its executive officers and the senior management of the Founding
Groups. Furthermore, the Company will likely be dependent on the senior
management of any businesses acquired in the future. If any of these persons
becomes unavailable to continue in such capacity, or if the Company is unable to
attract and retain other qualified employees, the Company's business or
prospects could be adversely affected. Although the Company has entered into an
employment agreement with each of its executive officers, there can be no
assurance that any individual will continue in his present capacity with the
Company for any particular period of time. See "Management".
SUBSTANTIAL COMPETITION
The automotive retailing industry is highly competitive with respect to
price, service, location and selection. The Company competes with automobile
dealerships (including public franchised dealership consolidators), private
market buyers and sellers of used vehicles, used vehicle dealerships, other
franchised dealerships, service center chains and independent service and repair
shops. In recent years, the Company has also faced competition from
nontraditional sources such as companies that sell automobiles on the Internet,
automobile rental agencies, independent leasing companies, used-car
"superstores" and price clubs associated with established consumer agencies such
as the American Automobile Association, some of which use non-traditional sales
techniques such as one-price shopping. In addition, Ford Motor has announced
that it is exploring the possibility of going into business with some of its
dealers to create automotive superstores in selected markets. Some of these
recent market entrants may have greater financial, marketing and personnel
resources than the Company, and/or lower overhead or sales costs. In addition,
there can be no assurance that the Company's strategy will be more effective
than the strategies of its competitors.
CYCLICALITY
Sales of motor vehicles, particularly new vehicles, historically have been
subject to substantial cyclical variation. The Company believes that the
industry is affected by many factors, including general economic conditions,
consumer confidence, the level of personal discretionary spending, interest
rates and credit availability. There can be no assurance that the industry will
not experience sustained periods of decline in vehicle sales, particularly new
vehicle sales, in the future. Any such decline could have a material adverse
effect on the Company.
SEASONALITY
The automobile industry is subject to seasonal variations in revenues.
Demand for automobiles is generally lower during the winter months than in other
seasons, particularly in regions of the United States associated with harsh
winters. Accordingly, the Company expects its revenues and operating results
generally to be lower in its first and fourth quarters than in its second and
third quarters.
IMPORTED PRODUCTS
A significant portion of the Company's new vehicle business involves the
sale of vehicles, parts or vehicles composed of parts that are manufactured
outside the United States. As a result, the Company's operations are subject to
customary risks of importing merchandise, including fluctuations in the value of
currencies, import duties, exchange controls, trade restrictions, work stoppages
and general political and
14
<PAGE> 16
economic conditions in foreign countries. The United States or the countries
from which the Company's products are imported may, from time to time, impose
new quotas, duties, tariffs or other restrictions, or adjust presently
prevailing quotas, duties or tariffs, which could affect the Company's
operations and its ability to purchase imported vehicles and/or parts.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
The Company is subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, consumer protection laws and
environmental requirements governing, among other things, discharges to the air
and water, the storage of petroleum substances and chemicals, the handling and
disposal of wastes, and the remediation of contamination arising from spills and
releases. The violation of these laws and regulations can result in civil and
criminal penalties being levied against the Company or in a cease and desist
order against operations that are not in compliance. Future acquisitions by the
Company may also be subject to governmental regulation, including antitrust
reviews. The Company believes that it substantially complies with all applicable
laws and regulations relating to its business, but future laws and regulations
may be more stringent and require the Company to incur significant additional
costs. See "Business -- Governmental Regulations" and "Business -- Environmental
Matters".
ANTI-TAKEOVER EFFECTS OF STOCKHOLDER RIGHTS PLAN AND THE COMPANY'S CHARTER AND
BYLAWS
Prior to the Offering, the Company intends to adopt a stockholder rights
plan. This plan and certain provisions of the Company's Certificate of
Incorporation, as amended ("Charter"), and Bylaws ("Bylaws") may have the effect
of discouraging, delaying or preventing a change in control of the Company or
unsolicited acquisition proposals that a stockholder might consider favorable.
These include provisions providing for a Board of Directors with staggered,
three-year terms, permitting the removal of a director from office only for
cause, allowing only the Board of Directors to set the number of directors,
requiring super-majority or class voting to effect certain amendments to the
Charter and Bylaws, limiting the persons who may call special stockholders'
meetings, limiting stockholder action by written consent and establishing
advance notice requirements for nominations for election to the Board of
Directors or for proposing matters that can be acted upon at stockholders'
meetings. The Delaware General Corporation Law requires super-majority voting
thresholds to approve certain "business combinations" between interested
stockholders and the Company which may render more difficult or tend to
discourage attempts to acquire the Company. In addition, the Company's Board of
Directors has the authority to issue shares of preferred stock ("Preferred
Stock") in one or more series and to fix the rights and preferences of the
shares of any such series without stockholder approval. Any series of Preferred
Stock is likely to be senior to the Common Stock with respect to dividends,
liquidation rights and, possibly, voting rights. The ability to issue Preferred
Stock could also have the effect of discouraging unsolicited acquisition
proposals, thus affecting the market price of the Common Stock and preventing
stockholders from obtaining any premium offered by the potential buyer. In
addition, certain of the Company's dealer agreements prohibit the acquisition of
20% or more of the Common Stock of the Company without the consent of the
relevant Manufacturers. See "Management -- Executive Officers and Directors",
"Principal and Selling Stockholders" and "Description of Capital Stock".
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON PRICE OF COMMON STOCK
Sales of substantial amounts of Common Stock in the public market
subsequent to the Offering could adversely affect the market price of the Common
Stock. Upon consummation of the Acquisitions and the Offering, the Company will
have shares of Common Stock outstanding ( shares if the
Underwriters' overallotment option is exercised in full). Of these shares, the
shares of Common Stock offered hereby ( shares if the
Underwriters' overallotment option is exercised in full) will be freely tradable
without restriction or further registration under the Securities Act of 1933, as
amended (the "Securities Act"), except for shares held by persons deemed to be
"affiliates" of the Company or acting as "underwriters" as those terms are
defined in the Securities
15
<PAGE> 17
Act. The remaining shares of Common Stock outstanding will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and will be eligible for resale subject to the volume, manner of sale, holding
period and other limitations of Rule 144. Currently, 565,000 shares of Common
Stock are issuable under existing stock options granted to certain executive
officers and employees of the Company. Options exercisable for shares
of Common Stock will be granted to directors and employees under the Company's
1996 Stock Incentive Plan upon completion of the Offering. An additional
shares of Common Stock are reserved for issuance to employees and
directors of the Company under the Company's 1996 Stock Incentive Plan. See
"Management -- 1996 Stock Incentive Plan", "Description of Capital Stock" and
"Shares Eligible for Future Sale".
In connection with the Acquisitions, each of the stockholders of the
Founding Companies, other than the Selling Stockholder with respect to the
shares he is selling in the Offering, has agreed not to sell or otherwise
dispose of shares of Common Stock received in the Acquisitions for a period of
two years from the closing date of the Acquisitions. In addition, the Company,
the executive officers and directors of the Company and the Selling Stockholder
have agreed not to sell any shares of Common Stock for a period of 180 days from
the date of this Prospectus without the consent of the representatives of the
Underwriters, other than the issuance of options to purchase Common Stock or
shares of Common Stock issuable upon the exercise thereof. See "Shares Eligible
for Future Sale" and "Underwriting".
NO PRIOR PUBLIC MARKET AND DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Application will be made to list the Common Stock on the New York Stock
Exchange. However, there can be no assurance that an active trading market will
develop subsequent to the Offering or, if developed, that it will be sustained.
The initial public offering price of the Common Stock will be determined through
negotiations between the Company and the representatives of the Underwriters and
may bear no relationship to the price at which the Common Stock will trade after
the Offering. For information relating to the factors to be considered in
determining the initial public offering price, see "Underwriting". Prices for
the Common Stock after the Offering may be influenced by a number of factors,
including the liquidity of the market for the Common Stock, investor perceptions
of the Company and the automotive retailing industry and general economic and
other conditions. Sales of substantial amounts of Common Stock in the public
market subsequent to the Offering could adversely affect the market price of the
Common Stock.
POSSIBLE VOLATILITY OF PRICE
The market price of the Common Stock could be subject to wide fluctuations
in response to a number of factors, including quarterly variations of operating
results, investor perceptions of the Company and automotive retailing industry
and general economic and other conditions.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common
Stock offered hereby are estimated to be $ million ($ million if the
Underwriters' over-allotment option is exercised in full) assuming an initial
public offering price of $ per share, the midpoint of the range of the
initial public offering price set forth on the cover page of this Prospectus and
after deducting the underwriting discount and estimated expenses of the
Offering. Of the net proceeds, approximately $5.4 million will be used to pay
the cash portion of the purchase price for the Acquisitions. In addition,
approximately $ million will be used to repay short-term indebtedness with a
weighted average interest rate of approximately %. The remainder of the net
proceeds will be used for working capital and general corporate purposes,
including potential acquisitions.
The Company intends to pursue acquisitions in the future which will be
financed with cash, Common Stock or a combination of both cash and Common Stock.
Although the Company has identified and has held preliminary discussions with
several potential acquisition candidates, at this time, the Company has no
agreements to effect any such acquisitions. The Company is currently negotiating
a Credit Facility with a major bank. It is anticipated that the Credit Facility
will be an unsecured revolving line of credit of up to $75 million, which may be
used for general corporate purposes, acquisitions, capital expenditures and
working capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital
Resources -- Combined Founding Groups".
DIVIDEND POLICY
The Company intends to retain all of its earnings to finance the growth and
development of its business, including future acquisitions, and does not
anticipate paying any cash dividends on its Common Stock for the foreseeable
future. Any future change in the Company's dividend policy will be made at the
discretion of the Board of Directors of the Company and will depend upon the
Company's operating results, financial condition, capital requirements, general
business conditions and such other factors as the Board of Directors deems
relevant. In addition, the Credit Facility will include restrictions on the
ability of the Company to pay dividends without the consent of the lender. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Combined Founding Groups" and
"Description of Capital Stock".
17
<PAGE> 19
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1997
was $ per share of Common Stock. Pro forma net tangible book value per
share is determined by dividing the pro forma tangible net worth of the Company
(pro forma tangible assets less pro forma total liabilities) by the total number
of outstanding shares of Common Stock. After giving effect to the sale of the
shares offered hereby and the receipt of an assumed $ million of
net proceeds from the Offering (based on an assumed initial public offering
price of $ per share and net of the underwriting discounts and estimated
offering expenses), pro forma net tangible book value of the Company at March
31, 1997 would have been $ per share. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing stockholders
and an immediate dilution of $
per share to the new investors purchasing Common Stock in the Offering. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before giving
effect to the Offering................................. $
Increase in pro forma net tangible book value per share
attributable to the Offering...........................
Pro forma net tangible book value per share after giving
effect to the Offering....................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1997,
the number of shares of Common Stock purchased from the Company, the total
consideration paid to the Company and the average price per share paid to the
Company by existing stockholders and new investors purchasing shares from the
Company in the Offering (before deducting underwriting discounts and commissions
and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ -------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... % $ % $
New investors...................
Total................. 100.0% $ 100.0%
===== =====
</TABLE>
The foregoing computations assume no exercise of outstanding stock options
granted under the Company's 1996 Stock Incentive Plan. Options to purchase
shares of Common Stock will have been granted under the 1996 Stock
Incentive Plan as of the completion of the Offering, of which are
exercisable at the initial public offering price per share and 565,000 are
exercisable at $2.90 per share. In addition, additional shares of
Common Stock are reserved for future issuance under the 1996 Stock Incentive
Plan. See "Management -- 1996 Stock Incentive Plan".
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the pro forma capitalization of the Company
as of March 31, 1997 and as adjusted to give effect to the issuance and sale of
the shares of Common Stock offered hereby (at an assumed initial
public offering price of $ per share, the midpoint of the range of the
initial public offering price set forth on the cover page of this Prospectus,
and after deducting the underwriting discount and estimated expenses of the
Offering) and the application of a portion of the estimated net proceeds
therefrom to pay existing indebtedness. See "Use of Proceeds". This table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the unaudited Pro Forma Financial
Statements of the Company and the related notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term
debt)..................................................... $113,866 $
Long-term debt.............................................. 8,099
-------- --------
Total debt........................................ 121,965
Stockholders' equity:
Preferred Stock, par value $.01 per share, 1,000,000
shares authorized; no shares issued and outstanding.... --
Common Stock, par value $.01 per share, 50,000,000 shares
authorized; 9,573,890 shares issued and outstanding,
pro forma; shares issued and outstanding, pro
forma as adjusted(1)................................... 96
Additional paid-in capital................................ 58,988
Retained deficit.......................................... (1,961)
-------- --------
Total stockholders' equity........................ 57,123
-------- --------
Total capitalization.............................. $179,088 $
======== ========
</TABLE>
- ---------------
(1) Excludes (i) an aggregate of 565,000 shares of Common Stock subject to
options granted pursuant to the Company's 1996 Stock Incentive Plan and (ii)
shares of Common Stock subject to options to be granted to certain
employees and directors of the Company upon completion of the Offering under
the Company's 1996 Stock Incentive Plan. See "Management -- 1996 Stock
Incentive Plan."
19
<PAGE> 21
SELECTED FINANCIAL DATA
Group 1 Automotive will acquire the Founding Groups immediately prior to
the consummation of the Offering. For financial statement presentation purposes,
however, the Howard Group has been identified as the accounting acquiror. The
following selected historical financial data of the Howard Group as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, have been derived from the audited financial statements of the Howard
Group included elsewhere in this Prospectus. The following selected historical
financial data for the Howard Group as of December 31, 1992, 1993 and 1994 and
for each of the two years in the period ended December 31, 1993 and as of and
for the three months ended March 31, 1996 and March 31, 1997, have been derived
from the unaudited financial statements of the Howard Group, which have been
prepared on the same basis as the audited financial statements and, in the
opinion of the Howard Group, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such data. See the
Pro Forma Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------------------------------- ----------------------------
PRO PRO
FORMA FORMA
1992 1993 1994 1995 1996 1996 1996 1997 1997(1)
-------- -------- -------- -------- -------- -------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Sales................... $124,892 $163,324 $221,095 $247,615 $274,629 $804,529 $60,625 $69,267 $209,664
Other dealership
revenues, net......... 3,044 3,928 6,164 6,388 7,387 21,117 1,908 1,841 5,638
-------- -------- -------- -------- -------- -------- ------- ------- --------
Total revenues...... 127,936 167,252 227,259 254,003 282,016 825,646 62,533 71,108 215,302
Cost of sales............. 110,303 146,943 198,992 221,773 244,396 712,772 53,879 61,756 185,726
-------- -------- -------- -------- -------- -------- ------- ------- --------
Gross profit............ 17,633 20,309 28,267 32,230 37,620 112,874 8,654 9,352 29,576
Goodwill amortization..... 21 21 21 27 36 1,039 10 254
Selling, general and
administrative
expenses................ 13,910 16,589 24,232 26,139 30,732 93,566 6,818 8,012 25,288
-------- -------- -------- -------- -------- -------- ------- ------- --------
Income from
operations............ 3,702 3,699 4,014 6,064 6,852 18,269 1,836 1,330 4,034
Other income and expense
Interest expense, net... (847) (729) (1,102) (1,604) (1,194) (2,582) (374) (379) (305)
Other income (expense),
net................... 6 (28) 9 (81) (69) 175 (10) 14 (22)
-------- -------- -------- -------- -------- -------- ------- ------- --------
Income before income
taxes................. 2,861 2,942 2,921 4,379 5,589 15,862 1,452 965 3,707
Provision (benefit) for
income taxes............ 553 367 768 744 382 6,635 229 (39) 1,558
-------- -------- -------- -------- -------- -------- ------- ------- --------
Net income.............. $ 2,308 $ 2,575 $ 2,153 $ 3,635 $ 5,207 $ 9,227 $ 1,223 $ 1,004 $ 2,149
======== ======== ======== ======== ======== ======== ======= ======= ========
Earnings per share........
Weighted average shares
outstanding.............
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
AS OF DECEMBER 31, ----------------------------
------------------------------------------------ PRO PRO FORMA AS
1992 1993 1994 1995 1996 FORMA(2) ADJUSTED(2)(3)(4)
-------- ------- ------- ------- ------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................. $ 2,600 $ 2,435 $ 2,356 $ 4,708 $ 6,436 $ 1,613
Inventories..................................... 24,101 23,180 34,699 39,573 47,674 123,650
Total assets.................................... 32,938 32,955 51,124 61,641 72,874 233,025
Total debt, including current portion........... 23,355 21,199 31,601 37,320 42,887 121,965
Stockholders' equity............................ 3,779 3,637 5,346 8,620 12,210 57,123
</TABLE>
- ---------------
(1) Gives effect to (i) the Acquisitions on an historical basis (ii) the
consummation of the Offering and (iii) certain pro forma adjustments to the
historical financial statements. See Pro Forma Financial Statements and the
notes thereto beginning on page F-3 for a description of the pro forma
adjustments.
(2) Gives effect to the Acquisitions on an historical basis and certain pro
forma adjustments. See Pro Forma Financial Statements and the notes thereto
beginning on page F-3 for a description of the pro forma adjustments.
(3) Assumes that the Underwriters' over-allotment option is not exercised. See
"Underwriting".
(4) Gives effect to the sale of the shares offered by the Company hereby and the
application of the net proceeds therefrom. See "Use of Proceeds".
20
<PAGE> 22
SUMMARY FINANCIAL DATA
Group 1 Automotive will acquire the Founding Groups immediately prior to
the consummation of the Offering. For financial statement purposes, however, the
Howard Group, has been identified as the accounting acquiror. The following
summary financial data presents, for the year ended December 31, 1996, and as of
and for the three months ended March 31, 1997, certain historical and pro forma
data for the Founding Groups. See "Selected Financial Data" and the Pro Forma
Financial Statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------------------------------
HOWARD MCCALL SMITH KINGWOOD PRO FORMA(1)
-------- -------- -------- -------- ------------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues
New vehicle sales.................. $164,979 $166,382 $124,174 $13,784 $469,318
Used vehicle sales................. 88,477 90,895 60,579 18,075 258,027
Parts & service sales.............. 21,173 24,454 28,631 2,925 77,184
Other dealership revenues, net..... 7,387 6,811 4,895 1,165 21,117
-------- -------- -------- ------- --------
Total revenues.................. 282,016 288,542 218,279 35,949 825,646
Cost of sales........................ 244,396 249,560 189,169 30,640 712,772
-------- -------- -------- ------- --------
Gross profit.................... 37,620 38,982 29,110 5,309 112,874
Goodwill amortization................ 98 -- 67 -- 1,039
Selling, general and administrative
expenses........................... 30,670 35,072 23,644 3,997 93,566
-------- -------- -------- ------- --------
Income from operations.......... 6,852 3,910 5,399 1,312 18,269
Other income and expense
Interest expense, net.............. (1,194) (2,748) (1,710) (439) (2,582)
Other Income (expense), net........ (69) (45) 223 67 175
-------- -------- -------- ------- --------
Income before taxes............. 5,589 1,117 3,912 940 15,862
Provision for income taxes........... 382 178 678 41 6,635
-------- -------- -------- ------- --------
Net income...................... $ 5,207 $ 939 $ 3,234 $ 899 $ 9,227
======== ======== ======== ======= ========
Earnings per share...................
Weighted average shares
outstanding........................
OTHER DATA:
Gross margin......................... 13.3% 13.5% 13.3% 14.8% 13.7%
Operating margin..................... 2.4% 1.4% 2.5% 3.6% 2.2%
Pre-tax margin....................... 2.0% 0.4% 1.8% 2.6% 1.9%
New vehicles sold.................... 8,181 6,458 5,983 756 21,378
Retail used vehicles sold............ 7,779 4,496 3,844 1,101 17,220
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
------------------------------------------------------------
PRO
HOWARD MCCALL SMITH KINGWOOD FORMA(1)
--------- --------- --------- ---------- -----------
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(2):
Revenues
New vehicle sales...................... $38,248 $39,028 $36,149 $3,993 $117,418
Used vehicle sales..................... 25,606 26,949 16,377 4,285 73,216
Parts & service sales.................. 5,413 6,011 6,983 623 19,030
Other dealership revenues, net......... 1,841 1,764 1,425 251 5,638
------- ------- ------- ------ --------
Total revenues...................... 71,108 73,752 60,934 9,152 215,302
Cost of sales............................ 61,756 63,953 52,484 7,805 185,726
------- ------- ------- ------ --------
Gross profit........................ 9,352 9,799 8,450 1,347 29,576
Goodwill amortization.................... 10 -- 7 -- 254
Selling, general and administrative
expenses............................... 8,012 8,911 6,868 1,134 25,288
------- ------- ------- ------ --------
Income from operations.............. 1,330 888 1,575 213 4,034
Other income and expense
Interest expense, net.................. (379) (283) (447) (64) (305)
Other Income (expense), net............ 14 (31) (5) -- (22)
------- ------- ------- ------ --------
Income before taxes................. 965 574 1,123 149 3,707
Provision (benefit) for income taxes..... (39) 230 209 7 1,558
------- ------- ------- ------ --------
Net income.......................... $ 1,004 $ 344 $ 914 $ 142 $ 2,149
======= ======= ======= ====== ========
Earnings per share.......................
Weighted average shares..................
OTHER DATA:
Gross margin............................. 13.2% 13.7% 13.9% 14.7% 13.7%
Operating margin......................... 1.9% 1.2% 2.6% 2.3% 1.8%
Pre-tax margin........................... 1.4% 0.8% 1.8% 1.6% 1.7%
New vehicles sold........................ 1,864 1,447 1,933 207 5,451
Retail used vehicles sold................ 2,041 1,135 1,039 264 4,479
</TABLE>
- ---------------
(1) Pro forma information gives effect to (i) the Acquisitions on an historical
basis, (ii) the consummation of the Offering, and (iii) certain pro forma
adjustments to the historical financial statements. See Pro Forma Financial
Statements and the notes thereto beginning on page F-3 for a description of
the pro forma adjustments.
(2) The individual Founding Groups' Income Statement Data do not total to the
Pro Forma total since such individual Founding Groups' Income Statement Data
represent historical information before Pro Forma entries.
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Founding
Groups' Financial Statements and related notes thereto and "Selected Financial
Data" appearing elsewhere in this Prospectus.
OVERVIEW
The Company was founded to become a leading operator and consolidator in
the highly fragmented automotive industry. The Company owns 30 automobile
dealerships located in Texas and Oklahoma. The Company represents 21 American
and Asian brands including Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda,
Isuzu, Jeep, Kia, Lexus, Lincoln, Mazda, Mercury, Mitsubishi, Nissan,
Oldsmobile, Plymouth, Pontiac, Suzuki and Toyota. Additionally, the Company
provides maintenance and repair services at its 30 dealerships and five
collision service centers. The Company utilizes approximately 500 service bays
in providing these services. The Company is experiencing significant momentum in
its financial results. From 1994 to 1996, the Company's revenues increased by
$172.1 million, or 26.4%, to $824.8 million from $652.7 million. During this
period, gross profit increased $27.0 million, or 32.1%, to $111.0 million from
$84.0 million, to 13.5% from 12.9% of revenues. The Company expects that a
significant portion of its future growth will be derived from acquisitions of
additional dealerships.
The Company plans to achieve its goal of becoming a leading consolidator,
while maintaining its high operating standards in the automotive retailing
industry, by (i) emphasizing growth through acquisitions and (ii) implementing
an operating strategy that focuses on decentralized dealership operations,
nationally centralized administrative functions, the expansion of higher margin
businesses, a commitment to customer service and the implementation of new
technology initiatives. By complementing the Company's industry leaders,
management talent and proven operating capabilities with its corporate
management team which is experienced in achieving and managing long-term growth
in a consolidation environment, the Company believes that it is in a strong
position to execute this strategy.
The Company has diverse sources of revenues, including: new car sales, new
truck sales, used car sales, used truck sales, manufacturer remarketed vehicle
sales, parts sales, service sales, collision repair services, finance fees,
insurance commissions, extended service contract sales, documentary fees and
after-market product sales. Sales revenues include sales to retail customers,
other dealers and wholesalers. Other dealership revenue includes revenue from
the sale of financing, insurance and extended service contracts, net of a
provision for anticipated chargebacks and documentary fees charged to customers.
The Company's gross profit will vary as the Company's merchandise mix (the
mix between new vehicle sales, used vehicle sales, parts and service sales and
collision repair services) changes. The gross margin realized by the Company on
the sale of its products and services varies between approximately 6.5% and
60.0%, with new vehicle sales generally resulting in the lowest gross margin and
parts and service sales generally resulting in the highest gross margin. When
the Company's new vehicle sales increase or decrease at a rate greater than the
Company's other revenue sources, the Company's gross margin will respond
inversely. Factors such as seasonality, weather, cyclicality and manufacturers'
advertising and incentives may impact the Company's merchandise mix and,
therefore influence the Company's gross margin.
Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on interest-bearing debt, including floorplan inventory
financing, net of interest credits received from certain manufacturers and
interest income earned. The Founding Groups have been managed throughout the
periods presented as independent private companies and their results of
operations reflect different tax structures (S Corporations and C Corporations)
which have influenced, among other things, their historical levels of owners'
compensation. These owners and certain
23
<PAGE> 25
key employees have agreed to certain reductions in their compensation and
benefits in connection with the organization of the Company.
Group 1 Automotive, which has conducted no operations to date other than in
connection with the Offering, intends to integrate certain functions over a
period of time and install best practices. This integration and installation of
best practices may present opportunities to increase revenues and reduce costs
but may also necessitate additional costs and expenditures for corporate
administration, including expenses necessary to implement the Company's
acquisition strategy. These various costs and possible cost-savings and revenue
enhancements may make historical operating results not comparable to, or
indicative of, future performance.
RESULTS OF OPERATIONS -- COMBINED FOUNDING GROUPS
The combined Founding Groups' statements of operations data for 1994, 1995
and 1996 and the three months ended March 31, 1996, and March 31, 1997, do not
purport to present the combined Founding Groups in accordance with generally
accepted accounting principles, but represent a summation of the revenues, cost
of sales, gross profit and selling, general and administrative expenses of the
individual Founding Groups on an historical basis excluding the effects of pro
forma adjustments. This data will not be comparable to and may not be indicative
of the Company's post-combination results of operations because (i) the Founding
Groups were not under common control of management and had different tax
structures (S Corporations and C Corporations) during the periods presented and
(ii) the Company will use the purchase method to establish a new basis of
accounting to record the Acquisitions.
The following table sets forth certain unaudited combined data of the
Founding Groups on an historical basis and excludes the effects of pro forma
adjustments for the periods indicated:
COMBINED FOUNDING GROUPS STATEMENTS OF OPERATIONS DATA (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales.................. $391,709 60.0% $422,348 58.0% $469,318 56.9%
Used vehicle sales................. 184,179 28.2 222,373 30.5 258,027 31.3
Parts and service sales............ 61,024 9.4 65,599 9.0 77,184 9.3
Other dealership revenues, net..... 15,780 2.4 18,288 2.5 20,258 2.5
-------- ------ -------- ------ -------- ------
Total revenues............... 652,692 100.0 728,608 100.0 824,787 100.0
Cost of sales....................... 568,684 87.1 633,039 86.9 713,765 86.5
-------- ------ -------- ------ -------- ------
Gross profit........................ 84,008 12.9 95,569 13.1 111,022 13.5
Selling, general and administrative
expenses........................... $ 71,734 11.0% $ 80,311 11.0% $ 93,549 11.3%
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------
1996 1997
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
New vehicle sales.................. $ 99,161 54.0% $117,418 54.6%
Used vehicle sales................. 61,617 33.6 73,217 34.1
Parts and service sales............ 17,694 9.6 19,030 8.9
Other dealership revenues, net..... 5,042 2.8 5,281 2.4
-------- ------ -------- ------
Total revenues............... 183,514 100.0 214,946 100.0
Cost of sales....................... 157,954 86.1 185,998 86.5
-------- ------ -------- ------
Gross profit........................ 25,560 13.9 28,948 13.5
Selling, general and administrative
expenses........................... $ 21,196 11.6% $ 24,942 11.6%
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUES. Revenues increased $31.4 million, or 17.1%, from $183.5 million
for the three months ended March 31, 1996 to $214.9 million for the three months
ended March 31, 1997. New vehicle sales increased $18.2 million, or 18.3%, from
$99.2 million for the three months ended March 31, 1996 to $117.4 million for
the three months ending March 31, 1997. The increase is primarily attributable
to new franchise operations, strong customer acceptance of the Company's
products, particularly Lexus and Nissan, and successful marketing efforts. The
new franchise operations include a Dodge franchise acquired by the Howard Group
in May 1996 ("Howard Dodge") and a new Nissan franchise awarded to the Smith
Group during 1996. Used vehicle sales increased $11.6 million, or 18.8%, from
$61.6 million for the three months ended March 31, 1996 to $73.2 million for the
three months ended March 31, 1997. This increase is primarily attributable to
the new franchise operations and successful marketing efforts. Parts and service
sales increased $1.3 million, or 7.3%, from $17.7 million for the three months
ended March 31, 1996 to $19.0 million for the three months ended March 31, 1997.
The increase is attributable to the new franchise operations.
24
<PAGE> 26
GROSS PROFIT. Gross profit increased $3.3 million, or 12.9% from $25.6
million for the three months ended March 31, 1996 to $28.9 million for the three
months ended March 31, 1997. The increase is attributable to increased sales
offset by a reduced gross margin. The gross margin declined from 13.9% for the
three months ended March 31, 1996 to 13.5% for the three months ended March 31,
1997. The reduced gross margin is the result of new and used vehicle sales being
a greater percentage of total revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $3.7 million, or 17.5%, from $21.2 million for
the three months ended March 31, 1996 to $24.9 million for the three months
ended March 31, 1997. The increase is primarily attributable to the new
franchise operations and to variable incentive pay to employees which is related
directly to the increase in revenues. As a percentage of revenues, selling,
general and administrative expenses remained constant at 11.6% for each of the
three month periods.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased $96.2 million, or 13.2%, from $728.6 million
for the year ended December 31, 1995 to $824.8 million for the year ended
December 31, 1996. New vehicle revenues increased $47.0 million, or 11.1%, from
$422.3 million for the year ended December 31, 1995 to $469.3 million for the
year ended December 31, 1996. This increase is primarily attributable to
increased sales at all but one of the Founding Groups with the McCall Group
accounting for $40.6 million of the increase. New and expanded franchise
operations, primarily the Howard Group's new Dodge franchise, successful
marketing efforts and strong customer acceptance of the Company's products,
particularly Toyota, Lexus and Chevrolet, contributed to the increase. The Smith
Group had an $8.0 million decline in new vehicle revenues caused by reduced unit
sales at its Dallas Nissan franchise. Used vehicle revenues increased $35.6
million, or 16.0%, from $222.4 million for the year ended December 31, 1995 to
$258.0 million for the year ended December 31, 1996. All of the Founding Groups'
had increases in used vehicle revenues with the McCall Group accounting for
$22.6 million of the increase. The increase is attributable primarily to
expanded operations at McCall Toyota, a strong used vehicle market and
successful marketing efforts. Parts and service sales increased $11.6 million,
or 17.7%, from $65.6 million for the year ended December 31, 1995 to $77.2
million for the year ended December 31, 1996. The increase is primarily
attributable to new and expanded operations at McCall Lexus, and increased
vehicle sales.
GROSS PROFIT. Gross profit increased $15.4 million, or 16.1%, from $95.6
million for the year ended December 31, 1995 to $111.0 million for the year
ended December 31, 1996. The increase is attributable to increased revenues and
an increase in gross margin from 13.1% for the year ended December 31, 1995 to
13.5% for the year ended December 31, 1996. The increase in gross margin is
primarily due to a change in the merchandise mix as parts and service sales
became a greater percentage of total revenues. Additionally, gross margin on new
retail vehicle sales increased from 6.8% for the year ended December 31, 1995 to
7.1% for the year ended December 31, 1996. The gross margin on used retail
vehicle sales increased from 9.5% for the year ended December 31, 1995, to 9.7%
for the year ended December 31, 1996. However, gross margin on parts and service
sales decreased from 47.9% for the year ended December 31, 1995 to 46.6% for the
year ended December 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $13.2 million, or 16.4%, from $80.3 million
for the year ended December 31, 1995 to $93.5 million for the year ended
December 31, 1996. The increase is directly related to the increase in revenues
and the expenses associated with two new franchises awarded in 1996. As revenues
increase, the Company generally incurs a greater amount of variable incentive
pay to employees. Additionally, the Company invested more in marketing, which
directly contributed to the increased revenue. As a
25
<PAGE> 27
percentage of revenues, selling, general and administrative expenses increased
from 11.0% for the year ended December 31, 1995 to 11.3% for the year ended
December 31, 1996.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased $75.9 million, or 11.6%, from $652.7 million
for the year ended December 31, 1994 to $728.6 million for the year ended
December 31, 1995. New vehicle revenues increased $30.6 million, or 7.8% from
$391.7 million for the year ended December 31, 1994 to $422.3 million for the
year ended December 31, 1995. The increase is the result of increased sales at
all but one of the Founding Groups. The increase in revenue is attributable to
new franchise operations at Bob Howard Honda/Acura which was acquired during
1994, successful marketing efforts and strong customer acceptance of the
Company's products. Used vehicle revenues increased $38.2 million, or 20.7%,
from $184.2 million for the year ended December 31, 1994 to $222.4 million for
the year ended December 31, 1995. The increase is primarily attributable to the
new franchise operations and successful marketing efforts. Parts and service
sales increased $4.6 million, or 7.5%, from $61.0 million for the year ended
December 31, 1994 to $65.6 million for the year ended December 31, 1995. The
increase is primarily attributable to the new dealership operations and
increased vehicle sales.
GROSS PROFIT. Gross profit increased $11.6 million, or 13.8%, from $84.0
million for the year ended December 31, 1994 to $95.6 million for the year ended
December 31, 1995. The increase is attributable to increased revenues and an
improved gross margin. Changes in the merchandise mix and certain product gross
margins resulted in the Company's gross margin increasing from 12.9% for the
year ended December 31, 1996 to 13.1% for the year ended December 31, 1995. The
gross margin on new retail vehicle sales increased from 6.5% for the year ended
December 31, 1994 to 6.8% for the year ended December 31, 1995. The gross margin
for used retail vehicle sales declined from 9.9% for the year ended December 31,
1994 to 9.5% for the year ended December 31, 1995. Parts and service gross
margin increased from 47.2% for the year ended December 31, 1994 to 47.9% for
the year ended December 31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $8.6 million, or 12.0%, from $71.7 million for
the year ended December 31, 1994 to $80.3 million for the year ended December
31, 1995. The increase is primarily attributable to the new franchise operations
and increased variable incentive pay to employees and additional marketing
expenses. As a percentage of revenues, selling, general and administrative
expenses remained constant at 11.0% of total revenues over the same period.
LIQUIDITY AND CAPITAL RESOURCES -- COMBINED FOUNDING GROUPS
The Company's principal sources of liquidity are cash on hand, cash from
operations and floorplan financing.
CASH FLOWS
On a combined basis, the Founding Groups generated net cash flow provided
by operating activities of $3.9 million, $14.4 million and $6.4 million for the
years ended December 31, 1994, 1995 and 1996, respectively, and $(11.0) million
and $(3.2) million for the three months ended March 31, 1996 and March 31, 1997,
respectively. Net income plus depreciation and amortization is the primary
source of cash flow from operating activities. Net cash flow from operating
activities declined from $14.4 million for the year ended December 31, 1995, to
$6.4 million for the year ended December 31, 1996. The decline is primarily due
to the usage of funds by the McCall Group to pay down floor plan notes payable
and to increase inventories to support strong sales growth. Net cash flow from
operating activities improved from $(11.0) million for the three months ended
March 31, 1996 to $(3.2) million for the three months ended March 31, 1997. The
improvement is due primarily to the McCall Group investing significantly in
increased inventory during the three months ended March 31, 1996.
26
<PAGE> 28
Net cash used in investing activities by the Founding Groups on a combined
basis was $3.4 million, $1.9 million and $6.9 million for the years ended
December 31, 1994, 1995 and 1996, respectively, and $0.7 million and $0.8
million for the three months ended March 31, 1996 and March 31, 1997,
respectively. Most of the cash used in investing activities during these periods
was used to purchase property and equipment for the McCall Group Lexus
franchise's new collision service center added in 1995, showroom expansions at
both of the McCall Group franchises, facility improvements and equipment
purchases for certain of the Smith Group dealerships and franchise acquisitions
at the Howard Group in 1994 and 1996.
Net cash used in financing activities by the Founding Groups on a combined
basis was $1.4 million, $2.3 million and $3.6 million for the years ended
December 31, 1994, 1995 and 1996, respectively and $1.6 million and $1.7 million
for the three months ended March 31, 1996 and March 31, 1997, respectively. The
majority of the cash used in financing activities during these periods was for
net repayments of long-term debt and distributions to stockholders offset by
cash provided by stock issuances. The combined cash and cash equivalents of the
Founding Groups decreased $4.1 million from $38.9 million at December 31, 1995
to $34.8 million at December 31, 1996. This decrease is primarily due to
significant net pay downs on floor plan notes payable, increased investments in
inventories and property and equipment and payment of dividends.
ACQUISITION LINE OF CREDIT
The Company is currently negotiating for a credit facility with a major
bank. It is anticipated that the facility will provide the Company with an
unsecured revolving line of credit of up to $75 million which may be used for
general corporate purposes, acquisitions, capital expenditures and working
capital. Loans under this commitment will bear interest at a designated variable
base rate plus margins ranging from to basis points. At the Company's
option, the loans may bear interest based on a designated London Interbank
Offering Rate plus a margin ranging from to basis points. It is
anticipated that the line of credit will mature five years from the date the
loan is closed.
The Company intends to pursue attractive acquisition opportunities. The
timing, size or success of any acquisition effort and the associated potential
capital commitments are currently not known, although, based on current facts
and circumstances, management believes the Company's acquisition program will
result in the Company's revenues increasing significantly. The Company expects
to fund future acquisitions primarily through a combination of working capital,
cash flow from operations, borrowings and issuance of additional equity and/or
long-term debt obligations. While there can be no assurance, based on current
facts and circumstances, management believes it has adequate cash flows and
financing alternatives to fund its current operations and to implement its
acquisition strategy.
FLOORPLAN FINANCING
Currently, the Founding Groups' floorplan financing is provided by seven
sources. The Company is negotiating with several lenders to refinance its
floorplan debt with more favorable terms. Based on current discussions with
these lenders, management expects to use several sources for all of its
dealerships' floorplan financing which may include a bank syndicate and/or a
captive finance subsidiary of a Manufacturer. Since the Company's credit quality
is expected to be enhanced by the Acquisitions and the Offering, management
expects the interest rate on its floorplan debt to decrease compared to the
interest rates currently being charged to the Founding Groups.
LEASES
The Founding Groups lease various facilities and equipment under operating
lease agreements, including leases with related parties. In connection with the
Acquisitions, the Company intends to replace certain of its leases with new
leases that will have terms of 30 years and will be cancelable at the Company's
option ten years from execution of the lease and at the end of each subsequent
five year period. Such leases will initially have the same rent as the currently
existing leases. See "Certain
27
<PAGE> 29
Transaction -- Leases". Future minimum lease payments for existing operating
leases are as follows: $6.6 million in 1997, $6.5 million in 1998, $6.0 million
in 1999, $5.2 million in 2000 and $3.9 million in 2001.
INDIVIDUAL FOUNDING GROUPS
The selected historical financial information presented in the tables below
is derived from the respective audited financial statements of the individual
Founding Groups included elsewhere herein. The following discussion should be
read in conjunction with the Financial Statements of the Founding Groups and the
notes thereto appearing elsewhere in this Prospectus. The financial statements
of the Kingwood Group have not been separately included within this Prospectus
because the Kingwood Group does not qualify as a significant subsidiary under
the Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 80
and, accordingly, are not required to be presented. The Kingwood Group's results
of operations and statement of financial position are included in the Pro Forma
Financial Statements.
For financial statement presentation purposes, as required by the rules and
regulations of the Securities Act, the Howard Group has been identified as the
accounting acquiror.
RESULTS OF OPERATIONS -- HOWARD GROUP
This group is one of the largest dealership groups in Oklahoma, consisting
of Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda, Isuzu, Jeep, Mazda,
Plymouth, Pontiac and Toyota dealerships located in Oklahoma City. Robert E.
Howard II, the principal owner, has been involved in the automotive retailing
industry for over 28 years. Bob Howard opened his first dealership in 1978 which
later became the foundation for the Automall ("Automall"). The Automall
currently houses the Chrysler, Eagle, GMC, Isuzu, Jeep, Mazda, Plymouth and
Pontiac franchises.
The following table sets forth certain selected financial data and data as
a percentage of revenues for the Howard Group for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------------ -------------------------------------
1994 1995 1996 1996 1997
------------------ ------------------ ------------------ ----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales......... $136,831 60.2% $151,227 59.5% $164,979 58.5% $35,581 56.9% $38,248 53.8%
Used vehicle sales........ 69,862 30.8 79,448 31.3 88,477 31.4 20,248 32.4 25,606 36.0
Parts and service sales... 14,402 6.3 16,940 6.7 21,173 7.5 4,796 7.7 5,413 7.6
Other dealership revenue,
net..................... 6,164 2.7 6,388 2.5 7,387 2.6 1,908 3.0 1,841 2.6
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total revenues...... 227,259 100.0 254,003 100.0 282,016 100.0 62,533 100.0 71,108 100.0
Cost of sales.............. 198,992 87.6 221,773 87.3 244,396 86.7 53,879 86.2 61,756 86.8
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Gross profit............... 28,267 12.4 32,230 12.7 37,620 13.3 8,654 13.8 9,352 13.2
Selling, general and
administrative expenses... 24,253 10.7 26,166 10.3 30,768 10.9 6,818 10.9 8,022 11.3
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Income from operations..... 4,014 1.7 6,064 2.4 6,852 2.4 1,836 2.9 1,330 1.9
Other income and expense:
Interest expense, net..... (1,102) (0.5) (1,604) (0.6) (1,194) (0.4) (374) (0.6) (379) (0.5)
Other income (expense)
net..................... 9 -- (81) (0.1) (69) -- (10) -- 14 --
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Income before income
taxes..................... 2,921 1.2 4,379 1.7 5,589 2.0 1,452 2.3 965 1.4
Provision (benefit) for
income taxes.............. 768 0.3 744 0.3 382 0.1 229 0.3 (39) --
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Net income................. $ 2,153 0.9% $ 3,635 1.4% $ 5,207 1.9% $1,223 2.0% $1,004 1.4%
======== ====== ======== ====== ======== ====== ======= ====== ======= ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUES. Revenues increased $8.6 million, or 13.8%, from $62.5 million for
the three months ended March 31, 1996 to $71.1 million for the three months
ended March 31, 1997. New vehicle sales increased $2.6 million, or 7.3%, from
$35.6 million for the three months ended March 31, 1996 to $38.2 million for the
three months ending March 31, 1997. The increase is primarily attributable to
sales generated by Howard Dodge which were partially offset by reduced sales at
the Automall. Used vehicle sales increased $5.4 million, or 26.7%, from $20.2
million for the three months ended March 31, 1996 to $25.6 million for the three
months ended March 31, 1997. This increase is attributable to sales generated
28
<PAGE> 30
by Howard Dodge in addition to increased sales at all of the Howard Group's
other franchises. Parts and service sales increased $0.6 million, or 12.5%, from
$4.8 million for the three months ended March 31, 1996 to $5.4 million for the
three months ended March 31, 1997. The increase is attributable primarily to
sales generated by Howard Dodge.
GROSS PROFIT. Gross profit increased $0.7 million, or 8.0%, from $8.7
million for the three months ended March 31, 1996 to $9.4 million for the three
months ended March 31, 1997. The increase is attributable primarily to increased
sales generated by Howard Dodge, offset partially by reduced gross margins at
certain of the Howard Group's other franchises. The Howard Group's gross margin
declined from 13.8% for the three months ended March 31, 1996 to 13.2% for the
three months ended March 31, 1997 due to changes in the merchandise mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.2 million or 17.6% from $6.8 million for
the three months ended March 31, 1996 to $8.0 million for the three months ended
March 31, 1997. The increase is primarily attributable to expenses incurred by
Howard Dodge. Selling, general and administrative expenses, as a percentage of
total revenues, increased from 10.9% for the three months ended March 31, 1996
to 11.3% for the three months ended March 31, 1997 as Howard Dodge incurred a
higher proportion of fixed expenses during its start-up.
INTEREST EXPENSE, NET. Interest expense, net, remained unchanged from the
first three months of 1996 to the first three months of 1997 at $0.4 million.
Interest paid in connection with indebtedness incurred to finance the
acquisition of Howard Dodge was offset by a slight decline in interest expense,
net, at the Howard Group's other franchises.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased by $28.0 million, or 11.0% from $254.0 million
for the year ended December 31, 1995 to $282.0 million for the year ended
December 31, 1996. New vehicle sales increased $13.8 million, or 9.1%, from
$151.2 million for the year ended December 31, 1995 to $165.0 million for the
year ended December 31, 1996. The increase is primarily attributable to strong
sales at the Chevrolet franchise and the acquisition of Howard Dodge, offset by
reduced sales at the Automall. Used vehicle revenues increased $9.1 million, or
11.5%, from $79.4 million for the year ended December 31, 1995 to $88.5 million
for the year ended December 31, 1996. This increase is attributable to the
acquisition of Howard Dodge and the Howard Group's successful marketing efforts
at all of the Howard Group's other franchises. Parts and service sales increased
$4.3 million, or 25.4%, from $16.9 million for the year ended December 31, 1995
to $21.2 million for the year ended December 31, 1996. The increase is
attributable to increased sales at each of the Howard Group's franchises and new
sales from the acquisition of Howard Dodge.
GROSS PROFIT. Gross profit increased by $5.4 million, or 16.8%, from $32.2
million for the year ended December 31, 1995 to $37.6 million for the year ended
December 31, 1996. The increase is attributable to increased sales and
improvement in the Howard Group's gross profit margin from 12.7% for the year
ended December 31, 1995 to 13.3% for the year ended December 31, 1996. The gross
margin improved as revenues from parts and service and other dealership revenues
became a greater percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATION EXPENSES. Selling, general and
administration expenses increased $4.6 million, or 17.6%, from $26.2 million for
the year ended December 31, 1995 to $30.8 million for the year ended December
31, 1996. The increase is primarily attributable to costs related to the newly
acquired Howard Dodge and variable incentive pay to employees which is related
to the increase in revenues. As a percentage of total revenues, selling, general
and administrative expenses increased from 10.3% for the year ended December 31,
1995 to 10.9% for the year ended December 31, 1996.
INTEREST EXPENSE, NET. Interest expense, net, decreased $0.4 million, or
25.0%, from $1.6 million for the year ended December 31, 1995 to $1.2 million
for the year ended December 31, 1996. The decrease is attributable to an
approximately 50 basis point decrease in the average floorplan interest rate and
29
<PAGE> 31
increased manufacturer assistance, partially offset by interest expense incurred
by the newly acquired Howard Dodge.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased by $26.7 million, or 11.7%, from $227.3
million for the year ended December 31, 1994 to $254.0 million for the year
ended December 31, 1995. New vehicle sales increased $14.4 million, or 10.5%,
from $136.8 million for the year ended December 31, 1994 to $151.2 million for
the year ended December 31, 1995. The increase is primarily attributable to
strong sales growth of the Chevrolet franchise due to strong customer acceptance
of Chevrolet products and successful marketing efforts, and the inclusion of a
full year of revenues for the Honda and Acura franchises acquired during 1994.
Used vehicle sales increased $9.5 million, or 13.6%, from $69.9 million for the
year ended December 31, 1994 to $79.4 million for the year ended December 31,
1995. This increase is primarily attributable to successful marketing efforts
and the inclusion of a full year of revenues for the Honda and Acura franchises
acquired during 1994. Parts and service sales increased $2.5 million or 17.4%
from $14.4 million for the year ended December 31, 1994 to $16.9 million for the
year ended December 31, 1995. The overall increase is primarily attributable to
continued steady growth driven by increased vehicle sales.
GROSS PROFIT. Gross profit increased by $3.9 million, or 13.8%, from $28.3
million for the year ended December 31, 1994 to $32.2 million for the year ended
December 31, 1995. The increase is primarily attributable to increased sales.
Additionally, the gross margin improved from 12.4% for the year ended December
31, 1994 to 12.7% for the year ended December 31, 1995 due primarily to parts
and service revenues becoming a greater percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.9 million, or 7.8%, from $24.3 million for
the year ended December 31, 1994 to $26.2 million for the year ended December
31, 1995. The increase is primarily attributable to variable incentive pay to
employees which is related directly to the increase in revenues. Selling,
general and administrative expenses declined as a percentage of revenues from
10.7% for the year ended December 31, 1994 to 10.3% for the year ended December
31, 1995.
INTEREST EXPENSE, NET. Interest expense, net, increased $0.5 million, or
45.5%, from $1.1 million for the year ended December 31, 1994 to $1.6 million
for the year ended December 31, 1995. The increase is primarily attributable to
an approximately 170 basis point increase in the average floorplan interest rate
and an increase in inventory to support growing retail sales.
LIQUIDITY AND CAPITAL RESOURCES -- HOWARD GROUP
The Howard Group's principal sources of liquidity are cash on hand, cash
from operations and floor plan financing.
The following table sets forth historical selected information from the
Howard Group statements of cash flows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------- ------------------
1994 1995 1996 1996 1997
------- ------ ------- ------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................ $ 4,204 $6,822 $ 7,289 $ (507) $ 126
Net cash used in investing
activities.......................... (3,032) (928) (4,572) (234) (147)
Net cash provided by (used in)
financing activities................ (157) (520) (1,558) (1,390) (1,128)
------- ------ ------- ------- -------
Net increase (decrease) in cash and
cash equivalents.................... $ 1,015 $5,374 $ 1,159 $(2,131) $(1,149)
======= ====== ======= ======= =======
</TABLE>
30
<PAGE> 32
CASH FLOWS
Total cash and cash equivalents at March 31, 1997, were $10.5 million.
For the three year period ended December 31, 1996, the Howard Group
generated $18.3 million in net cash from operating activities, primarily from
net income plus depreciation and amortization. Net cash flow from operating
activities remained stable for the years ended December 31, 1995 and December
31, 1996.
Net cash from operating activities increased from $(506,000) for the three
months ended March 31, 1996 to $126,000 for the three months ended March 31,
1997, primarily due to change in inventories and floor plan financing.
The change in net cash used in investing activities was attributable to
purchases of property and equipment and the purchases of the Honda and Acura
franchises in 1994 and the Dodge franchise in 1996.
The change in net cash used in financing activities was primarily
attributable to dividends in excess of contributions and stock issuances related
to the acquisitions of the Honda, Acura and Dodge franchises.
FLOORPLAN FINANCING
The Howard Group currently obtains floorplan financing for its vehicle
inventory primarily through General Motors Acceptance Corporation ("GMAC"). The
debt bears interest at a rate of prime minus 50 basis points. Interest expense
on floorplan notes payable, before manufacturer interest assistance, totaled
approximately $2.5 million, $3.7 million and $3.6 million for the year ended
December 31, 1994, 1995 and 1996. Manufacturer interest assistance, which is
recorded as a reduction to interest expense, totaled approximately $1.4 million,
$1.9 million and $2.0 million for the years ended December 31, 1994, 1995 and
1996.
LEASES
The Howard Group leases various real estate, facilities and equipment under
operating lease agreements, including leases with related parties. In connection
with the Acquisitions, the Howard Group intends to replace certain existing
leases with leases that have terms of 30 years and will be cancellable at the
Company's option ten years from execution of the lease and at the end of each
subsequent five year period. Such leases initially will have the same rent as
the existing leases. See "Certain Transactions -- Leases". Future minimum lease
payments of existing operating leases are as follows: $2.9 million in 1997, $2.9
million in 1998, $2.5 million in 1999, $2.2 million in 2000 and $1.7 million in
2001.
OTHER
The Howard Group had working capital of $6.4 million as of December 31,
1996. Historically, the Howard Group has funded its operations with internally
generated cash flow and borrowings from lenders. While there can be no
assurance, based on current facts and circumstances, management believes it has
adequate cash flows and financing alternatives to fund its current operations.
31
<PAGE> 33
RESULTS OF OPERATIONS -- MCCALL GROUP
This group consists of the second largest Toyota dealership in the United
States, as ranked by 1996 new unit sales, and a Lexus dealership, both located
in Houston, Texas. Sterling B. McCall, Jr., the principal owner, has been
involved in the automotive retailing industry for more than 27 years.
The following table sets forth certain selected financial data and data as
a percentage of revenues for the McCall Group for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales............... $105,402 59.5% $125,810 57.5% $166,382 57.6%
Used vehicle sales.............. 49,872 28.1 68,332 31.2 90,895 31.5
Parts and service sales......... 17,939 10.1 19,432 8.9 24,454 8.5
Other dealership revenue, net... 4,107 2.3 5,314 2.4 6,811 2.4
-------- ------ -------- ------ -------- ------
Total revenues................ 177,320 100.0 218,888 100.0 288,542 100.0
Cost of sales.................... 152,573 86.0 188,731 86.2 249,560 86.5
-------- ------ -------- ------ -------- ------
Gross profit..................... 24,747 14.0 30,157 13.8 38,982 13.5
Selling, general and
administrative expenses......... 22,477 12.7 27,752 12.7 35,072 12.1
-------- ------ -------- ------ -------- ------
Income from operations........... 2,270 1.3 2,405 1.1 3,910 1.4
Other expense:
Interest expense, net........... (2,463) (1.4) (3,215) (1.5) (2,748) (1.0)
Other expense, net.............. (6) -- (44) -- (45) --
-------- ------ -------- ------ -------- ------
Income (loss) before income
taxes........................... (199) (0.1) (854) (0.4) 1,117 0.4
Provision for income taxes....... 232 0.1 283 0.1 178 0.1
-------- ------ -------- ------ -------- ------
Net income (loss)................ $ (431) (0.2)% (1,137) (0.5)% $ 939 0.3%
======== ====== ======== ====== ======== ======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1996 1997
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
New vehicle sales............... $33,956 54.2% $39,028 52.9%
Used vehicle sales.............. 21,802 34.8 26,949 36.5
Parts and service sales......... 5,407 8.6 6,011 8.2
Other dealership revenue, net... 1,528 2.4 1,764 2.4
------- ----- ------- -----
Total revenues................ 62,693 100.0 73,752 100.0
Cost of sales.................... 54,033 86.2 63,953 86.7
------- ----- ------- -----
Gross profit..................... 8,660 13.8 9,799 13.3
Selling, general and
administrative expenses......... 7,835 12.5 8,911 12.1
------- ----- ------- -----
Income from operations........... 825 1.3 888 1.2
Other expense:
Interest expense, net........... (785) (1.3) (283) (0.4)
Other expense, net.............. (14) -- (31) --
------- ----- ------- -----
Income (loss) before income
taxes........................... 26 -- 574 0.8
Provision for income taxes....... 4 -- 230 0.3
------- ----- ------- -----
Net income (loss)................ $ 22 --% $ 344 0.5%
======= ===== ======= =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUES. Revenues increased $11.1 million, or 17.7%, from $62.7 million
for the three months ended March 31, 1996 to $73.8 million for the three months
ended March 31, 1997. New vehicle sales increased $5.0 million, or 14.7%, from
$34.0 million for the three months ended March 31, 1996 to $39.0 million for the
three months ending March 31, 1997. The increase is primarily attributable to
successful marketing efforts and continued strong customer support of Toyota and
Lexus products. Used vehicle sales increased $5.1 million, or 23.4%, from $21.8
million for the three months ended March 31, 1996 to $26.9 million for the three
months ended March 31, 1997. This increase is primarily attributable to
successful marketing efforts. Parts and service sales increased $0.6 million, or
11.1%, from $5.4 million for the three months ended March 31, 1996 to $6.0
million for the three months ended March 31, 1997.
GROSS PROFIT. Gross profit increased $1.1 million, or 12.6%, from $8.7
million for the three months ended March 31, 1996 to $9.8 million for the three
months ended March 31, 1997. The increase is due to increased sales offset by a
decline in the gross margin from 13.8% for the three months ended March 31, 1996
to 13.3% for the three months ended March 31, 1997. The decline in gross margin
is primarily due to used vehicle revenues increasing as a percentage of total
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased $1.1 million, or 14.1%, from $7.8 million for
the three months ended March 31, 1996 to $8.9 million for the three months ended
March 31, 1997. The increase is primarily attributable to variable incentive pay
to employees which is related directly to the increase in the revenues. As a
percentage of total revenues, selling, general and administrative expenses
declined from 12.5% for the three months ended March 31, 1996 to 12.1% for the
three months ended March 31, 1997.
INTEREST EXPENSE, NET. Interest expense, net, decreased $0.2 million, or
25%, from $0.8 million for the three months ended March 31, 1996 to $0.6 million
for the three months ended March 31, 1997. The decrease is attributable to
increased manufacturer interest assistance.
32
<PAGE> 34
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased by $69.6 million, or 31.8%, from $218.9
million for the year ended December 31, 1995 to $288.5 million for the year
ended December 31, 1996. New vehicle sales increased $40.6 million, or 32.3%,
from $125.8 million for the year ended December 31, 1995 to $166.4 million for
the year ended December 31, 1996. The increase is primarily attributable to
successful marketing efforts, continued strong customer support of Toyota and
Lexus products, the installation of a new management team at the Lexus franchise
in February 1996 and showroom expansions at both the Toyota and Lexus franchises
in 1996. Used vehicle revenues increased $22.6 million, or 33.1%, from $68.3
million for the year ended December 31, 1995 to $90.9 million for the year ended
December 31, 1996. This increase is attributable to successful marketing efforts
and the expansion of used vehicle sales facilities at the Toyota franchise
during 1996. Parts and service sales increased $5.1 million, or 26.3%, from
$19.4 million for the year ended December 31, 1995, to $24.5 million for the
year ended December 31, 1996. The increase is primarily attributable to the
addition of a state-of-the-art collision service center at the Lexus franchise
in late 1995 and increased vehicle sales.
GROSS PROFIT. Gross profit increased by $8.8 million, or 29.1%, from $30.2
million for the year ended December 31, 1995 to $39.0 million for the year ended
December 31, 1996. The increase is attributable to increased sales, net of a
minor decline in gross margin from 13.8% for the year ended December 31, 1995 to
13.5% for the year ended December 31, 1996. The slight decline in gross margin
is primarily due to an increase in new and used vehicle revenues as a percentage
of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $7.3 million, or 26.3%, from $27.8 million for
the year ended December 31, 1995 to $35.1 million for the year ended December
31, 1996. The increase is primarily attributable to variable incentive pay to
employees and increased marketing expense, both of which are related to the
increase in revenues. As a percentage of revenues, selling, general and
administrative expenses decreased from 12.7% for the year ended December 31,
1995 to 12.1% for the year ended December 31, 1996 as fixed costs were spread
over a larger pool of revenue.
INTEREST EXPENSE, NET. Interest expense, net, decreased $0.5 million, or
15.6%, from $3.2 million for the year ended December 31, 1995 to $2.7 million
for the year ended December 31, 1996. The decrease is attributable to an
approximately 50 basis point decrease in the average floorplan interest rate as
well as to improved inventory management.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased $41.6 million, or 23.5%, from $177.3 million
for the year ended December 31, 1994 to $218.9 million for the year ended
December 31, 1995. New vehicle sales increased $20.4 million, or 19.4%, from
$105.4 million for the year ended December 31, 1994 to $125.8 million for the
year ended December 31, 1995. The increase is primarily attributable to
successful marketing efforts and continued strong customer support of Toyota
products. Used vehicle sales increased $18.4 million, or 36.9%, from $49.9
million for the year ended December 31, 1994 to $68.3 million for the year ended
December 31, 1995. This increase is primarily attributable to successful
marketing efforts. Parts and service sales increased $1.5 million, or 8.4%, from
$17.9 million for the year ended December 31, 1994 to $19.4 million for the year
ended December 31, 1995. The increase is attributable to continued steady growth
driven by increased vehicle sales.
GROSS PROFIT. Gross profit increased $5.5 million, or 22.3% from $24.7
million for the year ended December 31, 1994 to $30.2 million for the year ended
December 31, 1995. The increase is attributable to increased sales, net of a
minor decline in gross margin from 14.0% for the year ended December 31, 1994 to
13.8% for the year ended December 31, 1995. The slight decline in gross margin
is primarily due to an increase in used vehicle revenues as a percentage of
total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $5.3 million, or 23.6%, from $22.5 million for
the year ended December 31, 1994 to
33
<PAGE> 35
$27.8 million for the year ended December 31, 1995. The increase is primarily
attributable to variable incentive pay to employees and increased marketing
expense, both of which are related to the increase in revenues. Selling, general
and administrative expenses, as a percentage of revenues, remained constant at
12.7% for the year ended December 31, 1994 and for the year ended December 31,
1995.
INTEREST EXPENSE, NET. Interest expense, net, increased $0.7 million, or
28.0%, from $2.5 million for the year ended December 31, 1994 to $3.2 million
for the year ended December 31, 1995. The increase is attributable primarily to
an approximately 170 basis point increase in the floorplan interest rate.
LIQUIDITY AND CAPITAL RESOURCES -- MCCALL GROUP
The McCall Group's principal sources of liquidity are cash on hand, cash
from operations and floor plan financing.
The following table sets forth historical selected information from the
McCall Group statements of cash flows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------ ------- -------- -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities............................. $(1,499) $2,576 $(5,416) $(11,150) $(4,498)
Net cash used in investing activities.... (159) (252) (1,467) (333) (458)
Net cash provided by (used in) financing
activities............................. (342) 326 348 196 64
------- ------ ------- -------- -------
Net increase (decrease) in cash and cash
equivalents............................ $(2,000) $2,650 $(6,535) $(11,287) $(4,892)
======= ====== ======= ======== =======
</TABLE>
CASH FLOWS
Total cash and cash equivalents at March 31, 1997, were $9.2 million.
For the three years ended December 31, 1996, the McCall Group generated
$0.8 million in cash flow from net income plus depreciation and amortization.
Net cash flow from operating activities declined from $2.6 million for the year
ended December 31, 1995 to $(5.4) million for the year ended December 31, 1996.
The decline is due primarily to the usage of funds by the McCall Group to pay
down floor plan notes payable and increase inventories. These funds plus other
working capital were primarily invested in inventory to support the McCall
Group's significant growth.
For the three months ended March 31, 1997, the McCall Group generated $0.5
million from net income plus depreciation and amortization. Floor plan notes
payable paydowns resulted in the net use of cash by operating activities.
The change in net cash used in investing activities for the three years
ended December 31, 1996, was primarily attributable to purchases of property and
equipment for the Lexus franchise's new collision service center added in 1995
and showroom expansions at both franchises during 1996.
The change in net cash used in investing activities for the three months
ended March 31, 1997, was primarily attributable to purchases of property and
equipment. Increases in notes receivable was the primary use of cash for the
same period in the prior year.
The change in net cash related to financing activities was primarily
attributable to net repayments of long term debt and cash flows provided by
payments on subscriptions receivable and issuance of common stock.
34
<PAGE> 36
FLOORPLAN FINANCING
The McCall Group currently obtains floorplan financing for its vehicle
inventory primarily through Toyota Motor Credit Corporation. The debt bears
interest at rates ranging from prime plus 50 basis points to prime plus 150
basis points. Interest expense on floorplan notes payable, before manufacturer
interest assistance, totaled approximately $2.4 million, $3.1 million and $2.5
million for the years ended December 31, 1994, 1995 and 1996, respectively.
Manufacturer interest assistance, which is recorded as a reduction to interest
expense, totaled approximately $82,000, $91,000 and $136,000 for the years ended
December 31, 1994, 1995 and 1996, respectively.
LEASES
The McCall Group leases various real estate, facilities and equipment under
operating lease agreements, including leases with related parties. In connection
with the Acquisitions, the McCall Group intends to replace certain existing
leases with leases that have terms of 30 years and will be cancellable at the
Company's option ten years from execution of the lease and at the end of each
subsequent five year period. Such leases initially will have the same rent as
the existing leases. See "Certain Transactions -- Leases." Future minimum lease
payments for existing operating leases are as follows: $2.3 million in 1997,
$2.2 million in 1998, $2.1 million in 1999, $2.0 million in 2000 and $1.4
million in 2001.
OTHER
The McCall Group is required to buy certain retail loans from a third party
lender if the loans become delinquent. These loans are due from individuals who
have difficulty obtaining financing and may not have otherwise been able to
secure other financing to purchase a vehicle. These loans carry an interest rate
of prime plus approximately 9% and are secured by the vehicle sold to the
individual. As of December 31, 1996, the aggregate balance of these loans was
approximately $10 million. The McCall Group had charge-offs relating to these
loans of $200,000, $232,000, and $539,000 for the years ending December 31,
1994, 1995 and 1996, respectively. Management has reviewed the status of these
loans and, based on current facts and circumstances, does not believe the above
described commitment will significantly impact the Company's operations or
liquidity.
The McCall Group had working capital of $2.1 million as of December 31,
1996, excluding the reserve for finance, insurance and service contract
chargebacks and the accumulated LIFO reserve. Historically, the McCall Group has
funded its operations with internally generated cash flows and borrowings from
lenders. While there can be no assurance, based on current facts and
circumstances, management believes it has adequate cash flows and financing
alternatives to fund its current operations.
35
<PAGE> 37
RESULTS OF OPERATIONS -- SMITH GROUP
This group consists of an Acura dealership in Houston, Texas, Honda, GMC,
Oldsmobile, Mitsubishi, Lincoln, Mercury and Kia dealerships in Beaumont, Texas,
a Nissan dealership in Richardson, Texas (a suburb of Dallas) and two Nissan
dealerships, one Mitsubishi dealership and one Suzuki dealership in Austin,
Texas. The Smith family has been in the automotive retailing business since
1917.
The following table sets forth certain historical selected financial data
and data as a percentage of revenues for the Smith Group for the periods
indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales............... $136,917 63.1% $132,150 59.7% $124,174 56.9%
Used vehicle sales.............. 49,549 22.8 57,363 25.9 60,579 27.8
Parts and service sales......... 25,502 11.7 26,238 11.9 28,631 13.1
Other dealership revenue, net... 5,109 2.4 5,507 2.5 4,895 2.2
-------- ------ -------- ------ -------- ------
Total revenues................ 217,077 100.0 221,258 100.0 218,279 100.0
Cost of sales.................... 189,920 87.5 192,665 87.1 189,169 86.7
-------- ------ -------- ------ -------- ------
Gross profit..................... 27,157 12.5 28,593 12.9 29,110 13.3
Selling, general and
administrative expenses......... 21,727 10.0 22,824 10.3 23,711 10.8
-------- ------ -------- ------ -------- ------
Income from operations........... 5,430 2.5 5,769 2.6 5,399 2.5
Other income and expense:
Interest expense, net........... (2,147) (1.0) (2,956) (1.3) (1,710) (0.8)
Other income (expense), net..... (29) -- 202 0.1 223 0.1
-------- ------ -------- ------ -------- ------
Income before income taxes....... 3,254 1.5 3,015 1.4 3,912 1.8
Provision for income taxes....... 455 0.2 562 0.3 678 0.3
-------- ------ -------- ------ -------- ------
Net income....................... $ 2,799 1.3% $ 2,453 1.1% $ 3,234 1.5%
======== ====== ======== ====== ======== ======
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------
1996 1997
----------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues:
New vehicle sales............... $26,329 52.9% $36,149 59.3%
Used vehicle sales.............. 15,323 30.8 16,377 26.9
Parts and service sales......... 6,826 13.7 6,983 11.5
Other dealership revenue, net... 1,268 2.6 1,425 2.3
------- ----- ------- -----
Total revenues................ 49,746 100.0 60,934 100.0
Cost of sales.................... 42,827 86.1 52,484 86.1
------- ----- ------- -----
Gross profit..................... 6,919 13.9 8,450 13.9
Selling, general and
administrative expenses......... 5,577 11.2 6,875 11.3
------- ----- ------- -----
Income from operations........... 1,342 2.7 1,575 2.6
Other income and expense:
Interest expense, net........... (368) (0.8) (447) (0.7)
Other income (expense), net..... (15) -- (5) --
------- ----- ------- -----
Income before income taxes....... 959 1.9 1,123 1.9
Provision for income taxes....... 167 0.3 209 0.4
------- ----- ------- -----
Net income....................... $ 792 1.6% $ 914 1.5%
======= ===== ======= =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996
REVENUES. Revenues increased $11.2 million, or 22.5%, from $49.7 million
for the three months ended March 31, 1996 to $60.9 million for the three months
ended March 31, 1997. New vehicle sales increased $9.8 million, or 37.6%, from
$26.3 million for the three months ended March 31, 1996 to $36.1 million for the
three months ended March 31, 1997. The increase is primarily attributable to the
addition of the new Nissan franchise during 1996 located just north of Austin,
Texas. Additionally, sales at the Smith Group's Nissan franchises were
positively impacted by manufacturer incentive programs. Used vehicle sales
increased $1.1 million, or 7.2%, from $15.3 million for the three months ended
March 31, 1996 to $16.4 million for the three months ended March 31, 1997. The
increase is due primarily to the addition of the new Nissan franchise during
1996, offset by declines at other franchises in the Smith Group. The declines
were caused in large part by the strong new vehicle sales capturing many used
vehicle customers. Parts and service sales increased $0.2 million, or 2.9%, from
$6.8 million for the three months ended March 31, 1996 to $7.0 million for the
three months ended March 31, 1997. The increase is primarily attributable to the
addition of the new Nissan franchise during 1996, while the other franchises
were stable from year to year.
GROSS PROFIT. Gross profit increased $1.6 million, or 23.2%, from $6.9
million for the three months ended March 31, 1996 to $8.5 million for the three
months ended March 31, 1997. The increase is attributable to increased sales as
the gross margin remained constant at 13.9% for the three months ended March 31,
1996 and for the three months ended March 31, 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling general and
administrative expenses increased $1.3 million, or 23.2%, from $5.6 million for
the three months ended March 31, 1996 to $6.9 million for the three months ended
March 31, 1997. The increase is primarily attributable to variable incentive pay
to employees and expenses relating to the new Nissan franchise opened in 1996.
As a
36
<PAGE> 38
percentage of revenues, selling, general and administrative expenses remained
relatively constant at 11.2% for the three months ended March 31, 1996 and 11.3%
for the three months ended March 31, 1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues decreased $3.0 million, or 1.4%, from $221.3 million for
the year ended December 31, 1995 to $218.3 million for the year ended December
31, 1996. New vehicle sales decreased $8.0 million, or 6.1%, from $132.2 million
for the year ended December 31, 1995 to $124.2 million for the year ended
December 31, 1996. The decrease is primarily attributable to reduced unit sales
at the Smith Group's Dallas Nissan franchise. The sales were impacted by changes
in the franchise's market place and consumer preferences in the region. The
decline was partially offset by revenues generated by a new Nissan franchise
located just north of Austin, Texas, opened in late 1996. Used vehicle sales
increased $3.2 million, or 5.6%, from $57.4 million for the year ended December
31, 1995 to $60.6 million for the year ended December 31, 1996. The increase is
primarily attributable to increased focus on used vehicle sales by the Dallas
Nissan franchise in response to changes in its new vehicle market conditions.
Parts and service sales increased $2.4 million, or 9.2%, from $26.2 million for
the year ended December 31, 1995 to $28.6 million for the year ended December
31, 1996.
GROSS PROFIT. Gross profit increased by $0.5 million, or 1.8%, from $28.6
million for the year ended December 31, 1995 to $29.1 million for the year ended
December 31, 1996. Gross profit increased, despite decreased sales, due to a
higher gross margin. The gross margin increased as higher margin parts and
service sales increased and became a greater percentage of total revenues. Gross
margin increased from 12.9% for the year ended December 31, 1995 to 13.3% for
the year December 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $0.9 million, or 3.9%, from $22.8 million
for the year ended December 31, 1995 to $23.7 million for the year ended
December 31, 1996. The increase is primarily attributable to marketing expenses
relating to the opening of the Smith Group's new Nissan franchise in Austin,
Texas. As a percentage of total revenues, selling, general and administrative
expenses increased from 10.3% for the year ended December 31, 1995 to 10.8% for
the year ended December 31, 1996.
INTEREST EXPENSE, NET. Interest expense, net, decreased by $1.3 million, or
43.3%, from $3.0 million for the year ended December 31, 1995 to $1.7 million
for the year ended December 31, 1996. The decrease is attributable to an
approximately 50 basis point decrease in the average floorplan interest rate,
increased floorplan assistance payments from the Manufacturers and reduced
average floorplan levels.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased $4.2 million, or 1.9%, from $217.1 million for
the year ended December 31, 1994 to $221.3 million for the year ended December
31, 1995. New vehicle sales decreased $4.7 million or 3.4% from $136.9 million
for the year ended December 31, 1994 to $132.2 million for the year ended
December 31, 1995. The decline is primarily due to a reduced level of customer
support of the Smith Group's products. Used vehicle sales increased $7.9
million, or 16.0%, from $49.5 million for the year ended December 31, 1994 to
$57.4 million for the year ended December 31, 1995. The increase is primarily
attributable to increased focus on used vehicle sales in response to changes in
the Smith Group's new vehicle market conditions. Parts and service sales
increased $0.7 million, or 2.7%, from $25.5 million for the year ended December
31, 1994 to $26.2 million for the year ended December 31, 1995. The growth is
primarily attributable to continued steady growth driven by overall increased
vehicle sales.
GROSS PROFIT. Gross profit increased $1.4 million, or 5.1%, from $27.2
million for the year ended December 31, 1994 to $28.6 million for the year ended
December 31, 1995. The increase is attributable to increased revenues and
improved gross margin, as higher margin parts and service sales increased
37
<PAGE> 39
and became a greater percentage of total revenues. Gross margin increased from
12.5% for the year ended December 31, 1994 to 12.9% for the year ended December
31, 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $1.1 million, or 5.1% from $21.7 million for
the year ended December 31, 1994 to $22.8 million for the year ended December
31, 1995. As a percentage of revenues, selling, general and administrative
expenses increased from 10.0% for the year ended December 31, 1994 to 10.3% for
the year ended December 31, 1995.
INTEREST EXPENSE, NET. Interest expense, net, increased $0.9 million, or
42.9%, from $2.1 million for the year ended December 31, 1994 to $3.0 million
for the year ended December 31, 1995. The increase is primarily attributable to
an approximately 170 basis point increase in the average floorplan interest
rate.
LIQUIDITY AND CAPITAL RESOURCES -- SMITH GROUP
The Smith Group's principal sources of liquidity are cash on hand, cash
from operations and floor plan financing.
The following table sets forth selected information from the Smith Group
statements of cash flows:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ----------------
1994 1995 1996 1996 1997
------ ------ ------ ------ -------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities............................ $1,170 $4,975 $4,534 $ 687 $1,218
Net cash used in investing activities... (218) (700) (858) (165) (201)
Net cash used in financing activities... (905) (2,081) (2,343) (421) (623)
------ ------ ------ ----- ------
Net increase in cash and cash
equivalents........................... $ 47 $2,194 $1,333 $ 101 $ 394
====== ====== ====== ===== ======
</TABLE>
CASH FLOWS
Total cash and cash equivalents at March 31, 1997, were $9.5 million.
For the three year period ended December 31, 1996, the Smith Group
generated $10.7 million in net cash from operating activities, primarily from
net income plus depreciation and amortization.
Net cash from operating activities increased from $0.7 million for the
three months ended March 31, 1996 to $1.2 million for the three months ended
March 31, 1997, primarily due to changes in inventories and floorplan financing.
The change in net cash used in investing activities was primarily
attributable to purchases of property and equipment relating to the new Nissan
franchise in Austin, Texas and various facility improvements and computer
equipment purchases at the other Smith Group franchises.
The change in net cash used in financing activities was primarily
attributable to net borrowings and repayments of debt and distributions to the
stockholders.
FLOORPLAN FINANCING
The Smith Group currently obtains floorplan financing for its vehicle
inventory through Ford Motor Credit Company, NationsBank and Nissan Motor
Acceptance Corporation. The debt bears interest at rates ranging from prime to
prime plus 175 basis points for new and used vehicles. Interest expense on
floorplan notes payable, before manufacturer interest assistance, totaled
approximately $2.2 million, $3.2 million and $2.5 million for the years ended
December 31, 1994, 1995 and 1996, respectively. Manufacturer interest
assistance, which is recorded as a reduction to interest expense, totaled
approximately $0.7 million, $0.8 million and $1.1 million for the years ended
December 31, 1994, 1995 and 1996, respectively. Payments on the notes are due
when the related vehicles are sold and are collateralized by substantially all
new and used vehicles.
38
<PAGE> 40
LEASES
The Smith Group leases various facilities and equipment under operating
lease agreements, including leases with related parties. Certain of these leases
are noncancelable and expire on various dates through August 2013. These lease
agreements are subject to renewal under essentially the same terms and
conditions as the original leases. In connection with the Acquisitions, the
Smith Group intends to replace certain existing leases with leases that will
have terms of 30 years and will be cancellable at the Company's option ten years
from execution of the lease and at the end of each subsequent five year period.
Such leases initially will have the same rent as the existing leases. See
"Certain Transactions -- Leases". Future minimum lease payments for existing
operating leases are as follows: $1.4 million in 1997, $1.4 million in 1998,
$1.4 million in 1999, $1.0 million in 2000 and $0.8 million in 2001.
OTHER
The Smith Group had working capital of $8.1 million as of December 31,
1996, adjusted for the accumulated LIFO reserves. Historically, the Smith Group
has funded its operations with internally generated cash flow and borrowings
from lenders. While there can be no assurance, based on current facts and
circumstances, management believes it has adequate cash flows and financing
alternatives to fund its current operations.
CYCLICALITY
The Company's operations, like the automotive retailing industry in general
can be impacted by a number of factors relating to general economic conditions,
including the consumer business cycles, consumer confidence, economic
conditions, availability of consumer credit and interest rates. Although the
above factors, among others, can impact the Company's business, the Company
believes the impact on its operations of future negative trends in such factors
will be somewhat mitigated by its (i) strong parts, service and collision repair
services, (ii) variable cost salary structure, (iii) geographic diversity, and
(iv) product diversity.
SEASONALITY
The Company's operations are subject to seasonal variations, with the
second and third quarters generally contributing more operating profit than the
first and fourth quarters. This seasonality is driven by three primary forces:
(i) Manufacturer-related factors, primarily the historical timing of major
manufacturer incentive programs and model changeovers, (ii) weather-related
factors, which primarily affect parts and service and (iii) consumer buying
patterns.
EFFECTS OF INFLATION
Due to the relatively low levels of inflation experienced in fiscal 1994,
1995 and 1996 and the first three months of 1997, inflation did not have a
significant effect on the results of the combined Founding Groups during those
periods.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts, but
are forward-looking statements that are based upon numerous assumptions about
future conditions that could prove not to be accurate. Such forward-looking
statements include, without limitation, the statements regarding the trends in
the industry set forth in the Prospectus Summary and under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's anticipated future financial results and
position. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this Prospectus, including but not limited to the matters described
in "Risk Factors".
39
<PAGE> 41
BUSINESS
GENERAL
OVERVIEW
The Company was founded to become a leading operator and consolidator in
the highly fragmented automotive retailing industry. The Company owns 30
automobile dealerships and related businesses located in Texas and Oklahoma, and
sells new and used cars and light trucks, provides maintenance and repair
services, sells replacement parts and provides related financing, insurance and
extended service contracts. The Company represents 21 American and Asian brands
including Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda, Infiniti, Isuzu,
Kia, Lexus, Lincoln, Mazda, Mercury, Mitsubishi, Nissan, Oldsmobile, Plymouth,
Pontiac, Suzuki and Toyota. The Company's dealerships include the second-largest
Toyota dealership in the United States as measured by new retail unit sales and
one of the largest dealership groups in Oklahoma. The Company is experiencing
significant momentum in its financial results. From 1994 to 1996, the Company's
revenues increased by $172.1 million, or 26.4%, to $824.8 million from $652.7
million. During this period, gross profit increased $27.0 million, or 32.1%, to
$111.0 million from $84.0 million, or to 13.5% from 12.9% of revenues.
The principals of the Founding Groups have over 90 years of combined
experience in the automotive retailing industry with family ownership dating
back as far as 1917. In addition, they have been recognized as leaders in the
automotive retailing industry, serving at various times in leadership positions
in state and national industry organizations. The Company's dealerships have
also received numerous awards based on various performance measures. The
principals of the Founding Groups will continue to manage their businesses and
play a significant role in the Company's operating and acquisition strategies.
The Company believes that its structural, managerial and operational
strengths include (i) brand and geographic diversity; (ii) the ability to
capitalize on regional economies of scale; (iii) cost savings derived from
nationally centralized financing and administrative functions; (iv) the
experience of the Company's senior management in consolidating and successfully
operating in highly fragmented industries; (v) the reputations, experience and
performance of the Company's management and principals as leaders in the
automotive retailing industry; (vi) the established customer base and local name
recognition of the Company's dealerships; (vii) the Company's proven ability to
source high quality used vehicles cost-effectively through trade-ins and
off-lease programs; and (viii) access to equity incentives to attract and retain
high quality management.
FOUNDING GROUPS
The following table sets forth revenues for each of the Founding Groups for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1994 1995 1996
--------------------- --------------------- ---------------------
REVENUES PERCENTAGE REVENUES PERCENTAGE REVENUES PERCENTAGE
-------- ---------- -------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Howard Group......... $227,259 34.8% $254,003 34.9% $282,016 34.2%
McCall Group......... 177,320 27.2 218,888 30.0 288,542 34.9
Smith Group.......... 217,077 33.3 221,258 30.4 218,279 26.5
Kingwood Group....... 31,036 4.7 34,459 4.7 35,949 4.4
-------- ----- -------- ----- -------- -----
Total........ $652,692 100.0% $728,608 100.0% $824,786 100.0%
======== ===== ======== ===== ======== =====
<CAPTION>
THREE MONTHS ENDED MARCH 31,
---------------------------------------------
1996 1997
--------------------- ---------------------
REVENUES PERCENTAGE REVENUES PERCENTAGE
-------- ---------- -------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Howard Group......... $ 62,533 34.1% $ 71,108 33.1%
McCall Group......... 62,693 34.2 73,752 34.3
Smith Group.......... 49,746 27.1 60,934 28.3
Kingwood Group....... 8,542 4.6 9,152 4.3
-------- ----- -------- -----
Total........ $183,514 100.0% $214,946 100.0%
======== ===== ======== =====
</TABLE>
40
<PAGE> 42
The following table sets forth retail unit sales for new vehicles for each
of the Founding Groups for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1994 1995 1996
----------------------- ----------------------- -----------------------
UNITS SOLD PERCENTAGE UNITS SOLD PERCENTAGE UNITS SOLD PERCENTAGE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Howard Group......... 7,381 38.1% 7,782 38.2% 8,181 38.3%
McCall Group......... 4,239 21.9 5,030 24.7 6,458 30.2
Smith Group.......... 7,023 36.3 6,815 33.5 5,983 28.0
Kingwood Group....... 718 3.7 730 3.6 756 3.5
------ ----- ------ ----- ------ -----
Total................ 19,361 100.0% 20,357 100.0% 21,378 100.0%
====== ===== ====== ===== ====== =====
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------
1996 1997
----------------------- -----------------------
UNITS SOLD PERCENTAGE UNITS SOLD PERCENTAGE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Howard Group......... 1,796 38.8% 1,864 34.2%
McCall Group......... 1,340 28.9 1,447 26.6
Smith Group.......... 1,313 28.4 1,933 35.5
Kingwood Group....... 183 3.9 207 3.7
----- ----- ----- -----
Total................ 4,632 100.0% 5,451 100.0%
===== ===== ===== =====
</TABLE>
THE HOWARD GROUP. The Howard Group is one of the largest dealership groups
in Oklahoma, consisting of Acura, Chevrolet, Chrysler, Dodge, Eagle, GMC, Honda,
Isuzu, Jeep, Mazda, Plymouth, Pontiac and Toyota dealerships located in Oklahoma
City. Additionally, the Howard Group expects to enter into an agreement to
purchase a Chevrolet dealership in Tulsa, Oklahoma. Robert E. Howard II, the
principal owner, has been involved in the automotive retailing industry for over
28 years.
MCCALL GROUP. The McCall Group consists of the second largest Toyota
dealership in the United States, as ranked by 1996 new unit sales, and one Lexus
dealership, both located in Houston, Texas. Mr. McCall, the principal owner, has
been involved in the automotive retailing industry for more than 27 years,
having been granted the first stand-alone exclusive Toyota dealership in
Houston, Texas.
SMITH GROUP. The Smith Group consists of one Acura dealership in Houston,
Texas, Honda, GMC, Oldsmobile, Mitsubishi, Lincoln, Mercury and Kia dealerships
in Beaumont, Texas, a Nissan dealership in Richardson, Texas (a suburb of
Dallas) and two Nissan dealerships, one Mitsubishi dealership and one Suzuki
dealership in the Austin, Texas area. The Smith family has been in the
automotive retailing business since 1917.
KINGWOOD GROUP. The Kingwood Group consists of one Honda and one Isuzu
dealership in Kingwood, Texas, a suburb of Houston. The Honda dealership was
established in 1989 and the Isuzu dealership was established in 1996. Mr.
Hollingsworth and John H. Duncan, a director of the Company, own interests in
these dealerships.
ACQUISITIONS AND MANUFACTURER AWARDED DEALERSHIP
The Founding Groups have a history of successfully acquiring and
integrating dealerships. Since 1994 the Founding Groups have acquired four
dealerships and were awarded one new point by a Manufacturer. For the year ended
December 31, 1996, these dealerships represented $63.8 million in total
revenues, two of which had only part year revenues in 1996. The Howard Group
acquired a Honda and an Acura dealership in 1994 and a Dodge dealership in 1996;
all of which are located in Oklahoma City. Additionally, the Howard Group
expects to enter into an agreement to purchase a Chevrolet dealership in Tulsa,
Oklahoma. The Smith Group was awarded a new Nissan point in Austin, Texas in
December 1996. The Kingwood Group acquired an Isuzu dealership in Houston, Texas
in 1996.
INDUSTRY OVERVIEW
With more than $600 billion in 1996 sales, automotive retailing is the
third largest domestic industry group in the United States. The industry is
highly fragmented and largely privately held with approximately 22,000
automobile dealerships representing more than 53,000 franchises. In 1996, U.S.
franchised automobile dealers sold 15.1 million new vehicles and 19.1 million
used vehicles for sales of approximately $328.4 billion and $171.8 billion,
respectively. It is estimated that sales by franchised automobile dealers
account for one-fifth of the nation's total retail sales of all products and
merchandise. Since 1992, new vehicle revenues have grown at a 10.5% compound
annual rate. Over the same period, used vehicle revenues have grown at a 13.6%
compound annual rate. Slower unit volume growth over this time period has been
offset by the rising prices associated with new vehicles and, on average, the
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<PAGE> 43
higher prices paid for later model high quality used vehicles which now comprise
a significant part of the used vehicle market. Automobile sales are affected by
many factors, including rates of employment, income growth, interest rates,
weather patterns and other national and local economic conditions, automotive
innovations and general consumer sentiment. See "Risk Factors -- Cyclicality"
and "Risk Factors -- Seasonality".
The following table sets forth new and used vehicle sales by franchised
automobile dealers in the United States for each of the five years ended
December 31, 1996:
<TABLE>
<CAPTION>
UNITED STATES FRANCHISED DEALERS' VEHICLE SALES
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
(UNITS IN MILLIONS; DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C>
New vehicle unit sales................. 12.9 13.9 15.1 14.7 15.1
New vehicle sales...................... $220.3 $253.3 $289.1 $301.2 $328.4
Used vehicle unit sales*............... 15.1 16.3 17.7 18.5 19.1
Used vehicle sales*.................... $103.3 $115.0 $138.6 $157.0 $171.8
Total vehicle sales*................... $323.6 $368.3 $427.7 $458.2 $500.2
Annual growth in total vehicle sales... --% 13.8% 16.1% 7.1% 9.2%
</TABLE>
- ---------------
* Reflects franchised dealerships sales at retail and wholesale. In addition,
sales by independent retail used car and truck dealers were $81.0, $100.3,
$134.1, $129.7 and $122.0 billion, respectively, for each of the five years
ended December 31, 1996.
Sources: NADA; CNW Market Research
Manufacturers originally established franchised dealer networks for the
distribution of their vehicles as single-dealership, single-owner operations. In
return for distribution rights within specified territories, Manufacturers
exerted significant influence over such matters as a dealer's location,
inventory size and composition and merchandising programs, as well as the
identity of owners and managers. This strict control contributed to the
proliferation of small dealerships, which at their peak in the late 1940s
numbered in excess of 49,000. Several Manufacturers went out of business in the
1950s, and the number of dealerships decreased to 36,000 by 1960.
Significant industry changes took place in the 1970s when fuel shortages
forced dramatic increases in gasoline prices and foreign Manufacturers increased
their penetration of the U.S. market with fuel-efficient, low-cost vehicles. As
a result of these competitive pressures, dealers were able to negotiate
significant changes in the traditional distribution system with Manufacturers.
Dealers began to add foreign franchises and the phenomenon of the
multi-franchise automobile dealer, or megadealer, emerged, prompting the
significant acquisition and consolidation activities of the 1980s. The easing of
restrictions against megadealers, competitive pressures upon undercapitalized
dealerships and the aging of dealership owners has led to further consolidation
of the industry. Since 1960, the number of dealerships has declined 39% to the
current 22,000 level.
As the industry has evolved, so has the dealership profile. Over the past
three decades, there has been a trend toward fewer, but larger, dealerships. In
1996, each of the largest 100 dealer groups had more than $200 million in
revenues. Although significant consolidation has taken place since its
inception, the industry today remains highly fragmented, with the largest 100
dealer groups generating less than 10% of total sales revenues and controlling
approximately 5% of all franchised dealerships. The Company believes that these
factors, together with increasing capital requirements for operating automobile
dealerships, lack of a viable exit strategy (especially for larger dealerships)
and the aging of dealership owners provide an attractive environment for
consolidation opportunities.
As with retailers generally, automobile dealership profitability varies
widely and depends in part on the effective management of inventory, marketing,
quality control and responsiveness to customers. Since 1991, retail automobile
dealerships in the United States have earned on average between 12.9% and 14.1%
total gross margin on sales. New vehicle sales were the smallest proportionate
contributors to
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<PAGE> 44
dealers' gross profits during this period, most recently earning an average
gross margin of 6.5% in 1996. Used vehicles provided higher gross margins than
new vehicles during this period, with an average used vehicle gross margin of
11.0% in 1996. Dealerships also offer a range of other services and products,
including repair and warranty work, replacement parts, extended service
contracts, financing and credit insurance.
BUSINESS STRATEGY
The Company plans to achieve its goal of becoming a leading consolidator,
while maintaining its high operating standards in the automotive retailing
industry, by (i) emphasizing growth through acquisitions and (ii) implementing
an operating strategy that focuses on decentralized dealership operations,
nationally centralized administrative functions, the expansion of higher margin
businesses, a commitment to customer service and the implementation of new
technology initiatives. By complementing the Company's industry leaders,
management talent and proven operating capabilities with its corporate
management team which is experienced in achieving and managing long-term growth
in a consolidation environment, the Company believes that it is in a strong
position to execute this strategy.
GROWTH THROUGH ACQUISITIONS
The Company intends to implement an aggressive, yet disciplined,
acquisition program by pursuing (i) large, profitable and well managed
"platform" acquisitions in large metropolitan and high-growth suburban
geographic markets that the Company does not currently serve and (ii) smaller
"add-on" acquisitions that will allow the Company to increase brand diversity,
capitalize on regional economies of scale and offer a greater breadth of
products and services in each of the markets in which it operates. In this
regard, the Company is currently negotiating for a $75 million credit facility
with a major bank which will be used, in combination with the Company's common
stock, for acquisitions.
ENTERING NEW GEOGRAPHIC MARKETS. The Company intends to expand into
geographic markets it does not currently serve by acquiring large, profitable
and well established megadealers that, like the Founding Groups, are leaders in
their regional markets. The Company will target new platform megadealers having
superior operational and financial management personnel which the Company will
seek to retain. The Company believes that retaining existing high quality
management will enable acquired megadealers to continue to operate effectively
with management personnel who understand the local market while allowing the
Company to source future acquisitions more effectively and expand its operations
without having to employ and train untested new personnel. Moreover, the Company
believes that it is well positioned to pursue larger, well established
acquisition candidates as a result of its depth of management, the Company's
capital structure and the reputation of the principals of the Founding Groups as
leaders in the automotive retailing industry.
EXPANDING WITHIN EXISTING MARKETS. The Company plans to acquire additional
dealerships in each of the markets in which it operates, including acquisitions
that increase the brands, products or services offered in that market. The
Company believes that these acquisitions will facilitate operating efficiencies
and cost savings on a regional level in areas such as facility and personnel
utilization, vendor consolidation and advertising.
OPERATING STRATEGY
The Company intends to implement an operations strategy that focuses on
decentralized dealership operations, nationally centralized administrative
functions, expansion of higher margin businesses, commitment to customer service
and new technology initiatives.
The Company has formed an operations committee comprised of the chief
operating officers of the Founding Groups and the general managers of the
dealerships in order to identify and share best practices. The Company intends
to incorporate the key officers and management of future acquisitions into this
operations committee. The Company believes that this operations committee will
promote the widespread application of the Company's broad strategic initiatives,
facilitate the integration of the
43
<PAGE> 45
Founding Groups and future acquisitions and improve operating efficiency and
overall customer satisfaction.
DECENTRALIZED DEALERSHIP OPERATIONS. The Company believes that
decentralizing its dealership operations on a regional, or platform, basis will
enable it to provide superior customer service and a focused, market-specific
responsiveness to sales, service, marketing and inventory control. Local
presence and an in-depth knowledge of customers' needs and preferences are
important in generating internally-driven market share growth. By coordinating
certain operations on a platform basis, the Company believes that it will
achieve cost savings in such areas as vendor consolidation, facility and
personnel utilization and advertising. In addition, the Company believes that
significant cost savings will be achieved by consolidating certain
administrative functions on a regional basis that would not be efficient on a
national basis such as accounting, information systems, title work, credit and
collection. The Company intends to create incentives for entrepreneurial
management teams and sales forces at the regional level through the use of stock
options and/or cash bonus programs.
NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. The consolidation of
purchasing power on a centralized basis in the area of financing should result
in significant additional cost savings. The Company is negotiating with several
lenders to refinance its floorplan debt on more favorable terms. Since the
Company's credit quality is expected to be enhanced by the Acquisitions and the
Offering, management expects the interest rate on its floorplan debt to decrease
as compared to the interest rates currently being charged to the Founding
Groups. In addition, the Company expects that significant cost savings can be
achieved through the consolidation of administrative functions such as employee
benefits, risk management and employee training on a centralized basis. For
example, the Founding Groups each currently purchase insurance from separate
sources. The Company is working with a national insurance firm to develop an
overall risk management strategy that will efficiently protect the Company's
assets and minimize future liabilities.
EXPAND HIGHER MARGIN ACTIVITIES. The Company is focused on leveraging its
new vehicle franchises by expanding its higher margin businesses such as used
vehicle retail sales, service and parts and finance and insurance. While each of
the Company's platforms will be able to operate independently in a manner
consistent with its specific market's characteristics, each platform will pursue
an integrated strategy to grow each of these higher margin businesses to enhance
profitability and stimulate internal growth. With a competitive advantage in
sourcing, the ability to provide manufacturer-backed extended service contracts,
and attractive lease financing, new vehicle franchises are especially well
positioned to capitalize on industry growth in used vehicle sales. In addition,
each of the Company's dealerships offers an integrated service and parts
department, which provides an important source of recurring higher margin
revenues. The Company also has the opportunity on each new or used vehicle sold
to generate incremental revenues from the sale of extended service contracts,
credit insurance policies and finance and lease contracts. Each of these
business areas will be a focus of internal growth.
COMMITMENT TO CUSTOMER SERVICE. The Company is focused on providing a high
level of customer service to meet the needs of an increasingly sophisticated and
demanding automotive consumer. The Company strives to cultivate lasting
relationships with its customers, which it believes enhances the opportunity for
significant repeat and referral business. For example, the Company regards its
service and repair activities as an integral part of its overall approach to
customer service, providing an opportunity to foster ongoing relationships with
the Company's customers and deepen customer loyalty. The Company's dealerships
continuously review their selling processes in their effort to satisfy their
customers.
DEALERSHIP OPERATIONS
The Company has established a management structure that promotes and
rewards entrepreneurial spirit, individual pride and responsibility and the
achievement of team goals. Each dealership's general manager is ultimately
responsible for the operation, personnel and financial performance of the
dealership. The general manager is complemented with a management team
consisting of a new vehicle sales
44
<PAGE> 46
manager, used vehicle sales manager, service and parts managers and finance
managers. Each dealership is operated as a distinct profit center, in which
dealership general managers are given a high degree of autonomy. The Company
believes that the general manager and the other members of the dealership
management team, as long-time members of their local communities, are best able
to judge how to conduct day-to-day operations based on the team's experience in
and familiarity with its local market.
The Company's dealerships engage in a number of inter-related businesses:
new vehicle sales; used vehicle sales; service and parts operations; and finance
and insurance.
NEW VEHICLE SALES
In 1996, the Company sold 21,378 new vehicles at retail, and new vehicle
operations (excluding fleet sales) generated $469.3 million in revenues,
representing 56.9% of total dealership revenues. The following table presents,
on a combined basis for each of the three years ended December 31, 1996 and for
the three months ended March 31, 1996 and March 31, 1997, unit sales, sales
revenue, gross profit, gross margin and average gross profit per retail unit
sold related to the Company's retail sales of new vehicles:
<TABLE>
<CAPTION>
COMPANY'S NEW VEHICLE SALES
---------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1994 1995 1996 1996 1997
-------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales............ 19,361 20,357 21,378 4,632 5,451
Retail sales revenue......... $391,709 $422,348 $469,318 $99,161 $117,418
Gross profit................. $ 25,464 $ 28,696 $ 33,454 $ 7,061 $ 8,737
Gross margin................. 6.5% 6.8% 7.1% 7.1% 7.4%
Average gross profit per
retail unit sold........... $ 1,315 $ 1,410 $ 1,565 $ 1,524 $ 1,603
</TABLE>
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<PAGE> 47
The Company represents 21 American and Asian brands of economy, family,
sports and luxury cars and light trucks and sport utility vehicles. This brand
and product diversity reduces the risk of changes in customer preferences as
well as over-dependence on any one manufacturer. The Company intends to pursue
an acquisition strategy that will enhance its brand diversity. The following
table sets forth for 1996, certain information relating to the brands of new
vehicles sold at retail by the Company:
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE OF
NEW VEHICLES NEW VEHICLES
MANUFACTURER SOLD AT RETAIL SOLD AT RETAIL
------------ -------------- --------------
<S> <C> <C>
Toyota................................................. 6,346 29.7%
Nissan................................................. 3,060 14.3
Honda.................................................. 2,531 11.8
Chevrolet.............................................. 1,602 7.5
GMC.................................................... 1,199 5.6
Lexus.................................................. 989 4.6
Acura.................................................. 836 3.9
Pontiac................................................ 699 3.3
Mitsubishi............................................. 599 2.8
Mazda.................................................. 590 2.8
Dodge.................................................. 553 2.6
Jeep................................................... 536 2.5
Chrysler............................................... 360 1.7
Plymouth............................................... 356 1.6
Isuzu.................................................. 285 1.3
Kia.................................................... 277 1.3
Mercury................................................ 169 0.8
Oldsmobile............................................. 165 0.8
Eagle.................................................. 75 0.4
Suzuki................................................. 69 0.3
Lincoln................................................ 48 0.2
Other.................................................. 34 0.2
------ -----
Total........................................ 21,378 100.0%
====== =====
</TABLE>
The Company's new vehicle retail sales include traditional new vehicle
retail lease transactions and lease-type transactions, both of which are
arranged by the Company. New vehicle leases generally have short terms, which
brings the consumer back to the market sooner than if the purchase were debt
financed. In addition, leases provide the Company with a steady source of
late-model, off-lease vehicles for its used vehicle inventory. Generally, leased
vehicles remain under factory warranty for the term of the lease, which allows
the Company to provide repair service to the lessee throughout the lease term.
The Company seeks to provide customer-oriented service designed to meet the
needs of its customers and establish lasting relationships that will result in
repeat and referral business. For example, the Company's dealerships strive to:
(i) employ more efficient selling approaches; (ii) utilize computer technology
that decreases the time necessary to purchase a vehicle; (iii) engage in
extensive follow-up after a sale in order to develop long-term relationships
with customers; and (iv) extensively train their sales staffs to be able to meet
the needs of the customer. The Company continually evaluates innovative ways to
improve the buying experience for its customers and believes that its ability to
share best practices among its dealerships gives it an advantage over smaller
dealerships.
The Company acquires substantially all its new vehicle inventory from
Manufacturers. Manufacturers allocate a limited inventory among their franchised
dealers based primarily on sales volume and input from dealers. The Company
finances its inventory purchases through revolving credit arrangements known in
the industry as floor plan facilities. As a result of its size and based on
discussions with several
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<PAGE> 48
lenders, the Company believes it will be able to secure floorplan financing on
terms more favorable than those generally available to smaller dealers.
USED VEHICLE SALES
In 1996, the Company sold 17,220 used vehicles at retail and used vehicle
operations generated $258.0 million in revenues, representing 31.3% of total
dealership revenues. The following table presents, on a combined basis for each
of the three years ended December 31, 1996 and for the three months ended March
31, 1996 and March 31, 1997, unit sales, sales revenue, gross profit, gross
margin and average gross profit per retail unit sold related to the Company's
retail sales of used vehicles:
<TABLE>
<CAPTION>
COMPANY'S USED VEHICLE SALES
----------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales........... 13,147 15,358 17,220 4,172 4,479
Retail sales revenue(1)..... $147,914 $185,665 $219,183 $ 52,341 $ 59,169
Gross profit................ $ 14,594 $ 17,560 $ 21,358 $ 5,091 $ 5,058
Gross margin................ 9.9% 9.5% 9.7% 9.7% 8.5%
Average gross profit per
retail unit sold.......... $ 1,110 $ 1,143 $ 1,240 $ 1,220 $ 1,129
</TABLE>
- ---------------
(1) Excludes wholesale revenues.
The Company sells used vehicles at each of its franchised dealerships.
Sales of used vehicles have become an increasingly significant source of profit
for the Company. Sales of used vehicles as a percentage of total vehicles sold
by the Company has increased from 28.2% in 1994 to 31.3% in 1996. Consumer
demand for used vehicles has increased as prices of new vehicles have risen and
as more high quality used vehicles have become available. Furthermore, used
vehicles typically generate higher gross margins than new vehicles because of
their limited comparability and the somewhat subjective nature of their
valuation. The Company intends to continue growing its used vehicle sales
operations by maintaining a high quality inventory, providing competitive prices
and extended service contracts for its used vehicles and continuing to promote
used vehicle sales.
Profits from sales of used vehicles are dependent primarily on the ability
of the Company's dealerships to obtain a high quality supply of used vehicles
and effectively manage that inventory. The Company's new vehicle operations
provide the Company's used vehicle operations with a large supply of high
quality trade-ins and off-lease vehicles, which are the best sources of high
quality used vehicles. The Company supplements its used vehicle inventory with
used vehicles purchased at auctions.
The Company generally maintains a 45-60 day supply of used vehicles and
offers to other dealers and wholesalers used vehicles that the Company does not
retail to customers. Trade-ins may be transferred among dealerships to provide
balanced inventories of used vehicles at each of the Company's dealerships. The
Company believes that acquisitions of additional dealerships will expand its
internal market for transfers of used vehicles among its dealerships and,
therefore, increase the ability of each of the Company's dealerships to offer
the same brand of used vehicles as it sells new and to maintain a balanced
inventory of used vehicles. The Company intends to develop integrated computer
inventory systems that will allow it to coordinate vehicle transfers between its
dealerships, primarily on a regional basis.
The Company has taken several steps towards building client confidence in
its used vehicle inventory, one of which includes its participation in the
Manufacturers' certification processes which are available only to new vehicle
franchises. This process makes these used vehicles eligible for new vehicle
benefits such as new vehicle finance rates and extended Manufacturer warranties.
In addition, the
47
<PAGE> 49
Company's dealerships offer extended warranties covering the used vehicles that
each of its dealerships sells.
The Company believes that franchised dealership strengths in offering used
vehicles include: (i) access to trade-ins on new vehicle purchases, which are
typically lower mileage and higher quality relative to trade-ins on used car
purchases, (ii) access to late-model, low mileage off-lease vehicles, and (iii)
the availability of Manufacturer certification and extended Manufacturer
warranties for the Company's higher quality used vehicles. This supply of high
quality trade-ins and off-lease vehicles reduces the Company's dependence on
auction vehicles, which are typically a higher cost source of used vehicles.
SERVICE AND PARTS
In 1996, the Company's service and parts operations generated $77.2 million
in revenues, representing 9.3% of total dealership revenues. The following table
presents, on a combined basis for each of the three years ended December 31,
1996 and for the three months ended March 31, 1996 and March 31, 1997, sales
revenue, gross profit and gross margin related to the Company's service and
parts operations:
<TABLE>
<CAPTION>
COMPANY'S SERVICE AND PARTS OPERATIONS
----------------------------------------------------
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales revenue............... $ 61,024 $ 65,599 $ 77,184 $ 17,694 $ 19,030
Gross profit................ $ 28,787 $ 31,408 $ 35,978 $ 8,366 $ 9,872
Gross margin................ 47.2% 47.9% 46.6% 47.3% 51.9%
</TABLE>
The Company provides service and parts at each of its franchised
dealerships primarily for the vehicle makes sold by its dealerships. The Company
provides maintenance and repair services at its 30 dealerships and five
collision service centers. The Company utilizes approximately 500 service bays
in providing these services. The Company performs both warranty and non-warranty
service work.
Historically, the automotive repair industry has been highly fragmented.
However, the Company believes that the increased use of advanced technology in
vehicles has made it difficult for independent repair shops to retain the
expertise to perform major or technical repairs. Additionally, Manufacturers
permit warranty work to be performed only at franchised dealerships. Hence,
unlike independent service stations, or independent and superstore used car
dealerships with service operations, the Company's franchised dealerships are
qualified to perform work covered by Manufacturer warranties. Given the
increasing technological complexity of motor vehicles and the trend toward
extended Manufacturer and dealer warranty periods for new vehicles, the Company
believes that an increasing percentage of repair work will be performed at the
Company's franchised dealerships each of which have the sophisticated equipment
and skilled personnel necessary to perform such repairs and offer extended
service contracts.
The Company attributes its profitability in parts and service to a
comprehensive management system, including the use of a variable rate pricing
structure, cultivation of strong client relationships through an emphasis on
preventive maintenance and the efficient management of parts inventory.
In charging for its mechanics' labor, the Company uses a variable rate
structure designed to reflect the difficulty and sophistication of different
types of repairs. The percentage mark-ups on parts are similarly priced based on
market conditions for different parts. The Company believes that variable rate
pricing helps the Company to achieve overall gross margins in parts and service
superior to those of certain competitors who rely on fixed labor rates and
percentage markups.
The Company seeks to retain each purchaser of a vehicle as a customer of
the Company's service and parts departments. The Company's dealerships have
systems in place that track their customers' maintenance records and notify
owners of vehicles purchased at the dealerships when their vehicles are
48
<PAGE> 50
due for periodic services. The Company regards its service and repair activities
as an integral part of its overall approach to customer service, providing an
opportunity to foster ongoing relationships with the Company's customers and
deepen customer loyalty.
The dealerships' parts departments support their respective sales and
service divisions. Each of the Company's dealerships sells factory-approved
parts for vehicle makes and models sold by that dealership. These parts are
either used in repairs made by the dealership or sold at retail to its customers
or at wholesale to independent repair shops. Currently, each of the Company's
dealerships employs its own parts manager and independently controls its parts
inventory and sales. Dealerships that sell the same new vehicle makes have
access to each other's computerized inventories and frequently obtain unstocked
parts from other dealerships.
FINANCE AND INSURANCE
The Company also arranges financing for its customers' vehicle purchases,
sells vehicle service contracts and arranges selected types of credit insurance
in connection with the financing of vehicle sales. The Company places heavy
emphasis on finance and insurance ("F&I") and offers advanced F&I training to
its finance and insurance managers. This emphasis resulted in the Company's
arranging of financing for 68% of its new vehicle sales and 55% of its used
vehicle sales in 1996, as compared to 60% and 56% respectively, in 1995.
Typically, the Company's dealerships forward proposed financing contracts to
Manufacturers' captive finance companies, selected commercial banks or other
financing parties. The Company receives a finance fee from the lender for
arranging the financing and is typically assessed a charge-back against a
portion of the finance fee if the contract is terminated prior to its scheduled
maturity for any reason, such as early repayment or default. As a result,
companies must arrange financing for a customer that is competitive (i.e., the
customer is more likely to accept the financing terms and the loan is less
likely to be refinanced) and affordable (i.e., the loan is more likely to be
repaid).
At the time of a new vehicle sale, the Company offers extended service
contracts to supplement the Manufacturer warranty. Additionally, the Company
sells primary service contracts for used vehicles. Currently, the Company
primarily sells service contracts of third party vendors, for which it
recognizes a commission upon the sale of the contract. The Company also sells
its own service contracts at one location and recognizes the associated revenue
over the life of the contract. In 1996, the Company sold service contracts on
36% and 44% of its new and used vehicle sales, respectively.
The Company also offers certain types of credit insurance to customers who
finance their vehicle purchases through the Company. The Company sells credit
life insurance policies to these customers, which policies provide for repayment
of the vehicle loan if the obligor dies while the loan is outstanding. The
Company also sells accident and health insurance policies, which provide payment
of the monthly loan obligations during a period in which the obligor is
disabled.
FRANCHISE AGREEMENTS
Each of the Company's dealerships operates pursuant to a franchise
agreement between the applicable Manufacturer and the subsidiary of the Company
that operates such dealership. The typical automotive franchise agreement
specifies the locations at which the dealer has the right and the obligation to
sell motor vehicles and related parts and products and to perform certain
approved services in order to serve a specified market area. The designation of
such areas and the allocation of new vehicles among dealerships are subject to
the discretion of the Manufacturer, which generally does not guarantee
exclusivity within a specified territory. A franchise agreement may impose
requirements on the dealer concerning such matters as the showrooms, the
facilities and equipment for servicing vehicles, the maintenance of inventories
of vehicles and parts, the maintenance of minimum net working capital and the
training of personnel. Compliance with these requirements is closely monitored
by the Manufacturer. In addition, Manufacturers require each dealership to
submit a financial statement of operations on a monthly and annual basis. The
franchise agreement also grants the dealer the non-exclusive right to use
49
<PAGE> 51
and display Manufacturer's trademarks, service marks and designs in the form and
manner approved by the Manufacturer.
Each franchise agreement sets forth the name of the person approved by the
Manufacturer to exercise full managerial authority over the dealership's
operations and the names and ownership percentages of the approved owners of the
dealership and contains provisions requiring the Manufacturer's prior approval
of changes in management or transfers of ownership of the dealership. Each of
the Company's dealerships is owned, directly or indirectly, by the Company at
the subsidiary level. A number of Manufacturers prohibit the acquisition of a
substantial ownership interest in the Company or transactions that may affect
management control of the Company, in each case without the approval of the
Manufacturer. See "Risk Factors -- Manufacturers' Control Over Dealerships."
Most franchise agreements expire after a specified period of time, ranging
from one to five years, and the Company expects to renew any expiring agreements
in the ordinary course of business. The typical franchise agreement provides for
early termination or non-renewal by the Manufacturer under certain circumstances
such as change of management or ownership without Manufacturer approval,
insolvency or bankruptcy of the dealership, death or incapacity of the dealer
manager, conviction of a dealer manager or owner of certain crimes,
misrepresentation of certain information by the dealership or dealer manager or
owner to the Manufacturer, failure to adequately operate the dealership, failure
to maintain any license, permit or authorization required for the conduct of
business, or material breach of other provisions of the franchise agreement. The
dealership is typically entitled to terminate the franchise agreement at any
time without cause.
The automobile franchise relationship is also governed by various federal
and state laws established to protect dealerships from the general unequal
bargaining power between the parties. The state statutes generally provide that
it is a violation for a Manufacturer to terminate or fail to renew a franchise
without good cause. These statutes also provide that the Manufacturer is
prohibited from unreasonably withholding approval for a proposed change in
ownership of the dealership. Acceptable grounds for disapproval include material
reasons relating to the character, financial ability or business experience of
the proposed transferee. Accordingly, certain provisions of the franchise
agreements, particularly as they relate to a Manufacturer's rights to terminate
or fail to renew the franchise, have repeatedly been held invalid by state
courts and administrative agencies.
Under Texas law, despite the terms of contracts between Manufacturers and
dealers, Manufacturers may not unreasonably withhold approval of a transfer of a
dealership. It is unreasonable under Texas law for a Manufacturer to reject a
prospective transferee of a dealership who is of good moral character and who
otherwise meets the Manufacturer's written, reasonable and uniformly applied
standards or qualifications relating to the prospective transferee's business
experience and financial qualifications. In addition, under Texas and Oklahoma
law and the laws of other states, franchised dealerships may challenge
Manufacturers' attempts to establish new franchises in the franchised dealers'
markets, and state regulators may deny applications to establish new dealerships
for a number of reasons, including a determination that the Manufacturer is
adequately represented in the region. Texas and Oklahoma law limit the ability
of Manufacturers to terminate or fail to renew franchises. In addition, other
laws in Texas and elsewhere limit the ability of Manufacturers to withhold their
approval for the relocation of a franchise or require that disputes be
arbitrated. In addition, a Manufacturer's license to distribute vehicles in
Texas and Oklahoma may be revoked if, among other things, the Manufacturer has
forced or attempted to force an automobile dealer to accept delivery of motor
vehicles not ordered by that dealer. In Oklahoma, a Manufacturer's license to
operate in the state may be revoked or suspended upon a finding that a
Manufacturer has coerced or intimidated a dealer or acted dishonestly or failed
to act in accordance with reasonable standards of fair dealing.
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<PAGE> 52
COMPETITION
The automotive retailing industry is extremely competitive. In large
metropolitan areas, consumers have a number of choices in deciding where to
purchase a new or used vehicle and where to have such a vehicle serviced.
In the new vehicle area, the Company competes with other franchised dealers
in each of its marketing areas. The Company does not have any cost advantage in
purchasing new vehicles from the Manufacturers, and typically relies on
advertising and merchandising, sales expertise, service reputation and location
of its dealerships to sell new vehicles. In recent years, automobile dealers
have also faced increased competition in the sale or lease of new vehicles from
independent leasing companies, on-line purchasing services and warehouse clubs.
In addition, Ford Motor has announced that it is exploring the possibility of
going into business with some of its dealers to create automotive superstores in
selected markets.
In used vehicles, the Company competes with other franchised dealers,
independent used car dealers, automobile rental agencies, private parties and
used car "superstores" for supply and resale of used vehicles. Used car
"superstores" have recently opened in certain markets in which the Company
competes, including Houston, Texas. In addition, the Company expects that
additional used car "superstores" will open in other markets in which the
Company competes. See "-- Used Vehicle Sales".
The Company believes that the principal competitive factors in vehicle
sales are the marketing campaigns conducted by Manufacturers, the ability of
dealerships to offer a wide selection of the most popular vehicles, the location
of dealerships and the quality of customer service. Other competitive factors
include customer preference for particular brands of automobiles, pricing
(including Manufacturer rebates and other special offers) and warranties. The
Company believes that its dealerships are competitive in all of these areas.
The Company competes against franchised dealers to perform warranty repairs
and against other automobile dealers, franchised and independent service center
chains and independent garages for non-warranty repair and routine maintenance
business. The Company competes with other automobile dealers, service stores and
auto parts retailers in its parts operations. The Company believes that the
principal competitive factors in parts and service sales are price, the use of
factory-approved replacement parts, the familiarity with a Manufacturer's brands
and models and the quality of customer service. A number of regional or national
chains offer selected parts and services at prices that may be lower than the
Company's prices.
FACILITIES
Set forth in the table below is certain information relating to the
properties that the Company uses in its business. Certain of the leases
described below reflect the terms of new leases to be entered into by the
Company in connection with the Acquisitions. See "Certain
Transactions -- Leases".
<TABLE>
<CAPTION>
OCCUPANT LOCATION USE LEASE/OWN
-------- -------- --- ---------
<S> <C> <C> <C>
HOWARD GROUP
Bob Howard Automall... 13300 N. Broadway New and used car sales; Lease; expires in 2027 and is cancelable at
Extension, service; F&I the Company's option in 2007 and at the end
Oklahoma City, Oklahoma of each subsequent five year period
13220 N. Broadway New and used car sales; Lease; expires in 2027 and is cancelable at
Extension, service; F&I the Company's option in 2007 and at the end
Oklahoma City, Oklahoma of each subsequent five year period
715 W. Memorial Road, Storage and make ready Lease; current term is month-to-month
Oklahoma City, Oklahoma facility
</TABLE>
51
<PAGE> 53
<TABLE>
<CAPTION>
OCCUPANT LOCATION USE LEASE/OWN
-------- -------- --- ---------
<S> <C> <C> <C>
Bob Howard Chevrolet.. 13130 N. Broadway New and used car sales; Lease; expires in 2027 and is cancelable at
Extension, service; F&I the Company's option in 2007 and at the end
Oklahoma City, Oklahoma of each subsequent five year period
Bob Howard Toyota..... 13200 N. Broadway New and used car sales; Lease; expires in 2027 and is cancelable at
Extension, service; F&I the Company's option in 2007 and at the end
Oklahoma City, Oklahoma of each subsequent five year period
Bob Howard
Honda-Acura......... 14137 N. Broadway New and used car sales; Lease; expires in 2027 and is cancelable at
Extension, service; F&I the Company's option in 2007 and at the end
Edmond, Oklahoma of each subsequent five year period
3700 S. Broadway Collision services Lease; expires 1999
Extension, center
Edmond, Oklahoma
Bob Howard Dodge...... 616 W. Memorial Road, New and used car sales; Lease; expires 2001
Edmond, Oklahoma service; collision
services center; F&I
MCCALL GROUP
9400 Southwest Freeway New and used car sales; Lease; three leases which expire in 2027 and
Sterling McCall Toyota.. Houston, Texas service; F&I are cancelable at the Company's option in
2007 and at the end of each subsequent five
year period
6015 Skyline Collision services Lease; expires in 2027 and is cancelable at
Houston, Texas center the Company's option in 2007 and at the end
of each subsequent five year period
Sterling McCall 10422 Southwest Freeway New and used car sales; Lease; two leases each of which expire in
Lexus............... Houston, Texas service; F&I 2027 and are cancelable at the Company's
option in 2007 and at the end of each
subsequent five year period
10610 Wilcrest Collision services Lease; expires in 2027 and is cancelable at
Houston, Texas center the Company's option in 2007 and at the end
of each subsequent five year period
10430 Southwest Freeway New & Used Car Sales Lease; lease expires in 2000 with an option
Houston, Texas to extend until 2005
SMITH GROUP
Courtesy Nissan....... 1777 North Central Expwy. New and used car sales; Lease; expires in 2013
Richardson, Texas service; F&I
421 Industrial Boulevard Storage and make ready Lease; expires September 30, 1997
Richardson, Texas facility
Mike Smith 1515 I-10 South New and used car sales; Lease; expires in 2027 and is cancelable at
Autoplaza........... Beaumont, Texas service; collision the Company's option in 2007 and at the end
services center; F&I of each subsequent five year period
</TABLE>
52
<PAGE> 54
<TABLE>
<CAPTION>
OCCUPANT LOCATION USE LEASE/OWN
-------- -------- --- ---------
<S> <C> <C> <C>
Town North............ 9150 U.S. Highway 183 New and used car sales; Owned by dealership
Austin, Texas service; F&I
9112 U.S. Highway 183 New and used car sales; Owned by dealership
Austin, Texas service; F&I
9008 United Drive Used car sales Lease; expires July 1, 2001
Austin, Texas
9094 U.S. Highway 183 Storage Facility Lease; expires March 31, 2001
Austin, Texas
9400 United Drive Storage Facility Lease; expires December 31, 1997 and
Austin, Texas automatically renews for successive one year
terms unless notice given by either party
8908 McCann Street Storage Facility Lease; month to month; may be terminated by
Austin, Texas either party with 30 days written notice
Round Rock Nissan..... 3050 North IH 35 New and used car sales; Lease; expires in 2027 and are cancelable at
Austin, Texas service; F&I the Company's option in 2007 and at the end
of each subsequent five year period
Acura Southwest....... 10455 Southwest Freeway New and used car sales; Owned by dealership
Houston, Texas service; F&I
KINGWOOD GROUP
A.J. Foyt Honda....... 22575 Highway 59 N New and used car sales; Owned by dealership
Kingwood, Texas service; F&I
A.J. Foyt Isuzu....... 22577 Highway 59 N New and used car sales; Owned by dealership
Kingwood, Texas service; F&I
A.J. Foyt Used Cars... 401 South I.H. 45 Used car sales; F&I Owned by dealership
Conroe, Texas
</TABLE>
GOVERNMENTAL REGULATIONS
A number of regulations affect the Company's business of marketing,
selling, financing and servicing automobiles. The Company also is subject to
laws and regulations relating to business corporations generally.
Under Texas and Oklahoma law, the Company must obtain a license in order to
establish, operate or relocate a dealership or provide certain automotive repair
services. These laws also regulate the Company's conduct of business, including
its advertising and sales practices. Other states may have similar requirements.
The Company's financing activities with its customers are subject to
federal truth in lending, consumer leasing and equal credit opportunity
regulations as well as state and local motor vehicle finance laws, installment
finance laws, insurance laws, usury laws and other installment sales laws. Some
states regulate finance fees that may be paid as a result of vehicle sales.
Penalties for violation of any of these laws or regulations may include
revocation of certain licenses, assessment of criminal and civil fines and
penalties, and in certain instances, create a private cause of action for
individuals. The Company believes that it complies substantially with all laws
and regulations affecting its business does not have any material liabilities
under such laws and regulations and that compliance with all such laws and
regulations will not, individually or in the aggregate, have a material adverse
effect on the Company's capital expenditures, earnings, or competitive position,
and the Company does not anticipate that such compliance will have a material
effect on the Company in the future.
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<PAGE> 55
ENVIRONMENTAL MATTERS
The Company is subject to a wide range of federal, state, and local
environmental laws and regulations, including those governing discharges to the
air and water, the storage of petroleum substances and chemicals, the handling
and disposal of wastes, and the remediation of contamination arising from spills
and releases. As with automobile dealerships generally, and service parts and
collision repair center operations in particular, the Company's business
involves the generation, use, handling and disposal of hazardous or toxic
substances or wastes. Operations involving the management of hazardous and
nonhazardous wastes are subject to requirements of the federal Resource
Conservation and Recovery Act and comparable state statutes. Pursuant to these
laws, federal and state environmental agencies have established approved methods
for storage, treatment, and disposal of regulated wastes with which the Company
must comply.
The Company's business also involves the use of aboveground and underground
storage tanks. Under applicable laws and regulations, the Company is responsible
for the proper use, maintenance and abandonment of regulated storage tanks owned
or operated by it, and for remediation of subsurface soils and groundwater
impacted by releases from such existing or abandoned aboveground or underground
storage tanks. In addition to these regulated tanks, the Company owns, operates,
or has otherwise abandoned other underground and aboveground devices or
containers (e.g., automotive lifts and service pits) that may not be classified
as regulated tanks, but which are capable of releasing stored materials into the
environment, thereby potentially obligating the Company to remediate any soils
or groundwater resulting from such releases.
The Company is also subject to laws and regulations governing remediation
of contamination at facilities it operates or to which it sends hazardous or
toxic substances or wastes for treatment, recycling or disposal. The
Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"),
also known as the "Superfund" law, imposes liability, without regard to fault or
the legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or arranged
for the disposal of the hazardous substances released at such sites. Under
CERCLA, these "responsible parties" may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the release of hazardous substances.
Further, the Federal Water Pollution Control Act, also known as the Clean
Water Act, and comparable state statutes prohibit discharges of pollutants into
regulated waters without authorized National Pollution Discharge Elimination
System (NPDES) and similar state permits, require containment of potential
discharges of oil or hazardous substances, and require preparation of spill
contingency plans. The Company expects to implement programs that address
wastewater discharge requirements as well as containment of potential discharges
and spill contingency planning.
Environmental laws and regulations have become very complex and it has
become very difficult for businesses that routinely handle hazardous and
non-hazardous wastes to achieve and maintain full compliance with all applicable
environmental laws. Like virtually any network of automobile dealerships and
vehicle service facilities, from time to time the Company can be expected to
experience incidents and encounter conditions that will not be in compliance
with environmental laws and regulations. However, the Company has not been
subject to any material environmental liabilities in the past and does not
anticipate that any material environmental liabilities will be incurred in the
future. Furthermore, the Company is in the process of establishing an
environmental management program that is intended to reduce the risk of
noncompliance with environmental laws and regulations. Nevertheless,
environmental laws and regulations and their interpretation and enforcement are
changed frequently and the Company believes that the trend of more expansive and
more strict environmental legislation and regulations is
54
<PAGE> 56
likely to continue. Hence, there can be no assurance that compliance with
environmental laws or regulations or the future discovery of unknown
environmental conditions will not require additional expenditures by the
Company, or that such expenditures would not be material. See "Risk Factors --
Governmental Regulations and Environmental Matters".
EMPLOYEES
As of December 31, 1996, the Company employed 1,479 people, of whom
approximately 194 were employed in managerial positions, 512 were employed in
non-managerial sales positions, 546 were employed in non-managerial parts and
service positions and 227 were employed in administrative support positions. The
Company intends, upon completion of the Offering, to provide certain executive
officers and managers with options to purchase Common Stock and believes this
equity incentive will be attractive to existing and prospective employees of the
Company. See "Management -- 1996 Stock Incentive Plan".
The Company believes that its relationships with its employees are
favorable. None of the Company's employees is represented by a labor union.
Because of its dependence on the Manufacturers, however, the Company may be
affected by labor strikes, work slowdowns and walkouts at the Manufacturers'
manufacturing facilities.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, the Company is named in claims involving the manufacture
of automobiles, contractual disputes and other matters arising in the ordinary
course of the Company's business. Currently, no legal proceedings are pending
against or involve the Company that, in the opinion of management, could be
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Because of their vehicle inventory and nature of business, automobile
retail dealerships generally require significant levels of insurance covering a
broad variety of risks. The Company's insurance includes an umbrella policy as
well as insurance on its real property, comprehensive coverage for its vehicle
inventory, general liability insurance, employee dishonesty coverage and errors
and omissions insurance in connection with its vehicle sales and financing
activities.
55
<PAGE> 57
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the Company's executive officers and directors,
together with their positions and ages.
<TABLE>
<CAPTION>
EXPIRATION OF
NAME AGE POSITION TERM AS DIRECTOR
---- --- -------- ----------------
<S> <C> <C> <C>
B.B. Hollingsworth, Jr............ 55 Chairman, President and Chief Executive 2000
Officer
Robert E. Howard, II.............. 50 Director; President of Howard Group 2000
Sterling B. McCall, Jr............ 62 Director; President of McCall Group 1998
Charles M. Smith.................. 51 Director; President of Smith Group 1999
John T. Turner.................... 53 Senior Vice President -- Corporate
Development
Scott L. Thompson................. 38 Senior Vice President -- Chief Financial
Officer and Treasurer
Frank R. Todaro................... 50 Vice President -- Corporate Services
John H. Duncan.................... 69 Director 1999
Bennett E. Bidwell................ 70 Director 1998
</TABLE>
Set forth below is a brief description of the business experience of the
directors and executive officers of the Company.
B.B. HOLLINGSWORTH, JR. has served as President, Chief Executive Officer
and Director of the Company since August 1996. Prior to joining the Company, Mr.
Hollingsworth spent nineteen years with Service Corporation International
("SCI"), where he directed an acquisition program that established SCI as the
world's leading consolidator of the funeral industry. He joined SCI in 1967, was
then named Vice President for Corporate Development, was named Vice President
and Chief Financial Officer in 1972, and was elected President and named
Director in 1975. He served as President and Director of SCI from 1975 until
retirement in 1986. From 1986 to 1996, Mr. Hollingsworth served as a consultant
to SCI. Mr. Hollingsworth is a shareholder and director of Foyt Motors, Inc., a
Founding Company. He has served as a director of several public and private
companies.
ROBERT E. HOWARD, II. has served as a Director of the Company since April
1997. Mr. Howard will also serve as President of Howard Group upon consummation
of the Acquisitions. Mr. Howard has more than 28 years experience in the
automotive retailing industry. Since 1978 he has been a shareholder and has
served as Chairman of Howard Pontiac-GMC, Inc., a franchised dealership within
the Howard Automall umbrella and a Founding Company. Mr. Howard is also Chairman
and a shareholder of the following additional Founding Companies: Bob Howard
Chevrolet, Bob Howard Honda-Acura, Bob Howard Toyota and Bob Howard Dodge. He is
a recipient of the 1997 Time Magazine Quality Dealer Award and presently serves
as Chairman of the Oklahoma Motor Vehicle Commission and as a Director of the
Oklahoma City Metropolitan Automobile Dealers Association.
STERLING B. MCCALL, JR. has served as Director of the Company since August
1996. Mr. McCall will also serve as President of McCall Group upon consummation
of the Acquisitions. Mr. McCall has over 27 years experience in the automotive
retailing industry and is Chairman of Sterling McCall Toyota and Sterling McCall
Lexus, both Founding Companies. He is a former Director of the American
International Automobile Dealers Association, a former Director and Chairman of
the Houston Automobile Dealers Association and a former Chairman of the Gulf
States Toyota Dealer Council, and presently is a Director of the Texas
Automobile Dealers Association. Mr. McCall has won the Time Magazine Quality
Dealer Award and the Sports Illustrated Dealer of Distinction Award.
CHARLES M. SMITH has served as Director of the Company since its formation
in December 1995. Mr. Smith will also serve as president of Smith Group upon
consummation of the Acquisitions. Mr. Smith
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<PAGE> 58
has more than 28 years experience in the automotive retailing industry. Since
1985 he has served as managing partner of Smith & Liu Management Company, the
management entity for the Smith Group dealerships prior to the Acquisitions. He
is Chairman of the American International Automobile Dealers Association and is
Vice Chairman of the Texas Automobile Dealers Association. He has won the Time
Magazine Quality Dealer Award and the Sports Illustrated All-Star Dealer Award.
Mr. Smith is a director and shareholder of the following Founding Companies:
Courtesy Nissan, Inc., Town North Nissan, Inc., Town North Mitsubishi, Inc.,
Town North Suzuki, Inc., Mike Smith Autoplaza, Inc., Round Rock Nissan, Inc. and
Acura Southwest, Inc.
JOHN T. TURNER has served as the Company's Senior Vice
President -- Corporate Development since December 1996. Prior to joining the
Company, Mr. Turner functioned as Managing Director -- Corporate Development,
Europe for SCI. From 1990 to 1993, Mr. Turner served as Senior Vice
President -- Operations and Director of The Loewen Group, Inc. From 1986 to
1990, he served as President and Director of Paragon Family Services, Inc. From
1981 to 1986, he served as Senior Vice President -- Corporate Development for
SCI. Mr. Turner was a partner in Arthur Young & Company from 1977 to 1981.
Currently he is a director of COREStaff, Inc.
SCOTT L. THOMPSON has served as Senior Vice President -- Chief Financial
Officer of the Company since December 1996. From 1991 to 1996, Mr. Thompson
served as Executive Vice President, Operations and Finance for KSA Industries,
Inc., a diversified enterprise with interests in automotive retailing, energy
and professional sports. Among Mr. Thompson's other responsibilities within the
KSA group of companies, he served as a Vice President and director of three
Houston-area automobile dealerships with aggregate annual revenues of $180
million. Additionally, in connection with his position at KSA Industries, Inc.
he served as a director of Adams Resources Energy, Inc., a public oil and gas
company. He is a Certified Public Accountant, and from 1980 to 1991 he held
various positions with Arthur Andersen LLP.
FRANK R. TODARO has served as Vice President -- Corporate Services of the
Company since March 1997. From 1993 to 1997, Mr. Todaro served as a self
employed consultant providing marketing and management consulting services. From
1985 to 1993, Mr. Todaro was a Principal with Ernst & Young where he served as
the Director of General Management Consulting and later the Director of
Marketing. From 1972 to 1985, Mr. Todaro served in various managerial and sales
positions with engineering consulting firms.
JOHN H. DUNCAN was elected Director of the Company in June 1997. Since
1988, Mr. Duncan has been a private investor with holdings in the automotive,
oil and gas and real estate industries. From 1958 to 1968, Mr. Duncan served as
President of Gulf & Western Industries (now Paramount Communications), a company
which he co-founded. Mr. Duncan currently serves as a director, Chairman of the
Executive Committee and member of the Compensation Committee of Enron
Corporation and a director and Chairman of the Compensation Committee of Enron
Oil Trading & Transportation. Mr. Duncan also serves on the Board of Trustees of
Southwestern University, the Board of Trustees of the Texas Heart Institute and
the Board of Visitors of the University of Texas (M.D. Anderson) Cancer
Foundation.
BENNETT E. BIDWELL was elected Director of the Company in June 1997. Mr.
Bidwell joined Chrysler Corporation as Executive Vice President in 1983 and was
elected to the Board of Directors in that same year. He was named Vice Chairman
of Chrysler Corporation in 1985, Vice Chairman of Chrysler Motors Corporation in
1987 and President - Product and Marketing of Chrysler Motors Corporation in
1988. From 1988 to 1990, Mr. Bidwell served as Chairman of Chrysler Motors
Corporation. Mr. Bidwell retired from Chrysler Corporation in 1993. Prior to
joining Chrysler, Mr. Bidwell spent 27 years with Ford Motor Company, and from
1981 to 1983 he was President and Chief Operating Officer of The Hertz
Corporation. His past directorships include National Steel Corporation
(1981-1983) and McDonald & Company Securities, Inc. (1992-1995). Mr. Bidwell
currently serves as a director for Kerr-McGee Corporation, International
Management Group, Budd Company and Kelly Management Group.
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<PAGE> 59
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE
The Audit Committee, which will be established prior to consummation of the
Offering, will consist of Messrs. Duncan and Bidwell. The Audit Committee will
have responsibility for, among other things, (i) recommending the selection of
the Company's independent accountants, (ii) reviewing and approving the scope of
the independent accountants' audit activity and extent of non-audit services,
(iii) reviewing with Management and the independent accountants the adequacy of
the Company's basic accounting systems and the effectiveness of the Company's
internal audit plan and activities, (iv) reviewing with Management and the
independent accountants the Company's financial statements and exercising
general oversight of the Company's financial reporting process and (v) reviewing
the Company's litigation and other legal matters that may affect the Company's
financial condition and monitoring compliance with the Company's business ethics
and other policies.
COMPENSATION COMMITTEE
The Compensation Committee, which will be established prior to consummation
of the Offering, will consist of Messrs. Duncan and Bidwell. This committee will
have general supervisory power over, and the power to grant awards under, the
1996 Stock Incentive Plan (the "Plan"). The Compensation Committee will have
responsibility for, among other things, (i) reviewing the recommendations of the
Chief Executive Officer as to appropriate compensation of the Company's
principal executive officers and certain other key personnel and the Chief
Executive Officer; (ii) examining periodically the general compensation
structure of the Company and (iii) supervising the welfare and pension plans and
compensation plans of the Company.
CHAIRMAN'S COUNCIL
The Chairman's Council, which will be established prior to consummation of
the Offering, will initially consist of Messrs. Howard, McCall and Smith. The
Chairman's Council may recommend up to three individuals to be nominated as
directors, which recommendation may be accepted at the sole discretion of the
Board of Directors. Members of the Chairman's Council may be appointed or
removed at any time by the Board of Directors and all members of the Chairman's
Council shall be subject to annual election by the Board of Directors.
DIRECTORS COMPENSATION
Directors who are full-time employees of the Company do not receive a
retainer or fees for service on the Board of Directors or on committees of the
board. Members of the Board of Directors who are not full-time employees of the
Company receive an annual fee of $ , a fee of $ for attendance
at each meeting of the Board of Directors and at each meeting of its committees
or any special committee established by the board, and a fee of $ per
day for any special assignments. The chairmen of the audit and compensation
committees receive a fee of $ for attendance at each meeting of the
committee they chair. In addition, directors of the Company (including directors
who are not full-time employees of the Company) are eligible for grants of stock
options and other awards pursuant to the 1996 Stock Incentive Plan.
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<PAGE> 60
EXECUTIVE COMPENSATION; EMPLOYMENT AGREEMENTS
The following table sets forth certain summary information concerning the
compensation provided by the Company in 1996 to its Chief Executive Officer. No
other person serving as an executive officer during 1996 earned $100,000 or more
in combined salary and bonus during such year.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION(1)
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY(2) BONUS COMPENSATION
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
B.B. Hollingsworth, Jr., Chairman, President and Chief
Executive Officer......................................... $60,000 $ -- $ --
</TABLE>
- ---------------
(1) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported.
(2) Reflects amounts that were earned by Mr. Hollingsworth during 1996. Such
amounts have not been paid and are contingent upon the closing of the
Acquisitions and the Offering.
The Company anticipates that during 1997, its most highly compensated
executive officers will be Messrs. Hollingsworth, Howard, McCall, Smith, Turner
and Thompson. Each of these executive officers will enter into an employment
agreement with the Company, which will be effective upon consummation of the
Acquisitions and the Offering. The employment agreements provide for the
following base salaries for 1997: B.B. Hollingsworth, Jr. -- $360,000; Robert E.
Howard, II -- $300,000; Sterling B. McCall, Jr. -- $300,000; Charles M.
Smith -- $300,000; John T. Turner -- $250,000; and Scott L. Thompson --
$180,000. Each employment agreement is for a term of five years, and unless
terminated or not renewed by the Company or the employee, the term will continue
thereafter on a month-to-month basis terminable at any time by either the
Company or the employee, with or without cause, upon thirty days notice. In the
event of a termination of employment by the Company without cause or by the
employee due to an uncorrected material breach of the employment agreement by
the Company, the employee is entitled to receive his or her base salary paid
bi-weekly until the end of his contract term. In the event of an involuntary
termination of employment following a merger, consolidation or dissolution of
the Company or a sale of all its assets, the employee is entitled to a lump sum
payment equal to the amount of base pay he is entitled to under the remainder of
his contract. The Company is not obligated to pay any amounts to the employee
other than his pro rata base salary through the date of his or her termination
upon (i) voluntary termination of employment by the employee; (ii) termination
of employment by the Company for cause (as defined); (iii) death of the
employee; or (iv) long-term disability of the employee. During the period of
employment and for a period of three years after termination of employment, the
employees are generally prohibited from competing or assisting others to compete
with the Company. In addition, during the period of employment and for a period
of five years after termination of employment, the employees are generally
prohibited from inducing any other employee to terminate employment with the
Company.
1996 STOCK INCENTIVE PLAN
In November 1996, the Board of Directors and the stockholders of the
Company adopted the Company's 1996 Stock Incentive Plan (the "Plan"). The
purpose of the Plan is to provide directors, employees (key operating managers
at the dealerships) and consultants of the Company and its subsidiaries
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. The Plan provides for the granting of incentive stock
options intended to qualify under Section 422 of the Code, options that do not
constitute incentive stock options and restricted stock awards. The Plan is
administered by the Compensation Committee of the Board of Directors. In
general, the Compensation Committee is authorized to select the recipients of
awards and the terms and conditions of those awards.
The number of shares of Common Stock that may be issued under the Plan may
not exceed 2,000,000 shares (subject to adjustment to reflect stock dividends,
stock splits, recapitalizations and similar changes in the Company's capital
structure). Shares of Common Stock which are attributable to
59
<PAGE> 61
awards which have expired, terminated or been canceled or forfeited are
available for issuance or use in connection with future awards. The maximum
number of shares of Common Stock that may be subject to awards granted under the
Plan to any one individual during any calendar year may not exceed 500,000
(subject to adjustment to reflect stock dividends, stock splits,
recapitalizations and similar changes in the Company's capital structure).
The price at which a share of Common Stock may be purchased upon exercise
of an option granted under the Plan will be determined by the Compensation
Committee but (i) in the case of an incentive stock option, such purchase price
will not be less than the fair market value of a share of Common Stock on the
date such option is granted, and (ii) in the case of an option that does not
constitute an incentive stock option, such purchase price will not be less than
80% of the fair market value of a share of Common Stock on the date such option
is granted. Shares of Common Stock that are the subject of a restricted stock
award under the Plan will be subject to restrictions on disposition by the
holder of such award and an obligation of such holder to forfeit and surrender
the shares to the Company under certain circumstances (the "Forfeiture
Restrictions"). The Forfeiture Restrictions will be determined by the
Compensation Committee in its sole discretion, and the Compensation Committee
may provide that the Forfeiture Restrictions will lapse upon (a) the attainment
of one or more performance targets established by the Compensation Committee,
(b) the award holder's continued employment with the Company or continued
service as a consultant or director for a specified period of time, (c) the
occurrence of any event or the satisfaction of any other condition specified by
the Compensation Committee in its sole discretion or (d) a combination of any of
the foregoing.
No awards under the Plan may be granted after ten years from the date the
Plan was adopted by the Board of Directors. The Plan will remain in effect until
all awards granted under the Plan have been satisfied or expired. The Board of
Directors in its discretion may terminate the Plan at any time with respect to
any shares of Common Stock for which awards have not been granted. The Plan may
be amended, other than to increase the maximum aggregate number of shares that
may be issued under the Plan or to change the class of individuals eligible to
receive awards under the Plan, by the Board of Directors without the consent of
the stockholders of the Company. No change in any award previously granted under
the Plan may be made which would impair the rights of the holder of such award
without the approval of the holder.
In December 1996, the Company issued options to purchase 205,000 shares of
Common Stock at $2.90 per share as follows: 125,000 shares to John T. Turner and
80,000 shares to Scott L. Thompson. Each of these options will vest 16.7% per
year after the issuance of the options. In March 1997, the Company issued
options to purchase an additional 360,000 shares of Common Stock at $2.90 per
share to certain employees of the Company, including the following executive
officers: B.B. Hollingsworth, Jr. -- 100,000 shares, John T. Turner -- 80,000
shares and Scott L. Thompson -- 80,000 shares. In addition, upon consummation of
the Acquisitions and the Offering, the Company will issue options to purchase
305,000 shares of Common Stock at the initial public offering price to its
executive officers as follows: 100,000 shares to Mr. Hollingsworth, 125,000
shares to Mr. Turner and 80,000 shares to Mr. Thompson.
The following table provides certain information regarding options granted
during 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
NUMBER OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OR BASE OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------
NAME GRANTED (#) IN FISCAL YEAR ($/ SH) DATE 5% ($) 10% ($)
---- ----------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
John T. Turner............. 125,000(1) 61.0% $2.90 12/13/06
Scott L. Thompson.......... 80,000(1) 39.0% $2.90 12/13/06
</TABLE>
- ---------------
(1) The options were granted in December 1996 and vest 16.7% annually.
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<PAGE> 62
CERTAIN TRANSACTIONS
In connection with the formation of Group 1 Automotive in December 1995,
Group 1 Automotive issued 1,000 shares of Common Stock for $500 to Smith & Liu
Management Company, a Texas general partnership which has provided management
services to the Smith Group dealerships prior to consummation of the
Acquisitions ("Smith & Liu"). Mr. Smith is a partner of Smith & Liu and a
director of the Company. In July 1996, the Company acquired 1,000 shares of
Common Stock from Smith & Liu and issued 500 shares to Mr. Hollingsworth for an
aggregate consideration of $5,000. Subsequently, the Company split its
outstanding common stock on a 900-for-one basis accomplished as a stock
dividend.
In order to finance the expenses of the Company prior to the Acquisitions
and the Offering, Smith & Liu, the Howard Group, the McCall Group, the Smith
Group and the Kingwood Group made loans to the Company, as of May 31, 1997, of
$87,960, $130,688, $369,293, $281,461 and $87,982, respectively. These advances
bear interest at a rate of 7% per annum.
Group 1 Automotive will acquire all of the issued and outstanding stock of
the Founding Companies in the Acquisitions immediately prior to the consummation
of the Offering pursuant to 13 separate stock purchase agreements (the "Stock
Purchase Agreements"). The Stock Purchase Agreements provide that acquisition of
each Founding Company is subject to certain conditions including, among others:
(i) the continuing accuracy on the closing date of the representations and
warranties of the applicable Founding Company, the stockholders of such Founding
Company and the Company; (ii) the performance of each of the covenants by the
applicable Founding Company, the stockholders of such Founding Company and the
Company, including the removal of certain related party agreements; (iii) the
expiration or termination of the applicable waiting period under the HSR Act
with respect to such acquisition; (iv) the obtainment of all permits, approvals
and consents of securities or "blue sky" commissions of each jurisdiction and of
any other governmental agency or authority, where failure to obtain such permit,
approval or consent would have a material adverse effect; and (v) the entering
into an Underwriting Agreement by the Company and the Underwriters in connection
with the Offering.
The Offering is conditioned upon, among other things, the consummation of
the acquisition of 100% of the Founding Companies. There can be no assurance
that the conditions to the closing of the Acquisitions will be satisfied or
waived or that the Stock Purchase Agreements will not be terminated prior to
consummation. The Stock Purchase Agreements relating to the Acquisitions provide
that the Founding Companies and their stockholders will not be liable for any
breach of the representations or covenants in such agreements after the
consummation of the Acquisitions with certain limited exceptions, including
those provisions concerning related party agreements.
As part of the Stock Purchase Agreement, certain stockholders of the
Founding Companies have agreed to enter into the Employment Agreements and/or
the lease agreements described elsewhere in this Prospectus. See
"Management -- Executive Compensation; Employment Agreements", and "-- Leases".
In addition, certain stockholders of the Founding Companies, including Messrs.
Howard, McCall, Smith and Hollingsworth and certain of the general managers and
key employees of the Founding Companies, have agreed not to compete with the
Company for five years from the closing of the Acquisitions.
The aggregate value of the consideration to be paid by the Company in the
Acquisitions is approximately $ million (based on an assumed initial public
offering price of $ per share), payable in $5,400,000 of cash and
9,123,890 shares of Common Stock. The consideration to be paid by the Company
for the Founding Companies was determined by negotiations among the Company and
representatives of the Founding Companies and was based primarily upon the net
income of each Founding Company.
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<PAGE> 63
The following table sets forth the consideration being paid for each
Founding Group:
<TABLE>
<CAPTION>
CONSIDERATION
-----------------------
COMMON TOTAL
STOCK CASH VALUE(1)
--------- ---------- --------
<S> <C> <C> <C>
Howard Group.................................. 3,619,278 $2,300,000 $
McCall Group.................................. 2,318,826 --
Smith Group................................... 2,725,933 --
Kingwood Group................................ 459,853 $3,100,000
--------- ---------- --------
Total............................... 9,123,890 $5,400,000 $
</TABLE>
- ---------------
(1) The cash value of the shares of Common Stock issued as consideration for the
Acquisitions is based upon an assumed initial public offering price of
$ per share.
In connection with the Acquisitions, certain directors, officers and
stockholders owning more than 5% of the Common Stock together with their spouses
and affiliates will receive shares of Common Stock as follows: Mr.
Hollingsworth -- 196,368 shares of Common Stock (excluding the 350,000 shares of
Common Stock that Mr. Hollingsworth currently owns); Mr. Howard -- 3,145,520
shares of Common Stock; Mr. McCall -- 1,461,031 shares of Common Stock; Mr.
Smith -- 679,181 shares of Common Stock, Mr. Whalen -- 774,040 shares of Common
Stock. In addition, Mr. Howard will receive $2,300,000 in cash in the
Acquisitions. See "Principal and Selling Stockholders".
LEASES
Certain of the properties leased by the Founding Companies are owned by
officers, directors or holders of 5% or more of the Common Stock of the Company
or their affiliates. As part of the Acquisitions the Founding Companies have
agreed to replace the existing leases with a standard lease agreement for each
property. The term of each lease is 30 years and is cancelable at the Company's
option ten years from execution of the lease and at the end of each subsequent
five year period. Additionally, the Company has a right of first refusal to
acquire the property. The lease requires the Company to be responsible for
taxes, insurance and, in certain circumstances, maintenance. The monthly rental
payments described below may increase or decrease based on certain conditions.
The Company believes that the terms of the leases, including the rent payable
thereunder, are fair to the Company and substantially similar to those that
could be obtained in an arms length transaction. One related party lease,
covering the real estate and facilities of the Howard collision repair center,
will remain in place between Bob Howard Honda-Acura, as lessee, and North
Broadway Real Estate, an Oklahoma limited liability company owned 50% by Robert
E. Howard II and 50% by an unrelated third party.
The property and the fixtures subject to these leases serve as collateral
for various indebtedness of the principals of the Founding Companies. Each of
such principals have agreed to take all action necessary to secure an agreement
from each of the lenders that, upon a default of any of such principals, such
lenders will honor the lease and will not disturb the Company's right to
possession of the applicable property under the lease. Such principals of the
Founding Companies have also agreed to grant the Company an option to purchase
the applicable leased premises at a price equal to the outstanding indebtedness
that is secured by the property if the principals of the Founding Companies have
not obtained such an agreement from the lenders within 90 days after
consummation of the Acquisitions.
Under two separate leases, Sterling McCall Toyota leases property owned by
partnerships of which Mr. McCall and his affiliates are partners and that are
used by Sterling McCall Toyota as an automobile dealership. The two leases
provide for aggregate monthly rentals of $70,000.
Sterling McCall Toyota leases property owned by SMC Investment, Inc. ("SMC
Investment") and that is used by Sterling McCall Toyota as a repair center. Mr.
McCall and his affiliates own all of the stock of SMC Investment. The lease
provides for aggregate monthly rentals of $7,000 per month.
Sterling McCall Toyota leases property that is owned by a partnership of
which Mr. McCall is a partner and that is used by Sterling McCall Toyota as a
storage lot. The lease provides for aggregate monthly rentals of $7,000.
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<PAGE> 64
Under three separate leases, Sterling McCall Lexus leases properties owned
by partnerships of which Mr. McCall and his affiliates are partners. The
properties are used by SMC Luxury Cars as an automobile dealership and a repair
center. The two leases that relate to the use of the automobile dealership
provide for aggregate monthly rentals of $70,000. The lease relating to the
repair center provides for aggregate monthly rentals of $6,500.
Mike Smith Autoplaza, Inc. ("Mike Smith Autoplaza") leases property owned
by a general partnership, of which the children of Charles M. Smith are
partners. The property is used by Mike Smith Autoplaza as an automobile
dealership. The leases provide for monthly rental payments of $46,500.
Round Rock Nissan, Inc. ("Round Rock Nissan") leases property owned by SKLR
Round Rock, L.L.C., a Texas limited liability corporation in which Charles M.
Smith, has an ownership interest. The property is used by Round Rock Nissan as
an automobile dealership. The lease provides for current monthly rental payments
of $32,000.
Bob Howard Automall leases two properties owned by Robert E. Howard II and
used by Bob Howard Automall as automobile dealerships. These leases relating to
these properties provide for aggregate monthly rentals of $85,862.
Bob Howard Chevrolet leases property owned by Robert E. Howard II and used
by Bob Howard Chevrolet as an automobile dealership. The lease relating to this
property provides for a monthly rental of $48,500.
Bob Howard Honda-Acura leases property owned by North Broadway Real Estate,
L.L.C., an Oklahoma limited liability company in which Robert E. Howard II owns
a 50% interest. This property is used as a collision repair center, and the
lease relating to this property provides for a monthly rental of $9,000.
Bob Howard Toyota leases property owned by Robert E. Howard II and used by
Bob Howard Toyota as an automobile dealership. The lease relating to this
property provides for a monthly rental of $33,500.
LOANS
Certain of the Founding Groups have incurred indebtedness which has been
personally guaranteed by its stockholders or by entities controlled by its
stockholders. The Company intends to repay, refinance or otherwise take steps to
remove these personal guarantees. It is the intention of management that as soon
as practicable after the Acquisitions and the Offering, the debt of the Company
will cease to be personally guaranteed by any of its officers, directors or
stockholders.
Certain of the principals of the Founding Groups have incurred indebtedness
which prior to consummation of the Acquisitions have been guaranteed by certain
of the Founding Companies and/or secured by certain of their assets. At December
31, 1996, the aggregate amount of indebtedness of these principals that was
subject to guarantees or secured by assets of the Founding Companies was
approximately $20 million. Such principals of the Founding Companies have agreed
to take all action necessary to remove such guarantees and security interests
prior to consummation of the Acquisitions and the removal of the guarantees and
security interests related to approximately $10 million of such indebtedness is
a condition to consummation of the Acquisitions. The removal of guarantees and
security interests relating to the other approximately $10 million of such
indebtedness is not a condition to consummation of the Acquisitions, however, if
such guarantees and security interests are not removed within 90 days after
consummation of the Acquisitions, the Company will have an option to acquire the
land and fixtures securing such indebtedness at a price equal to such
indebtedness.
OTHER
Sterling McCall Toyota and Sterling McCall Lexus have entered into an
agreement with Dealer Solutions, L.L.C. ("DSL") pursuant to which DSL is to
provide management information systems software and related services to the
dealerships. Pursuant to the agreement, the dealerships will pay a monthly
maintenance fee of approximately $2,500 until the dealerships' existing contract
for such services with a different vendor terminates in March 1999, at which
time the monthly maintenance fee will
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<PAGE> 65
increase to approximately $12,500 per month. In addition, upon installation of
the software system at Sterling McCall Lexus, which occurred in June 1997, an
installation fee of $20,000 was paid to DSL. No installation fee has been paid
by Sterling McCall Toyota. Mr. McCall, his affiliates and family members own
approximately 24% of DSL and Kevin H. Whalen (who will beneficially own more
than 5% of the outstanding shares of Common Stock after the Acquisitions and the
Offering) owns approximately 15% of DSL.
Certain officers, directors and stockholders, or their affiliates, of the
Company have engaged in transactions with the Founding Companies prior to
consummation of the Acquisitions. Except for the transactions described above,
none of these transactions will continue after consummation of the Acquisitions.
For a discussion of these transactions for the three years ended December 31,
1996 and for the three months ended March 31, 1997, see the Notes to Combined
Financial Statements.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock: (a) as of May 31, 1997 after giving
effect to the Acquisitions and (b) following the sale of the shares of Common
Stock offered hereby, by (i) each person known to beneficially own more than 5%
of the outstanding shares of Common Stock; (ii) each of the Company's directors
and persons who have consented to be named as directors; (iii) each named
executive officer; (iv) each Selling Stockholder, and (v) all executive
officers, directors and persons who have consented to be named as directors as a
group. All persons listed have an address c/o the Company's principal executive
offices and have sole voting and dispositive power over the shares indicated as
owned by such person unless otherwise indicated.
<TABLE>
<CAPTION>
SHARES OF COMMON SHARES OF COMMON
STOCK BENEFICIALLY STOCK TO BE BENEFICIALLY
OWNED BEFORE OFFERING OWNED AFTER OFFERING
-------------------------- -----------------------------
NUMBER SHARES TO NUMBER
NAME OF BENEFICIAL OWNER OF SHARES(1) PERCENTAGE BE SOLD OF SHARES(1) PERCENTAGE(2)
------------------------ ------------ ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
B.B. Hollingsworth, Jr(3)........ 546,368 5.7% -- 546,368
Robert E. Howard, II............. 3,145,520 32.9 -- 3,145,520
Sterling B. McCall, Jr(4)........ 1,461,031 15.3 -- 1,461,031
Charles M. Smith................. 679,181 7.1 -- 679,181
John H. Duncan................... 196,368 2.1 -- 196,368
Bennett E. Bidwell............... -- -- -- --
W. C. Smith...................... 619,773 6.5 371,864 247,909
SMC Investment, Inc. ............ 637,475 6.7 -- 637,475
Kevin H. Whalen.................. 774,040 8.1 -- 774,040
All directors and executive
officers as a group (8 persons
including the directors and
executive officers named
above)......................... 6,028,468 63.0% -- 6,028,468
</TABLE>
- ---------------
(1) Does not include options to purchase stock that are not exercisable within
60 days of May 31, 1997.
(2) Assumes that the Underwriters' overallotment option is not exercised.
(3) Excludes 100,000 shares of Common Stock held in trust for the benefit of Mr.
Hollingsworth's children. Mr. Hollingsworth disclaims beneficial ownership
of such shares.
(4) Includes (i) 637,475 shares owned by SMC Investment, Inc. which is
controlled by Mr. McCall; (ii) 250,248 shares owned by Gulf Coast Family
Limited Partnership which is controlled by Mr. McCall; (iii) 106,041 shares
owned by SBM-T Family Limited Partnership which is controlled by Mr. McCall;
and (iv) 30,629 shares owned by Mr. McCall's spouse.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"). After giving effect to the Acquisitions, but prior to
consummation of the Offering, the Company will have outstanding 9,573,890 shares
of Common Stock and no shares of Preferred Stock. Upon completion of the
Offering, the Company will have outstanding shares of Common Stock
( shares if the Underwriters' over-allotment option is exercised in
full) and no shares of Preferred Stock.
COMMON STOCK
Subject to any special voting rights of any series of Preferred Stock that
may be issued in the future, the holders of the Common Stock are entitled to one
vote for each share held on all matters voted upon by stockholders, including
the election of directors. Holders of Common Stock are not entitled to cumulate
their votes in elections of directors.
Subject to the rights of any then outstanding shares of Preferred Stock,
the holders of the Common Stock are entitled to such dividends as may be
declared in the discretion of the Board of Directors out of funds legally
available therefor. Holders of Common Stock are entitled to share ratably in the
net assets of the Company upon liquidation after payment or provision for all
liabilities and any preferential liquidation rights of any Preferred Stock then
outstanding. The holders of Common Stock have no preemptive rights to purchase
shares of stock of the Company. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company. All outstanding shares of Common Stock are, and the shares of Common
Stock to be issued pursuant to the Offering will be upon payment therefor, fully
paid and non-assessable.
PREFERRED STOCK
Preferred Stock may be issued from time to time by the Board of Directors
in one or more series. Subject to the provisions of the Company's Charter and
limitations prescribed by law, the Board of Directors is expressly authorized to
adopt resolutions to issue the shares, to fix the number of shares and to change
the number of shares constituting any series and to provide for or change the
voting powers, designations, preferences and relative participating, optional or
other special rights, qualifications, limitations or restrictions thereof,
including dividend rights (including whether dividends are cumulative), dividend
rates, terms of redemption (including sinking fund provisions), redemption
prices, conversion rights and liquidation preferences of the shares constituting
any series of the Preferred Stock, in each case without any further action or
vote by the stockholders. One of the effects of undesignated Preferred Stock may
be to enable the Board of Directors to render more difficult or to discourage an
attempt to obtain control of the Company by means of a tender offer, proxy
contest, merger or otherwise, and thereby to protect the continuity of the
Company's management. The issuance of shares of the Preferred Stock pursuant to
the Board of Directors' authority described above may adversely affect the
rights of the holders of Common Stock. For example, Preferred Stock issued by
the Company may rank prior to the Common Stock as to dividend rights,
liquidation preference or both, may have full or limited voting rights and may
be convertible into shares of Common Stock. Accordingly, the issuance of shares
of Preferred Stock may discourage bids for the Common Stock or may otherwise
adversely affect the market price of the Common Stock.
CERTAIN ANTI-TAKEOVER AND OTHER PROVISIONS OF THE CHARTER AND BYLAWS
In addition to the Company's Board of Directors to issue Preferred Stock,
the Charter and the Bylaws of the Company contain certain provisions that could
have an anti-takeover effect.
CLASSIFIED BOARD OF DIRECTORS AND LIMITATIONS ON REMOVAL OF DIRECTORS
The Company's Board of Directors is divided into three classes. The
directors of each class are elected for three-year terms, with the terms of the
three classes staggered so that directors from a single
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<PAGE> 67
class are elected at each annual meeting of stockholders. Stockholders may
remove a director only for cause upon the vote of holders of at least 80% of the
voting power of the outstanding shares of Common Stock. In general, the Board of
Directors, not the stockholders, has the right to appoint persons to fill
vacancies on the Board of Directors.
NO WRITTEN CONSENT OF STOCKHOLDERS
The Charter provides that any action required or permitted to be taken by
the stockholders of the Company must be taken at a duly called annual or special
meeting of stockholders. In addition, special meetings of the stockholders may
be called only by the Board of Directors.
BUSINESS COMBINATIONS UNDER DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with the Company for three years
following the date that person becomes an interested stockholder unless (a)
before that person became an interested stockholder, the Company's Board of
Directors approved the transaction in which the interested stockholder became an
interested stockholder or approved the business combination; (b) upon completion
of the transaction that resulted in the interested stockholder's becoming an
interested stockholder, the interested stockholder owns at least 85% of the
voting stock outstanding at the time the transaction commenced (excluding stock
held by directors who are also officers of the Company and by employee stock
plans that do not provide employees with the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange
offer); or (c) following the transaction in which that person became an
interested stockholder, the business combination is approved by the Company's
Board of Directors and authorized at a meeting of stockholders by the
affirmative vote of the holders of at least two-thirds of the outstanding voting
stock not owned by the interested stockholder. Under Section 203, these
restrictions also do not apply to certain business combinations proposed by an
interested stockholder following the announcement or notification of one of
certain extraordinary transactions involving the Company and a person who was
not an interested stockholder during the previous three years or who became an
interested stockholder with the approval of a majority of the Company's
directors, if that extraordinary transaction is approved or not opposed by a
majority of the directors who were directors before any person became an
interested stockholder in the previous three years or who were recommended for
election or elected to succeed such directors by a majority of such directors
then in office.
STOCKHOLDER RIGHTS PLAN
Immediately prior to completion of the Offering, the Company's Rights Plan
(the "Rights Plan") will take effect. Under the Rights Plan, each Right entitles
the registered holder under the circumstances described below to purchase from
the Company one one-thousandth of a share of Junior Participating Preferred
Stock, $.01 par value per share (the "Preferred Shares"), of the Company at a
price of $
per one one-thousandth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a Rights
Agreement (the "Rights Agreement") dated as of , 1997, between the
Company and , as Rights Agent (the "Rights Agent") and this
description of the Rights is qualified in its entirety by reference to the
Rights Agreement.
Until the Distribution Date (as defined below), the Rights will attach to
all Common Stock certificates representing outstanding shares and no separate
Right Certificate will be distributed. Accordingly, a right will be issued for
each share of Common Stock issued in the Offering. The Rights will separate from
the Common Stock and a Distribution Date will occur upon the earlier of (i) 10
business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired beneficial
ownership of 20% or more of the outstanding Voting Shares (as defined in the
Rights Agreement) of the Company, or (ii) 10 business days following the
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<PAGE> 68
commencement or announcement of an intention to commence a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 20% or more of such outstanding Voting Shares.
Until the Distribution Date (or earlier redemption or expiration of the
Rights) the Rights will be evidenced by the certificates representing such
Common Stock. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights (the "Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will thereafter
evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on , 2007 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or the Rights are earlier redeemed or exchange by
the Company as described below.
If a person or group were to acquire 20% or more of the Voting Shares of
the Company, each Right then outstanding (other than Rights beneficially owned
by the Acquiring Person which would become null and void) would become a right
to buy that number of shares of Common Stock (or under certain circumstances,
the equivalent number of one one-thousandths of a Preferred Share) that at the
time of such acquisition would have a market value of two times the Purchase
Price of the Right.
If the Company were acquired in a merger or other business combination
transaction or assets constituting more than 50% of its consolidated assets or
producing more than 50% of its earning power or cash flow were sold, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive, upon the exercise thereof at the then current Purchase Price
of the Right, that number of shares of common stock of the acquiring company
which at the time of such transaction would have a market value of two times the
Purchase Price of the Right.
The dividend and liquidation rights, and the non-redemption feature, of the
Preferred Shares are designed so that the value of one one-thousandth of a
Preferred Share purchasable upon exercise of each Right will approximate the
value of one share of Common Stock. The Preferred Shares issuable upon exercise
of the Rights will be non-redeemable and rank junior to all other series of the
Company's preferred stock. Each whole Preferred Share will be entitled to
receive a quarterly preferential dividend in an amount per share equal to the
greater of (i) $1.00 in cash, or (ii) in the aggregate, 1,000 times the dividend
declared on the Common Stock. In the event of liquidation, the holders of
Preferred Shares will be entitled to receive a preferential liquidation payment
equal to the greater of (i) $1,000 per share, or (ii) in the aggregate, 1,000
times the payment made on the shares of Common Stock. In the event of any
merger, consolidation or other transaction in which the shares of Common Stock
are exchanged for or changed into other stock or securities, cash or other
property, each whole Preferred Share will be entitled to receive 1,000 times the
amount received per share of Common Stock. Each whole Preferred Share shall be
entitled to 1,000 votes on all matters submitted to a vote of the stockholders
of the Company, and Preferred Shares shall generally vote together as one class
with the Common Stock and any other capital stock on all matters submitted to a
vote of stockholders of the Company.
The offer and sale of the Preferred Shares issuable upon exercise of the
Rights will be registered with the Commission and such registration will not be
effective until the Rights become exercisable.
The number of one one-thousandths of a Preferred Share or other securities
or property issuable upon exercise of the Rights, and the Purchase Price
payable, are subject to customary adjustments from time to time to prevent
dilution.
The number of outstanding Rights and the number of one one-thousandths of a
Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock dividend
on the Common Stock payable in Common Stock or a subdivision, consolidation or
combination of the Common Stock occurring, in any such case, prior to the
Distribution Date.
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<PAGE> 69
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Voting Shares of the Company and before the acquisition by a person or group of
50% or more of the outstanding Voting Shares of the Company, the Board of
Directors may, at its option, issue Common Stock in mandatory redemption of, and
in exchange for, all or part of the then outstanding and exercisable Rights
(other than Rights owned by such person or group which would become null and
void) at an exchange ratio of one share of Common Stock (or one one-thousandth
of a Preferred Share) for each two shares of Common Stock for which each Right
is then exercisable, subject to adjustment.
At any time prior to the first public announcement that a person or group
has become the beneficial owner of 20% or more of the outstanding Voting Shares,
the Board of Directors of the Company may redeem all but not less than all the
then outstanding Rights at a price of $0.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon the action of the Board of Directors ordering
redemption of the Rights, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The terms of the Rights may be amended by the Board of Directors of the
Company without the consent of the holders of the Rights, including an amendment
to extend the Final Expiration Date, and, provided a Distribution Date has not
occurred, to extend the period during which the Rights may be redeemed, except
that after the first public announcement that a person or group has become the
beneficial owner of 20% or more of the outstanding Voting Shares, no such
amendment may materially and adversely affect the interests of the holders of
the Rights.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not determined by the Board of Directors to be in the best interests of
all stockholders. The Rights will not interfere with a merger or other business
combination approved by the Board of Directors, prior to the time that a person
or group has acquired beneficial ownership of 20% or more of the Common Stock,
since the rights may be redeemed by the Company prior to that time.
LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS -- INDEMNIFICATION
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
officers and directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by Delaware law, officers and directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission. The Charter limits the liability of officers and
directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware law. Specifically, officers and directors of the
Company will not be personally liable for monetary damages for breach of an
officer's or director's fiduciary duty in such capacity, except for liability
(i) for any breach of the officer's or director's duty of loyalty to the Company
or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) for unlawful
payments of dividends or unlawful stock repurchases or redemptions as provided
in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the officer and director derived an improper personal
benefit.
The inclusion of this provision in the Charter may have the effect of
reducing the likelihood of derivative litigation against officers and directors,
and may discourage or deter stockholders or management from bringing a lawsuit
against officers and directors for breach of their duty of care, even though
68
<PAGE> 70
such an action, if successful, might otherwise have benefitted the Company and
its stockholders. Both the Company's Charter and Bylaws provide indemnification
to the Company's officers and directors and certain other persons with respect
to certain matters to the maximum extent allowed by Delaware law as it exists
now or may hereafter be amended. These provisions do not alter the liability of
officers and directors under federal securities laws and do not affect the right
to sue (nor to recover monetary damages) under federal securities laws for
violations thereof.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar of the Common Stock, as well as the rights
agent under the Rights Plan is .
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Acquisitions and completion of the Offering,
assuming no exercise of the Underwriters' over-allotment option, the Company
will have shares of Common Stock outstanding ( shares if the
Underwriters' over-allotment option is exercised in full). Of these outstanding
shares of Common Stock, the shares sold in the Offering (
shares if the Underwriters' over-allotment option is exercised in full) will be
freely tradeable without restriction unless acquired by affiliates of the
Company. None of the remaining outstanding shares of Common Stock have
been registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three month period commencing 90
days after the date of this Prospectus, a number of shares that does not exceed
the greater of 1% of the then outstanding shares of the Common Stock (
shares upon completion of the Offering), or the average weekly trading volume of
the Common Stock on the New York Stock Exchange during the four calendar weeks
preceding the date on which notice of the proposed sale is sent to the
Commission. Sales under Rule 144 are also subject to certain manner of sale
provisions, notice requirements and the availability of current public
information about the Company. If two years have elapsed since the later of the
date of the acquisition of restricted shares of Common Stock from the Company or
any affiliate of the Company, a person who is not deemed to have been an
affiliate of the Company at any time for 90 days preceding a sale would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner of sale provisions or notice requirements.
The stockholders of each of the Founding Companies, other than the Selling
Stockholder to the extent of the shares to be sold by him in the Offering, have
agreed not to sell the shares of Common Stock that they receive in the
Acquisitions for a period of two years after the date of consummation of the
Acquisitions. In addition, the Company and its officers, directors and the
stockholders of the Company and the Selling Stockholders, who beneficially own
shares of Common Stock in the aggregate have agreed not to sell or
otherwise dispose of any shares of Common Stock and certain other securities of
the Company for a period of 180 days after the date of this Prospectus without
the prior written consent of the representatives. See "Underwriting".
Prior to the Offering, there has been no public market for the Common
Stock. No prediction can be made regarding the effect, if any, that public sales
of shares of Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the Offering. Sales of substantial
amounts of the Common Stock in the public market following the Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock and could impair the ability of the Company to raise capital
through sales of its equity securities.
69
<PAGE> 71
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby is being passed
upon for the Company and the Selling Stockholder by Vinson & Elkins L.L.P.,
Houston, Texas, and for the Underwriters by Sullivan & Cromwell, New York, New
York. John S. Watson, the Secretary of the Company, is a partner of Vinson &
Elkins L.L.P.
EXPERTS
The audited financial statements included in this Prospectus have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended. The Company has filed with
the Securities and Exchange Commission (the "Commission") a Registration
Statement on Form S-1 (the "Registration Statement") under the Securities Act,
with respect to the offer and sale of Common Stock pursuant to this Prospectus.
This Prospectus, filed as a part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement or the exhibits
and schedules thereto in accordance with the rules and regulations of the
Commission and reference is hereby made to such omitted information. Statements
made in this Prospectus concerning the contents of any contract, agreement or
other document filed as an exhibit to the Registration Statement are summaries
of the terms of such contracts, agreements or documents and are not necessarily
complete. Reference is made to each such exhibit for a more complete description
of the matters involved and such statements shall be deemed qualified in their
entirety by such reference. The Registration Statement and the exhibits and
schedules thereto filed with the Commission may be inspected, without charge,
and copies may be obtained at prescribed rates, at the public reference facility
maintained by the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. The Commission also maintains a Website
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. For further information pertaining to the Common Stock offered by
this Prospectus and the Company, reference is made to the Registration
Statement.
The Company intends to furnish to its stockholders annual reports
containing audited financial statements certified by independent auditors and
quarterly reports for the first three quarters of each fiscal year containing
unaudited financial statements.
70
<PAGE> 72
INDEX TO FINANCIAL PAGES
<TABLE>
<S> <C>
Group 1 Automotive, Inc. -- Pro Forma Financial Information
Unaudited Pro Forma Combined Financial Statements -- Basis
of Presentation........................................ F-2
Pro Forma Combined Statement of Operations December 31,
1996................................................... F-3
Pro Forma Combined Balance Sheet -- March 31, 1997........ F-4
Pro Forma Combined Statement of Operations -- March 31,
1997................................................... F-5
Notes to Pro Forma Financial Statements................... F-6
Group 1 Automotive, Inc. -- Financial Statements
Report of Independent Public Accountants.................. F-8
Balance Sheets............................................ F-9
Statements of Operations.................................. F-10
Statements of Stockholders' Equity (Deficit).............. F-11
Statements of Cash Flows.................................. F-12
Notes to Financial Statements............................. F-13
Howard Group -- Combined Financial Statements
Report of Independent Public Accountants.................. F-16
Combined Balance Sheets................................... F-17
Combined Statements of Operations......................... F-18
Combined Statements of Stockholders' Equity............... F-19
Combined Statements of Cash Flows......................... F-20
Notes to Combined Financial Statements.................... F-21
McCall Group -- Combined Financial Statements
Report of Independent Public Accountants.................. F-31
Combined Balance Sheets................................... F-32
Combined Statements of Operations......................... F-33
Combined Statements of Stockholders' Deficit.............. F-34
Combined Statements of Cash Flows......................... F-35
Notes to Combined Financial Statements.................... F-36
Smith Group -- Combined Financial Statements
Report of Independent Public Accountants.................. F-48
Combined Balance Sheets................................... F-49
Combined Statements of Operations......................... F-50
Combined Statements of Stockholders' Equity............... F-51
Combined Statements of Cash Flows......................... F-52
Notes to Combined Financial Statements.................... F-53
</TABLE>
F-1
<PAGE> 73
GROUP 1 AUTOMOTIVE, INC., AND FOUNDING GROUPS
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
(UNAUDITED)
The following unaudited pro forma combined financial statements give effect
to the acquisitions by Group 1 Automotive, Inc. (Group 1), of substantially all
of the net assets of (a) Howard Group (Howard), (b) McCall Group (McCall), (c)
Smith Group (Smith) and (d) Kingwood Group (Kingwood), (together, the Founding
Groups). Group 1 and the Founding Groups are hereinafter referred to as the
Company. The acquisitions (the Acquisitions) will occur simultaneously with the
closing of Group 1's initial public offering (the Offering) and will be
accounted for using the purchase method of accounting. Howard, one of the
Founding Groups, has been identified as the acquiror for financial statement
presentation purposes. The unaudited pro forma combined financial statements
also give effect to the issuance of Common Stock, which will be issued by Group
1 to the sellers of the Founding Groups upon the effectiveness of the Offering.
These statements are based on the historical financial statements of the
Founding Groups included elsewhere in this Prospectus (except Kingwood) and the
estimates and assumptions set forth below and in the notes to the unaudited pro
forma combined financial statements.
The unaudited pro forma combined balance sheet gives effect to these
transactions (the Acquisitions and the Offering) as if they had occurred on
March 31, 1997. The unaudited pro forma combined statements of operations give
effect to these transactions as if they had occurred at the beginning of each
period presented.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma combined financial data presented herein do not purport to
represent what the Company's financial position or results of operations would
have actually been had such events occurred at the beginning of the periods
presented, as assumed, or to project the Company's financial position or results
of operations for any future period or the future results of the Founding
Groups. The unaudited pro forma combined financial statements should be read in
conjunction with the other financial statements and notes thereto included
elsewhere in this Prospectus. Also see "Risk Factors" included elsewhere herein.
F-2
<PAGE> 74
GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
GROUP 1 HOWARD MCCALL SMITH KINGWOOD TOTAL
-------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
New Vehicle Sales..................... $ -- $164,978,710 $166,381,686 $124,173,950 $13,783,723 $469,318,069
Used Vehicle Sales.................... -- 88,477,330 90,895,516 60,579,545 18,074,591 258,026,982
Parts & Service Sales................. -- 21,173,371 24,454,187 28,630,577 2,925,513 77,183,648
Other dealership revenues, net........ -- 7,386,747 6,810,908 4,895,329 1,165,553 20,258,537
-------- ------------ ------------ ------------ ----------- ------------
Total revenues.................... -- 282,016,158 288,542,297 218,279,401 35,949,380 824,787,236
COST OF SALES......................... -- 244,396,047 249,560,060 189,169,263 30,640,004 713,765,374
-------- ------------ ------------ ------------ ----------- ------------
Gross Profit...................... -- 37,620,111 38,982,237 29,110,138 5,309,376 111,021,862
GOODWILL AMORTIZATION................. -- 36,982 -- 67,015 -- 103,997
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 95,008 30,731,251 35,072,460 23,643,889 3,997,111 93,539,719
-------- ------------ ------------ ------------ ----------- ------------
Income (loss) from operations..... (95,008) 6,851,878 3,909,777 5,399,234 1,312,265 17,378,146
OTHER INCOME AND EXPENSE
Interest expense, net................. -- (1,193,810) (2,747,719) (1,710,157) (439,164) (6,090,850)
Other Income (expense), net........... -- (69,328) (45,094) 222,470 66,957 175,005
-------- ------------ ------------ ------------ ----------- ------------
INCOME (LOSS) BEFORE INCOME
TAXES........................... (95,008) 5,588,740 1,116,964 3,911,547 940,058 11,462,301
PROVISION FOR INCOME TAXES............ 381,752 177,772 677,751 41,015 1,278,290
-------- ------------ ------------ ------------ ----------- ------------
NET INCOME (LOSS)................. $(95,008) $ 5,206,988 $ 939,192 $ 3,233,796 $ 899,043 $ 10,184,011
======== ============ ============ ============ =========== ============
Earnings Per Share
<CAPTION>
PRO FORMA % OF
ADJUSTMENTS PRO FORMA REVENUES
----------- ------------ --------
<S> <C> <C> <C>
REVENUES:
New Vehicle Sales..................... $ -- $469,318,069 56.8%
Used Vehicle Sales.................... -- 258,026,982 31.3%
Parts & Service Sales................. -- 77,183,648 9.3%
Other dealership revenues, net........ 858,864(a) 21,117,401 2.6%
---------- ------------ ------
Total revenues.................... 858,864 825,646,100 100.00%
COST OF SALES......................... (992,988)(a) 712,772,386 86.3%
---------- ------------ ------
Gross Profit...................... 1,851,852 112,873,714 13.7%
GOODWILL AMORTIZATION................. 934,767(b) 1,038,764 0.1%
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ 26,013(a)(c)(d) 93,565,732 11.4%
---------- ------------ ------
Income (loss) from operations..... 891,072 18,269,218 2.2%
OTHER INCOME AND EXPENSE
Interest expense, net................. 3,508,893(e) (2,581,957) (0.3)%
Other Income (expense), net........... -- 175,005 0.0%
---------- ------------ ------
INCOME (LOSS) BEFORE INCOME
TAXES........................... 4,399,965 15,862,266 1.9%
PROVISION FOR INCOME TAXES............ 5,356,538(f) 6,634,828 0.8%
---------- ------------ ------
NET INCOME (LOSS)................. $ (956,573) $ 9,227,438 1.1%
========== ============ ======
$
============
</TABLE>
The accompanying notes are an integral part of these
pro forma combined financial statements
F-3
<PAGE> 75
GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS
PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GROUP 1 HOWARD MCCALL SMITH KINGWOOD TOTAL
---------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $ 95,978 $ 2,239,524 $ 8,141 $ 1,921,906 $ 1,256,517 $ 5,522,066
Contracts in transit..................... -- 8,290,158 9,193,536 7,542,229 486,650 25,512,573
Accounts receivable, net................. -- 5,551,716 4,172,289 4,556,214 390,439 14,670,658
Due from affiliates...................... -- -- 1,615,973 -- -- 1,615,973
Inventories.............................. -- 49,637,651 23,171,343 37,105,018 5,542,524 115,456,536
Notes receivable, net.................... -- -- 340,523 -- 333,759 674,282
Prepaid expenses......................... -- 879,036 139,709 549,198 340,430 1,908,373
Deferred income tax benefit.............. -- -- 1,849,529 182,081 35,967 2,067,577
---------- ----------- ----------- ----------- ----------- ------------
Total current assets............... 95,978 66,598,085 40,491,043 51,856,646 8,386,286 167,428,038
PROPERTY AND EQUIPMENT, net............... 49,796 4,043,969 3,386,749 9,844,384 3,653,513 20,978,411
NOTES RECEIVABLE.......................... -- 417,675 -- -- -- 417,675
DEFERRED INCOME TAX BENEFIT............... -- -- 104,882 -- -- 104,882
GOODWILL, net............................. -- 1,446,591 -- 2,315,105 334,180 4,095,876
OTHER ASSETS.............................. 1,684,206 609,929 1,766,536 607,222 877,505 5,545,398
---------- ----------- ----------- ----------- ----------- ------------
Total assets....................... $1,829,980 $73,116,249 $45,749,210 $64,623,357 $13,251,484 $198,570,280
========== =========== =========== =========== =========== ============
CURRENT LIABILITIES:
Floor plan notes payable................. -- 43,053,804 27,322,915 37,120,043 5,101,603 112,598,365
Current maturities of long-term debt..... -- 25,399 78,736 992,623 171,288 1,268,046
Due to affiliates........................ 519,695 -- 1,989,841 -- -- 2,509,536
Deferred income taxes.................... -- 357,172 -- -- -- 357,172
Accounts payable and accrued expenses.... 1,769,544 16,629,219 16,749,490 8,816,531 1,484,951 45,449,735
---------- ----------- ----------- ----------- ----------- ------------
Total current liabilities.......... 2,289,239 60,065,594 46,140,982 46,929,197 6,757,842 162,182,854
LONG-TERM DEBT, net of current
maturities............................... -- 193,825 542,851 4,743,869 2,618,134 8,098,679
LONG-TERM DEFERRED INCOME TAXES........... -- 58,604 -- 217,611 8,288 284,503
OTHER LONG-TERM LIABILITIES............... -- 588,479 427,000 -- 529,629 1,545,108
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock............................. 4,500 491,500 71,278 3,090 2,756 573,124
Additional paid-in capital............... 4,995 6,622,802 3,222,043 6,369,228 919,325 17,138,393
Treasury stock, at cost.................. -- (808,798) -- (395,297) -- (1,204,095)
Retained earnings (deficit).............. (468,754) 5,904,243 (4,654,944) 6,755,659 2,415,510 9,951,714
---------- ----------- ----------- ----------- ----------- ------------
Total stockholders' equity
(deficit)........................ (459,259) 12,209,747 (1,361,623) 12,732,680 3,337,591 26,459,136
---------- ----------- ----------- ----------- ----------- ------------
Total liabilities and stockholders'
equity........................... $1,829,980 $73,116,249 $45,749,210 $64,623,357 $13,251,484 $198,570,280
========== =========== =========== =========== =========== ============
<CAPTION>
POST
PRO FORMA MERGER AS
ADJUSTMENTS PRO FORMA ADJUSTMENTS ADJUSTED
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $(4,530,868)(g)(j)(n) $ 991,198 $ 4,157,000(l)(m)(p) $ 5,148,198
Contracts in transit..................... -- 25,512,573 -- 25,512,573
Accounts receivable, net................. -- 14,670,658 -- 14,670,658
Due from affiliates...................... (1,615,973)(g) -- -- --
Inventories.............................. 8,193,451(i) 123,649,987 -- 123,649,987
Notes receivable, net.................... -- 674,282 -- 674,282
Prepaid expenses......................... -- 1,908,373 -- 1,908,373
Deferred income tax benefit.............. (2,067,577)(h) -- -- --
----------- ------------ ------------ ------------
Total current assets............... (20,967) 167,407,071 4,157,000 171,564,071
PROPERTY AND EQUIPMENT, net............... (2,000,000)(n) 18,978,411 -- 18,978,411
NOTES RECEIVABLE.......................... -- 417,675 -- 417,675
DEFERRED INCOME TAX BENEFIT............... (104,882)(h) -- -- --
GOODWILL, net............................. 36,580,230(h) 40,676,106 -- 40,676,106
OTHER ASSETS.............................. -- 5,545,398 (2,269,695)(l) 3,275,703
----------- ------------ ------------ ------------
Total assets....................... $34,454,381 $233,024,661 $ 1,887,305 $234,911,966
=========== ============ ============ ============
CURRENT LIABILITIES:
Floor plan notes payable................. -- 112,598,365 (33,891,829)(m) 78,706,536
Current maturities of long-term debt..... -- 1,268,046 (1,268,046)(m) --
Due to affiliates........................ 3,710,159(g)(o) 6,219,695 (5,969,695)(p) 250,000
Deferred income taxes.................... (98,460)(h) 258,712 -- 258,712
Accounts payable and accrued expenses.... -- 45,449,735 (1,350,000)(l) 44,099,735
----------- ------------ ------------ ------------
Total current liabilities.......... 3,611,699 165,794,553 (42,479,570) 123,314,983
LONG-TERM DEBT, net of current
maturities............................... -- 8,098,679 (8,098,679)(m) --
LONG-TERM DEFERRED INCOME TAXES........... 179,177(h) 463,680 -- 463,680
OTHER LONG-TERM LIABILITIES............... -- 1,545,108 -- 1,545,108
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock............................. (477,385)(k) 95,739 44,261(l) 140,000
Additional paid-in capital............... 41,849,421(k) 58,987,814 52,421,293(l) 111,409,107
Treasury stock, at cost.................. 1,204,095(k) -- -- --
Retained earnings (deficit).............. (11,912,626)(j)(k) (1,960,912) -- (1,960,912)
----------- ------------ ------------ ------------
Total stockholders' equity
(deficit)........................ 30,663,505 57,122,641 52,465,554 109,588,195
----------- ------------ ------------ ------------
Total liabilities and stockholders'
equity........................... $34,454,381 $233,024,661 $ 1,887,305 $234,911,966
=========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
pro forma combined financial statements
F-4
<PAGE> 76
GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
GROUP 1 HOWARD MCCALL SMITH KINGWOOD TOTAL ADJUSTMENTS
--------- ----------- ----------- ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
New Vehicle Sales..............$ -- $38,248,317 $39,028,357 $36,148,519 $3,992,995 $117,418,188 $ --
Used Vehicle Sales............. -- 25,605,656 26,948,807 16,377,389 4,284,693 73,216,545 --
Parts & Service Sales.......... -- 5,413,075 6,011,001 6,982,768 622,903 19,029,747 --
Other dealership revenues, net. -- 1,840,714 1,763,811 1,425,376 251,662 5,281,563 356,143(a)
--------- ----------- ----------- ----------- ---------- ------------ -----------
Total revenues............. -- 71,107,762 73,751,976 60,934,052 9,152,253 214,946,043 356,143
COST OF SALES.................. -- 61,755,655 63,953,277 52,483,768 7,805,189 185,997,889 (271,431)(a)
--------- ----------- ----------- ----------- ---------- ------------ -----------
Gross Profit............... -- 9,352,107 9,798,699 8,450,284 1,347,064 28,948,154 627,574
GOODWILL AMORTIZATION.......... -- 10,242 -- 7,202 -- 17,444 236,782(b)
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES...... 360,350 8,011,993 8,910,462 6,867,710 1,134,431 25,284,946 2,796(a)(c)(d)
--------- ----------- ----------- ----------- ---------- ------------ -----------
Income (loss) from
operations............... (360,350) 1,329,872 888,237 1,575,372 212,633 3,645,764 387,996
OTHER INCOME AND EXPENSE
Interest expense, net.......... (8,901) (378,759) (282,867) (447,444) (63,471) (1,181,442) 876,879(e)
Other Income (expense), net.... -- 14,406 (31,462) (4,910) -- (21,966) --
--------- ----------- ----------- ----------- ---------- ------------ -----------
INCOME (LOSS) BEFORE INCOME
TAXES.................... (369,251) 965,519 573,908 1,123,018 149,162 2,442,356 1,264,875
PROVISION (BENEFIT) FOR INCOME
TAXES........................ -- (38,699) 229,563 209,349 6,712 406,925 1,150,960(f)
--------- ----------- ----------- ----------- ---------- ------------ -----------
NET INCOME (LOSS)..........$(369,251) $ 1,004,218 $ 344,345 $ 913,669 $ 142,450 $ 2,035,431 $ 113,915
========= =========== =========== =========== ========== ============ ===========
Earnings Per Share
<CAPTION>
% OF
PRO FORMA REVENUES
------------ --------
<S> <C> <C>
REVENUES:
New Vehicle Sales..............$117,418,188 54.5%
Used Vehicle Sales............. 73,216,545 34.0%
Parts & Service Sales.......... 19,029,747 8.9%
Other dealership revenues, net. 5,637,706 2.6%
------------ ------
Total revenues............. 215,302,186 100.00%
COST OF SALES.................. 185,726,458 86.3%
------------ ------
Gross Profit............... 29,575,728 13.7%
GOODWILL AMORTIZATION.......... 254,226 0.1%
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES...... 25,287,742 11.8%
------------ ------
Income (loss) from
operations............... 4,033,760 1.8%
OTHER INCOME AND EXPENSE
Interest expense, net.......... (304,563) (0.1)%
Other Income (expense), net.... (21,966) (0.0)%
------------ ------
INCOME (LOSS) BEFORE INCOME
TAXES.................... 3,707,231 1.7%
PROVISION (BENEFIT) FOR INCOME
TAXES........................ 1,557,885 0.7%
------------ ------
NET INCOME (LOSS)..........$ 2,149,346 1.0%
============ ======
$
============
</TABLE>
The accompanying notes are an integral part of these
pro forma combined financial statements
F-5
<PAGE> 77
GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
1. GROUP 1 AUTOMOTIVE, INC.
Group 1 Automotive, Inc. has conducted no operations to date and will
acquire the Founding Groups immediately prior to the closing of the Offering.
2. BASIS OF PRESENTATION
The pro forma combined financial statements give effect to the acquisitions
by Group 1 Automotive, Inc. (Group 1), of substantially all of the net assets of
(a) Howard Group (Howard), (b) McCall Group (McCall), (c) Smith Group (Smith)
and (d) Kingwood Group (Kingwood), (together, the Founding Groups) and the
initial public offering of shares of the common stock of Group 1.
Group 1 and the Founding Groups are hereinafter referred to as the Company.
These acquisitions (the Acquisitions) will occur immediately prior to the
closing of Group 1's public offering (the Offering) and will be accounted for
using the purchase method of accounting. Howard, one of the Founding Groups, has
been identified as the acquiror for financial statement presentation purposes in
accordance with SAB No. 97 as it will hold the single largest voting interest
subsequent to the Acquisitions. The pro forma combined financial statements also
give effect to the issuance of Common Stock, which will be issued by Group 1 to
the sellers of the Founding Groups immediately prior to the Offering. These
statements are based on the historical financial statements of the Founding
Groups included elsewhere in this Prospectus (except Kingwood, which has been
excluded as it is not a significant subsidiary under SAB No. 80) and the
estimates and assumptions set forth below.
The pro forma combined balance sheet gives effect to these transactions
(the Acquisitions and the Offering) as if they had occurred on March 31, 1997.
The pro forma combined statements of operations for the year ended December 31,
1996 and the three months ended March 31, 1997 give effect to these transactions
as if they had occurred at the beginning of the periods (January 1, 1996 and
January 1, 1997, respectively).
3. CONSIDERATION PAID TO FOUNDING GROUPS
The following table sets forth for each Founding Group the consideration to
be paid its common stockholders in shares of Common Stock.
<TABLE>
<CAPTION>
SHARES FAIR VALUE(1)
--------- -------------
<S> <C> <C>
Howard Group........................... 3,619,278 $
McCall Group........................... 2,318,826
Smith Group............................ 2,725,933
Kingwood Group......................... 459,853
--------- ------------
Total........................ 9,123,890 $
========= ============
</TABLE>
- ---------------
(1) Excludes $2.3 million and $3.1 million in cash consideration to be paid to
Howard and Kingwood Groups, respectively.
The holders of approximately 8,752,026 shares of Common Stock issued in
payment of the Acquisitions have agreed not to offer, sell or otherwise dispose
of any of those shares for a period of two years after the Offering and do not
have "piggy back rights" on subsequent offerings. The fair value of these shares
reflects this restriction. The remaining 371,864 shares of Common Stock issued
in payment of the Acquisitions will be sold by a shareholder at the date of the
offering, and accordingly, the value of those shares has not been adjusted from
the Offering price.
Based upon management's preliminary analysis, it is anticipated that the
historical carrying value of the Founding Groups' assets and liabilities will
approximate fair value. The amount allocated to goodwill is
F-6
<PAGE> 78
GROUP 1 AUTOMOTIVE, INC. AND FOUNDING GROUPS
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
$40.7 million. Management of Group 1 has not identified any other material
tangible or identifiable intangible assets of the Founding Groups to which a
portion of the purchase price could reasonably be allocated.
4. PRO FORMA COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND THE THREE MONTHS ENDED MARCH 31, 1997:
(a) Records additional income to the Founding Groups related to third party
commissions previously paid directly to certain owners of the Founding Groups
which will be retained by the Founding Groups subsequent to the acquisitions.
(b) Records the pro forma goodwill amortization expense.
(c) Adjusts compensation to the level that certain management employees and
owners of the Founding Groups will contractually receive subsequent to the
closing of the Acquisitions.
(d) Records estimated incremental corporate overhead costs.
(e) Records the decrease in interest expense for pro forma adjustments to
debt.
(f) Records the incremental provision for federal and state income taxes
relating to the compensation differential, S corporation income and other pro
forma adjustments.
5. UNAUDITED PRO FORMA COMBINED BALANCE SHEET ADJUSTMENTS:
(g) Records the settlement of certain related party payables and
receivables by owners of the Founding Groups.
(h) Represents the goodwill to be recorded after the adjustment of the
basis of certain assets and liabilities upon allocation of purchase price
(including amounts attributable to deferred tax assets and liabilities).
(i) Records the conversion from the last-in, first-out method of inventory
pricing to specific identification.
(j) Records distribution of three Founding Groups' S Corporation
Accumulated Adjustment Accounts.
(k) Records the acquisition of the Founding Groups in exchange for the
common stock of Group 1.
(l) Records the proceeds from the issuance of shares of
Group 1 Automotive, Inc. Common Stock, net of estimated offering costs of
$ (including prepaid offering costs) (based on an assumed initial
public offering price of $ per share). Offering costs primarily consist of
underwriting discounts and commissions, accounting fees, legal fees and printing
expenses.
(m) Records the repayment of certain long-term debt and floorplan
obligations with proceeds from the Offering.
(n) Records the sale of certain nonoperating assets to one of the owners of
a Founding Group at a price that approximates market.
(o) Records the accrued cash portion of the purchase price to be paid from
the offering proceeds.
(p) Records the settlement of the accrued cash portion of the purchase
price.
F-7
<PAGE> 79
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Group 1 Automotive, Inc.:
We have audited the accompanying balance sheets of Group 1 Automotive, Inc.
(a Delaware corporation) (the Company) as of December 31, 1995 and 1996 and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from Inception (December 21, 1995) to December 31, 1995, and for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and cash flows for the
period from Inception to December 31, 1995 and for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 9, 1997
F-8
<PAGE> 80
GROUP 1 AUTOMOTIVE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1995 1996 1997
------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents......................... $ 500 $ 7,769 $ 95,978
-------- -------- ----------
Total current assets...................... 500 7,769 95,978
PROPERTY AND EQUIPMENT, net......................... -- 1,716 49,796
OTHER ASSETS........................................ -- 774,198 1,684,206
-------- -------- ----------
Total assets.............................. $ 500 $783,683 $1,829,980
======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Advances from Founding Groups..................... $ -- $150,987 $ 519,695
Accounts payable and accrued expenses............. -- 722,704 1,769,544
-------- -------- ----------
Total current liabilities................. -- 873,691 2,289,239
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, 2,000,000 shares
authorized in 1995 and 1996, 50,000,000 shares
authorized in 1997, 1,000, 450,000 and 450,000
shares issued and outstanding, respectively.... 10 4,500 4,500
Additional paid-in capital........................ 490 4,995 4,995
Retained deficit.................................. -- (99,503) (468,754)
-------- -------- ----------
Total stockholders' equity (deficit)...... 500 (90,008) (459,259)
-------- -------- ----------
Total liabilities and stockholders' equity
(deficit)............................... $ 500 $783,683 $1,829,980
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 81
GROUP 1 AUTOMOTIVE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 21,
1995) THROUGH YEAR ENDED THREE MONTHS ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, -----------------------------
1995 1996 1996 1997
------------- ------------ -------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES:
Sales............................... $ -- $ -- $ -- $ --
Other dealership revenues, net...... -- -- -- --
-------- -------- -------- ---------
Total revenues.............. -- -- -- --
COST OF SALES......................... -- -- -- --
-------- -------- -------- ---------
Gross Profit................ -- -- --
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES............................ -- 95,008 -- 360,350
-------- -------- -------- ---------
Operating loss.............. -- (95,008) -- (360,350)
OTHER INCOME (EXPENSE)
Interest Expense, Net....... -- -- -- (8,901)
-------- -------- -------- ---------
LOSS BEFORE INCOME TAXES.............. -- (95,008) -- (369,251)
PROVISION FOR INCOME TAXES............ -- -- -- --
-------- -------- -------- ---------
NET LOSS.............................. $ -- $(95,008) $ -- $(369,251)
======== ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 82
GROUP 1 AUTOMOTIVE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
---------------- PAID-IN EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
------- ------ ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, Inception (December 21, 1995).... -- $ -- $ -- $ -- $ --
Stock issuance for cash.............. 1,000 10 490 -- 500
------- ------ ------ --------- ---------
BALANCE, December 31, 1995................ 1,000 10 490 -- 500
Purchase and cancellation of treasury
stock for cash..................... (1,000) (10) (490) -- (500)
Stock issuance for cash.............. 500 5 4,995 -- 5,000
Stock split (900-1), (Note 3)........ 449,500 4,495 -- (4,495) --
Net loss............................. -- -- -- (95,008) (95,008)
------- ------ ------ --------- ---------
BALANCE, December 31, 1996................ 450,000 4,500 4,995 (99,503) (90,008)
Net loss (unaudited)................. -- -- -- (369,251) (369,251)
------- ------ ------ --------- ---------
BALANCE, March 31, 1997 (unaudited)....... 450,000 $4,500 $4,995 $(468,754) $(459,259)
======= ====== ====== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 83
GROUP 1 AUTOMOTIVE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION
(DECEMBER 21,
1995) THREE MONTHS ENDED
THROUGH YEAR ENDED MARCH 31,
DECEMBER 31, DECEMBER 31, ---------------------
1995 1996 1996 1997
------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $ -- $ (95,008) $ -- $(369,251)
Adjustments to reconcile net loss to net
cash used in operating activities --
Depreciation and Amortization.......... -- -- -- 2,358
Changes in operating assets and
liabilities --
Increase in --
Other noncurrent assets.............. -- (774,198) (1,365) (910,008)
Accounts payable and accrued
expenses.......................... -- 722,704 1,365 1,046,840
---- --------- --------- ---------
Net cash used in operating
activities........................... -- (146,502) -- (230,061)
---- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions of property and equipment....... -- (1,716) -- (50,438)
---- --------- --------- ---------
Net cash used in investing
activities........................... -- (1,716) -- (50,438)
---- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from Founding Groups............. -- 150,987 -- 368,708
Purchase of common stock.................. -- (500) -- --
Proceeds from issuance of common stock.... 500 5,000 -- --
---- --------- --------- ---------
Net cash provided by financing
activities........................... 500 155,487 -- 368,708
---- --------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS... 500 7,269 -- 88,209
CASH AND CASH EQUIVALENTS, beginning of
period.................................... -- 500 500 7,769
---- --------- --------- ---------
CASH AND CASH EQUIVALENTS, end of period.... $500 $ 7,769 $ 500 $ 95,978
==== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 84
GROUP 1 AUTOMOTIVE, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. (Group 1 or the Company), was founded on December
21, 1995 to become a leading operator and consolidator in the automotive
retailing industry. Group 1 intends to acquire 30 automobile dealerships and
related businesses which are currently owned by four dealership groups located
in Texas and Oklahoma (the Founding Groups) (the Acquisitions), complete an
initial public offering (the Offering) of its common stock and, subsequent to
the Offering, continue to acquire, through merger or purchase, similar companies
to expand its national and regional operations.
Group 1's primary assets at December 31, 1996 and March 31, 1997 are cash
and deferred offering costs. Group 1 has not conducted any operations, and all
activities to date have related to the Acquisitions. There is no assurance that
the Acquisitions discussed below will be completed and that Group 1 will be able
to generate future operating revenues. Funding for the deferred offering costs
has been provided by the Founding Groups. Group 1 is dependent upon the Offering
to fund the amounts due to the Founding Groups and future operations. In the
event that the Offering is not completed, Group 1 will pursue alternative
sources of funding in order to meet its current obligations.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Major Suppliers and Franchise Agreements
The Founding Groups purchase substantially all of their new vehicles from
various manufacturers at the prevailing prices charged by the manufacturers to
all franchised dealers. Group 1's sales volume subsequent to the Acquisitions
could be adversely impacted by the manufacturers' inability to supply the
dealerships with an adequate supply of popular models or as a result of an
unfavorable allocation of vehicles by the manufacturers.
The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the
dealerships (such as minimum net worth requirements) and which also provide for
termination of the franchise agreement by the manufacturers in certain
instances. Subsequent to the Acquisitions, Group 1's ability to acquire
additional franchises from a particular manufacturer may be limited due to
certain restrictions imposed by manufacturers, the Company's ability to enter
into significant acquisitions may be restricted and the acquisition of the
Company's stock by third parties may be limited by the terms of the franchise
agreement. See "Risk Factors -- Manufacturers Control Over Dealerships" and
"Business -- Franchise Agreements" for further discussion.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets.
Deferred Offering Costs
The Company has capitalized all costs incurred in connection with the
Offering as a component of other assets in the accompanying financial
statements. Upon completion of the Offering, all such costs will be offset
against additional paid-in capital.
Income Taxes
The Company follows the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income
F-13
<PAGE> 85
GROUP 1 AUTOMOTIVE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
taxes are recorded based upon differences between the financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the underlying assets are received or
liabilities are settled. The Company has recorded a valuation allowance against
its deferred tax assets as, in management's opinion it is more likely than not
that such amounts may not be realized in future periods.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Information
As is normal and customary, the interim financial statements as of March
31, 1997, and for the three months ended March 31, 1996 and 1997, are unaudited,
and certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has not been included
herein. In the opinion of management, all adjustments necessary to fairly
present the financial position, results of operations and cash flows with
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the
entire fiscal year.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include all highly liquid debt instruments purchased with an original maturity
of three months or less.
3. CAPITAL STOCK AND STOCK OPTIONS
Group 1 effected a 900-for-one-stock split on December 13, 1996. The effect
of the common stock split has been accounted for as a stock dividend in the
accompanying financial statements. On February 5, 1997 the Board of Directors
increased the authorized number of shares of common stock from 2,000,000 to
50,000,000, and authorized the issuance of up to 1,000,000 shares of preferred
stock.
The Company has approved the 1996 Stock Incentive Plan (the Plan), which
provides for the granting or awarding of stock options, stock appreciation
rights and restricted stock to nonemployee directors, officers and other key
employees (including officers of the Founding Groups) and independent
contractors. The number of shares authorized and reserved for issuance under the
Plan is 2,000,000 shares. In general, the terms of the option awards (including
vesting schedules) will be established by the Compensation Committee of the
Company's Board of Directors. As of December 31, 1996, the Company has granted
options to employees covering an aggregate of 205,000 shares of common stock.
During March 1997, the Company granted additional options to employees to
purchase an aggregate of 360,000 shares of common stock under the Plan. All
outstanding options are exercisable over a period not to exceed 10 years and
vest over a six year period. The exercise price of the options under the Plan is
at least 100 percent of the estimated fair market value of the stock at the time
the option is granted.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which, if fully adopted, requires the Company to record
stock-based compensation at fair value. The Company has adopted the
F-14
<PAGE> 86
GROUP 1 AUTOMOTIVE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
disclosure requirements of SFAS No. 123 and has elected to record employee
compensation expense in accordance with Accounting Principles Board (APB)
Opinion No. 25. Accordingly, compensation expense is recorded for stock options
based on the excess of the fair market value of the common stock on the date the
options were granted over the aggregate exercise price of the options. As the
exercise price of options granted under the Plan has been equal to or greater
than the market price of the Company's stock on the date of grant, no
compensation expense related to the Plan has been recorded. Had compensation
expense for the Plan been determined consistent with SFAS No. 123, the impact on
the Company's net loss would not have been material.
At December 31, 1996 and March 31, 1997, no options were exercisable and
1,795,000 and 1,435,000 options, respectively, were available for future grant
under the Plan. The exercise prices of options outstanding under the Plan at
December 31, 1996 and March 31, 1997, were $2.90. The weighted average
contractual life of options outstanding at December 31, 1996 and March 31, 1997,
was 10 years. The weighted average fair value of options granted during the year
ended December 31, 1996 and March 31, 1997, was $2.90. The fair value of each
option grant is estimated on the date of grant using the minimum value method
with the following weighted average assumptions: a weighted average risk-free
interest rate of 5.0 percent; no expected dividend yields; and expected lives of
four years.
4. PROPOSED ACQUISITIONS BY GROUP 1
Group 1 has signed definitive agreements to acquire four dealership groups
(the Founding Groups) consisting of 30 automobile dealerships and related
businesses. The Founding Groups are as follows:
Howard Group -- Consisting of Howard Pontiac-GMC, Inc., Bob Howard
Chevrolet, Inc., Bob Howard Automotive-H, Inc.
(Honda/Acura), Bob Howard Motors, Inc. (Toyota), Bob Howard
Dodge, Inc. and Bob Howard Automotive East, Inc.
McCall Group -- Consisting of SMC Luxury Cars, Inc. (d.b.a. Sterling McCall
Lexus) and Southwest Toyota, Inc. (d.b.a. Sterling McCall
Toyota).
Smith Automotive Group -- Consisting of Mike Smith Autoplaza, Inc., Town
North Nissan, Inc., Town North Suzuki, Inc., Town
North Mitsubishi, Inc., Courtesy Nissan, Inc.,
Smith Liu & Corbin, Inc. (d.b.a. Acura Southwest)
and Round Rock Nissan, Inc.
Kingwood Group -- Consisting of Foyt Motors, Inc.
The aggregate consideration that will be paid by Group 1 to acquire the
Founding Groups is approximately $5.4 million in cash and 9,123,890 shares of
Group 1 common stock (based on an assumed initial public offering price of
$ per share, the midpoint of the estimated initial public offering price
range).
In conjunction with the Acquisitions and the Offering, the Founding Groups
have advanced funds to the Company for operations and offering costs. As of
December 31, 1996, these advances totaled $150,987 and bear interest at a rate
of 7% per annum. Through May 9, 1997, the Company has received additional
advances from the Founding Groups of approximately $536,000.
F-15
<PAGE> 87
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Howard Group:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 9, 1997
F-16
<PAGE> 88
HOWARD GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ 3,497,745 $ 3,559,650 $ 2,239,524
Contracts in transit.......................... 7,022,026 8,119,400 8,290,158
Accounts receivable, net...................... 6,301,692 5,898,736 5,551,716
Inventories................................... 39,572,596 47,674,462 49,637,651
Prepaid expenses.............................. 359,668 858,886 879,036
----------- ----------- -----------
Total current assets.................. 56,753,727 66,111,134 66,598,085
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net..................... 2,810,966 4,128,880 4,043,969
NOTES RECEIVABLE................................ 374,826 417,675 417,675
GOODWILL, NET................................... 989,845 1,456,833 1,446,591
OTHER ASSETS.................................... 711,753 759,714 609,929
----------- ----------- -----------
Total assets.......................... $61,641,117 $72,874,236 $73,116,249
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable...................... $37,035,648 $42,543,902 $43,053,804
Current maturities of long-term debt.......... 99,743 33,685 25,399
Deferred income taxes......................... 690,998 357,172 357,172
Accounts payable and accrued expenses......... 14,219,262 16,740,525 16,629,219
----------- ----------- -----------
Total current liabilities............. 52,045,651 59,675,284 60,065,594
----------- ----------- -----------
LONG-TERM DEBT, net of current maturities....... 184,199 309,779 193,825
LONG-TERM DEFERRED INCOME TAXES................. 40,409 58,604 58,604
OTHER LONG-TERM LIABILITIES..................... 750,571 620,896 588,479
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock.................................. 490,500 491,500 491,500
Additional paid-in capital.................... 5,123,802 6,622,802 6,622,802
Retained earnings............................. 3,814,783 5,904,169 5,904,243
Treasury stock, at cost....................... (808,798) (808,798) (808,798)
----------- ----------- -----------
Total stockholders' equity............ 8,620,287 12,209,673 12,209,747
----------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $61,641,117 $72,874,236 $73,116,249
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-17
<PAGE> 89
HOWARD GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
New vehicle sales.......... $136,831,043 $151,226,737 $164,978,710 $35,581,234 $38,248,317
Used vehicle sales......... 69,861,948 79,447,701 88,477,330 20,247,677 25,605,656
Parts and service sales.... 14,402,326 16,940,622 21,173,371 4,795,829 5,413,075
Other dealership revenues,
net..................... 6,163,506 6,388,131 7,386,747 1,908,415 1,840,714
------------ ------------ ------------ ----------- -----------
Total revenues..... 227,258,823 254,003,191 282,016,158 62,533,155 71,107,762
COST OF SALES................ 198,991,917 221,773,500 244,396,047 53,879,121 61,755,655
------------ ------------ ------------ ----------- -----------
Gross profit....... 28,266,906 32,229,691 37,620,111 8,654,034 9,352,107
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES.... 24,253,223 26,165,535 30,768,233 6,818,160 8,022,235
------------ ------------ ------------ ----------- -----------
Income from
operations....... 4,013,683 6,064,156 6,851,878 1,835,874 1,329,872
OTHER INCOME AND EXPENSE:
Interest expense, net...... (1,101,487) (1,604,204) (1,193,810) (374,141) (378,759)
Other income (expense),
net..................... 8,942 (80,446) (69,328) (9,959) 14,406
------------ ------------ ------------ ----------- -----------
INCOME BEFORE INCOME TAXES... 2,921,138 4,379,506 5,588,740 1,451,774 965,519
PROVISION (BENEFIT) FOR
INCOME TAXES............... 767,850 744,316 381,752 228,682 (38,699)
------------ ------------ ------------ ----------- -----------
NET INCOME................... $ 2,153,288 $ 3,635,190 $ 5,206,988 $ 1,223,092 $ 1,004,218
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-18
<PAGE> 90
HOWARD GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
-------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31,
1993..................... $490,000 $2,399,302 $ 1,556,192 $(808,798) $ 3,636,696
Net income............... -- -- 2,153,288 -- 2,153,288
Issuance of common
stock................. 500 999,500 -- -- 1,000,000
Dividends................ -- -- (1,443,706) -- (1,443,706)
-------- ---------- ----------- --------- -----------
BALANCE, December 31,
1994..................... 490,500 3,398,802 2,265,774 (808,798) 5,346,278
Net income............... -- -- 3,635,190 -- 3,635,190
Capital contribution..... -- 1,725,000 -- -- 1,725,000
Dividends................ -- -- (2,086,181) -- (2,086,181)
-------- ---------- ----------- --------- -----------
BALANCE, December 31,
1995..................... 490,500 5,123,802 3,814,783 (808,798) 8,620,287
Net income............... -- -- 5,206,988 -- 5,206,988
Issuance of common
stock................. 1,000 1,499,000 -- -- 1,500,000
Dividends................ -- -- (3,117,602) -- (3,117,602)
-------- ---------- ----------- --------- -----------
BALANCE, December 31,
1996..................... 491,500 6,622,802 5,904,169 (808,798) 12,209,673
Net income (unaudited)... -- -- 1,004,218 -- 1,004,218
Dividends (unaudited).... -- -- (1,004,144) -- (1,004,144)
-------- ---------- ----------- --------- -----------
BALANCE, March 31, 1997
(unaudited).............. $491,500 $6,622,802 $ 5,904,243 $(808,798) $12,209,747
======== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE> 91
HOWARD GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
FOR THE YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- ---------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................... $ 2,153,288 $ 3,635,190 $ 5,206,988 $ 1,223,092 $ 1,004,218
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income
to net cash provided by (used
in) operating activities --
Depreciation and amortization... 429,915 538,493 740,811 150,701 242,927
Deferred income taxes........... 39,207 190,787 (315,631) 43,966 --
Provision for doubtful
accounts...................... 113,112 84,833 108,068 21,895 24,743
Loss (gain) on sale of assets... (56,503) 15,313 18,350 9,532 (1,204)
Changes in assets and
liabilities --
Accounts receivable........... (3,393,986) 197,696 364,240 2,006,967 322,277
Inventories................... (8,492,539) (4,873,611) (6,106,872) (510,552) (1,963,189)
Prepaid expenses and other
assets..................... (58,113) (177,883) (626,368) 61,320 129,635
Floor plan notes payable...... 9,451,846 3,876,738 5,508,254 (1,180,117) 509,904
Accounts payable and accrued
expenses................... 4,017,618 3,334,511 2,391,588 (2,333,518) (143,725)
----------- ----------- ----------- ----------- -----------
Total adjustments.......... 2,050,557 3,186,877 2,082,440 (1,729,806) (878,632)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used
in) operating
activities............... 4,203,845 6,822,067 7,289,428 (506,714) 125,586
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment....................... (1,197,283) (928,017) (1,977,075) (234,444) (146,570)
Acquisition of Business............ (1,834,426) -- (2,594,994) -- --
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities............... (3,031,709) (928,017) (4,572,069) (234,444) (146,570)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term
debt............................ (225,313) (171,910) (152,807) -- (124,240)
Borrowings of long-term debt....... 512,204 13,111 212,329 -- --
Issuance of common stock........... 1,000,000 -- 1,500,000 -- --
Contribution from stockholders..... -- 1,725,000 -- -- --
Dividends.......................... (1,443,706) (2,086,181) (3,117,602) (1,390,178) (1,004,144)
----------- ----------- ----------- ----------- -----------
Net cash used in financing
activities............... (156,815) (519,980) (1,558,080) (1,390,178) (1,128,384)
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS................... 1,015,321 5,374,070 1,159,279 (2,131,336) (1,149,368)
CASH AND CASH EQUIVALENTS, beginning
of period.......................... 4,130,380 5,145,701 10,519,771 10,519,771 11,679,050
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period............................. $ 5,145,701 $10,519,771 $11,679,050 $ 8,388,435 $10,529,682
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for --
Interest........................ $ 2,295,200 $ 3,427,813 $ 3,117,601 $ 976,972 $ 964,039
Taxes........................... 715,000 475,000 924,456 208,733 --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-20
<PAGE> 92
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Howard Group (the Companies) is primarily engaged in the retail sale of new
and used automobiles and the sale of the related finance, insurance and service
contracts thereon. In addition, the Companies sell automotive parts, provide
vehicle servicing and sell wholesale used vehicles.
The following companies are included within the combined group:
Howard Pontiac -- GMC, Inc. (Automall)
Automall consists of several franchises which conduct business at
contiguous locations in Oklahoma City, Oklahoma. The franchises
operated in this location include Pontiac, GMC, Mazda, Isuzu, Jeep,
Eagle, Chrysler and Plymouth.
Bob Howard Chevrolet, Inc. (BHC)
BHC is a Chevrolet dealership located in Oklahoma City, Oklahoma.
Bob Howard Automotive -- H, Inc. (BHH)
BHH consists of two franchises, Honda and Acura, which conduct business
at contiguous locations in Oklahoma City, Oklahoma.
Bob Howard Motors, Inc. (BHT)
BHT is a Toyota dealership located in Oklahoma City, Oklahoma.
Bob Howard Dodge, Inc. (BHD)
BHD is a Dodge dealership located in Oklahoma City, Oklahoma.
The Companies and their stockholders intend to enter into a definitive
agreement with Group 1 Automotive, Inc. (Group 1), pursuant to which all
outstanding shares of the Companies' common stock will be exchanged for cash and
shares of Group 1's common stock concurrent with the consummation of the initial
public offering of the common stock of Group 1.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying combined financial statements include the accounts of the
companies listed above. The Companies have been presented on a combined basis
due to their related operations, common ownership and common management control.
All significant intercompany balances and transactions have been eliminated in
combination.
Major Suppliers and Franchise Agreements
The Companies purchase substantially all of their new vehicles at the
prevailing prices charged by the manufacturers to all franchised dealers. The
Companies' sales volume could be adversely impacted by the manufacturers'
inability to supply the dealership with an adequate supply of popular models or
as a result of an unfavorable allocation of vehicles by the manufacturer.
The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the
dealerships (such as minimum working capital requirements), and which also
provide for termination of the franchise agreement by the manufacturers in
certain instances. Under certain state law, these restrictive provisions have
been repeatedly found invalid
F-21
<PAGE> 93
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
both by state courts and administrative agencies. See "Risk
Factors -- Manufacturers' Control Over Dealerships" and "Business -- Franchise
Agreements" for further discussion.
Revenue Recognition
Revenue from vehicle sales, parts sales and vehicle service is recognized
upon delivery to the customer.
Finance, Insurance and Service Contract Income Recognition
The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates
charged to customers over the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of
credit life and disability insurance and extended service contracts to
customers.
The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early
termination of the contracts by customers. Accordingly, the Companies have
recorded reserves for future chargebacks in the accompanying combined financial
statements based on historical operating results and the termination provisions
of the applicable contracts. Finance, insurance and service contract income, net
of estimated chargebacks, are included in other dealership income in the
accompanying combined financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase.
Contracts in Transit
Contracts in transit represent contracts on vehicles sold, for which the
proceeds are in transit from financing institutions.
Inventories
New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific-unit basis.
Parts and accessories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated useful life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in current operations.
F-22
<PAGE> 94
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price of dealerships
acquired (BHH, BHD and Automall) over the fair value of assets acquired at the
date of acquisition. Goodwill is being amortized on a straight-line basis over
40 years. Amortization expense charged to operations totaled approximately
$21,000, $27,000 and $36,000 for the years ended December 31, 1994, 1995 and
1996, respectively. Accumulated amortization totaled approximately $93,000 and
$129,000 as of December 31, 1995 and 1996, respectively.
Income Taxes
The Companies follow the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets are realized or liabilities are settled. A valuation allowance
reduces deferred tax assets when it is more likely than not that some or all of
the deferred tax assets will not be realized.
Certain of the Companies have elected S Corporation status, as defined by
the Internal Revenue Code, whereby the Companies are not subject to taxation for
federal purposes. Under S Corporation status, the stockholders report their
share of these Companies' taxable earnings or losses in their personal tax
returns.
Environmental Liabilities and Expenditures
Accruals for environmental matters, if any, are recorded in operating
expenses when it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. Accrued liabilities are exclusive
of claims against third parties and are not discounted.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the costs increase the value of
the property and/or mitigate or prevent contamination from future operations.
Interest Expense
Automobile manufacturers periodically provide floorplan interest
assistance, or subsidies, which reduce the Companies' cost of financing. The
accompanying combined financial statements reflect interest expense net of
floorplan assistance.
Fair Value of Financial Instruments
The Companies' financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
Advertising
The Company expenses production and other costs of advertising as incurred.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to a
concentration of credit risk consist principally of cash, cash equivalents,
contracts in transit and accounts receivable. The Company maintains cash
balances at financial institutions which may at times be in excess of federally
insured
F-23
<PAGE> 95
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
levels. The Companies grant credit to local companies in various businesses. The
Companies perform ongoing credit evaluations of their customers and generally do
not require collateral. The Companies maintain an allowance for doubtful
accounts at a level which management believes is sufficient to cover potential
credit losses. The Companies have not incurred significant losses related to
these financial instruments to date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The significant estimates made by management in the
accompanying financial statements relate to reserves for future chargebacks on
finance, insurance and service contract income. Actual results could differ from
those estimates.
Interim Financial Information
As is normal and customary, the interim financial statements as of March
31, 1997, and for the three months ended March 31, 1996 and 1997, are unaudited,
and certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has not been included
herein. In the opinion of management, all adjustments necessary to fairly
present the financial position, results of operations and cash flows with
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the
entire fiscal year.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month.
Additionally, the net change in floor plan financing of inventory, which is a
customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.
New Accounting Pronouncement
Effective January 1, 1996, the Companies adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Companies.
F-24
<PAGE> 96
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Amounts due from manufacturers............................ $4,051,091 $3,075,483
Parts and service receivables............................. 873,874 652,222
Warranty receivables...................................... 250,971 499,470
Due from finance companies................................ 781,383 1,002,153
Other..................................................... 404,471 777,329
---------- ----------
6,361,790 6,006,657
Less -- Allowance for doubtful accounts................... (60,098) (107,921)
---------- ----------
$6,301,692 $5,898,736
========== ==========
</TABLE>
Activity in the Companies' allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995 1996
--------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $ 6,900 $ -- $ 60,098
Additions charged to expense................... 113,112 84,833 108,068
Deductions for uncollectible receivables
written off.................................. (120,012) (24,735) (60,245)
--------- -------- --------
$ -- $ 60,098 $107,921
========= ======== ========
</TABLE>
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
----------- -----------
<S> <C> <C>
New vehicles....................................... $30,680,418 $36,973,347
Used vehicles...................................... 7,440,761 8,612,757
Parts, accessories and other....................... 1,451,417 2,088,358
----------- -----------
$39,572,596 $47,674,462
=========== ===========
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1996
----------- -----------
<S> <C> <C>
Accounts payable, trade............................ $ 6,416,124 $ 6,135,880
Reserve for finance, insurance and service contract
chargebacks...................................... 5,661,473 5,782,600
Other accrued expenses............................. 2,141,665 4,822,045
----------- -----------
$14,219,262 $16,740,525
=========== ===========
</TABLE>
F-25
<PAGE> 97
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ------------------------------
IN YEARS 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Buildings.............................. 20 $ 28,675 $ 32,058
Leasehold improvements................. 7 861,361 1,086,129
Machinery and equipment................ 3 to 7 2,165,606 2,460,465
Furniture and fixtures................. 5 to 7 1,161,304 1,387,095
Company vehicles....................... 5 829,192 2,146,377
----------- -----------
Total........................ 5,046,138 7,112,124
Less -- Accumulated depreciation....... (2,235,172) (2,983,244)
----------- -----------
Property and equipment,
net........................ $ 2,810,966 $ 4,128,880
=========== ===========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect amounts payable for the purchase of
specific vehicle inventory and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
New vehicles........................................... $33,056,624 $38,677,985
Used vehicles.......................................... 3,979,024 3,865,917
----------- -----------
Total floor plan notes payable............... $37,035,648 $42,543,902
=========== ===========
</TABLE>
Floorplan notes payable are due to one floor plan lender, bearing interest
at a rate of prime less 0.5%. As of December 31, 1995 and 1996, the weighted
average interest rate, on floorplan notes payable outstanding was 8.25% and
7.75%. Interest expense on floorplan notes payable, before manufacturer interest
assistance, totaled approximately $2,508,000, $3,656,000 and $3,569,000 for the
years ended December 31, 1994, 1995 and 1996, respectively. Manufacturer
interest assistance, which is recorded as a reduction to interest expense in the
accompanying financial statements, totaled approximately $1,350,000, $1,867,000
and $1,974,000 for the years ended December 31, 1994, 1995 and 1996,
respectively. The flooring arrangements permit the Companies to borrow up to
$58,380,000, dependent upon new and used vehicle sales and inventory levels. As
of December 31, 1996, total available borrowings under floor plan agreements
were approximately $15,836,000. Payments on the notes are due when the related
vehicles are sold and are collateralized by substantially all of the inventories
of the Companies.
6. STOCKHOLDERS' EQUITY:
Capital stock consists of the following:
<TABLE>
<CAPTION>
AUTHORIZED ISSUED OUTSTANDING PAR VALUE
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Common Stock --
Automall............................. 1,000,000 460,000 114,500 $ 1.00
BHC.................................. 2,000 1,000 1,000 25.00
BHH.................................. 5,000 500 500 1.00
BHT.................................. 25,000 5,000 5,000 1.00
BHD.................................. 50,000 1,000 1,000 1.00
</TABLE>
F-26
<PAGE> 98
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Treasury stock consists of 345,500 shares of the common stock of Automall
at a cost of approximately $809,000 at December 31, 1995 and 1996.
7. RELATED-PARTY TRANSACTIONS:
Operating Leases With Stockholder
The principal stockholder of the Companies leases the dealerships' premises
under operating leases. Additional information regarding the terms of these
leases is contained in Note 8, "Operating Leases."
The principal stockholder of the Companies has certain loans outstanding
which are secured by assets of the dealerships. See Note 10, "Commitments and
Contingencies," for a detail of loans secured by the assets of the dealerships.
8. OPERATING LEASES:
The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2002. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997.......................................................... $ 2,870,036
1998.......................................................... 2,865,036
1999.......................................................... 2,471,536
2000.......................................................... 2,175,036
2001.......................................................... 1,740,351
Thereafter.................................................... 1,030,296
-----------
Total............................................... $13,152,291
===========
</TABLE>
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $2,074,000, $2,159,000 and $2,331,000
for the years ended December 31, 1994, 1995 and 1996, respectively. Rental
expense on related-party leases, which is included in the above amounts, totaled
approximately $1,847,000, $1,942,000 and $1,960,000 for the years ended December
31, 1994, 1995 and 1996, respectively.
F-27
<PAGE> 99
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. INCOME TAXES:
The S Corporations will terminate S Corporation status concurrent with the
effective date of the Offering.
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Federal --
Current...................................... $614,059 $476,615 $ 586,642
Deferred..................................... 33,010 160,631 (261,857)
State --
Current...................................... 114,584 76,914 110,741
Deferred..................................... 6,197 30,156 (53,774)
-------- -------- ---------
$767,850 $744,316 $ 381,752
======== ======== =========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1995 1996
--------- ---------- -----------
<S> <C> <C> <C>
Provision at the statutory rate............ $ 993,187 $1,489,032 $ 1,900,172
Increase (decrease) resulting from --
Income of S Corporation.................. (391,102) (877,106) (1,584,686)
State income tax, net of benefit for
federal deduction..................... 79,715 70,666 37,598
Other.................................... 86,050 61,724 28,668
--------- ---------- -----------
$ 767,850 $ 744,316 $ 381,752
========= ========== ===========
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax (assets) and liabilities result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Inventory valuation.................................... $ 2,381,631 $ 2,637,029
Reserves and accruals not deductible until paid........ (1,645,669) (2,175,732)
Depreciation........................................... 40,411 58,604
Other.................................................. (44,966) (104,125)
----------- -----------
$ 731,407 $ 415,776
=========== ===========
</TABLE>
F-28
<PAGE> 100
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets --
Current.............................................. $(1,569,170) $(2,144,789)
Deferred tax liabilities --
Current.............................................. 2,260,168 2,501,961
Long-term............................................ 40,409 58,604
----------- -----------
Total........................................ 2,300,577 2,560,565
----------- -----------
Net deferred income tax liabilities.......... $ 731,407 $ 415,776
=========== ===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES:
Litigation
The Companies are defendants in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on the Companies' financial
position or results of operations.
Insurance
The Companies carry a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Companies have not incurred significant
claims or losses on any of their insurance policies.
Stockholder Loans Guaranteed by the Companies
The principal stockholder of the Companies has various loans totaling
$8,128,000 outstanding with a financial institution as of December 31, 1996. The
loans are guaranteed by Automall, BHC and BHT and are secured by all of the real
estate, buildings and improvements at the dealerships. The notes mature on
various dates through 2004 and bear interest at prime less .5% (8.25% at
December 31, 1996).
11. RETIREMENT PLAN:
Effective April 1, 1996, the Companies established a 401(k) salary
deferral/savings plan for the benefit of all employees. Employees electing to
participate in the plan may contribute up to 15% of annual compensation, limited
to the maximum amount that can be deducted for income tax purposes each year.
The Companies, at their discretion, have the option to match each
employee's contribution up to a maximum of 6% of annual compensation each plan
year. The Companies elected to make contributions totaling $178,000 for the year
ended December 31, 1996.
12. PROPOSED ACQUISITION BY GROUP 1:
The stockholders of the Companies intend to enter into definitive purchase
agreements with Group 1 providing for the purchase of the Companies by Group 1.
In conjunction with the acquisition of the Companies by Group 1, all existing
operating leases with related parties will be restructured under new lease
agreements and the principal stockholder of the Companies will either obtain
releases for the Companies from the stockholder loan guarantees discussed above
or will obtain alternative financing in order to obtain release from the
stockholder loan guarantees.
F-29
<PAGE> 101
HOWARD GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. SUBSEQUENT EVENTS (UNAUDITED)
During 1997, an affiliate of the Howard Group entered into an agreement to
acquire, subject to manufacturer approval, a Chevrolet dealership in Tulsa,
Oklahoma. The Howard Group has not received approval from the manufacturer, and
in June 1997, entered into a management contract with the owner of the Chevrolet
dealership. Group 1 expects to enter into an agreement to acquire the Chevrolet
dealership from the affiliate of the Howard Group for the assumption of the
dealership's liabilities.
F-30
<PAGE> 102
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO MCCALL GROUP:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the
related combined statements of operations, stockholders' deficit and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 9, 1997
F-31
<PAGE> 103
MCCALL GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ 301,277 $ 193,975 $ 8,141
Contracts in transit.......................... 20,327,507 13,899,508 9,193,536
Accounts receivable, net...................... 3,535,825 4,407,835 4,172,289
Due from affiliates........................... 3,769,789 1,397,454 1,615,973
Inventories................................... 22,490,889 23,720,965 23,171,343
Notes receivable, net......................... 226,113 237,547 340,523
Prepaid expenses.............................. 123,976 294,044 139,709
Deferred income tax benefit................... 1,972,348 1,769,529 1,849,529
----------- ----------- -----------
Total current assets.................. 52,747,724 45,920,857 40,491,043
----------- ----------- -----------
PROPERTY AND EQUIPMENT, net..................... 2,492,651 3,147,017 3,386,749
LONG-TERM DEFERRED INCOME TAX BENEFIT........... -- 104,882 104,882
OTHER ASSETS.................................... 425,661 1,300,432 1,766,536
----------- ----------- -----------
Total assets.......................... $55,666,036 $50,473,188 $45,749,210
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Floor plan notes payable...................... $35,940,161 $32,219,713 $27,322,915
Current maturities of long-term debt.......... 28,553 146,303 78,736
Due to affiliates............................. 849,404 798,413 1,989,841
Accounts payable and accrued expenses......... 18,832,580 18,176,922 16,749,490
----------- ----------- -----------
Total current liabilities............. 55,650,698 51,341,351 46,140,982
----------- ----------- -----------
LONG-TERM DEBT, net of current maturities....... 180,655 410,805 542,851
LONG-TERM DEFERRED INCOME TAXES................. 112,250 -- --
OTHER LONG-TERM LIABILITIES..................... 150,000 427,000 427,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Common stock.................................. 125,800 71,278 71,278
Additional paid-in capital.................... 2,930,419 3,222,043 3,222,043
Retained deficit.............................. (3,483,786) (4,999,289) (4,654,944)
----------- ----------- -----------
Total stockholders' deficit........... (427,567) (1,705,968) (1,361,623)
----------- ----------- -----------
Total liabilities and stockholders'
deficit............................. $55,666,036 $50,473,188 $45,749,210
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-32
<PAGE> 104
MCCALL GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ -------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
New vehicle sales............. $105,402,077 $125,809,681 $166,381,686 $33,956,621 $39,028,357
Used vehicle sales............ 49,871,793 68,332,375 90,895,516 21,801,846 26,948,807
Parts and service sales....... 17,938,636 19,431,385 24,454,187 5,406,822 6,011,001
Other dealership revenues,
net......................... 4,107,658 5,314,141 6,810,908 1,527,717 1,763,811
------------ ------------ ------------ ----------- -----------
Total revenues......... 177,320,164 218,887,582 288,542,297 62,693,006 73,751,976
COST OF SALES................... 152,573,395 188,730,407 249,560,060 54,033,295 63,953,277
------------ ------------ ------------ ----------- -----------
Gross profit........... 24,746,769 30,157,175 38,982,237 8,659,711 9,798,699
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES....... 22,476,554 27,751,831 35,072,460 7,834,573 8,910,462
------------ ------------ ------------ ----------- -----------
Income from
operations........... 2,270,215 2,405,344 3,909,777 825,138 888,237
OTHER INCOME AND EXPENSE:
Interest expense, net......... (2,462,618) (3,215,245) (2,747,719) (784,779) (282,867)
Other expense, net............ (6,511) (43,735) (45,094) (13,818) (31,462)
------------ ------------ ------------ ----------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES......................... (198,914) (853,636) 1,116,964 26,541 573,908
PROVISION FOR INCOME TAXES...... 232,173 282,887 177,772 4,459 229,563
------------ ------------ ------------ ----------- -----------
NET INCOME (LOSS)............... $ (431,087) $ (1,136,523) $ 939,192 $ 22,082 $ 344,345
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-33
<PAGE> 105
MCCALL GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL RETAINED
COMMON PAID-IN SUBSCRIPTIONS EARNINGS
STOCK CAPITAL RECEIVABLE (DEFICIT) TOTAL
-------- ---------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993................ $ 94,600 $1,961,619 $ -- $(1,916,176) $ 140,043
Net loss................................ -- -- -- (431,087) (431,087)
Issuance of common stock................ 31,200 968,800 (850,000) -- 150,000
Payments on subscriptions receivable.... -- -- 11,317 -- 11,317
-------- ---------- --------- ----------- -----------
BALANCE, December 31, 1994................ 125,800 2,930,419 (838,683) (2,347,263) (129,727)
Net loss................................ -- -- -- (1,136,523) (1,136,523)
Payments on subscriptions receivable.... -- -- 270,272 -- 270,272
Settlement of subscriptions
receivable........................... -- -- 568,411 -- 568,411
-------- ---------- --------- ----------- -----------
BALANCE, December 31, 1995................ 125,800 2,930,419 -- (3,483,786) (427,567)
Net income.............................. -- -- -- 939,192 939,192
Dividend to parent under tax sharing
agreement............................ -- -- -- (323,590) (323,590)
Purchase and retirement of treasury
stock................................ (57,898) -- -- (2,131,105) (2,189,003)
Stock issued to employees............... 3,376 291,624 -- -- 295,000
-------- ---------- --------- ----------- -----------
BALANCE, December 31, 1996................ 71,278 3,222,043 -- (4,999,289) (1,705,968)
Net income (unaudited).................. -- -- -- 344,345 344,345
-------- ---------- --------- ----------- -----------
BALANCE, March 31, 1997 (unaudited)....... $ 71,278 $3,222,043 $ -- $(4,654,944) $(1,361,623)
======== ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-34
<PAGE> 106
MCCALL GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................... $ (431,087) $(1,136,523) $ 939,192 $ 22,082 $ 344,345
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities --
Depreciation and amortization....................... 387,093 439,402 598,278 131,854 114,989
Deferred income taxes............................... (154,493) (514,187) (14,313) (140) (80,000)
Provision for loan losses and doubtful accounts..... 226,530 208,972 357,860 93,982 95,000
Loss (gain) on sale of assets....................... 129,930 (23,259) 32,632 7,192 --
Non-cash compensation............................... -- -- 295,000 -- --
Tax carryforward benefited.......................... -- -- (323,590) (5,840) --
Changes in assets and liabilities --
Accounts receivable............................... (2,770,395) 2,651,367 (1,059,288) (1,231,904) 40,546
Inventories....................................... (2,172,325) (3,085,245) (1,230,076) (3,618,392) 549,622
Due from affiliates, net.......................... 1,515,356 (1,565,588) 132,341 55,461 972,909
Prepaid expenses.................................. 274,449 (25,720) (170,068) (486,404) 154,335
Other assets...................................... 30,262 (9,546) (874,771) (287,735) (366,104)
Floor plan notes payable.......................... (1,113,893) (2,058,861) (3,720,448) (5,066,375) (4,896,798)
Accounts payable and accrued expenses............. 2,579,781 7,695,141 (655,658) (764,144) (1,427,432)
Other long term liabilities....................... -- -- 277,000 -- --
----------- ----------- ----------- ----------- -----------
Total adjustments............................... (1,067,705) 3,712,476 (6,355,101) (11,172,445) (4,842,933)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities.................................... (1,498,792) 2,575,953 (5,415,909) (11,150,363) (4,498,588)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (increase) in notes receivable............... 187,893 361,811 (182,016) (314,763) (102,976)
Purchases of property and equipment................... (346,920) (613,890) (1,285,276) (18,272) (354,721)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities........... (159,027) (252,079) (1,467,292) (333,035) (457,697)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt.................. (503,368) (54,555) (164,694) (16,608) --
Borrowings of long-term debt.......................... -- 110,168 512,594 212,594 64,479
Payments on subscriptions receivable.................. 11,317 270,272 -- --
Issuance of common stock.............................. 150,000 -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities.................................... (342,051) 325,885 347,900 195,986 64,479
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (1,999,870) 2,649,759 (6,535,301) (11,287,412) (4,891,806)
CASH AND CASH EQUIVALENTS, beginning of period.......... 19,978,895 17,979,025 20,628,784 20,628,784 14,093,483
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period................ $17,979,025 $20,628,784 $14,093,483 $ 9,341,372 $ 9,201,677
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for --
Interest............................................ $ 2,523,650 $ 3,253,486 $ 2,808,993 $ 802,572 $ 970,937
Taxes............................................... -- 227,090 818,962 192,493 108,200
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Receivables from stockholder forgiven in conjunction
with purchase of treasury stock..................... -- -- 2,189,003 -- --
Settlement of subscriptions receivable from
stockholder in lieu of bonus........................ -- 568,411 -- -- --
Note received upon issuance of common stock........... 850,000 -- -- -- --
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-35
<PAGE> 107
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
McCall Group (the Companies) is primarily engaged in the retail sale of new
and used automobiles and the sale of the related finance, insurance and service
contracts thereon. In addition, the Companies sell automotive parts, provide
vehicle servicing and sell wholesale used vehicles.
The following companies are included within the combined group:
Southwest Toyota, Inc. (d.b.a. Sterling McCall Toyota) (SMT) -- SMT is a
Toyota dealership located in Houston, Texas.
SMC Luxury Cars, Inc. (d.b.a. Sterling McCall Lexus) (SML) -- SML is a
Lexus dealership located in Houston, Texas.
The Companies and their stockholders intend to enter into a definitive
agreement with Group 1 Automotive, Inc. (Group 1), pursuant to which all
outstanding shares of the Companies' common stock will be exchanged for cash and
shares of Group 1's common stock concurrent with the consummation of the initial
public offering of the common stock of Group 1.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying combined financial statements include the accounts of SMT
and SML. The Companies have been presented on a combined basis due to their
related operations, common ownership and common management control. All
significant intercompany balances and transactions have been eliminated in
combination. SMC Investments, Inc. (SMC) owns 100% of the issued and outstanding
stock of SML and approximately 51% of the stock of SMT. SMC is a separate
holding company which does not operate in the automobile retailing industry and
has not been included in the accompanying combined financial statements as it
will not be acquired by Group 1.
Major Suppliers and Franchise Agreements
The Companies purchase substantially all of their new vehicles from Toyota
Motor Corp. at the prevailing prices charged by the manufacturers to all
franchised dealers. The Companies' sales volume could be adversely impacted by
the manufacturers' inability to supply the dealership with an adequate supply of
popular models or as a result of an unfavorable allocation of vehicles by the
manufacturer.
The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the
dealerships (such as minimum net worth requirements) and which also provide for
termination of the franchise agreement by the manufacturers in certain
instances. Under certain state law, these restrictive provisions have been
repeatedly found invalid both by state courts and administrative agencies. See
"Risk Factors -- Manufacturers' Control Over Dealerships" and
"Business -- Franchise Agreements" for further discussion.
Revenue Recognition
Revenue from vehicle sales, parts sales and vehicle service is recognized
upon delivery to the customer.
Fleet Sales
SMT periodically supplies vehicles to various rental car companies as an
accommodation to the manufacturer and to better utilize dealership capacity.
These transactions generate nominal gross profit, and in management's opinion,
do not represent sales in the normal course of business. Accordingly, sales
F-36
<PAGE> 108
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of approximately $8.5 million, $7.7 million and $10.8 million and cost of sales
of approximately $8.1 million, $7.5 million and $10.7 million have been excluded
from the accompanying statements of operations for the years ended December 31,
1994, 1995 and 1996 as management believes excluding such amounts represents a
more appropriate basis of presentation. The net profit on these wholesale fleet
transactions is recorded as other dealership revenues in the accompanying
statements of operations.
Finance, Insurance and Service Contract Income Recognition
The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates
charged to customers over the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of
credit life and disability insurance and extended service contracts to
customers.
The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early
termination of the contracts by customers. Accordingly, the Companies have
recorded reserves for future chargebacks in the accompanying combined financial
statements based on historical operating results and the termination provisions
of the applicable contracts. Finance, insurance and service contract income, net
of estimated chargebacks, are included in other dealership income in the
accompanying combined financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase.
Contracts in Transit
Contracts in transit represent contracts on vehicles sold, for which the
proceeds are in transit from financing institutions.
Inventories
New and demonstrator vehicles are stated at cost, determined on the
last-in, first-out (LIFO) basis, which is not in excess of market.
Used vehicles are stated at lower of cost or market, determined on a
specific unit basis.
Parts and accessories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in current operations.
F-37
<PAGE> 109
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Companies follow the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets are realized or liabilities are settled. SML is a member of a
consolidated group for tax reporting purposes. In accordance with SFAS No. 109,
SML reports current and deferred tax expense using the separate return method,
resulting in tax expense being recorded as if SML filed a separate company
return for tax purposes. Under this method, SML does not recognize benefits for
net operating losses (NOL's) as such amounts will not be refunded to SML by the
consolidated group. These NOL carryforwards are offset against the provision for
taxes in subsequent profitable years and treated as dividends to the parent when
benefited. SMT is a separate tax paying entity and is not a member of a
consolidated group.
Environmental Liabilities and Expenditures
Accruals for environmental matters, if any, are recorded as operating
expenses when it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. Accrued liabilities are exclusive
of claims against third parties and are not discounted.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the costs increase the value of
the property and/or mitigate or prevent contamination from future operations.
Interest Expense
Automobile manufacturers periodically provide floorplan interest
assistance, or subsidies, which reduce the Companies' cost of financing. The
accompanying financial statements reflect interest expense net of floor plan
assistance.
Fair Value of Financial Instruments
The Companies' financial instruments consist primarily of floor plan notes
payable, notes receivable and long-term debt. The carrying amount of these
financial instruments approximates fair value due either to length of maturity
or existence of variable interest rates that approximate market rates.
Advertising
The Company expenses production and other costs of advertising as incurred.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to a
concentration of credit risk consist principally of cash, cash equivalents,
contracts in transit and accounts receivable. The Company maintains cash
balances at financial institutions which may at times be in excess of federally
insured levels. The Companies grant credit to local companies in various
businesses. The Companies perform ongoing credit evaluations of their customers
and generally do not require collateral. The Companies maintain an allowance for
doubtful accounts at a level which management believes is sufficient to cover
potential credit losses. The Companies have not incurred significant losses
related to these financial instruments to date.
F-38
<PAGE> 110
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The significant estimates made by management in the
accompanying financial statements relate to reserves for future chargebacks on
finance, insurance and service contract income and reserves for retail loan loss
guarantees (Notes 2 and 11, respectively). Actual results could differ from
those estimates.
Interim Financial Information
As is normal and customary, the interim financial statements as of March
31, 1997, and for the three months ended March 31, 1996 and 1997, are unaudited,
and certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has not been included
herein. In the opinion of management, all adjustments necessary to fairly
present the financial position, results of operations and cash flows with
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the
entire fiscal year.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month or
less. Additionally, the net change in floor plan financing of inventory, which
is a customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.
New Accounting Pronouncement
Effective January 1, 1996, the Companies adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Companies.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Amounts due from manufacturers............................ $1,067,573 $1,192,275
Parts and service receivables............................. 541,635 870,209
Warranty receivables...................................... 270,386 259,826
Due from finance companies................................ 984,521 1,204,624
Other..................................................... 831,682 1,180,201
---------- ----------
3,695,797 4,707,135
Less -- Allowance for doubtful accounts................... (159,972) (299,300)
---------- ----------
$3,535,825 $4,407,835
========== ==========
</TABLE>
F-39
<PAGE> 111
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the Companies' allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1994 1995 1996
-------- -------- -------------
<S> <C> <C> <C>
Balance, beginning of year.................... $ 33,427 $ 35,530 $159,972
Additions charged to expense.................. 35,530 159,972 187,278
Deductions for uncollectible receivables
written off................................. (33,427) (35,530) (47,950)
-------- -------- --------
$ 35,530 $159,972 $299,300
======== ======== ========
</TABLE>
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
New vehicles........................................... $14,776,185 $13,918,424
Used vehicles.......................................... 8,258,953 11,050,657
Parts, accessories and other........................... 1,502,030 1,566,156
Rental vehicles........................................ 2,452,290 1,674,747
Accumulated LIFO Reserve............................... (4,498,569) (4,489,019)
----------- -----------
$22,490,889 $23,720,965
=========== ===========
</TABLE>
If the specific unit method of inventory were used, net income would have
increased (decreased) by approximately $111,000, $305,000 and $(9,000) for the
years ended December 31, 1994, 1995 and 1996, respectively.
Activity in the Companies' allowance for uncollectible notes consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Balance, beginning of year...................... $ -- $191,000 $ 240,000
Additions charged to expense.................... 191,000 49,000 170,580
Deductions for uncollectible receivables
written-off................................... -- -- (196,580)
-------- -------- ---------
$191,000 $240,000 $ 214,000
======== ======== =========
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Accounts payable, trade................................ $ 7,738,625 $ 7,452,034
Reserve for finance, insurance and service contract
chargebacks.......................................... 3,023,815 3,011,354
Reserve for retail loan guarantees..................... 1,471,000 1,965,000
Other accrued expenses................................. 6,599,140 5,748,534
----------- -----------
$18,832,580 $18,176,922
=========== ===========
</TABLE>
F-40
<PAGE> 112
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES --------------------------
IN YEARS 1995 1996
------------ ----------- -----------
<S> <C> <C> <C>
Leasehold improvements.................... 20 $ 2,054,158 $ 2,470,037
Machinery and equipment................... 7 878,388 1,136,461
Furniture and fixtures.................... 7 2,090,443 2,622,636
Autos and trucks.......................... 5 348,875 380,626
----------- -----------
Total........................... 5,371,864 6,609,760
Less -- Accumulated depreciation.......... (2,879,213) (3,462,743)
----------- -----------
Property and equipment, net..... $ 2,492,651 $ 3,147,017
=========== ===========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE:
Floor plan notes payable reflect amounts payable for the purchase of
specific vehicle inventory and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
New vehicles........................................... $30,045,548 $24,398,255
Used vehicles.......................................... 3,475,307 6,212,001
Rental vehicles........................................ 2,419,306 1,609,457
----------- -----------
Total floor plan notes payable............... $35,940,161 $32,219,713
=========== ===========
</TABLE>
Floorplan notes payable are due to various floor plan lenders, bearing
interest at rates ranging from prime plus .5% to prime plus 1.5%. As of December
31, 1995 and 1996, the weighted average interest rate on floorplan notes payable
outstanding was 9.41 and 8.99 percent. Interest expense on floorplan notes
payable, before manufacturer interest assistance, totaled approximately
$2,369,000, $3,096,000 and $2,498,000 for the years ended December 31, 1994,
1995 and 1996. Manufacturer interest assistance, which is recorded as a
reduction to interest expense in the accompanying financial statements, totaled
approximately $82,000, $91,000 and $136,000 for the years ended December 31,
1994, 1995 and 1996. The flooring arrangements permit the Companies to borrow up
to $38,300,000 dependent upon new and used vehicle sales and inventory levels.
As of December 31, 1996, total available borrowings under the floorplan
agreements were approximately $6,080,000. Payments on the notes are due when the
related vehicles are sold and are collateralized by substantially all new and
used vehicles.
F-41
<PAGE> 113
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- ---------
<S> <C> <C>
Note payable to floorplan institution, principal payable in
monthly installments of $5,000 through August 2001,
interest payable monthly at lender's available financing
rate plus 1.5% (9.3% at December 31, 1996)................ $ -- $ 275,000
Other notes payable, maturing in varying amounts through
April 2001, with interest ranging from 5.5% to 9.6% at
December 31, 1996......................................... 209,208 282,108
-------- ---------
209,208 557,108
Less -- Current portion..................................... (28,553) (146,303)
-------- ---------
$180,655 $ 410,805
======== =========
</TABLE>
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997............................................................. $146,303
1998............................................................. 141,666
1999............................................................. 124,378
2000............................................................. 103,906
2001............................................................. 40,855
--------
$557,108
========
</TABLE>
7. STOCKHOLDERS' EQUITY:
Capital stock consists of the following as of December 31, 1996:
<TABLE>
<CAPTION>
AUTHORIZED ISSUED OUTSTANDING PAR VALUE
---------- ------- ----------- ---------
<S> <C> <C> <C> <C>
Sterling McCall Toyota.................. 500,000 70,278 70,278 $1.00
Sterling McCall Lexus................... 1,000,000 100,000 100,000 .01
</TABLE>
Treasury Stock Transactions
During 1996, SMT and its principal stockholder entered into a series of
treasury stock transactions in which SMT repurchased 57,898 shares of common
stock from its principal stockholder. In conjunction with these transactions,
SMT forgave approximately $2,189,000 of related party receivables due from
various entities owned by the principal stockholder. As part of these
transactions, SMT has agreed to repurchase in certain instances, up to 4,502
additional shares of stock from its principal stockholder in exchange for a note
payable in the amount of $2 million. This repurchase provision will be cancelled
concurrently with an initial public offering of stock by the Companies. The
shares repurchased by SMT have been constructively retired for financial
reporting purposes.
Restricted Stock Awards
During December 1996, the Companies granted 3,376 shares of stock to two
employees as compensation for prior services. The shares were issued as of the
grant date and the Companies
F-42
<PAGE> 114
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
recorded compensation expense of $295,000 related to these shares based on the
estimated fair market value of the shares as of the grant date. The shares
issued are subject to various restrictions relating to transferability and
resale, and contain a right of first refusal for repurchase by the Companies.
8. RELATED-PARTY TRANSACTIONS:
Operating Leases
SMT and SML lease land, facilities and equipment from limited partnerships
and other entities controlled by the majority stockholder of the Companies under
operating leases. Additional information regarding the terms of these leases is
contained in Note 9 "Operating Leases".
Commissions and Management Fees
The Companies sell credit life and disability insurance policies and
extended service contracts which are underwritten by three companies owned by
the principal stockholders of the Companies. The Companies also sell various
aftermarket products from certain companies owned by the principal stockholders
of the Companies. The Companies paid commissions to these entities of
approximately $675,700, $1,131,500 and $1,591,000 on credit life and disability
insurance policies, extended service contracts and aftermarket products sold
during the years ended December 31, 1994, 1995 and 1996, respectively.
The Companies pay management fees plus certain allocated and out of pocket
expenses to an entity owned by the principal stockholder of the Companies for
consultation and direct management assistance with respect to operations and
strategic planning. Management fee expense totaled approximately $1,076,400,
$1,255,800 and $1,443,000 for the years ended December 31, 1994, 1995 and 1996,
respectively.
Financing Arrangements
The dealerships arrange financing for certain second chance finance
customers through an entity owned by the principal stockholder of the Companies.
The dealerships pay a financing fee of 2% on these finance contracts, and such
contracts are non-recourse to the dealerships. Total financing fees paid to this
entity for the years ended December 31, 1994, 1995 and 1996 were approximately
$--, $95,000 and $360,000. In addition to providing financing for second chance
finance customers, this entity also provides loan servicing, collection and
repossession services to the Companies related to defaulted loans which have
been repurchased by the Companies under a financing arrangement with a third
party lender. (See Note 11).
The Companies have entered into a floorplan agreement with a financing
company owned by the principal stockholder which allows for a maximum of
$1,000,000 in borrowing capacity. As of December 31, 1995 and 1996,
approximately $709,200 and $619,100, respectively, of floorplan notes payable
under this agreement are included in due to affiliates in the accompanying
financial statements. Borrowings under the floorplan agreement bear interest at
11.75%.
Other
The Companies have various receivable and payable balances with the
stockholders and related party entities owned by the stockholders. Receivables
from related parties are due on demand and do not bear interest. The table below
sets forth the significant components of the amounts due to/from related parties
in the accompanying combined balance sheets:
F-43
<PAGE> 115
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Due from affiliated finance entity......................... $ 509,889 $ 778,460
Receivable from principal stockholder, other............... 3,259,900 618,994
---------- ----------
Total due from affiliates.................................. $3,769,789 $1,397,454
========== ==========
Due to affiliated floor plan company....................... $ 709,218 $ 619,138
Due to principal stockholder, other........................ 140,186 179,275
---------- ----------
Total due to affiliates.................................... $ 849,404 $ 798,413
========== ==========
</TABLE>
The Companies have provided guarantees and/or pledged assets as security
for certain outstanding loan obligations of various related parties. See Note 11
"Commitments and Contingencies," for discussion of guarantee and security
arrangements provided on behalf of related parties.
9. OPERATING LEASES:
The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through 2006. The lease agreements are
subject to renewal under essentially the same terms and conditions as the
original leases.
Future minimum lease payments for operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997.......................................................... $ 2,253,556
1998.......................................................... 2,196,084
1999.......................................................... 2,076,590
2000.......................................................... 2,003,908
2001.......................................................... 1,355,982
Thereafter.................................................... 648,000
-----------
Total......................................................... $10,534,120
===========
</TABLE>
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $1,636,000, $1,906,000 and $2,030,000
for the years ended December 31, 1994, 1995 and 1996, respectively. Rental
expense on related-party leases, which is included in the above amounts, totaled
$1,487,000, $1,543,000 and $1,627,000 for the years ended December 31, 1994,
1995 and 1996, respectively.
F-44
<PAGE> 116
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES:
The Companies are subject to a Texas franchise tax which is an income based
tax. Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Federal --
Current....................................... $ 341,971 $ 695,074 $168,053
Deferred...................................... (133,085) (466,528) (12,618)
State --
Current....................................... 44,695 102,000 24,032
Deferred...................................... (21,408) (47,659) (1,695)
--------- --------- --------
$ 232,173 $ 282,887 $177,772
========= ========= ========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1994 1995 1996
-------- --------- --------
<S> <C> <C> <C>
Provision (benefit) at the statutory rate........ $(67,631) $(290,236) $379,768
Increase (decrease) resulting from --
State income tax, net of benefit for federal
deduction................................... 15,369 35,865 14,742
SML NOL (benefited) not benefited.............. 184,144 584,795 (323,590)
Other.......................................... 100,291 (47,537) 106,852
-------- --------- --------
$232,173 $ 282,887 $177,772
======== ========= ========
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Reserves and accruals not deductible until paid........... $1,760,860 $1,779,755
Other..................................................... 99,238 94,656
---------- ----------
$1,860,098 $1,874,411
========== ==========
</TABLE>
F-45
<PAGE> 117
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets --
Current................................................. $1,972,348 $1,773,229
Long-term............................................... 7,200 182,711
---------- ----------
Total........................................... 1,979,548 1,955,940
---------- ----------
Deferred tax liabilities --
Current................................................. -- (6,836)
Long-term............................................... (119,450) (74,693)
---------- ----------
Total........................................... (119,450) (81,529)
---------- ----------
Net deferred income tax assets.................. $1,860,098 $1,874,411
========== ==========
</TABLE>
As discussed in Note 2, SML is a member of a consolidated group for tax
reporting purposes and reports income taxes under the separate return method.
During 1994 and 1995, SML did not record tax benefits of approximately $184,000
and $585,000 related to net operating losses as such amounts would not be
reimbursed by the consolidated group. During 1996, approximately $323,600 of
these benefits were offset against the provision for taxes and accounted for as
a dividend in the accompanying statement of stockholders' equity.
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Companies are defendants in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
action will not have a material adverse effect on the Companies' financial
position or results of operations.
Insurance
The Companies carry a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Companies have not incurred significant
claims or losses on any of their insurance policies.
Loan Guarantees Provided on Second Chance Financing
The Companies provide second-chance financing for certain customers through
a third party lender. Under the terms of this financing contract, customers
execute installment contracts which are guaranteed with full recourse by the
Companies. In the event that the customer defaults on the note, the lender
requires repayment of the principal amount of the note plus earned interest
through the date of default, with repossession of the vehicle to be performed by
the applicable dealership. During the years ended December 31, 1994, 1995 and
1996, the Companies sold approximately $3,518,000, $4,492,000 and $7,471,000,
respectively, in full recourse loans to the lender.
Total customer notes outstanding guaranteed by the dealership at December
31, 1995 and 1996, were approximately $7,413,000 and $10,434,000, respectively.
The Companies have provided reserves for future loan losses based on historical
loss trends and total guarantees outstanding.
F-46
<PAGE> 118
MCCALL GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Activity in the Companies' reserve account consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year............................ $1,436,000 $1,360,000 $1,471,000
Additions charged to expense.......................... 124,000 343,000 1,033,000
Deductions for loans written off...................... (200,000) (232,000) (539,000)
---------- ---------- ----------
$1,360,000 $1,471,000 $1,965,000
========== ========== ==========
</TABLE>
Stockholder Loan Guarantees
The principal stockholder of the Companies has a $6,857,000 line-of-credit
outstanding with a financial institution as of December 31, 1996, which is
guaranteed by SMT and SML and is secured by all of the real estate, buildings
and improvements at the dealerships. The line of credit expires in January 2000;
however, the note agreement contains a provision for two additional five-year
renewal periods. The notes bear interest at the lender's available financing
rate plus one and one quarter percent (9.03% at December 31, 1996). As of
December 31, 1996, there was approximately $4.7 million outstanding on the
line-of-credit.
The principal stockholder of the Companies has a $1.5 million revolving
line of credit outstanding with a financial institution as of December 31, 1996,
which is guaranteed by SMT and SML. The line of credit is payable in monthly
installments of $10,000 plus interest and bears interest at prime plus three
percent (11.25% at December 31, 1996). As of December 31, 1996, there was
approximately $1,400,000 outstanding on the line of credit.
The principal stockholder of the Companies has a $2 million note payable to
a financial institution at December 31, 1996, which is guaranteed by SML. The
note matures on May 13, 1998, and bears interest at the financial institution's
base rate of interest (9.25% at December 31, 1996). As of December 31, 1996,
there was approximately $1,900,000 outstanding on the note.
The principal stockholder of the Companies also has a $480,000 note payable
to a financial institution at December 31, 1996, which is guaranteed by SML. The
note is payable in monthly installments of $6,277, including interest, through
December 2005 and bears interest at prime plus one percent (9.25% at December
31, 1996). As of December 31, 1996, there was $447,366 outstanding on the note.
12. PROPOSED ACQUISITION BY GROUP 1:
The stockholders of the Companies intend to enter into definitive purchase
agreements with Group 1 providing for the acquisition of the Companies by Group
1. In conjunction with the acquisition of the Companies by Group 1, all existing
operating leases with related parties will be restructured under new lease
agreements and the principal stockholder of the Companies will obtain releases
for the Companies from the stockholder loan guarantees discussed above.
F-47
<PAGE> 119
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Smith Group:
We have audited the accompanying combined balance sheets of the companies
identified in Note 1 (the Companies) as of December 31, 1995 and 1996, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies as of December
31, 1995 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
May 9, 1997
F-48
<PAGE> 120
SMITH GROUP
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents..................... $ 541,575 $ 988,167 $ 1,921,906
Contracts in transit.......................... 7,195,303 8,081,662 7,542,229
Accounts receivable, net...................... 4,485,359 4,467,590 4,531,964
Due from affiliates........................... 46,007 14,580 24,250
Inventories................................... 27,946,621 30,637,433 37,105,018
Prepaid expenses.............................. 200,585 185,218 549,198
Deferred income tax benefit................... 246,543 182,081 182,081
----------- ----------- -----------
Total current assets.................. 40,661,993 44,556,731 51,856,646
PROPERTY AND EQUIPMENT, net..................... 9,667,539 9,819,994 9,844,384
GOODWILL, net................................... 2,387,514 2,322,307 2,315,105
OTHER ASSETS.................................... 209,951 689,453 607,222
----------- ----------- -----------
Total assets.......................... $52,926,997 $57,388,485 $64,623,357
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable...................... $27,424,232 $30,676,725 $37,120,043
Current maturities of long-term debt.......... 775,844 949,565 992,623
Accounts payable and accrued expenses......... 8,163,483 8,509,815 8,816,531
----------- ----------- -----------
Total current liabilities............. 36,363,559 40,136,105 46,929,197
----------- ----------- -----------
LONG-TERM DEBT, net of current maturities....... 5,607,581 5,006,474 4,743,869
LONG-TERM DEFERRED INCOME TAXES................. 246,234 217,611 217,611
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock.................................. 2,090 3,090 3,090
Additional paid-in capital.................... 5,890,228 6,369,228 6,369,228
Retained earnings............................. 5,212,602 6,051,274 6,755,659
Treasury stock, at cost....................... (395,297) (395,297) (395,297)
----------- ----------- -----------
Total stockholders' equity............ 10,709,623 12,028,295 12,732,680
----------- ----------- -----------
Total liabilities and stockholders'
equity.............................. $52,926,997 $57,388,485 $64,623,357
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE> 121
SMITH GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ ---------------------------
1994 1995 1996 1996 1997
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
New vehicle sales............ $136,916,929 $132,149,669 $124,173,950 $ 26,329,001 $ 36,148,519
Used vehicle sales........... 49,548,703 57,363,332 60,579,545 15,322,758 16,377,389
Parts and service sales...... 25,501,449 26,237,774 28,630,577 6,826,226 6,982,768
Other dealership revenues,
net....................... 5,109,438 5,506,759 4,895,329 1,267,754 1,425,376
------------ ------------ ------------ ------------ ------------
Total revenues....... 217,076,519 221,257,534 218,279,401 49,745,739 60,934,052
COST OF SALES.................. 189,920,137 192,664,811 189,169,263 42,826,631 52,483,768
------------ ------------ ------------ ------------ ------------
Gross profit......... 27,156,382 28,592,723 29,110,138 6,919,108 8,450,284
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES...... 21,726,879 22,823,685 23,710,904 5,577,079 6,874,912
------------ ------------ ------------ ------------ ------------
Income from
operations......... 5,429,503 5,769,038 5,399,234 1,342,029 1,575,372
OTHER INCOME AND EXPENSE:
Interest expense, net........ (2,146,562) (2,955,787) (1,710,157) (368,108) (447,444)
Other income (expense), net.. (28,869) 202,134 222,470 (14,369) (4,910)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME
TAXES........................ 3,254,072 3,015,385 3,911,547 959,552 1,123,018
PROVISION FOR INCOME
TAXES........................ 455,385 562,415 677,751 167,292 209,349
------------ ------------ ------------ ------------ ------------
NET INCOME..................... $ 2,798,687 $ 2,452,970 $ 3,233,796 $ 792,260 $ 913,669
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE> 122
SMITH GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------ ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1993....... $2,090 $5,890,228 $ 3,306,098 $(395,297) $ 8,803,119
Net income..................... -- -- 2,798,687 -- 2,798,687
Dividends...................... -- -- (1,787,914) -- (1,787,914)
------ ---------- ----------- --------- -----------
BALANCE, December 31, 1994....... 2,090 5,890,228 4,316,871 (395,297) 9,813,892
Net income..................... -- -- 2,452,970 -- 2,452,970
Dividends...................... -- -- (1,557,239) -- (1,557,239)
------ ---------- ----------- --------- -----------
BALANCE, December 31, 1995....... 2,090 5,890,228 5,212,602 (395,297) 10,709,623
Net income..................... -- -- 3,233,796 -- 3,233,796
Issuance of common stock....... 1,000 479,000 -- -- 480,000
Dividends...................... -- -- (2,395,124) -- (2,395,124)
------ ---------- ----------- --------- -----------
BALANCE, December 31, 1996....... 3,090 6,369,228 6,051,274 (395,297) 12,028,295
Net income (unaudited)......... 913,669 913,669
Dividends (unaudited).......... (209,284) (209,284)
------ ---------- ----------- --------- -----------
BALANCE, March 31, 1997
(unaudited).................... $3,090 $6,369,228 $ 6,755,659 $(395,297) $12,732,680
====== ========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-51
<PAGE> 123
SMITH GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
UNAUDITED
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................... $2,798,687 $2,452,970 $3,233,796 $ 792,260 $ 913,669
---------- ---------- ---------- ---------- ----------
Adjustments to reconcile net income
to net cash provided by operating
activities --
Depreciation and amortization..... 586,847 669,312 719,991 178,545 183,746
LIFO reserve...................... 510,715 78,061 35,489 -- --
Deferred income taxes............. (1,258) 29,389 35,839 8,601 --
Provision for doubtful accounts... 64,357 61,460 49,729 14,035 21,447
Loss (gain) on sale of assets..... 51,662 (74,258) 65,088 16,042 --
Changes in assets and
liabilities --
Accounts receivable............. (1,051,312) (1,207,158) (31,960) 581,261 (85,821)
Inventories..................... (1,860,114) (4,323) (2,726,301) 2,094,451 (6,467,585)
Due from affiliates, net........ 92,489 (136,650) 31,427 9,477 (9,670)
Prepaid expenses................ (63,039) 264,974 15,367 (140,522) (363,980)
Other assets.................... 159,412 (12,073) (493,584) 11,760 82,231
Floor plan notes payable........ 1,395,865 2,175,223 3,252,493 (3,407,045) 6,443,318
Accounts payable and accrued
expenses..................... (1,513,901) 678,372 346,332 528,404 500,397
---------- ---------- ---------- ---------- ----------
Total adjustments............ (1,628,277) 2,522,329 1,299,910 (104,991) 304,083
---------- ---------- ---------- ---------- ----------
Net cash provided by
operating activities....... 1,170,410 4,975,299 4,533,706 687,269 1,217,752
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment......................... (217,724) (699,792) (858,245) (165,287) (200,934)
---------- ---------- ---------- ---------- ----------
Net cash used in investing
activities................. (217,724) (699,792) (858,245) (165,287) (200,934)
---------- ---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term
debt.............................. (945,957) (899,623) (961,108) (209,363) (219,547)
Borrowings of long-term debt........ 1,828,333 375,071 533,722 -- --
Issuance of common stock............ -- -- 480,000 -- --
Dividends........................... (1,787,914) (1,557,239) (2,395,124) (211,669) (402,965)
---------- ---------- ---------- ---------- ----------
Net cash used in financing
activities................. (905,538) (2,081,791) (2,342,510) (421,032) (622,512)
---------- ---------- ---------- ---------- ----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS......................... 47,148 2,193,716 1,332,951 100,950 394,306
CASH AND CASH EQUIVALENTS,
beginning of period................. 5,496,014 5,543,162 7,736,878 7,736,878 9,069,829
---------- ---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS,
end of period....................... $5,543,162 $7,736,878 $9,069,829 $7,837,828 $9,464,135
========== ========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for --
Interest.......................... $2,562,555 $3,743,310 $2,818,402 $ 622,928 $ 839,349
Taxes............................. 390,641 522,565 543,401 134,219 160,000
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-52
<PAGE> 124
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Smith Group (the Companies) is primarily engaged in the retail sale of new
and used automobiles and the sale of the related finance, insurance and service
contracts thereon. In addition, the Companies sell automotive parts, provide
vehicle servicing and sell wholesale used vehicles.
The following companies are included within the combined group:
Mike Smith Autoplaza, Inc. (MSAP)
MSAP consists of several franchises which conduct business at contiguous
locations in Beaumont, Texas. The franchises operated in this location
include Oldsmobile, Lincoln, Mercury, GMC, Mitsubishi, Kia and Honda.
Town North Nissan, Inc. (Town North)
Town North consists of three companies operating several franchises
which conduct business at contiguous locations in Austin, Texas. The
franchises operated in this location include Nissan, Mitsubishi and
Suzuki.
Courtesy Nissan, Inc. (Courtesy)
Courtesy is a Nissan dealership located in Richardson, Texas.
Smith, Liu & Corbin, Inc. (d.b.a. Acura Southwest) (Acura)
Acura is an Acura dealership located in Houston, Texas.
Round Rock Nissan, Inc. (Round Rock)
Round Rock is a Nissan dealership located in Round Rock, Texas.
The Companies and their stockholders intend to enter into a definitive
agreement with Group 1 Automotive, Inc. (Group 1), pursuant to which all
outstanding shares of the Companies' common stock will be exchanged for cash and
shares of Group 1's common stock concurrent with the consummation of the initial
public offering of the common stock of Group 1.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying combined financial statements include the accounts of the
Companies listed above. The Companies have been presented on a combined basis
due to their related operations, common ownership and common management control.
All significant intercompany balances and transactions have been eliminated in
combination.
Major Suppliers and Franchise Agreements
The Companies purchase substantially all of their new vehicles from Nissan
Motor Co., Ltd., Honda Motor Co., Ltd., General Motors Corporation, Mitsubishi
Motors Corp., Suzuki Motor Co., Ltd., Ford Motor Company and Kia Motor Co., Ltd.
at the prevailing prices charged by the manufacturers to all franchised dealers.
The Companies' sales volume could be adversely impacted by the manufacturers'
inability to supply the dealership with an adequate supply of popular models or
as a result of an unfavorable allocation of vehicles by the manufacturer.
The dealer franchise agreements contain provisions which may limit changes
in dealership management and ownership, place certain restrictions on the
dealerships (such as minimum net worth
F-53
<PAGE> 125
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
requirements) and which also provide for the termination of the franchise
agreement by the manufacturers in certain instances. Under certain state law,
these restrictive provisions have been repeatedly found invalid both by state
courts and administrative agencies. See "Risk Factors -- Manufacturers' Control
Over Dealerships" and "Business -- Franchise Agreements" for further discussion.
Revenue Recognition
Revenue from vehicle sales, parts sales and vehicle service is recognized
upon delivery to the customer.
Finance, Insurance and Service Contract Income Recognition
The Companies arrange financing for customers through various institutions
and receive financing fees equal to the difference between the loan rates
charged to customers over the predetermined financing rates set by the financing
institution. In addition, the Companies receive commissions from the sale of
credit life and disability insurance and extended service contracts to
customers.
The Companies may be charged back (chargebacks) for unearned financing
fees, insurance or service contract commissions in the event of early
termination of the contracts by customers. Accordingly, the Companies have
recorded reserves for future chargebacks in the accompanying combined financial
statements based on historical operating results and the termination provisions
of the applicable contracts. Finance, insurance and service contract income, net
of estimated chargebacks, are included in other dealership income in the
accompanying combined financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase.
Contracts in Transit
Contracts in transit represent contracts on vehicles sold, for which the
proceeds are in transit from financing institutions.
Inventories
New and demonstrator vehicles are stated at cost, determined on the
last-in, first-out (LIFO) basis, which is not in excess of market.
Used vehicles are stated at the lower of cost or market, determined on a
specific-unit basis.
Parts and accessories are stated at the lower of cost (determined on a
first-in, first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated life of the asset.
Expenditures for major additions or improvements which extend the useful
lives of assets are capitalized. Minor replacements, maintenance and repairs
which do not improve or extend the life of such assets are charged to operations
as incurred. Disposals are removed at cost less accumulated depreciation, and
any resulting gain or loss is reflected in current operations.
F-54
<PAGE> 126
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price of dealerships
acquired (Town North Nissan, Courtesy Nissan and Mike Smith Auto Plaza) over the
fair value of assets acquired at the date of acquisition. Goodwill is being
amortized on a straight-line basis over 40 years and amortization expense
charged to operations totaled approximately $67,000 for each of the three years
in the period ended December 31, 1996. Accumulated amortization totaled
approximately $889,000 and $956,000 as of December 31, 1995 and 1996,
respectively.
Income Taxes
The Companies follow the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets are realized or liabilities are settled.
Certain of the Companies have elected S Corporation status, as defined by
the Internal Revenue Code, whereby the companies are not subject to taxation for
federal purposes. Under S Corporation status, the stockholders report their
share of these companies' taxable earnings or losses in their personal tax
returns.
Environmental Liabilities and Expenditures
Accruals for environmental matters, if any, are recorded as operating
expenses when it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. Accrued liabilities are exclusive
of claims against third parties and are not discounted.
In general, costs related to environmental remediation are charged to
expense. Environmental costs are capitalized if the costs increase the value of
the property and/or mitigate or prevent contamination from future operations.
Interest Expense
Automobile manufacturers periodically provide floorplan interest
assistance, or subsidies, which reduce the Companies' cost of financing. The
accompanying financial statements reflect interest expense net of floor plan
assistance.
Fair Value of Financial Instruments
The Companies' financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or existence of
variable interest rates that approximate market rates.
Advertising
The Company expenses production and other costs of advertising as incurred.
Concentration of Credit Risk
Financial instruments which potentially subject the Companies to a
concentration of credit risk consist principally of cash, cash equivalents,
contracts in transit and accounts receivable. The Company maintains cash
balances at financial institutions which may at times be in excess of federally
insured levels. The Companies grant credit to local companies in various
businesses. The Companies perform
F-55
<PAGE> 127
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
ongoing credit evaluations of its customers and generally do not require
collateral. The Companies maintain an allowance for doubtful accounts at a level
which management believes is sufficient to cover potential credit losses. The
Companies have not incurred significant losses related to these financial
instruments to date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The significant estimates made by management in the
accompanying financial statements relate to reserves for future chargebacks on
finance, insurance and service contract income. Actual results could differ from
those estimates.
Interim Financial Information
As is normal and customary, the interim financial statements as of March
31, 1997, and for the three months ended March 31, 1996 and 1997, are unaudited,
and certain information normally included in financial statements prepared in
accordance with generally accepted accounting principles has not been included
herein. In the opinion of management, all adjustments necessary to fairly
present the financial position, results of operations and cash flows with
respect to the interim financial statements, have been properly included. Due to
seasonality and other factors, the results of operations for the interim periods
are not necessarily indicative of the results that will be realized for the
entire fiscal year.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month or
less. Additionally, the net change in floor plan financing of inventory, which
is a customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.
New Accounting Pronouncement
Effective January 1, 1996, the Companies adopted SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset in question may not be recoverable. If an evaluation is required, the
estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is necessary. Adoption of this standard did
not have a material effect on the financial position or results of operations of
the Companies.
F-56
<PAGE> 128
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Vehicle receivables...................................... $1,080,501 $1,082,909
Amounts due from manufacturers........................... 1,224,067 1,670,776
Parts and service receivables............................ 593,526 949,874
Warranty receivables..................................... 313,040 314,391
Due from finance companies............................... 572,090 392,192
Other.................................................... 833,635 138,948
---------- ----------
4,616,859 4,549,090
Less -- Allowance for doubtful accounts.................. (131,500) (81,500)
---------- ----------
$4,485,359 $4,467,590
========== ==========
</TABLE>
Activity in the Companies' allowance for doubtful accounts consists of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year........................ $123,800 $123,800 $131,500
Additions charged to expense...................... 64,357 61,460 49,729
Deductions for uncollectible receivables written
off............................................. (64,357) (53,760) (99,729)
-------- -------- --------
$123,800 $131,500 $ 81,500
======== ======== ========
</TABLE>
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
New vehicles........................................... $22,490,819 $24,302,689
Used vehicles.......................................... 5,931,163 6,936,348
Parts, accessories and other........................... 3,193,566 3,102,812
Accumulated LIFO reserve............................... (3,668,927) (3,704,416)
----------- -----------
$27,946,621 $30,637,433
=========== ===========
</TABLE>
If the specific-unit method of inventory were used, net income would have
increased by approximately $511,000, $78,000 and $35,000, for the years ended
December 31, 1994, 1995 and 1996, respectively.
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Accounts payable, trade.................................. $3,342,165 $3,696,293
Reserve for finance, insurance and service contract
chargebacks............................................ 1,633,822 1,374,780
Other accrued expenses................................... 3,187,496 3,438,742
---------- ----------
$8,163,483 $8,509,815
========== ==========
</TABLE>
F-57
<PAGE> 129
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES ----------------------------
IN YEARS 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Land...................................... -- $ 4,711,997 $ 4,789,177
Buildings................................. 35 4,797,574 4,858,250
Leasehold improvements.................... 15 1,274,911 1,367,199
Machinery and equipment................... 7 1,517,522 1,720,940
Furniture and fixtures.................... 7 2,300,038 2,535,075
Autos and trucks.......................... 5 213,198 321,316
Rental vehicles........................... -- 95,294 124,023
----------- -----------
Total........................... 14,910,534 15,715,980
Less -- Accumulated depreciation.......... (5,242,995) (5,895,986)
----------- -----------
Property and equipment, net............. $ 9,667,539 $ 9,819,994
=========== ===========
</TABLE>
5. FLOOR PLAN NOTES PAYABLE:
Floorplan notes payable reflect amounts payable for the purchase of
specific vehicle inventory and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
New vehicles........................................... $25,708,702 $27,712,804
Used vehicles.......................................... 1,715,530 2,963,921
----------- -----------
Total floor plan notes payable............... $27,424,232 $30,676,725
=========== ===========
</TABLE>
Floorplan notes payable are due to various floor plan lenders, bearing
interest at rates ranging from prime (adjusted for volume with lender (8.0% at
December 31, 1996)) to prime plus 1.75%. As of December 31, 1995 and 1996, the
weighted average interest rate on floorplan notes payable outstanding was 8.84%
and 8.66%, respectively. Interest expense on floorplan notes payable, before
manufacturer interest assistance, totaled approximately $2,248,351, $3,188,220
and $2,523,296 for the years ended December 31, 1994, 1995 and 1996.
Manufacturer interest assistance, which is recorded as a reduction to interest
expense in the accompanying financial statements, totaled approximately
$731,948, $837,201 and $1,111,068 for the years ended December 31, 1994, 1995
and 1996. The flooring arrangements permit the Companies to borrow up to
$37,212,000 dependent upon new and used vehicle sales and inventory levels. As
of December 31, 1996, total available borrowings under floor plan agreements
were approximately $6,535,000. Payments on the notes are due when the related
vehicles are sold and are collateralized by substantially all new and used
vehicles.
F-58
<PAGE> 130
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996
---------- ----------
<S> <C> <C>
Note payable to Texas Commerce Bank (TCB), with monthly
principal payments of $41,892, due through March 2004,
bearing interest at 7.5%, payable monthly................ $4,143,918 $3,641,136
Mortgage loan with TCB, with monthly principal payments of
$15,000, due through May 2005, bearing interest at prime
plus .25% (8.50% at December 31, 1996), payable
monthly.................................................. 1,675,000 1,494,291
Note payable to Nissan Motor Acceptance Corporation (NMAC),
with monthly principal payments of $7,500, due through
January 2002, bearing interest at prime plus 1.75% (10.0%
at December 31, 1996), payable monthly................... -- 450,000
Other notes payable, maturing in varying amounts through
November 2000 with interest ranging from prime plus .25%
to prime plus 1.5%....................................... 564,507 370,612
---------- ----------
6,383,425 5,956,039
Less -- Current portion.................................... (775,844) (949,565)
---------- ----------
$5,607,581 $5,006,474
========== ==========
</TABLE>
The Note payable to TCB due March 2004 is secured by a security interest in
the outstanding and issued capital stock of Town North and Courtesy, and is also
secured by a first priority lien on the land and buildings of Town North. The
note payable to TCB due May 2005 is secured by substantially all property,
improvements and equipment of Acura. The note payable to NMAC is secured by
substantially all of the assets of Round Rock, including vehicle inventory,
machinery and equipment. Certain stockholders of the companies have also
provided personal guarantees on the notes payable.
The aggregate maturities of long-term debt as of December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C> <C>
1997........................................................... $ 949,565
1998........................................................... 839,644
1999........................................................... 846,513
2000........................................................... 807,428
2001........................................................... 771,704
Thereafter..................................................... 1,741,185
----------
$5,956,039
==========
</TABLE>
F-59
<PAGE> 131
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. STOCKHOLDERS' EQUITY:
Capital stock consists of the following:
<TABLE>
<CAPTION>
AUTHORIZED ISSUED OUTSTANDING PAR VALUE
---------- ------ ----------- ---------
<S> <C> <C> <C> <C>
Common stock --
MSAP........................................ 10,000 1,000 800 $1.00
Town North Nissan........................... 1,000 1,000 1,000 .01
Town North Suzuki........................... 1,000 1,000 1,000 .01
Town North Mitsubishi....................... 1,000 1,000 1,000 1.00
Courtesy.................................... 1,000 1,000 1,000 .05
Acura....................................... 2,000 2,000 2,000 .01
Round Rock.................................. 1,000 1,000 1,000 1.00
</TABLE>
Treasury stock consists of 200 shares of the common stock of MSAP at a cost
of approximately $395,000 at December 31, 1995 and 1996.
8. RELATED-PARTY TRANSACTIONS:
Operating Leases with Stockholders
MSAP and Round Rock lease land and facilities from entities owned by
various stockholders of the Companies. Additional information regarding the
terms of these leases is contained in Note 9 "Operating Leases".
Insurance Commissions and Management Fees
The Companies sell credit life and disability insurance policies which are
underwritten by an entity owned by certain stockholders of the Companies. The
Companies paid commissions of approximately $88,300, $205,000 and $260,800 on
such policies sold during the years ended December 31, 1994, 1995 and 1996,
respectively.
The Companies pay management fees to an entity owned by certain
stockholders of the Companies for consultation and direct management assistance
with respect to operations and strategic planning. Management fee expense
totaled approximately $74,300, $87,700 and $75,700 for the years ended December
31, 1994, 1995 and 1996, respectively.
Other
Certain stockholders of the Companies, employees and family members have
invested funds through the dealerships in cash management accounts with the
dealerships' floorplan institutions. These funds are not available for
withdrawal by the Companies, and accordingly are excluded from the accompanying
financial statements. The amount of such funds totalled approximately $4,163,900
and $5,516,200 as of December 31, 1995 and 1996.
In addition to the above, the Companies, have provided guarantees and/or
pledged assets as security for certain outstanding loan obligations of various
related parties. See Note 11 "Commitments and Contingencies," for discussion of
guarantee and security arrangements provided on behalf of related parties.
9. OPERATING LEASES:
The Companies lease various facilities and equipment under operating lease
agreements, including leases with related parties. These leases are
noncancelable and expire on various dates through August
F-60
<PAGE> 132
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2013. The lease agreements are subject to renewal under essentially the same
terms and conditions as the original leases.
Future minimum lease payments for operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 --
- --------------
<S> <C> <C>
1997............................................................ $ 1,418,681
1998............................................................ 1,397,876
1999............................................................ 1,390,655
2000............................................................ 952,649
2001............................................................ 793,387
Thereafter...................................................... 9,336,000
-----------
Total................................................. $15,289,248
===========
</TABLE>
Total rent expense under all operating leases, including operating leases
with related parties, was approximately $1,059,000, $1,088,000 and $1,157,000
for the years ended December 31, 1994, 1995 and 1996, respectively. Rental
expense on related-party leases, which is included in the above amounts, totaled
approximately $558,000, $558,000 and $591,000 for the years ended December 31,
1994, 1995 and 1996, respectively.
10. INCOME TAXES:
The S Corporations will terminate S Corporation status concurrent with the
effective date of the offering. The Companies are subject to a Texas franchise
tax which is an income based tax.
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Federal --
Current....................................... $298,135 $382,865 $460,166
Deferred...................................... 6,547 36,310 29,304
State --
Current....................................... 158,508 150,161 181,746
Deferred...................................... (7,805) (6,921) 6,535
-------- -------- --------
$455,385 $562,415 $677,751
======== ======== ========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 34 percent to income
before income taxes as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Provision at the statutory rate............ $1,106,384 $1,025,231 $1,329,926
Increase (decrease) resulting from --
Income of S Corporation.................. (799,855) (619,972) (888,533)
State income tax, net of benefit for
federal deduction..................... 136,750 123,800 165,900
Other.................................... 12,106 33,356 70,458
---------- ---------- ----------
$ 455,385 $ 562,415 $ 677,751
========== ========== ==========
</TABLE>
F-61
<PAGE> 133
SMITH GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets and liabilities result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996
--------- ---------
<S> <C> <C>
Reserves and accruals not deductible until paid............ $ 257,693 $ 191,862
Depreciation............................................... (246,234) (217,611)
Other...................................................... (11,150) (9,781)
--------- ---------
$ 309 $ (35,530)
========= =========
</TABLE>
The net deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets --
Current................................................... $257,693 $191,862
Long-term................................................. -- --
-------- --------
Total............................................. 257,693 191,862
-------- --------
Deferred tax liabilities --
Current................................................... 11,150 9,781
Long-term................................................. 246,234 217,611
-------- --------
Total............................................. 257,384 227,392
-------- --------
Net deferred income tax assets (liabilities)...... $ 309 $(35,530)
======== ========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Companies are defendants in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on the Companies' financial
position or results of operations.
Insurance
The Companies carry a standard range of insurance coverage, including
general and business auto liability, commercial property, workers' compensation
and excess liability coverage. The Companies have not incurred significant
claims or losses on any of their insurance policies.
Loan Guarantees
As discussed in Note 8, Round Rock leases land and facilities from an
entity owned by certain stockholders of the Companies. Round Rock serves as a
guarantor on the mortgage loan covering the leased facilities.
12. PROPOSED ACQUISITION BY GROUP 1:
The stockholders of the Companies intend to enter into definitive purchase
agreements with Group 1 providing for the acquisition of the Companies by Group
1. In conjunction with the acquisition of the Companies by Group 1, all existing
operating leases with related parties will be restructured under new lease
agreements and the principal stockholder of the Companies will obtain releases
for the Companies from the stockholder loan guarantees discussed above.
F-62
<PAGE> 134
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Stockholder have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman, Sachs
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Montgomery
Securities are acting as representatives, has severally agreed to purchase from
the Company and the Selling Stockholder, the respective number of shares of
Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co.........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Montgomery Securities.......................................
Total.............................................
=========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus, and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Common Stock are released for sale to
the public, the offering price and other selling terms may from time to time be
varied by the representatives.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus to purchase up to an aggregate of
additional shares of Common Stock to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the shares of Common
Stock offered.
The Company, its officers and directors and the stockholders of the
Company, including the Selling Stockholder, have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 180 days after the date of this Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any shares of Common Stock, any
securities of the Company which are substantially similar to the shares of
Common Stock or which are convertible or exchangeable for securities which are
substantially similar to the shares of Common Stock (other than pursuant to
employee stock option plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus) without the prior written consent of the representatives, except for
the shares of Common Stock offered in connection with the Offering.
U-1
<PAGE> 135
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to this Offering, there has been no public market for the shares. The
initial public offering price will be negotiated among the Company, the Selling
Stockholder and the representatives. Among the factors to be considered in
determining the initial public offering price of the Common Stock, in addition
to prevailing market conditions, will be the Company's historical performance,
estimates of the business potential and earnings prospects of the Company, an
assessment of the Company's management and the consideration of the above
factors in relation to market valuation of companies in related businesses.
The Company intends to apply for listing on the New York Stock Exchange
under the symbol "GPI". In order to meet one of the requirement for listing the
Common Stock on the New York Stock Exchange, the Underwriters have undertaken to
sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
In connection with the Offering, the Underwriters may purchase and sell
Common Stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Company in the Offering. The Underwriters
may also impose a penalty bid, whereby selling concessions allowed to syndicate
members or other broker-dealers in respect of the Common Stock sold in the
Offering for their account may be reclaimed by the syndicate if such Common
Stock is repurchased by the syndicate in stabilizing or covering transactions.
These activities may stabilize, maintain or otherwise affect the market price of
the Common Stock which may be higher than the price that might otherwise prevail
in the open market. These transactions may be effected on the New York Stock
Exchange, in the over-the-counter market or otherwise, and these activities, if
commenced, may be discontinued at any time.
The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
U-2
<PAGE> 136
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 11
Use of Proceeds...................... 17
Dividend Policy...................... 17
Dilution............................. 18
Capitalization....................... 19
Selected Financial Data.............. 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 23
Business............................. 40
Management........................... 56
Certain Transactions................. 61
Principal and Selling Stockholders... 64
Description of Capital Stock......... 65
Shares Eligible for Future Sale...... 69
Validity of Common Stock............. 70
Experts.............................. 70
Available Information................ 70
Index to Financial Statements........ F-1
Underwriting......................... U-1
</TABLE>
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SHARES
GROUP 1 AUTOMOTIVE, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
---------------------------------
[LOGO]
---------------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
REPRESENTATIVES OF THE UNDERWRITERS
======================================================
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses of the Offering are estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 16,667
NASD filing fee............................................. 6,000
New York Stock Exchange listing fee......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky fees and expenses.................................. *
Printing expenses........................................... *
Transfer Agent fees......................................... *
Miscellaneous............................................... *
--------
Total............................................. $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Sixth, Part II, Section I of the Company's Charter, a copy of which
is filed as Exhibit 3.1, provides that directors, officers, employees and agents
shall be indemnified to the fullest extent permitted by Section 145 of the DGCL.
Section 145 of the DGCL authorizes, inter alia, a corporation to indemnify
any person ("indemnitee") 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 such person
is or was an officer or director of such corporation, or is or was serving at
the request of such corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
indemnity may include expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, provided that 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 believe his conduct was unlawful. A
Delaware corporation may indemnify past or present officers and directors of
such corporation or of another corporation or other enterprise at the former
corporation's request, in an action by or in the right of the corporation to
procure a judgment in its favor under the same conditions, except that no
indemnification is permitted without judicial approval if such person is
adjudged to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in defense of any action referred to
above, or in defense of any claim, issue or matter therein, the corporation must
indemnify him against the expenses (including attorney's fees) which he actually
and reasonably incurred in connection therewith. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) stockholders, (ii) Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding or (iii) independent counsel if a
quorum of disinterested directors so directs. Section 145 provides that
indemnification pursuant to its provision is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify
II-1
<PAGE> 138
such officer or director against such liability under the provisions of Section
145. The Company intends to purchase and maintain a directors' and officers'
liability policy for such purposes.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement contains certain provisions for indemnification of
directors and officers of the Company and the Underwriters against civil
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 21, 1995, the Company sold 1,000 shares of Common Stock to
Smith & Liu Management Company, a Texas partnership, of which Charles M. Smith
is a partner, for $500. The Company relied on an exemption under Section 4(2) of
the Securities Act in effecting this transaction.
On July 5, 1996, the Company sold 500 shares of Common Stock to B.B.
Hollingsworth, Jr. for $5,000. The Company relied on an exemption under Section
4(2) of the Securities Act in effecting this transaction.
On June 14, 1997, the Company entered into a Stock Purchase Agreement with
each of the Founding Companies and all of their respective stockholders. Under
each Stock Purchase Agreement, all of the capital stock of each Founding Company
will be acquired by the Company and each stockholder of the Founding Companies
will receive cash and/or shares of Common Stock. Each Acquisition will be
consummated immediately prior to the Closing of the Offering. The Company is
relying on an exemptions under Rule 506 and 4(2) under the Securities Act in
effecting this transaction.
ITEM 16. EXHIBITS
(a) Exhibits:
<TABLE>
<S> <S>
*1.1 -- Form of Underwriting Agreement
2.1 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Howard Pontiac-GMC, Inc. and the stockholders of Howard
Pontiac-GMC, Inc. dated June 14, 1997.
2.2 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Motors, Inc. and the stockholders of Bob
Howard Motors, Inc. dated June 14, 1997.
2.3 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Chevrolet, Inc. and the stockholders of Bob
Howard Chevrolet, Inc. dated June 14, 1997.
2.4 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Automotive-H, Inc. and the stockholders of Bob
Howard Automotive-H, Inc. dated June 14, 1997.
2.5 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Dodge, Inc. and the stockholders of Bob Howard
Dodge, Inc. dated June 14, 1997.
2.6 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Southwest Toyota, Inc. and the stockholders of Southwest
Toyota, Inc. dated June 14, 1997.
2.7 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
SMC Luxury Cars, Inc. and the stockholders of SMC Luxury
Cars, Inc. dated June 14, 1997.
2.8 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Smith, Liu & Kutz, Inc. and the stockholders of Smith,
Liu & Kutz, Inc. dated June 14, 1997.
</TABLE>
II-2
<PAGE> 139
<TABLE>
<S> <C>
2.9 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Smith, Liu & Corbin, Inc. and the stockholders of Smith,
Liu & Corbin, Inc. dated June 14, 1997.
2.10 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Round Rock Nissan, Inc. and the stockholders of Round
Rock Nissan, Inc. dated June 14, 1997.
2.11 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Mike Smith Autoplaza, Inc. and the stockholders of Mike
Smith Autoplaza, Inc. dated June 14, 1997.
2.12 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Courtesy Nissan, Inc. and the stockholders of Courtesy
Nissan, Inc. dated June 14, 1997.
2.13 -- Stock Purchase Agreement between Group 1 Automotive, Inc.
and the stockholders of Foyt Motors, Inc. dated June 14,
1997.
3.1 -- Restated Certificate of Incorporation of the Company
*3.2 -- Certificate of Designation of Series A Junior
Participating Preferred Stock
3.3 -- Bylaws of the Company
*4.1 -- Specimen Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*10.1 -- Employment Agreement between the Company and B.B.
Hollingsworth, Jr. dated , 1997.
*10.2 -- Employment Agreement between the Company and Robert E.
Howard II dated , 1997.
*10.3 -- Employment Agreement between the Company and Sterling B.
McCall, Jr. dated , 1997.
*10.4 -- Employment Agreement between the Company and Charles M.
Smith dated , 1997.
*10.5 -- Employment Agreement between the Company and John T.
Turner dated , 1997.
*10.6 -- Employment Agreement between the Company and Scott L.
Thompson dated , 1997.
10.7 -- 1996 Stock Incentive Plan
10.8 -- First Amendment to 1996 Stock Incentive Plan
10.9 -- Form of Related Party Lease Agreement
*10.10 -- Rights Agreement between Group 1 Automotive, Inc. and
, as rights agent dated ,
1997.
*11.1 -- Statement re computation of per share earnings
23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
24.1 -- Powers of Attorney (included on the signature page to
this Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
II-3
<PAGE> 140
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities 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 Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of 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 Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes to provide at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
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 Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Houston,
State of Texas, on the 24th day of June, 1997.
GROUP 1 AUTOMOTIVE, INC.
By /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------
B.B. Hollingsworth, Jr.
Chairman, President and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints B.B. Hollingsworth, Jr. and Scott L. Thompson, or
either of them, his true and lawful attorney-in-fact and agent, with full power
of substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and any additional registration statement
pursuant to Rule 462(b), and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and ratifying
and confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on the 24th day of June, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ B.B. HOLLINGSWORTH, JR. Chairman, President and Chief Executive
- ----------------------------------------------------- Officer and Director (Principal Executive
B.B. Hollingsworth, Jr. Officer)
/s/ SCOTT L. THOMPSON Senior Vice President, Chief Financial
- ----------------------------------------------------- Officer and Treasurer (Chief Financial and
Scott L. Thompson Accounting Officer)
/s/ ROBERT E. HOWARD II Director
- -----------------------------------------------------
Robert E. Howard II
/s/ STERLING B. MCCALL, JR. Director
- -----------------------------------------------------
Sterling B. McCall, Jr.
/s/ CHARLES M. SMITH Director
- -----------------------------------------------------
Charles M. Smith
/s/ JOHN H. DUNCAN Director
- -----------------------------------------------------
John H. Duncan
/s/ BENNETT E. BIDWELL Director
- -----------------------------------------------------
Bennett E. Bidwell
</TABLE>
II-5
<PAGE> 142
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
*1.1 -- Form of Underwriting Agreement
2.1 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Howard Pontiac-GMC, Inc. and the stockholders of Howard
Pontiac-GMC, Inc. dated June 14, 1997.
2.2 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Motors, Inc. and the stockholders of Bob
Howard Motors, Inc. dated June 14, 1997.
2.3 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Chevrolet, Inc. and the stockholders of Bob
Howard Chevrolet, Inc. dated June 14, 1997.
2.4 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Automotive-H, Inc. and the stockholders of Bob
Howard Automotive-H, Inc. dated June 14, 1997.
2.5 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Bob Howard Dodge, Inc. and the stockholders of Bob Howard
Dodge, Inc. dated June 14, 1997.
2.6 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Southwest Toyota, Inc. and the stockholders of Southwest
Toyota, Inc. dated June 14, 1997.
2.7 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
SMC Luxury Cars, Inc. and the stockholders of SMC Luxury
Cars, Inc. dated June 14, 1997.
2.8 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Smith, Liu & Kutz, Inc. and the stockholders of Smith,
Liu & Kutz, Inc. dated June 14, 1997.
2.9 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Smith, Liu & Corbin, Inc. and the stockholders of Smith,
Liu & Corbin, Inc. dated June 14, 1997.
2.10 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Round Rock Nissan, Inc. and the stockholders of Round
Rock Nissan, Inc. dated June 14, 1997.
2.11 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Mike Smith Autoplaza, Inc. and the stockholders of Mike
Smith Autoplaza, Inc. dated June 14, 1997.
2.12 -- Stock Purchase Agreement among Group 1 Automotive, Inc.,
Courtesy Nissan, Inc. and the stockholders of Courtesy
Nissan, Inc. dated June 14, 1997.
2.13 -- Stock Purchase Agreement between Group 1 Automotive, Inc.
and the stockholders of Foyt Motors, Inc. dated June 14,
1997.
3.1 -- Restated Certificate of Incorporation of the Company
*3.2 -- Certificate of Designation of Series A Junior
Participating Preferred Stock
3.3 -- Bylaws of the Company
*4.1 -- Specimen Common Stock certificate
*5.1 -- Opinion of Vinson & Elkins L.L.P.
*10.1 -- Employment Agreement between the Company and B.B.
Hollingsworth, Jr. dated , 1997.
</TABLE>
<PAGE> 143
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<C> <S>
*10.2 -- Employment Agreement between the Company and Robert E.
Howard II dated , 1997.
*10.3 -- Employment Agreement between the Company and Sterling B.
McCall, Jr. dated , 1997.
*10.4 -- Employment Agreement between the Company and Charles M.
Smith dated , 1997.
*10.5 -- Employment Agreement between the Company and John T.
Turner dated , 1997.
*10.6 -- Employment Agreement between the Company and Scott L.
Thompson dated , 1997.
10.7 -- 1996 Stock Incentive Plan
10.8 -- First Amendment to 1996 Stock Incentive Plan
10.9 -- Form of Related Party Lease Agreement
*10.10 -- Rights Agreement between Group 1 Automotive, Inc. and
, as rights agent dated ,
1997.
*11.1 -- Statement re computation of per share earnings
23.1 -- Consent of Arthur Andersen LLP
*23.2 -- Consent of Vinson & Elkins L.L.P. (contained in Exhibit
5.1 hereto)
24.1 -- Powers of Attorney (included on the signature page to
this Registration Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
HOWARD PONTIAC - GMC, INC.
AND
THE STOCKHOLDERS OF
HOWARD PONTIAC - GMC, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
<TABLE>
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . 10
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . 15
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . 17
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . 18
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . 18
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . 18
5.15 Managers Employment Agreement . . . . . . . . . . . . . . . 18
5.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Subordination and Non-Disturbance Agreement . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . 20
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . 20
6.7 Managers Employment Agreement . . . . . . . . . . . . . . . 20
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each
Party to Effect the Acquisition . . . . . . . . . . . . . . 20
7.2 Additional Conditions Precedent to Obligations of Group 1 . 20
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties
and agreements . . . . . . . . . . . . . . . . . . . . . . . 22
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . 24
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . 26
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . 26
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . 26
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . 27
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . 28
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 28
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . 29
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 30
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . 30
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 30
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . 30
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Howard Pontiac - GMC, Inc., an Oklahoma corporation (the
"Company"), and the Persons (defined in Section 2.6 below) listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long- term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
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<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") (as may be
appropriately adjusted for stock splits, reverse stock splits and/or stock
dividends) and cash consideration, if applicable, set forth opposite their
respective names in Schedule II hereto. In the event that the Board of
Directors of Group 1 approves a reverse stock split upon the recommendation of
the Representatives of the Underwriters in connection with the IPO, the number
of shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the
reverse stock split; provided, however, that in the event that the number of
shares of Group 1 Common Stock resulting from the reverse stock split
recommended by the Representatives of the Underwriters is less than the number
of shares resulting from a 4.444 for 5 reverse stock split, a 4.444 for 5
reverse stock split shall be implemented and the number of shares of Group 1
Common Stock resulting from such 4.444 for 5 reverse stock split to be received
by the shareholders of the Founding Companies shall be further decreased
proportionately to the number of shares that would have been issued to the
shareholders of the Founding Companies had the reverse stock split recommended
by the Representatives of the Underwriters been implemented. If the number of
shares of Group 1 Common Stock received by a Stockholder pursuant to this
Agreement includes a fractional share as a result of a reverse stock split
affecting the Group 1 Common Stock, such fractional share shall be rounded up
to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Oklahoma Motor Vehicle Commission, and
except to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
3
<PAGE> 8
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter pursuant to Section 2.4) (a)
violate or breach the terms of or cause a default under (i) any applicable
federal, state, foreign or local statute or other applicable law, (ii) any
applicable judgment, order or decree or any applicable rule or regulation of
any federal, state, foreign or local court, tribunal or governmental agency or
authority, (iii) any applicable permits received from any federal, state,
foreign or local governmental agency, (iv) the articles of incorporation or
bylaws of the Company, or (v) any contract or agreement to which the Company is
a party or by which it, or any of its properties, is bound, or (b) result in
the creation or imposition of any lien, claim or encumbrance on any of the
properties or assets of the Company, or (c) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
federal, state, foreign or local court, tribunal or governmental agency or
authority, or (d) with the passage of time or the giving of notice or the
taking of any action of any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 1,000,000 shares of the Company Common Stock, of which 114,500
shares are issued and outstanding (345,500 shares being held in
treasury). Each outstanding share of the Company Common Stock has
been duly authorized, is validly issued, fully paid and nonassessable
and was not issued in violation of any preemptive rights of any
stockholder. Set forth in the Company Disclosure Letter are the names
and addresses (as reflected in the corporate records of the Company)
of each record holder of the Company Common Stock, together with the
number of shares held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company
4
<PAGE> 9
as of December 31, 1995 and 1994, and the related unaudited statements of
income, changes in stockholders' equity and cash flows for the calendar years
then ended (including the notes thereto) (collectively with the Company 1996
Financial Statements, the "Company Financial Statements"). The Company
Financial Statements present fairly the financial position of the Company and
the results of its operations and changes in financial position as of the dates
and for the periods indicated therein in conformity with generally accepted
accounting principles applied on a consistent basis. The Company Financial
Statements do not omit to state any liabilities, absolute or contingent,
required to be stated therein in accordance with generally accepted accounting
principles consistently applied. All accounts receivable of the Company
reflected in the Company 1996 Financial Statements and as incurred since
December 31, 1996 represent sales made in the ordinary course of business, are
collectible (net of any reserves for doubtful accounts shown in the Company
1996 Financial Statements) in the ordinary course of business and, except as
set forth in the Company Disclosure Letter, are not in dispute or subject to
counterclaim, set-off or renegotiation. The Company Disclosure Letter contains
an aged schedule of accounts receivable included in the Company Financial
Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this
5
<PAGE> 10
Agreement. Notwithstanding the preceding sentence, the Company makes no
representation regarding, and need not disclose, increases in compensation (of
the type contemplated in Section 5.3(f)) since December 31, 1996, for any
employee who after such increase would receive annual compensation of less than
$50,000.
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
6
<PAGE> 11
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as a result of a change
in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
7
<PAGE> 12
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
8
<PAGE> 13
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
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<PAGE> 14
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director, of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or governmental agency or authority, federal, state,
foreign or local, is required by any applicable statute or other applicable law
or by any applicable judgment, order or decree or any applicable rule or
regulation of any court, tribunal or governmental agency or authority, federal,
state, foreign or local, to permit such Stockholder to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it,
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or any of its properties, is bound, or (b) result in the creation or imposition
of any lien, claim or encumbrance on any of the properties or assets of such
Stockholder, or (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit, certificate or order of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, or (d) with
the passage of time or the giving of notice or the taking of any action of any
third party have any of the effects set forth in clause (a), (b) or (c) of this
Section, except, with respect to clauses (a), (b), (c) or (d) of this Section,
where such matter would not have a Material Adverse Effect on the Company or
the ability of the Company or such Stockholder to consummate the transactions
contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares; (ii) such Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of Group 1 Common Stock other
than this Agreement; (iii) such Stockholder, other than the Rachel Calvert 1992
Irrevocable Trust, the Chase Calvert 1996 Irrevocable Trust, Gary Williams,
Scott Smith and Brian Smith is an "accredited investor" as defined in
Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the
economic risk of an investment in the Group 1 Common Stock acquired pursuant to
this Agreement, (B) can afford to sustain a total loss of that investment, (C)
has such knowledge and experience in financial and business matters, and such
past participation in investments, that he or she is capable of evaluating the
merits and risks of the proposed investment in the Group 1 Common Stock, (D)
has received and reviewed the draft Registration Statement, (E) has had an
adequate opportunity to ask questions and receive answers from the officers of
Group 1 concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the current and
proposed officers and directors of Group 1, the plans for the operations of the
business of Group 1, the business, operations and financial condition of the
Other Founding Companies and any plans of Group 1 for additional acquisitions,
and (F) has asked all questions of the nature described in the preceding clause
(E), and all those questions have been answered to his or her satisfaction; (v)
such Stockholder acknowledges that the shares of Group 1 Common Stock to be
delivered to such Stockholder pursuant to the Acquisition have not been and
will not be registered under the Securities Act or qualified under applicable
blue sky laws and therefore may be required to be held for an indefinite period
of time and may not be resold by such Stockholder without compliance with the
Securities Act; (vi) such Stockholder acknowledges that he or she has agreed,
pursuant to Section 9.5 herein, not to sell the shares of Group 1 Common Stock
to be delivered to such Stockholder pursuant to the Acquisition for a period of
two years from the Closing Date; (vii) such Stockholder acknowledges that as a
result of the substantial restrictions, imposed both contractually and by the
Securities Act, on the resale of the shares of Group 1 Common Stock received in
the Acquisition, such shares of Group 1 Common Stock will have a substantially
lower value than those shares of Group 1 Common Stock that are registered under
the Securities Act and sold in the IPO; (viii) such Stockholder, if a
corporation, partnership, trust or other entity, acknowledges that it was not
formed for the specific purpose of acquiring the Group 1 Common Stock; and (ix)
without limiting any of the foregoing, such Stockholder agrees not to dispose
of any portion of Group 1 Common Stock unless either (1) a registration
statement under the Securities Act is in effect as to the applicable shares and
the disposition is made in accordance with that registration statement, or (2)
the Stockholder has notified Group 1 of the proposed disposition, provided
Group 1 with a detailed description of the circumstances surrounding the
proposed disposition
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and furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or government agency or authority, federal, state, foreign
or local, is required by any applicable statute or other applicable law or by
any applicable judgment, order or decree or any applicable rule or regulation
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local, to permit Group 1, to execute, deliver or consummate the
transactions contemplated by this Agreement or any instrument required hereby
to be executed and delivered by Group 1 at or prior to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or
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<PAGE> 18
order of any court, tribunal or governmental agency or authority, federal,
state, foreign or local or (d) with the passage of time or the giving of notice
or the taking of any action by any third party have any of the effects set
forth in clause (a), (b) or (c) of this Section, except, with respect to
clauses (a), (b), (c) or (d) of this Section, where such matter would not have
a material adverse effect on the business, assets, prospects or condition
(financial or otherwise) of Group 1 and its subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
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5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding, (iv) redeem, purchase or acquire or
offer to acquire any of its capital stock, (v) incur any indebtedness
for borrowed money, or (vi) except in the ordinary course of business
and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
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(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock
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currently owned, either beneficially or of record, by such Stockholder, except
pursuant to Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act of 1933, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees.
(a) The Company and the Stockholders agree to take, or
cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to terminate, waive or
release all Company guarantees (such guarantees shall be referred to
herein as "Related Guarantees," as described in the Company Disclosure
Letter pursuant to Section 2.11 of this Agreement) of indebtedness or
other obligations of any of the Company's officers, directors,
shareholders or employees or their affiliates.
(b) Without limiting the generality of the foregoing
subsection 5.11(a), and in further consideration of Group 1 entering
into this Agreement, Robert E. Howard II hereby agrees to grant to
Group 1 an option to purchase the premises (the "Premises") located at
13300 N. Broadway Extension and 13220 N. Broadway Extension, each in
Oklahoma City, Oklahoma, to be described more particularly at a later
date in Exhibit A to the form of Lease Agreement attached as Exhibit C
hereto (the "Guaranty Purchase Option"). The Guaranty Purchase Option
shall be granted to Group 1 pursuant to a written option agreement
executed by Group 1 and Robert E. Howard II, in form and substance
satisfactory to Group 1, such option agreement to be delivered to
Group 1 on or before the tenth (10th) day after the date hereof. The
Guaranty Purchase Option shall only be exercisable by written notice
to Robert E. Howard II, on a date (the "Guaranty Exercise Date") at
any time after (i) the expiration of ninety (90) days after the
Closing Date, and (ii) the failure of Robert E. Howard II to obtain
full and complete written releases (the "Required Releases") of all
Related Guarantees of any indebtedness which is secured by liens or
security interests covering the Premises (the "Indebtedness"). The
Required Releases shall be executed by the then current owner and
holder of the Indebtedness. The purchase price of the Guaranty
Purchase Option shall be the principal amount outstanding under the
Indebtedness on
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the Guaranty Exercise Date; provided, however, that the same has not
been modified or amended after the date hereof. The purchase of such
premises shall occur on or before thirty (30) days after the Guaranty
Exercise Date, and Robert E. Howard II shall deliver to Group 1 a
Special Warranty Deed and Bill of Sale, executed and acknowledged by
Robert E. Howard II covering such premises, subject to all matters
currently affecting such premises (except the Indebtedness), together
with all other documents customarily used for the sale of real
property in Oklahoma.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Robert E. Howard II hereby
agrees to enter into, on or prior to the Closing Date, an Employment Agreement
substantially in the form of Exhibit A attached hereto (the "Founders
Employment Agreement"), which agreement shall employ Robert E. Howard II, as
President of Howard Group, and provide for an annual salary of $300,000 and a
term of five years.
5.15 Managers Employment Agreement. Scott Smith, Brian Smith and
Gary Williams hereby agree to enter into, on or prior to the Closing Date,
Employment Agreements substantially in the form of Exhibit B attached hereto
(the "Managers Employment Agreement").
5.16 Leases. Robert E. Howard II hereby agrees to enter into on
or prior to the Closing Date, a lease with the Company, in form substantially
similar to the lease attached hereto as Exhibit C (the "Lease") covering the
properties owned by Robert E. Howard II identified on Exhibit C to the Lease,
including any changes that may be reasonably required by (i) any lender to
Robert E. Howard II or (ii) any automobile manufacturer with whom the Company
or any of its affiliates does business solely in connection with the properties
identified in Exhibit C to the Lease, in each case (i) or (ii) above, whose
consent must be obtained pursuant to any agreement with Robert E. Howard II
existing on the date hereof.
5.17 Subordination and Non-Disturbance Agreement. Robert E. Howard
II hereby agrees to grant to Group 1 an option to purchase the premises (the
"Premises") located at 13300 N. Broadway Extension and 13220 N. Broadway
Extension, each in Oklahoma City, Oklahoma, to be described more particularly
at a later date in Exhibit A to the Lease (the "SNDA Purchase Option"). The
SNDA Purchase Option shall be granted to Group 1 pursuant to a written option
agreement executed by Group 1 and Robert E. Howard II, in form and substance
satisfactory to Group 1, and delivered to Group 1 on or before the tenth (10th)
day after the date hereof. The SNDA Purchase Option shall be exercisable only
by written notice to Robert E. Howard II, on a date (the "SNDA Exercise Date")
at any time after (i) the expiration of ninety (90) days after the Closing
Date, and (ii) the failure of Robert E. Howard II to obtain a Mutual
Recognition and Attornment Agreement in the form required under Article 11 to
the Lease
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("SNDA"), in form and substance reasonably satisfactory to Group 1, from each
then current holder and owner of any indebtedness which is secured by liens or
security interests covering the Premises (the "Indebtedness"). The SNDA
Purchase Option may only be exercised by Group 1 with respect to those premises
for which a SNDA has not been obtained. The purchase price of the SNDA
Purchase Option shall be the principal amount outstanding under that portion of
the Indebtedness attributable to the premises being purchased on the SNDA
Exercise Date; provided, however, that the same has not been modified or
amended after the date hereof. The purchase of such premises shall occur on
or before thirty (30) days after the SNDA Exercise Date, and Robert E. Howard
II shall deliver to Group 1 a Special Warranty Deed and Bill of Sale, executed
and acknowledged by Robert E. Howard II covering the premises being purchased,
subject to all matters currently affecting such premises (except the
Indebtedness), together with all other documents customarily used for the sale
of real property in Oklahoma. Article 11(iv) of the Lease shall be modified to
the extent necessary to reflect the foregoing provisions.
5.18 Acquisition of Bob Howard Automotive-East, Inc.
Notwithstanding the provisions of Section 5.3 hereof, the Company will, and the
Stockholders will cause the Company to, as soon as practicable and in any event
prior to Closing, enter into definitive documentation satisfactory to Group 1
in its sole discretion for the acquisition of Bob Howard Automotive-East, Inc.
("East"), a corporation wholly owned by Robert E. Howard II that has entered
into a buy-sell agreement and management agreement with respect to a Chevrolet
dealership in Tulsa, Oklahoma (the "Chevrolet dealership"). Such documentation
will include (i) an agreement to acquire East for the assumption of its
liabilities upon receipt of all requisite approvals of General Motors
Corporation ("GM") to the transfer of the Chevrolet Dealership to East and to
the Company, and (ii) a management agreement that provides to the Company a fee
which is based on the operations of the Chevrolet Dealership prior to the time
such dealership is transferred to the Company.
5.19 Failure to Acquire the Chevrolet Dealership. The formula used
to determine the number of shares of Group 1 Common Stock received by each
Stockholder in connection with the Acquisition and the Other Acquisitions
includes 592,303 shares of Group 1 Common Stock to be issued based on the
future value to Group 1 of the Chevrolet Dealership. These 592,303 shares
(the "Escrowed Shares") of Group 1 Common Stock will be deducted from the
number of shares to be received by Robert E. Howard II in connection with Group
1's acquisition of the Company and will be placed in escrow pending the
Company's and Group 1's completion of the acquisition of the Chevrolet
Dealership and receipt of all requisite GM approvals for that acquisition.
Robert E. Howard II will have complete and sole discretion to do anything and
everything appropriate and necessary to complete the acquisition of the
Chevrolet Dealership. Group 1 will cooperate fully with Robert E. Howard II to
complete the acquisition of the Chevrolet Dealership, with GM approval. Group 1
will reimburse Robert E. Howard II for the capital he has provided to the
Chevrolet Dealership at the rate of national prime plus one percent (prime +1%).
Upon completion of the acquisition of the Chevrolet Dealership, Group 1 will
return to Robert E. Howard II the capital provided by him to the Chevrolet
Dealership.
Robert E. Howard II will receive all of the Escrowed Shares regardless
of the manner in which the Chevrolet Dealership is acquired by Group 1 (e.g. by
East and the Company as currently contemplated in Section 5.18, by using
another Group 1 shareholder as the dealer, by direct acquisition by Group 1,
etc.), provided such acquisition occurs with GM approval. If Group 1 does not
cooperate in doing everything appropriate, as requested by Robert E. Howard II,
to complete the acquisition of the Chevrolet Dealership, then Group 1 will
deliver the Escrowed Shares to Robert E. Howard II.
If the acquisition of the Chevrolet Dealership is not consummated
within two (2) years, then the Escrowed Shares will be released and distributed
to Robert E. Howard II, each Stockholder and each stockholder in the Other
Acquisitions according to the formula set out below ("Formula"). If the Escrowed
Shares are released and distributed according to the Formula, then the
management agreement referenced in Section 5.18 will terminate and Group 1 will
allow Robert E. Howard II to assume the management agreement, acquire and
operate the Chevrolet Dealership and to acquire and operate the adjoining
dealerships, including but not limited to partial release from the provisions
of Section 8.3 of this Agreement and Section 1 and 6 of the Employment
Agreement sufficient to allow such activities. In this event, Group 1 shall be
granted the right of first refusal for the Chevrolet Dealership and the
adjoining dealerships (if any) when Robert E. Howard II completes the
acquisition of the Chevrolet Dealership with GM approval.
Formula: X/(Y-592,303) x 592,303
where (i) "X" is the aggregate number of shares of Group 1 Common Stock to be
received by the stockholder in connection with the Acquisition and the Other
Acquisitions (in the case of Robert E.
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Howard II, "X" shall not include the Escrowed Shares) and (ii) "Y" is the
aggregate number of shares of Group 1 Common Stock issued by Group 1 in
connection with the Acquisition and the Other Acquisitions.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreements.
6.7 Managers Employment Agreement. Group 1 hereby agrees to enter
into the Managers Employment Agreement.
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ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws,
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the failure to comply with which would have a material adverse effect
on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole, after
consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto, except as permitted under Section 5.11(b) hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
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ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.11(b), 5.17, 6.1, 6.4,
6.5, 8.2, 8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the
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foregoing indemnity from Group 1 to such Stockholder, but only with
respect to information furnished in writing by such Stockholder or on
such Stockholder's behalf expressly for use in any registration
statement or prospectus pursuant to which such Stockholder sells
shares of Group 1 Common Stock pursuant to an underwritten public
offering. The liability of any Stockholder under this Section 8.2(b)
shall be limited to the aggregate cash and property received by such
Stockholder pursuant to the sale of Group 1 Common Stock covered by
such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall
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contribute to the amount paid or payable by such Indemnified Party as
a result of such losses, claims, damages, liabilities and judgments as
between Group 1 on the one hand and each Stockholder on the other, in
such proportion as is appropriate to reflect the relative fault of the
Stockholder and of each Stockholder in connection with the statements
or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of Group 1 on the one hand and of
each Stockholder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Group 1
and the Stockholders agree that it would not be just and equitable if
contribution pursuant to this Section 8.2(d) were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the first
two sentences of this Section 8.2(d). The amount paid or payable by
an Indemnified Party as a result of the losses, claims, damages,
liabilities or judgments referred to in Sections 8.2(a) and 8.2(b)
hereof shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
8.2(d), no Stockholder shall be required to contribute any amount in
excess of the amount by which the total price at which the securities
of such Stockholder were offered to the public exceeds the amount of
any damages which such Stockholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f)(1) of the Securities Act) shall
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Robert E. Howard II (the "Designated
Stockholder"), and Group 1 agree to the non-competition provisions of
this Section 8.3. The Designated Stockholder agrees that during the
period of the Designated Stockholder's non-competition obligations
hereunder, the Designated Stockholder will not, directly or indirectly
for the Designated Stockholder or for others, in any geographic area
or market where Group 1 or any of its subsidiaries or affiliated
companies are conducting any business as of the date in question or
have during the previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with
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Group 1 or any of its subsidiaries or affiliates; provided,
however, that nothing in this subsection (iii) shall prohibit a
Designated Stockholder from offering employment to any prior
employee of Group 1 or any of its subsidiaries or affiliates
who was not employed by Group 1 or any of its subsidiaries or
affiliates at any time in the twelve (12) months prior to the
termination of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section
8.3, an "affiliate" of Group 1 is any person who directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholder understands that the
foregoing restrictions may limit his ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledges that the Designated Stockholder will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholder acknowledges
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholder, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholder under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholder's agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholder consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
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ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group
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1 each represent and warrant to each other that there is no broker or finder
involved in the transactions contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; (iii)
transfer shares by will or the laws of descent and distribution or otherwise by
reason of such Stockholder's death; and (iv) sell or transfer shares to Robert
E. Howard II pursuant to any repurchase right held by Robert E. Howard II
covering such shares, provided that Robert E. Howard II shall agree not to sell
or otherwise dispose of such shares for the Restricted Period. The
certificates evidencing the Group 1 Common Stock delivered to each Stockholder
pursuant to this Agreement will bear a legend substantially in the form set
forth below and containing such other information as Group 1 may deem necessary
or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE SECOND-
ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Group 1 Common Stock to be
delivered to that Stockholder pursuant to this Agreement have not been and, if
applicable, will not be registered under the Securities Act and therefore may
not be resold by that Stockholder without compliance with the Securities Act
and (ii) covenants that none of the shares
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of Group 1 Common Stock issued to that Stockholder pursuant to this Agreement
will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the
Commission and applicable state securities laws and regulations. All
certificates evidencing shares of Group 1 Common Stock issued pursuant to this
Agreement will bear the following legend in addition to the legend prescribed
by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1,
29
<PAGE> 34
such waiver or amendment will not result in the issuance of Group 1 Common
Stock pursuant to the Acquisition being integrated (under United States
securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 13300 N. Broadway Extension
Oklahoma City, Oklahoma
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
with a copy to: 6520 N. Western, Suite 100
Oklahoma City, Oklahoma 73116
Telecopy: (405) 848-5052
Attention: Randall K. Calvert
if to the Stockholders: 13300 N. Broadway Extension
Oklahoma City, Oklahoma
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
30
<PAGE> 35
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement), and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
31
<PAGE> 36
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
------------------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
HOWARD PONTIAC - GMC, INC.
By: /s/ ROBERT E. HOWARD II
------------------------------------------
Robert E. Howard II
Secretary
STOCKHOLDERS:
/s/ ROBERT E. HOWARD II
---------------------------------------------
Robert E. Howard II
/s/ GARY WILLIAMS
---------------------------------------------
Gary Williams
/s/ BRIAN SMITH
---------------------------------------------
Brian Smith
/s/ SCOTT SMITH
---------------------------------------------
Scott Smith
/s/ RANDALL K. CALVERT
---------------------------------------------
Randall K. Calvert
/s/ ELLAN S. WRIGHT
---------------------------------------------
Ellan S. Wright, as Trustee for
The Rachel Calvert 1992 Irrevocable Trust and
The Chase Calvert 1996 Irrevocable Trust
/s/ LEWIS POND
---------------------------------------------
Lewis Pond, as Trustee for The Rachel
Calvert 1992 Irrevocable Trust and the
Chase Calvert 1996 Irrevocable Trust
32
<PAGE> 37
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
33
<PAGE> 38
EXHIBIT 2.1
Howard Pontiac-GMC
SCHEDULE II
<TABLE>
<CAPTION>
Shares of
Company Shares of Group 1
Stockholder Common Stock Common Stock(1)(2) Cash Consideration
- ---------- ------------ ------------------ ------------------
<S> <C> <C> <C>
Robert E. Howard II. . . . . . . . . . . . . 112,350 (3) $ 2,300,000
Gary Williams . . . . . . . . . . . . . . . . 650 (3)
Brian Smith . . . . . . . . . . . . . . . . . 650 (3)
Scott Smith . . . . . . . . . . . . . . . . . 200 (3)
Randall K. Calvert . . . . . . . . . . . . . 450 (3)
Rachel Calvert 1992 Irrevocable Trust . . . . 100 (3)
Chase Calvert 1996 Irrevocable Trust . . . . 100 (3)
</TABLE>
- ----------------------------------
(1) As may be appropriately adjusted for stock splits,
reverse stock splits and/or stock dividends. In the event
that the Board of Directors of Group 1 approves a reverse
stock split upon the recommendation of the Representatives of
the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the
shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split;
provided, however, that in the event that the number of shares
of Group 1 Common Stock resulting from the reverse stock split
recommended by the Representatives of the Underwriters is less
than the number of shares resulting from a 4.444 for 5 reverse
stock split, a 4.444 for 5 reverse stock split shall be
implemented and the number of shares of Group 1 Common Stock
resulting from such 4.444 for 5 reverse stock split to be
received by the shareholders of the Founding Companies shall
be further decreased proportionately to the number of shares
that would have been issued to the shareholders of the
Founding Companies had the reverse stock split recommended by
the Representatives of the Underwriters been implemented.
(2) The shares of Group 1 Common Stock to be issued to
each of the Stockholders as set forth on this Schedule II
shall be increased proportionately as a result of the release
from escrow of 592,303 shares of Group 1 Common Stock that
shall be distributed to the Stockholders as result of the
failure of Howard Pontiac-GMC, Inc. to acquire the Chevrolet
dealership in Tulsa, Oklahoma, all in accordance with the
provisions of the Stock Purchase Agreement among Group 1,
Howard Pontiac-GMC, Inc. dated as of June 14, 1997.
(3) The number of shares of Group 1 Common Stock to be
received by each Stockholder shall be determined as follows:
(i) Robert E. Howard II is to receive 1,759,995 shares less
(x) the quotient of 825,000 divided by the per share IPO price
of Group 1 Common Stock (the IPO Price ) and (y) the quotient
of 2,300,000 divided by the Net IPO Price; (ii) Scott Smith is
to receive a number of shares equal to 75,000 divided by the
IPO Price; (iii) Brian Smith is to receive a number of shares
equal to 250,000 divided by the IPO Price; (iv) Gary Williams
is to receive a number of shares equal to 250,000 divided by
the IPO Price; (v) Randall K. Calvert is to receive a number
of shares equal to 173,000 divided by the IPO Price; and (vi)
the Rachel Calvert 1992 Irrevocable Trust and the Chase
Calvert 1996 Irrevocable Trust are each to receive a number of
shares equal to 38,500 divided by the IPO Price. Net IPO
Price shall have the meaning set forth in Section 4.5 of this
Agreement. Any fractional shares resulting from these
calculations shall be rounded up to the nearest whole share.
34
<PAGE> 39
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
35
<PAGE> 40
EXHIBIT B
[MANAGERS EMPLOYMENT AGREEMENT]
36
<PAGE> 41
EXHIBIT C
[LEASE]
37
<PAGE> 1
EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
BOB HOWARD MOTORS, INC.
AND
THE STOCKHOLDERS OF
BOB HOWARD MOTORS, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
<TABLE>
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . 7
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . 9
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 12
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Notification of Certain Matters . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . 16
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . 17
5.15 GM Employment Agreement . . . . . . . . . . . . . . . . . . 18
5.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Subordination and Non-Disturbance Agreement . . . . . . . . 18
5.18 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . 19
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . 19
6.7 GM Employment Agreement . . . . . . . . . . . . . . . . . . 19
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to
Effect the Acquisition . . . . . . . . . . . . . . . . . . . 20
7.2 Additional Conditions Precedent to Obligations of Group 1 . 20
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . 24
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . 26
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 28
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 30
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . 30
</TABLE>
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Bob Howard Motors, Inc., an Oklahoma corporation (the "Company"),
and the Persons (defined in Section 2.6 below) listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long- term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
-2-
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Oklahoma Motor Vehicle Commission, and
except to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
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<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly, or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 25,000 shares of the Company Common Stock, of which 5,000 shares
are issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its
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<PAGE> 9
operations and changes in financial position as of the dates and for the
periods indicated therein in conformity with generally accepted accounting
principles applied on a consistent basis. The Company Financial Statements do
not omit to state any liabilities, absolute or contingent, required to be
stated therein in accordance with generally accepted accounting principles
consistently applied. All accounts receivable of the Company reflected in the
Company 1996 Financial Statements and as incurred since December 31, 1996
represent sales made in the ordinary course of business, are collectible (net
of any reserves for doubtful accounts shown in the Company 1996 Financial
Statements) in the ordinary course of business and, except as set forth in the
Company Disclosure Letter, are not in dispute or subject to counterclaim, set-
off or renegotiation. The Company Disclosure Letter contains an aged schedule
of accounts receivable included in the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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<PAGE> 10
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as a result of a change
in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
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<PAGE> 11
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From January 1, 1991 through the Closing Date, (a)
the Company continuously has been and will be an S Corporation within
the meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
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<PAGE> 12
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
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<PAGE> 13
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no
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<PAGE> 14
physical condition existing on any property ever owned or operated by the
Company nor are there any physical conditions existing on any other property
that may have been affected by the Company's operations which could give rise
to any material remedial obligation under any Environmental Laws or which could
result in any material liability to any third party pursuant to any
Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own,
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<PAGE> 15
beneficially or of record, any capital stock or other security, including
without limitation any option, warrant or right entitling the holder thereof to
purchase or otherwise acquire any shares of capital stock of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any court, tribunal or governmental agency or authority, federal,
state, foreign or local, is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any court, tribunal or governmental agency or authority,
federal, state, foreign or local, to permit such Stockholder to execute,
deliver or perform this Agreement or any instrument required hereby to be
executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, or (d) with the passage of time or
the giving of notice or the taking of any action of any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a Material Adverse Effect on the Company or the ability of the
Company or such Stockholder to consummate the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute,
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<PAGE> 16
sell or otherwise dispose of any of those shares; (ii) such Stockholder is not
a party to any agreement or other arrangement for the disposition of any shares
of Group 1 Common Stock other than this Agreement; (iii) such Stockholder,
other than Steve Albright, is an "accredited investor" as defined in Securities
Act Rule 501(a); (iv) such Stockholder (A) is able to bear the economic risk of
an investment in the Group 1 Common Stock acquired pursuant to this Agreement,
(B) can afford to sustain a total loss of that investment, (C) has such
knowledge and experience in financial and business matters, and such past
participation in investments, that he or she is capable of evaluating the
merits and risks of the proposed investment in the Group 1 Common Stock, (D)
has received and reviewed the draft Registration Statement, (E) has had an
adequate opportunity to ask questions and receive answers from the officers of
Group 1 concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the current and
proposed officers and directors of Group 1, the plans for the operations of the
business of Group 1, the business, operations and financial condition of the
Other Founding Companies and any plans of Group 1 for additional acquisitions,
and (F) has asked all questions of the nature described in the preceding clause
(E), and all those questions have been answered to his or her satisfaction; (v)
such Stockholder acknowledges that the shares of Group 1 Common Stock to be
delivered to such Stockholder pursuant to the Acquisition have not been and
will not be registered under the Securities Act or qualified under applicable
blue sky laws and therefore may be required to be held for an indefinite period
of time and may not be resold by such Stockholder without compliance with the
Securities Act; (vi) such Stockholder acknowledges that he or she has agreed,
pursuant to Section 9.5 herein, not to sell the shares of Group 1 Common Stock
to be delivered to such Stockholder pursuant to the Acquisition for a period of
two years from the Closing Date; (vii) such Stockholder acknowledges that as a
result of the substantial restrictions, imposed both contractually and by the
Securities Act, on the resale of the shares of Group 1 Common Stock received in
the Acquisition, such shares of Group 1 Common Stock will have a substantially
lower value than those shares of Group 1 Common Stock that are registered under
the Securities Act and sold in the IPO; (viii) such Stockholder, if a
corporation, partnership, trust or other entity, acknowledges that it was not
formed for the specific purpose of acquiring the Group 1 Common Stock; and (ix)
without limiting any of the foregoing, such Stockholder agrees not to dispose
of any portion of Group 1 Common Stock unless either (1) a registration
statement under the Securities Act is in effect as to the applicable shares and
the disposition is made in accordance with that registration statement, or (2)
the Stockholder has notified Group 1 of the proposed disposition, provided
Group 1 with a detailed description of the circumstances surrounding the
proposed disposition and furnished Group 1 with written opinion of counsel
opining that the proposed disposition would not require registration of any
securities under federal or state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and
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performance of each instrument required hereby to be executed and delivered by
Group 1 at the Closing have been duly and validly authorized by all requisite
corporate action on the part of Group 1. This Agreement has been, and each
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing will then be, duly executed and delivered by Group 1. This
Agreement constitutes, and, to the extent it purports to obligate Group 1, each
such instrument will constitute (assuming due authorization, execution and
delivery by each other party thereto), the legal, valid and binding obligation
of Group 1, enforceable against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or government agency or authority, federal, state, foreign
or local, is required by any applicable statute or other applicable law or by
any applicable judgment, order or decree or any applicable rule or regulation
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local, to permit Group 1, to execute, deliver or consummate the
transactions contemplated by this Agreement or any instrument required hereby
to be executed and delivered by Group 1 at or prior to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share
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IPO price of Group 1 Common Stock, less applicable underwriting
discounts and a pro rata portion of expenses related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (x) the distribution of all
profits from January 1, 1997 through the Closing Date, calculated in
accordance with manufacturers accounting procedures and valuing
inventories on a FIFO basis, with profits for the month of Closing pro
rated based on the number of days up to and including the Closing Date
divided by the total number of days in the month, such profits to be
distributed within thirty (30) days of closing, and (y) a return of
capital distribution in the amount of $800,000), (iv) redeem, purchase
or acquire or offer to acquire any of its capital stock, (v) incur
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any indebtedness for borrowed money, or (vi) except in the ordinary
course of business and consistent with past practice, enter into any
contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition
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is not consummated, the Company and the Stockholders will return all non-public
documents and other material obtained from Group 1 or its representatives in
connection with the transactions contemplated hereby or certify to Group 1 that
all such information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer, dispose
of or encumber any shares of Company Common Stock currently owned, either
beneficially or of record, by such Stockholder except pursuant to Section 9.5
of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
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<PAGE> 21
5.11 Removal of Related Party Guarantees.
(a) The Company and the Stockholders agree to take, or
cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to terminate, waive or
release all Company guarantees (such guarantees shall be referred to
herein as "Related Guarantees," as described in the Company Disclosure
Letter pursuant to Section 2.11 of this Agreement) of indebtedness or
other obligations of any of the Company's officers, directors,
shareholders or employees or their affiliates.
(b) Without limiting the generality of the foregoing
subsection 5.11(a), and in further consideration of Group 1 entering
into this Agreement, Robert E. Howard II hereby agrees to grant to
Group 1 an option to purchase the premises (the "Premises") located at
13200 N. Broadway Extension, in Oklahoma City, Oklahoma, to be
described more particularly at a later date in Exhibit A to the form
of Lease Agreement attached as Exhibit C hereto (the "Guaranty
Purchase Option"). The Guaranty Purchase Option shall be granted to
Group 1 pursuant to a written option agreement executed by Group 1 and
Robert E. Howard II, in form and substance satisfactory to Group 1,
such option agreement to be delivered to Group 1 on or before the
tenth (10th) day after the date hereof. The Guaranty Purchase Option
shall only be exercisable by written notice to Robert E. Howard II, on
a date (the "Guaranty Exercise Date") at any time after (i) the
expiration of ninety (90) days after the Closing Date, and (ii) the
failure of Robert E. Howard II to obtain full and complete written
releases (the "Required Releases") of all Related Guarantees of any
indebtedness which is secured by liens or security interests covering
the Premises (the "Indebtedness"). The Required Releases shall be
executed by the then current owner and holder of the Indebtedness.
The purchase price of the Guaranty Purchase Option shall be the
principal amount outstanding under the Indebtedness on the Guaranty
Exercise Date; provided, however, that the same has not been modified
or amended after the date hereof. The purchase of such premises shall
occur on or before thirty (30) days after the Guaranty Exercise Date,
and Robert E. Howard II shall deliver to Group 1 a Special Warranty
Deed and Bill of Sale, executed and acknowledged by Robert E. Howard
II covering such premises, subject to all matters currently affecting
such premises (except the Indebtedness), together with all other
documents customarily used for the sale of real property in Oklahoma.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements, except for those Related Party Agreements that
are disclosed in the Company Disclosure Letter as agreements that shall not be
subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Robert E. Howard II, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A attached hereto
(the "Employment Agreement"), which agreement shall employ Robert E.
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Howard II as President of Howard Group, and shall provide for an annual salary
of $300,000 and a term of five years.
5.15 GM Employment Agreements. Ken R. Wilkins and Steve Albright,
each Stockholders, hereby agree to enter on or prior to the Closing Date into a
Employment Agreements substantially in the form of Exhibit B attached hereto
(the "GM Employment Agreement").
5.16 Leases. Robert E. Howard II hereby agrees to enter on or
prior to the Closing Date into a lease with the Company, in form substantially
similar to the lease attached hereto as Exhibit C (the "Lease") covering the
properties owned by Robert E. Howard II identified on Exhibit C to the Lease,
including any changes that may be reasonably required by (i) any lender to
Robert E. Howard II or (ii) any automobile manufacturer with whom the Company
or any of its affiliates does business solely in connection with the properties
identified in Exhibit C to the Lease, in each case (i) or (ii) above, whose
consent must be obtained pursuant to any agreement with Robert E. Howard II
existing on the date hereof.
5.17 Subordination and Non-Disturbance Agreement. Robert E.
Howard II hereby agrees to grant to Group 1 an option to purchase the premises
(the "Premises") located at 13200 N. Broadway Extension, in Oklahoma City,
Oklahoma, to be described more particularly at a later date in Exhibit A to the
Lease (the "SNDA Purchase Option"). The SNDA Purchase Option shall be granted
to Group 1 pursuant to a written option agreement executed by Group 1 and
Robert E. Howard II, in form and substance satisfactory to Group 1, and
delivered to Group 1 on or before the tenth (10) day after the date hereof.
The SNDA Purchase Option shall be exercisable only by written notice to Robert
E. Howard II, on a date (the "SNDA Exercise Date") at any time after (i) the
expiration of ninety (90) days after the Closing Date, and (ii) the failure of
Robert E. Howard II to obtain a Mutual Recognition and Attornment Agreement in
the form required under Article 11 to the Lease ("SNDA"), in form and substance
reasonably satisfactory to Group 1, from each then current holder and owner of
any indebtedness which is secured by liens or security interests covering the
Premises (the "Indebtedness"). The SNDA Purchase Option may only be exercised
by Group 1 with respect to those premises for which a SNDA has not been
obtained. The purchase price of the SNDA Purchase Option shall be the
principal amount outstanding under that portion of the Indebtedness
attributable to the premises being purchased on the SNDA Exercise Date;
provided, however, that the same has not been modified or amended after the
date hereof. The purchase of such premises shall occur on or before thirty
(30) days after the SNDA Exercise Date, and Robert E. Howard II shall deliver
to Group 1 a Special Warranty Deed and Bill of Sale, executed and acknowledged
by Robert E. Howard II covering the premises being purchased, subject to all
matters currently affecting such premises (except the Indebtedness), together
with all other documents customarily used for the sale of real property in
Oklahoma. Article 11(iv) of the Lease shall be modified to the extent
necessary to reflect the foregoing provisions.
5.18 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
6.7 GM Employment Agreement. Group 1 hereby agrees to enter into
the GM Employment Agreement.
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ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
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prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto except as contemplated by Section 5.11(b).
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person
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controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of
this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.11(b), 5.17, 5.18, 6.1,
6.4, 6.5, 8.2, 8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an
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<PAGE> 27
"Indemnified Party") in respect of which indemnity may be sought from
any party who has agreed to provide such indemnification under Section
8.2(a) or 8.2(b) above (an "Indemnifying Party"), the Indemnified
Party shall give prompt notice to the Indemnifying Party and the
Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group
1 on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 8.2(d)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences of this Section 8.2(d). The
amount paid or payable by an Indemnified Party as a result of the
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<PAGE> 28
losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8.2(d), no Stockholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the securities of such Stockholder were offered
to the public exceeds the amount of any damages which such Stockholder
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)(1)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Robert E. Howard II (the "Designated
Stockholder") and Group 1 agree to the non-competition provisions of
this Section 8.3. The Designated Stockholder agrees that during the
period of the Designated Stockholder's non-competition obligations
hereunder, the Designated Stockholder will not, directly or indirectly
for the Designated Stockholder or for others, in any geographic area
or market where Group 1 or any of its subsidiaries or affiliated
companies are conducting any business as of the date in question or
have during the previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section
8.3, an "affiliate" of Group 1 is any person who directly,
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<PAGE> 29
or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholder understands that the
foregoing restrictions may limit his ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholder will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholder acknowledges
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholder, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholder under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholder's agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholder consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
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<PAGE> 30
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; (iii)
transfer shares by will or the laws of descent and distribution or otherwise by
reason of such Stockholder's death; and (iv) sell or transfer shares to Robert
E. Howard II pursuant to any repurchase right held by Robert E. Howard II
covering such shares, provided that Robert
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<PAGE> 31
E. Howard II shall agree not to sell or otherwise dispose of such shares for
the Restricted Period. The certificates evidencing the Group 1 Common Stock
delivered to each Stockholder pursuant to this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE SECOND-
ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement have not been and, if applicable,
will not be registered under the Securities Act and therefore may not be resold
by that Stockholder without compliance with the Securities Act and (ii)
covenants that none of the shares of Group 1 Common Stock issued to that
Stockholder pursuant to this Agreement will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the Commission and applicable state securities laws
and regulations. All certificates evidencing shares of Group 1 Common Stock
issued pursuant to this Agreement will bear the following legend in addition to
the legend prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or
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<PAGE> 32
occur at all; (b) neither Group 1 or any of its representatives nor any
prospective underwriters in the IPO will have any liability to the Company, the
Stockholders or any of their respective affiliates or associates for any
failure of (i) the Registration Statement to become effective (provided,
however, that Group 1 will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices
or to occur at all; and (c) the decision of Stockholders to enter into this
Agreement, has been or will be made independent of, and without reliance on,
any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to Group 1 or the IPO. The Underwriters shall have no
obligation to any of the Company and the Stockholders with respect to any
disclosure contained in the Registration Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
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<PAGE> 33
if to the Company: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
with a copy to: 6520 N. Western, Suite 100
Oklahoma City, Oklahoma 73114
Telecopy: (405) 848-5052
Attention: Randall K. Calvert
if to the Stockholders: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief
Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
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<PAGE> 34
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as otherwise contemplated by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
BOB HOWARD MOTORS, INC.
By: /s/ ROBERT E. HOWARD II
-----------------------------------------
Robert E. Howard II
Secretary
STOCKHOLDERS:
/s/ ROBERT E. HOWARD II
--------------------------------------------
Robert E. Howard II
/s/ KEN R. WILKINS
--------------------------------------------
Ken R. Wilkins
/s/ STEVE ALBRIGHT
--------------------------------------------
Steve Albright
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<PAGE> 35
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
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<PAGE> 36
EXHIBIT 2.2
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock(1)(2)
- ----------- ------------ ------------------
<S> <C> <C>
Robert E. Howard II . . . . . . . . . . . . . . . . . 3,350 (3)
Ken R. Wilkins . . . . . . . . . . . . . . . . . . . . 1,250 (3)
Steve Albright . . . . . . . . . . . . . . . . . . . . 400 (3)
</TABLE>
- ----------------------
(1) As may be appropriately adjusted for stock splits, reverse
stock splits and/or stock dividends. In the event that the Board of
Directors of Group 1 approves a reverse stock split upon the
recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock
to be received by the shareholders of the Founding Companies shall be
decreased proportionately as a result of the reverse stock split;
provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split
recommended by the Representatives of the Underwriters is less than
the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the
number of shares of Group 1 Common Stock resulting from such 4.444
for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the
number of shares that would have been issued to the shareholders of
the Founding Companies had the reverse stock split recommended by the
Representatives of the Underwriters been implemented. If the number
of shares of Group 1 Common Stock received by a Stockholder pursuant
to this Agreement includes a fractional share as a result of a
reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of
Group 1 Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of
the Stockholders as set forth on this Schedule II shall be increased
proportionately as a result of the release from escrow of 592,303
shares of Group 1 Common Stock that shall be distributed to the
Stockholders as result of the failure of Howard Pontiac-GMC, Inc. and
Group 1 to acquire the Chevrolet dealership in Tulsa, Oklahoma, all
in accordance with the provisions of the Stock Purchase Agreement
among Group 1, Howard Pontiac-GMC, Inc. and the stockholders of
Howard Pontiac-GMC, Inc. dated as of June 14, 1997.
(3) The number of shares of Group 1 Common Stock to be received
by each Stockholder shall be determined as follows: (i) Robert E.
Howard II is to receive 352,321 shares less the quotient of 1,850,000
divided by the per share IPO price of Group 1 Common Stock ( IPO
Price ); (ii) Ken R. Wilkins is to receive a number of shares equal
to 1,350,000 divided by the IPO Price; and (iii) Steve Albright is to
receive a number of shares equal to 500,000 divided by the IPO Price.
Any fractional share resulting from these calculations shall be
rounded up to the nearest whole share.
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<PAGE> 37
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
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<PAGE> 38
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
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<PAGE> 39
EXHIBIT C
[LEASE]
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<PAGE> 1
EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
BOB HOWARD CHEVROLET, INC.
AND
THE STOCKHOLDERS OF
BOB HOWARD CHEVROLET, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE ACQUISITION
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
COVENANTS OF THE COMPANY AND THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Subordination and Non-Disturbance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.18 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 20
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 20
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . . 21
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Bob Howard Chevrolet, Inc., an Oklahoma corporation (the
"Company"), and the Persons (defined in Section 2.6 below) listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of class "A" non-voting common stock, par
value $25.00 per share of the Company ("Class A Non-Voting Common Stock"), and
that number of shares of class "B" voting common stock, par value $25.00 per
share of the Company ("Class B Voting Common Stock," and together with the
Class A Non-Voting Common Stock, the "Company Common Stock") as set forth
opposite their respective names in Schedule II hereto in exchange for that
number of shares of common stock, par value $.01 per share of Group 1 ("Group 1
Common Stock") set forth opposite their respective names in Schedule II hereto
(as may be appropriately adjusted for stock splits, reverse stock splits and/or
stock dividends). In the event that the Board of Directors of Group 1 approves
a reverse stock split upon the recommendation of the Representatives of the
Underwriters in connection with the IPO, the number of shares of Group 1 Common
Stock to be received by the shareholders of the Founding Companies shall be
decreased proportionately as a result of the reverse stock split; provided,
however, that in the event that the number of shares of Group 1 Common Stock
resulting from the reverse stock split recommended by the Representatives of
the Underwriters is less than the number of shares resulting from a 4.444 for 5
reverse stock split, a 4.444 for 5 reverse stock split shall be implemented and
the number of shares of Group 1 Common Stock resulting from such 4.444 for 5
reverse stock split to be received by the shareholders of the Founding
Companies shall be further decreased proportionately to the number of shares
that would have been issued to the shareholders of the Founding Companies had
the reverse stock split recommended by the Representatives of the Underwriters
been implemented. If the number of shares of Group 1 Common Stock received by a
Stockholder pursuant to this Agreement includes a fractional share as a result
of a reverse stock split affecting the Group 1 Common Stock, such fractional
share shall be rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property owned
or leased by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not have a material adverse affect on
the business, assets, prospects or condition (financial or otherwise) of the
Company (a "Material Adverse Effect"). The Company Disclosure Letter sets forth
a list of the jurisdictions in which the Company is qualified to do business,
if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Oklahoma Motor Vehicle Commission, and
except to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
-3-
<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not control
directly or indirectly, or have any direct or indirect equity participation in
any individual, firm corporation, partnership, limited partnership, limited
liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 1,000 shares of the Class A Non-Voting Common Stock, of which 800
shares are issued and outstanding, and 1,000 shares of the Class B
Voting Common Stock, of which 200 shares are issued and outstanding
(no shares of either class being held in treasury). Each outstanding
share of the Company Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of any preemptive rights of any stockholder. Set forth in the Company
Disclosure Letter are the names and addresses (as reflected in the
corporate records of the Company) of each record holder of the Company
Common Stock, together with the number of shares held by each such
Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
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<PAGE> 9
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its operations and changes
in financial position as of the dates and for the periods indicated therein in
conformity with generally accepted accounting principles applied on a
consistent basis. The Company Financial Statements do not omit to state any
liabilities, absolute or contingent, required to be stated therein in
accordance with generally accepted accounting principles consistently applied.
All accounts receivable of the Company reflected in the Company 1996 Financial
Statements and as incurred since December 31, 1996 represent sales made in the
ordinary course of business, are collectible (net of any reserves for doubtful
accounts shown in the Company 1996 Financial Statements) in the ordinary course
of business and, except as set forth in the Company Disclosure Letter, are not
in dispute or subject to counterclaim, set-off or renegotiation. The Company
Disclosure Letter contains an aged schedule of accounts receivable included in
the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as a result of a change
in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
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(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From April 28, 1994 through the Closing Date, (a) the
Company continuously has been and will be an S Corporation within the
meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure Letter,
the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
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(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
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<PAGE> 13
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no
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<PAGE> 14
physical condition existing on any property ever owned or operated by the
Company nor are there any physical conditions existing on any other property
that may have been affected by the Company's operations which could give rise
to any material remedial obligation under any Environmental Laws or which could
result in any material liability to any third party pursuant to any
Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the Company
Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own,
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beneficially or of record, any capital stock or other security, including
without limitation any option, warrant or right entitling the holder thereof to
purchase or otherwise acquire any shares of capital stock of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or governmental agency or authority, federal, state,
foreign or local, is required by any applicable statute or other applicable law
or by any applicable judgment, order or decree or any applicable rule or
regulation of any court, tribunal or governmental agency or authority, federal,
state, foreign or local, to permit such Stockholder to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, or (d) with the passage of time or
the giving of notice or the taking of any action of any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a Material Adverse Effect on the Company or the ability of the
Company or such Stockholder to consummate the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute,
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<PAGE> 16
sell or otherwise dispose of any of those shares; (ii) such Stockholder is not
a party to any agreement or other arrangement for the disposition of any shares
of Group 1 Common Stock other than this Agreement; (iii) such Stockholder is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition for a period of two years from the Closing Date;
(vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and
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<PAGE> 17
performance of each instrument required hereby to be executed and delivered by
Group 1 at the Closing have been duly and validly authorized by all requisite
corporate action on the part of Group 1. This Agreement has been, and each
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing will then be, duly executed and delivered by Group 1. This
Agreement constitutes, and, to the extent it purports to obligate Group 1, each
such instrument will constitute (assuming due authorization, execution and
delivery by each other party thereto), the legal, valid and binding obligation
of Group 1, enforceable against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or government agency or authority, federal, state, foreign
or local, is required by any applicable statute or other applicable law or by
any applicable judgment, order or decree or any applicable rule or regulation
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local, to permit Group 1, to execute, deliver or consummate the
transactions contemplated by this Agreement or any instrument required hereby
to be executed and delivered by Group 1 at or prior to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share
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IPO price of Group 1 Common Stock, less applicable underwriting
discounts and a pro rata portion of expenses related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (x) the distribution of all
profits from January 1, 1997 through the Closing Date, calculated in
accordance with manufacturers accounting procedures and valuing
inventories on a FIFO basis, with profits for the month of Closing pro
rated based on the number of days up to and including the Closing Date
divided by the total number of days in the month, such profits to be
distributed within thirty (30) days of Closing, and (y) a return of
capital distribution in the amount of $1,700,000), (iv) redeem,
purchase or acquire or offer to acquire any of its capital stock, (v)
incur any indebtedness for
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borrowed money, or (vi) except in the ordinary course of business and
consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition
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is not consummated, the Company and the Stockholders will return all non-public
documents and other material obtained from Group 1 or its representatives in
connection with the transactions contemplated hereby or certify to Group 1 that
all such information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give prompt
notice to Group 1, orally and in writing, of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Closing or (ii) any material
failure of the Company, or any officer, director, employee or agent thereof, or
any Stockholder to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the Stockholders
hereby covenants and agrees not to sell, pledge, transfer, dispose of or
encumber any shares of Company Common Stock currently owned, either
beneficially or of record, by such Stockholder except pursuant to Section 9.5
of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
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<PAGE> 21
5.11 Removal of Related Party Guarantees.
(a) The Company and the Stockholders agree to take, or
cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to terminate, waive or
release all Company guarantees (such guarantees shall be referred to
herein as "Related Guarantees," as described in the Company Disclosure
Letter pursuant to Section 2.11 of this Agreement) of indebtedness or
other obligations of any of the Company's officers, directors,
shareholders or employees or their affiliates.
(b) Without limiting the generality of the foregoing
subsection 5.11(a), and in further consideration of Group 1 entering
into this Agreement, Robert E. Howard II hereby agrees to grant to
Group 1 an option to purchase the premises (the "Premises") located at
13130 N. Broadway Extension, in Oklahoma City, Oklahoma, to be
described more particularly at a later date in Exhibit A to the form
of Lease Agreement attached as Exhibit C hereto (the "Guaranty
Purchase Option"). The Guaranty Purchase Option shall be granted to
Group 1 pursuant to a written option agreement executed by Group 1 and
Robert E. Howard II, in form and substance satisfactory to Group 1,
such option agreement to be delivered to Group 1 on or before the
tenth (10th) day after the date hereof. The Guaranty Purchase Option
shall only be exercisable by written notice to Robert E. Howard II, on
a date (the "Guaranty Exercise Date") at any time after (i) the
expiration of ninety (90) days after the Closing Date, and (ii) the
failure of Robert E. Howard II to obtain full and complete written
releases (the "Required Releases") of all Related Guarantees of any
indebtedness which is secured by liens or security interests covering
the Premises (the "Indebtedness"). The Required Releases shall be
executed by the then current owner and holder of the Indebtedness. The
purchase price of the Guaranty Purchase Option shall be the principal
amount outstanding under the Indebtedness on the Guaranty Exercise
Date; provided, however, that the same has not been modified or
amended after the date hereof. The purchase of such premises shall
occur on or before thirty (30) days after the Guaranty Exercise Date,
and Robert E. Howard II shall deliver to Group 1 a Special Warranty
Deed and Bill of Sale, executed and acknowledged by Robert E. Howard
II covering such premises, subject to all matters currently affecting
such premises (except the Indebtedness), together with all other
documents customarily used for the sale of real property in Oklahoma.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements, except for those Related Party Agreements that
are disclosed in the Company Disclosure Letter as agreements that shall not be
subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Robert E. Howard II, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A attached hereto
(the "Founders Employment Agreement"), which agreement shall employ
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<PAGE> 22
Robert E. Howard II as President of Howard Group, and shall provide for an
annual salary of $300,000 and a term of five years.
5.15 GM Employment Agreement. Robert G. Masterson, hereby agrees to
enter on or prior to the Closing Date into an Employment Agreement
substantially in the form of Exhibit B attached hereto (the "GM Employment
Agreement").
5.16 Leases. Robert E. Howard II hereby agrees to enter on or prior
to the Closing Date into a lease with the Company, in form substantially
similar to the lease attached hereto as Exhibit C (the "Lease") covering the
properties owned by Robert E. Howard II identified on Exhibit C to the Lease,
including any changes that may be reasonably required by (i) any lender to
Robert E. Howard II or (ii) any automobile manufacturer with whom the Company
or any of its affiliates does business solely in connection with the properties
identified in Exhibit C to the Lease, in each case (i) or (ii) above, whose
consent must be obtained pursuant to any agreement with Robert E. Howard II
existing on the date hereof.
5.17 Subordination and Non-Disturbance Agreement. Robert E. Howard
II hereby agrees to grant to Group 1 an option to purchase the premises (the
"Premises") located at 13130 N. Broadway Extension, in Oklahoma City, Oklahoma,
to be described more particularly at a later date in Exhibit A to the Lease
(the "SNDA Purchase Option"). The SNDA Purchase Option shall be granted to
Group 1 pursuant to a written option agreement executed by Group 1 and Robert
E. Howard II, in form and substance satisfactory to Group 1, and delivered to
Group 1 on or before the tenth (10) day after the date hereof. The SNDA
Purchase Option shall be exercisable only by written notice to Robert E. Howard
II, on a date (the "SNDA Exercise Date") at any time after (i) the expiration
of ninety (90) days after the Closing Date, and (ii) the failure of Robert E.
Howard II to obtain a Mutual Recognition and Attornment Agreement in the form
required under Article 11 to the Lease ("SNDA"), in form and substance
reasonably satisfactory to Group 1, from each then current holder and owner of
any indebtedness which is secured by liens or security interests covering the
Premises (the "Indebtedness"). The SNDA Purchase Option may only be exercised
by Group 1 with respect to those premises for which a SNDA has not been
obtained. The purchase price of the SNDA Purchase Option shall be the principal
amount outstanding under that portion of the Indebtedness attributable to the
premises being purchased on the SNDA Exercise Date; provided, however, that the
same has not been modified or amended after the date hereof. The purchase of
such premises shall occur on or before thirty (30) days after the SNDA Exercise
Date, and Robert E. Howard II shall deliver to Group 1 a Special Warranty Deed
and Bill of Sale, executed and acknowledged by Robert E. Howard II covering the
premises being purchased, subject to all matters currently affecting such
premises (except the Indebtedness), together with all other documents
customarily used for the sale of real property in Oklahoma. Article 11(iv) of
the Lease shall be modified to the extent necessary to reflect the foregoing
provisions.
5.18 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for
issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
6.7 GM Employment Agreement. Group 1 hereby agrees to enter into
the GM Employment Agreement.
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ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the Acquisition
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1. The
obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
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prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements shall have been terminated
and all Related Guarantees shall have been terminated, waived or
released pursuant to Sections 5.11 and 5.12 hereto, except as
contemplated by Section 5.11(b).
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person
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controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of
this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.17, 5.18, 6.1, 6.4, 6.5,
8.2, 8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an
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"Indemnifying Party"), the Indemnified Party shall give prompt notice
to the Indemnifying Party and the Indemnifying Party shall assume the
defense thereof, including the employment of counsel reasonably
satisfactory to such Indemnified Party, and shall assume the payment
of all reasonable expenses of such defense. Such Indemnified Party
shall have the right to employ separate counsel in any such action or
proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified
Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses or (ii) the Indemnifying Party fails promptly to assume
the defense of such action or proceeding or fails to employ counsel
reasonably satisfactory to such Indemnified Party or (iii) the named
parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and Indemnifying Party
(or an Affiliate of the Indemnifying Party), and such Indemnified
Party shall have been advised by counsel that there is a conflict of
interest on the part of counsel employed by the Indemnifying Party to
represent such Indemnified Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing that it elects to
employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without
its written consent (which consent will not be unreasonably withheld),
but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group 1
on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be just
and equitable if contribution pursuant to this Section 8.2(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred
to in the first two sentences of this Section 8.2(d). The amount paid
or payable by an Indemnified Party as a result of the
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losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8.2(d), no Stockholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the securities of such Stockholder were offered
to the public exceeds the amount of any damages which such Stockholder
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)(1)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Robert E. Howard II (the "Designated
Stockholder") and Group 1 agree to the non-competition provisions of
this Section 8.3. The Designated Stockholder agree that during the
period of the Designated Stockholder's non-competition obligations
hereunder, the Designated Stockholder will not, directly or indirectly
for the Designated Stockholder or for others, in any geographic area
or market where Group 1 or any of its subsidiaries or affiliated
companies are conducting any business as of the date in question or
have during the previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section 8.3,
an "affiliate" of Group 1 is any person who directly,
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<PAGE> 29
or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholder understands that the
foregoing restrictions may limit his ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledges that the Designated Stockholder will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholder acknowledges
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholder, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholder under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholder's agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholder consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
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<PAGE> 30
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; (iii)
transfer shares by will or the laws of descent and distribution or otherwise by
reason of such Stockholder's death; and (iv) sell or transfer shares to Robert
E. Howard II pursuant to any repurchase right held by Robert E. Howard II
covering such shares, provided that Robert
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<PAGE> 31
E. Howard II shall agree not to sell or otherwise dispose of such shares for
the Restricted Period. The certificates evidencing the Group 1 Common Stock
delivered to each Stockholder pursuant to this Agreement will bear a legend
substantially in the form set forth below and containing such other information
as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement have not been and, if applicable,
will not be registered under the Securities Act and therefore may not be resold
by that Stockholder without compliance with the Securities Act and (ii)
covenants that none of the shares of Group 1 Common Stock issued to that
Stockholder pursuant to this Agreement will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the Commission and applicable state securities laws
and regulations. All certificates evidencing shares of Group 1 Common Stock
issued pursuant to this Agreement will bear the following legend in addition to
the legend prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or
-27-
<PAGE> 32
occur at all; (b) neither Group 1 or any of its representatives nor any
prospective underwriters in the IPO will have any liability to the Company, the
Stockholders or any of their respective affiliates or associates for any
failure of (i) the Registration Statement to become effective (provided,
however, that Group 1 will use its reasonable best efforts to cause the
Registration Statement to become effective prior to December 31, 1997) or (ii)
the IPO to occur at a particular price or within a particular range of prices
or to occur at all; and (c) the decision of Stockholders to enter into this
Agreement, has been or will be made independent of, and without reliance on,
any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to Group 1 or the IPO. The Underwriters shall have no
obligation to any of the Company and the Stockholders with respect to any
disclosure contained in the Registration Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
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<PAGE> 33
if to the Company: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
with a copy to: 6520 N. Western, Suite 100
Oklahoma City, Oklahoma 73114
Telecopy: (405) 848-5052
Attention: Randall K. Calvert
if to the Stockholders: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
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<PAGE> 34
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience only
and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as otherwise contemplated by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
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<PAGE> 35
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
BOB HOWARD CHEVROLET, INC.
By: /s/ ROBERT E. HOWARD II
-----------------------------------
Robert E. Howard II Secretary
STOCKHOLDERS:
/s/ ROBERT E. HOWARD II
---------------------------------------
Robert E. Howard II
/s/ ROBERT G. MASTERSON
---------------------------------------
Robert G. Masterson
/s/ DAVID L. MORTIZ
---------------------------------------
David L. Moritz
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<PAGE> 36
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
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<PAGE> 37
SCHEDULE II
<TABLE>
<CAPTION>
SHARES OF CLASS A NON- SHARES OF CLASS B SHARES OF GROUP 1
STOCKHOLDER VOTING COMMON STOCK VOTING COMMON STOCK COMMON STOCK(1)(2)
- ----------- ---------------------- ------------------- ------------------
<S> <C> <C> <C>
Robert E. Howard II . . . . . . . . . 450 200 (3)
Robert G. Masterson . . . . . . . . . 250 (4)
David L. Moritz . . . . . . . . . . . 100 55,008
</TABLE>
__________________________________
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
that shall be distributed to the Stockholders as result of the failure of Howard
Pontiac-GMC, Inc. and Group 1 to acquire the Chevrolet dealership in Tulsa,
Oklahoma, all in accordance with the provisions of the Stock Purchase Agreement
among Group 1, Howard Pontiac-GMC, Inc. and the stockholders of Howard
Pontiac-GMC, Inc. dated as of June 14, 1997.
(3) Robert E. Howard II is to receive 495,076 shares less the
quotient of 1,325,r000 divided by the per share IPO price of Group 1 Common
Stock. Any fractional share resulting from this calculation shall be rounded up
to the nearest whole share.
(4) Robert G. Masterson is to receive a number of shares equal to
1,325,000 divided by the per share IPO price of Group 1 Common Stock. Any
fractional share resulting from this calculation shall be rounded up to the
nearest whole share.
-33-
<PAGE> 38
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
-34-
<PAGE> 39
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
-35-
<PAGE> 40
EXHIBIT C
[LEASE]
-36-
<PAGE> 1
EXHIBIT 2.4
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
BOB HOWARD AUTOMOTIVE-H, INC.
AND
THE STOCKHOLDERS OF
BOB HOWARD AUTOMOTIVE-H, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE ACQUISITION
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 GM Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.16 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.17 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.18 Subordination and Non-Disturbance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 GM Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 19
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 20
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . . 20
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Bob Howard Automotive-H, Inc., an Oklahoma corporation (the
"Company"), and the Persons (defined in Section 2.6 below) listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In the
event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property owned
or leased by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not have a material adverse affect on
the business, assets, prospects or condition (financial or otherwise) of the
Company (a "Material Adverse Effect"). The Company Disclosure Letter sets forth
a list of the jurisdictions in which the Company is qualified to do business,
if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Oklahoma Motor Vehicle Commission, and
except to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
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<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not control
directly or indirectly, or have any direct or indirect equity participation in
any individual, firm corporation, partnership, limited partnership, limited
liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 5,000 shares of the Company Common Stock, of which 500 shares are
issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its
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<PAGE> 9
operations and changes in financial position as of the dates and for the
periods indicated therein in conformity with generally accepted accounting
principles applied on a consistent basis. The Company Financial Statements do
not omit to state any liabilities, absolute or contingent, required to be
stated therein in accordance with generally accepted accounting principles
consistently applied. All accounts receivable of the Company reflected in the
Company 1996 Financial Statements and as incurred since December 31, 1996
represent sales made in the ordinary course of business, are collectible (net
of any reserves for doubtful accounts shown in the Company 1996 Financial
Statements) in the ordinary course of business and, except as set forth in the
Company Disclosure Letter, are not in dispute or subject to counterclaim,
set-off or renegotiation. The Company Disclosure Letter contains an aged
schedule of accounts receivable included in the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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<PAGE> 10
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as
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<PAGE> 11
a result of a change in accounting method for any taxable period
ending on or before the Closing Date or pursuant to any agreement with
any Tax authority with respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From January 1, 1995 through the Closing Date, (a)
the Company continuously has been and will be an S Corporation within
the meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure Letter,
the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
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<PAGE> 12
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since
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receipt of the most recent favorable determination letter,
been amended or operated in a way which would adversely affect
such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential
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business information, trademarks, service marks or trade names, used in or
pertaining to the business of the Company, except for the normal rights of
employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the Company
Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
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<PAGE> 15
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or governmental agency or authority, federal, state,
foreign or local, is required by any applicable statute or other applicable law
or by any applicable judgment, order or decree or any applicable rule or
regulation of any court, tribunal or governmental agency or authority, federal,
state, foreign or local, to permit such Stockholder to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation,
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<PAGE> 16
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
court, tribunal or governmental agency or authority, federal, state, foreign or
local, or (d) with the passage of time or the giving of notice or the taking of
any action of any third party have any of the effects set forth in clause (a),
(b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or
(d) of this Section, where such matter would not have a Material Adverse Effect
on the Company or the ability of the Company or such Stockholder to consummate
the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares; (ii) such Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of Group 1 Common Stock other
than this Agreement; (iii) such Stockholder, other than Brett Mosley, is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition for a period of two years from the Closing Date;
(vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or government agency or authority, federal, state, foreign
or local, is required by any applicable statute or other applicable law or by
any applicable judgment, order or decree or any applicable rule or regulation
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local, to permit Group 1, to execute, deliver or consummate the
transactions contemplated by this Agreement or any instrument required hereby
to be executed and delivered by Group 1 at or prior to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
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<PAGE> 18
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
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<PAGE> 19
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (x) the distribution of all
profits from January 1, 1997 through the Closing Date, calculated in
accordance with manufacturers accounting procedures and valuing
inventories on a FIFO basis, with profits for the month of Closing pro
rated based upon the number of days up to and including the Closing
Date divided by the total number of days in the month, such profits to
be distributed within thirty (30) days of closing, and (y) a return of
capital distribution in the amount of $1,320,000), (iv) redeem,
purchase or acquire or offer to acquire any of its capital stock, (v)
incur any indebtedness for borrowed money, or (vi) except in the
ordinary course of business and consistent with past practice, enter
into any contract, agreement, commitment or arrangement with respect
to any of the matters set forth in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan
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or arrangement, incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment agreement or any
other employee benefit plan, agreement, arrangement, program, practice
or understanding (other than the Plans and the Benefit Programs or
Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give prompt
notice to Group 1, orally and in writing, of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Closing or (ii) any material
failure of the Company, or any officer, director, employee or agent thereof, or
any Stockholder to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the Stockholders
hereby covenants and agrees not to sell, pledge, transfer, dispose of or
encumber any shares of Company Common Stock currently owned, either
beneficially or of record, by such Stockholder except pursuant to Section 9.5
of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or
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any misappropriation or disclosure of any trade secret, confidential
information or know-how that forms a part of the Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements, except for those Related Party Agreements that
are disclosed in the Company Disclosure Letter as agreements that shall not be
subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Robert E. Howard II, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A attached hereto
(the "Founders Employment Agreement"), which agreement shall employ Robert E.
Howard II as President of Howard Group, and shall provide for an annual salary
of $300,000 and a term of five years.
5.15 GM Employment Agreements. Harold J. Steinke and Brett Mosley
hereby agree to enter on or prior to the Closing Date into Employment
Agreements substantially in the form of Exhibit B attached hereto (the "GM
Employment Agreements").
5.16 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
5.17 Leases. Robert E. Howard II hereby agrees to cause North
Broadway Real Estate, L.L.C. to enter on or prior to the Closing Date into a
lease with the Company, in form substantially similar to the
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lease attached hereto as Exhibit C (the "Lease") covering the properties owned
by North Broadway Real Estate, L.L.C. identified on Exhibit C to the Lease,
including any changes that may be reasonably required by (i) any lender to
North Broadway Real Estate, L.L.C. or (ii) any automobile manufacturer with
whom the Company or any of its affiliates does business solely in connection
with the properties identified in Exhibit C to the Lease, in each case (i) or
(ii) above, whose consent must be obtained pursuant to any agreement with North
Broadway Real Estate, L.L.C. existing on the date hereof.
5.18 Subordination and Non-Disturbance Agreement. Robert E. Howard
II hereby agrees to cause North Broadway Real Estate, L.L.C., an Oklahoma
limited liability company ("North Broadway"), to grant to Group 1 an option to
purchase the premises (the "Premises") located at 3700 S. Broadway, in Edmond,
Oklahoma, to be described more particularly at a later date in Exhibit A to the
Lease (the "SNDA Purchase Option"). The SNDA Purchase Option shall be granted
to Group 1 pursuant to a written option agreement executed by Group 1 and North
Broadway, in form and substance satisfactory to Group 1, and delivered to Group
1 on or before the tenth (10) day after the date hereof. The SNDA Purchase
Option shall be exercisable only by written notice to North Broadway, on a date
(the "SNDA Exercise Date") at any time after (i) the expiration of ninety (90)
days after the Closing Date, and (ii) the failure of North Broadway to obtain a
Mutual Recognition and Attornment Agreement in the form required under Article
11 to the Lease ("SNDA"), in form and substance reasonably satisfactory to
Group 1, from each then current holder and owner of any indebtedness which is
secured by liens or security interests covering the Premises (the
"Indebtedness"). The SNDA Purchase Option may only be exercised by Group 1 with
respect to those premises for which a SNDA has not been obtained. The purchase
price of the SNDA Purchase Option shall be the principal amount outstanding
under that portion of the Indebtedness attributable to the premises being
purchased on the SNDA Exercise Date; provided, however, that the same has not
been modified or amended after the date hereof. The purchase of such premises
shall occur on or before thirty (30) days after the SNDA Exercise Date, and
North Broadway shall deliver to Group 1 a Special Warranty Deed and Bill of
Sale, executed and acknowledged by North Broadway covering the premises being
purchased, subject to all matters currently affecting such premises (except the
Indebtedness), together with all other documents customarily used for the sale
of real property in Oklahoma. Article 11(iv) of the Lease shall be modified to
the extent necessary to reflect the foregoing provisions.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
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6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for
issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
6.7 GM Employment Agreements. Group 1 hereby agrees to enter into
the GM Employment Agreements.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the Acquisition
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
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(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1. The
obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
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(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.16, 5.18, 6.1, 6.4, 6.5,
8.2, 8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an
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underwritten public offering or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages,
liabilities or expenses arise out of, or are based upon, any such
untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without
its written consent (which consent will not be unreasonably withheld),
but if settled with its written consent, or if there be a final
judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above)
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by reason of such settlement or judgment. The Indemnifying Party shall
not consent to entry of any judgment or enter into any settlement that
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release, in form
and substance reasonably satisfactory to the Indemnified Party, from
all liability in respect of such action or proceeding for which such
Indemnified Party would be entitled to indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group 1
on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be just
and equitable if contribution pursuant to this Section 8.2(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred
to in the first two sentences of this Section 8.2(d). The amount paid
or payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities or judgments referred to in Sections 8.2(a) and
8.2(b) hereof shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
Section 8.2(d), no Stockholder shall be required to contribute any
amount in excess of the amount by which the total price at which the
securities of such Stockholder were offered to the public exceeds the
amount of any damages which such Stockholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f)(1) of the
Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Robert E. Howard II (the "Designated
Stockholder") and Group 1 agree to the non-competition provisions of
this Section 8.3. The Designated Stockholder agrees that during the
period of the Designated Stockholder's non-competition obligations
hereunder, the Designated Stockholder will not, directly or indirectly
for the Designated Stockholder or for others, in any geographic area
or market where Group 1 or any of its subsidiaries or affiliated
companies are conducting any business as of the date in question or
have during the previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
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(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section 8.3,
an "affiliate" of Group 1 is any person who directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or
is under common control with, Group 1.
(b) The Designated Stockholder understands that the
foregoing restrictions may limit his ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledges that the Designated Stockholder will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholder acknowledges
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholder, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholder under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholder's agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholder consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be
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modified by such courts so as to be reasonable and enforceable and,
as so modified by the court, to be fully enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
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Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; (iii)
transfer shares by will or the laws of descent and distribution or otherwise by
reason of such Stockholder's death; and (iv) sell or transfer shares to Robert
E. Howard II pursuant to any repurchase right held by Robert E. Howard II
covering such shares, provided that Robert E. Howard II shall agree not to sell
or otherwise dispose of such shares for the Restricted Period. The certificates
evidencing the Group 1 Common Stock delivered to each Stockholder pursuant to
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement have not been and, if applicable,
will not be registered under the Securities Act and therefore may not be resold
by that Stockholder without compliance with the Securities Act and (ii)
covenants that none of the shares
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of Group 1 Common Stock issued to that Stockholder pursuant to this Agreement
will be offered, sold, assigned, pledged, hypothecated, transferred or
otherwise disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the
Commission and applicable state securities laws and regulations. All
certificates evidencing shares of Group 1 Common Stock issued pursuant to this
Agreement will bear the following legend in addition to the legend prescribed
by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
-27-
<PAGE> 32
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
with a copy to: 6520 N. Western, Suite 100
Oklahoma City, Oklahoma 73114
Telecopy: (405) 848-5052
Attention: Randall K. Calvert
if to the Stockholders: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 936-8851
Attention: Robert E. Howard II
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice
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<PAGE> 33
to Stockholders hereunder shall constitute delivery to all Stockholders and any
notice given by such Stockholders' representative shall be deemed to be notice
given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience only
and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as otherwise contemplated by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
-29-
<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
BOB HOWARD AUTOMOTIVE-H, INC.
By: /s/ ROBERT E. HOWARD II
-----------------------------------
Robert E. Howard II Secretary
STOCKHOLDERS:
/s/ ROBERT E. HOWARD II
---------------------------------------
Robert E. Howard II
/s/ HAROLD J. STEINKE III
---------------------------------------
Harold J. Steinke III
/s/ BRETT MOSLEY
---------------------------------------
Brett Mosley
-30-
<PAGE> 35
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
-31-
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock(1)(2)(3)
- ----------- ----------------- ---------------------
<S> <C> <C>
Robert E. Howard II . . . . . . . . . . . . . . . 355
Harold J. Steinke . . . . . . . . . . . . . . . . 125
Brett Mosley . . . . . . . . . . . . . . . . . . . 20
</TABLE>
__________________________________
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
that shall be distributed to the Stockholders as result of the failure of Howard
Pontiac-GMC, Inc. and Group 1 to acquire the Chevrolet dealership in Tulsa,
Oklahoma, all in accordance with the provisions of the Stock Purchase Agreement
among Group 1, Howard Pontiac-GMC, Inc. and the stockholders of Howard
Pontiac-GMC, Inc. dated as of June 14, 1997.
(3) The shares of Group 1 Common Stock to be received by each
Stockholder shall be determined as follows: (i) Robert E. Howard II is to
receive 312,020 shares less the quotient of 1,670,000 divided by the per share
IPO price of Group 1 Common Stock (the "IPO Price"); (ii) Harold J. Steinke is
to receive a number of shares equal to 1,420,000 divided by the IPO Price; and
(iii) Brett Mosley is to receive a number of shares equal to 250,000 divided by
the IPO Price. Any fractional shares resulting from these calculations shall be
rounded up to the nearest whole share.
-32-
<PAGE> 37
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
-33-
<PAGE> 38
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
-34-
<PAGE> 39
EXHIBIT C
[LEASE]
-35-
<PAGE> 1
EXHIBIT 2.5
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
BOB HOWARD DODGE, INC.
AND
THE STOCKHOLDERS OF
BOB HOWARD DODGE, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE ACQUISITION
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.16 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.7 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 18
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 19
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . . 20
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 20
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Bob Howard Dodge, Inc., an Oklahoma corporation (the "Company"),
and the Persons (defined in Section 2.6 below) listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $.01 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of Class A common stock, par value $1.00 per
share of the Company ("Class A Voting Common Stock"), and that number of shares
of Class B non-voting common stock, par value $1.00 per share of the Company
("Class B Non-Voting Common Stock, and together with the Class A Voting Common
Stock, the "Company Common Stock") as set forth opposite their respective names
in Schedule II hereto in exchange for that number of shares of common stock,
par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth opposite
their respective names in Schedule II hereto (as may be appropriately adjusted
for stock splits, reverse stock splits and/or stock dividends). In the event
that the Board of Directors of Group 1 approves a reverse stock split upon the
recommendation of the Representatives of the Underwriters in connection with
the IPO, the number of shares of Group 1 Common Stock to be received by the
shareholders of the Founding Companies shall be decreased proportionately as a
result of the reverse stock split; provided, however, that in the event that
the number of shares of Group 1 Common Stock resulting from the reverse stock
split recommended by the Representatives of the Underwriters is less than the
number of shares resulting from a 4.444 for 5 reverse stock split, a 4.444 for
5 reverse stock split shall be implemented and the number of shares of Group 1
Common Stock resulting from such 4.444 for 5 reverse stock split to be received
by the shareholders of the Founding Companies shall be further decreased
proportionately to the number of shares that would have been issued to the
shareholders of the Founding Companies had the reverse stock split recommended
by the Representatives of the Underwriters been implemented. If the number of
shares of Group 1 Common Stock received by a Stockholder pursuant to this
Agreement includes a fractional share as a result of a reverse stock split
affecting the Group 1 Common Stock, such fractional share shall be rounded up
to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property owned
or leased by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not have a material adverse affect on
the business, assets, prospects or condition (financial or otherwise) of the
Company (a "Material Adverse Effect"). The Company Disclosure Letter sets forth
a list of the jurisdictions in which the Company is qualified to do business,
if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Oklahoma Motor Vehicle Commission, and
except to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
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<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not control
directly or indirectly, or have any direct or indirect equity participation in
any individual, firm corporation, partnership, limited partnership, limited
liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 10,000 shares of the Class A Voting Common Stock, of which 750
shares are issued and outstanding and 40,000 shares of Class B
Non-Voting Common Stock, of which 250 shares are issued and
outstanding (no shares of either class being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
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<PAGE> 9
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its operations and changes
in financial position as of the dates and for the periods indicated therein in
conformity with generally accepted accounting principles applied on a
consistent basis. The Company Financial Statements do not omit to state any
liabilities, absolute or contingent, required to be stated therein in
accordance with generally accepted accounting principles consistently applied.
All accounts receivable of the Company reflected in the Company 1996 Financial
Statements and as incurred since December 31, 1996 represent sales made in the
ordinary course of business, are collectible (net of any reserves for doubtful
accounts shown in the Company 1996 Financial Statements) in the ordinary course
of business and, except as set forth in the Company Disclosure Letter, are not
in dispute or subject to counterclaim, set-off or renegotiation. The Company
Disclosure Letter contains an aged schedule of accounts receivable included in
the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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<PAGE> 10
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as
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<PAGE> 11
a result of a change in accounting method for any taxable period
ending on or before the Closing Date or pursuant to any agreement with
any Tax authority with respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From April 8, 1996 through the Closing Date, (a) the
Company continuously has been and will be an S Corporation within the
meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure Letter,
the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
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<PAGE> 12
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since
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<PAGE> 13
receipt of the most recent favorable determination letter,
been amended or operated in a way which would adversely affect
such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential
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<PAGE> 14
business information, trademarks, service marks or trade names, used in or
pertaining to the business of the Company, except for the normal rights of
employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the Company
Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or governmental agency or authority, federal, state,
foreign or local, is required by any applicable statute or other applicable law
or by any applicable judgment, order or decree or any applicable rule or
regulation of any court, tribunal or governmental agency or authority, federal,
state, foreign or local, to permit such Stockholder to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation,
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forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
court, tribunal or governmental agency or authority, federal, state, foreign or
local, or (d) with the passage of time or the giving of notice or the taking of
any action of any third party have any of the effects set forth in clause (a),
(b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or
(d) of this Section, where such matter would not have a Material Adverse Effect
on the Company or the ability of the Company or such Stockholder to consummate
the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares; (ii) such Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of Group 1 Common Stock other
than this Agreement; (iii) such Stockholder, other than Jeff Powell, is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition for a period of two years from the Closing Date;
(vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, the Oklahoma Used Motor Vehicle and Parts
Commission and the Oklahoma Motor Vehicle Commission, no filing or registration
with, and no consent, approval, authorization, permit, certificate or order of
any court, tribunal or government agency or authority, federal, state, foreign
or local, is required by any applicable statute or other applicable law or by
any applicable judgment, order or decree or any applicable rule or regulation
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local, to permit Group 1, to execute, deliver or consummate the
transactions contemplated by this Agreement or any instrument required hereby
to be executed and delivered by Group 1 at or prior to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
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<PAGE> 18
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
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<PAGE> 19
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (x) the distribution of all
profits from January 1, 1997 through the Closing Date, calculated in
accordance with manufacturers accounting procedures and valuing
inventories on a FIFO basis, with such profits for the month of
Closing pro rated based on the number of days up to and including the
Closing Date divided by the total number of days in the month, such
profits to be distributed within thirty (30) days of closing, and (x)
a return of capital distribution in the amount of $680,000), (iv)
redeem, purchase or acquire or offer to acquire any of its capital
stock, (v) incur any indebtedness for borrowed money, or (vi) except
in the ordinary course of business and consistent with past practice,
enter into any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt
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or enter into any personnel policy, stock option plan, collective
bargaining agreement, bonus plan or arrangement, incentive award plan
or arrangement, vacation policy, severance pay plan, policy or
agreement, deferred compensation agreement or arrangement, executive
compensation or supplemental income arrangement, consulting agreement,
employment agreement or any other employee benefit plan, agreement,
arrangement, program, practice or understanding (other than the Plans
and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give prompt
notice to Group 1, orally and in writing, of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Closing or (ii) any material
failure of the Company, or any officer, director, employee or agent thereof, or
any Stockholder to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the Stockholders
hereby covenants and agrees not to sell, pledge, transfer or dispose of or
encumber any shares of Company Common Stock currently owned, either
beneficially or of record, by such Stockholder except pursuant to Section 9.5
of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic
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<PAGE> 21
patent, trademark, service mark, trade name or copyright that forms a part of
the Intellectual Property or any misappropriation or disclosure of any trade
secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Robert E. Howard II, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A (the "Employment
Agreement"), which agreement shall employ Robert E. Howard II as President of
Howard Group, and shall provide for an annual salary of $300,000 and a term of
five years.
5.15 GM Employment Agreement. Jeff Powell, a Stockholder, hereby
agrees to enter on or prior to the Closing Date into an Employment Agreement
substantially in the form of Exhibit B attached hereto (the "GM Employment
Agreement").
5.16 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for
issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
6.7 GM Employment Agreement. Group 1 hereby agrees to enter into
the GM Employment Agreement.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the Acquisition
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
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(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1. The
obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto.
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(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.16, 6.1, 6.4, 6.5, 8.2,
8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in,
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or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or
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<PAGE> 26
proceeding (including any impleaded parties) include both such
Indemnified Party and Indemnifying Party (or an Affiliate of the
Indemnifying Party), and such Indemnified Party shall have been
advised by counsel that there is a conflict of interest on the part of
counsel employed by the Indemnifying Party to represent such
Indemnified Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party). Notwithstanding the
foregoing, the Indemnifying Party shall not, in connection with any
one such action or proceeding or separate but substantially similar
related actions or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable at any time
for the fees and expenses of more than one separate firm of attorneys
(together in each case with appropriate local counsel). The
Indemnifying Party shall not be liable for any settlement of any such
action or proceeding effected without its written consent (which
consent will not be unreasonably withheld), but if settled with its
written consent, or if there be a final judgment for the plaintiff in
any such action of proceeding, the Indemnifying Party shall indemnify
and hold harmless such Indemnified Party from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment. The Indemnifying Party shall not consent to entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release, in form and substance reasonably
satisfactory to the Indemnified Party, from all liability in respect
of such action or proceeding for which such Indemnified Party would be
entitled to indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group 1
on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be just
and equitable if contribution pursuant to this Section 8.2(d) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred
to in the first two sentences of this Section 8.2(d). The amount paid
or payable by an Indemnified Party as a result of the losses, claims,
damages, liabilities or judgments referred to in Sections 8.2(a) and
8.2(b) hereof shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this
Section 8.2(d), no Stockholder shall be required to contribute any
amount in excess of the amount by which the total price at which the
securities of such Stockholder were offered to the public exceeds the
amount of any damages which such Stockholder has otherwise been
required to pay by reason of such untrue or alleged untrue statement
or omission or alleged omission. No Person guilty of fraudulent
-22-
<PAGE> 27
misrepresentation (within the meaning of Section 11(f)(1) of the
Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Robert E. Howard II (the "Designated
Stockholder") and Group 1 agree to the non-competition provisions of
this Section 8.3. The Designated Stockholder agrees that during the
period of the Designated Stockholder's non-competition obligations
hereunder, the Designated Stockholder will not, directly or indirectly
for the Designated Stockholder or for others, in any geographic area
or market where Group 1 or any of its subsidiaries or affiliated
companies are conducting any business as of the date in question or
have during the previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section 8.3,
an "affiliate" of Group 1 is any person who directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or
is under common control with, Group 1.
(b) The Designated Stockholder understands that the
foregoing restrictions may limit his ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledges that the Designated Stockholder will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholder acknowledges
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholder, and Group 1 or any of
its subsidiaries or
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<PAGE> 28
affiliates shall be entitled to enforce the provisions of this Section
8.3 by terminating any payments then owing to the Designated
Stockholder under this Agreement and/or to specific performance and
injunctive relief as remedies for such breach or any threatened
breach, without any requirement for the securing or posting of any
bond in connection with such remedies. Such remedies shall not be
deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholder's agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholder consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
-24-
<PAGE> 29
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; (iii)
transfer shares by will or the laws of descent and distribution or otherwise by
reason of such Stockholder's death; and (iv) sell or transfer shares to Robert
E. Howard II pursuant to any repurchase right held by Robert E. Howard II
covering such shares, provided that Robert E. Howard II shall agree not to sell
or otherwise dispose of such shares for the Restricted Period. The certificates
evidencing the Group 1 Common Stock delivered to each Stockholder pursuant to
this Agreement will bear a legend substantially in the form set forth below and
containing such other information as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE,
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<PAGE> 30
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER
DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-YEAR PERIOD ENDING
ON ______________ [DATE THAT IS THE SECOND-ANNIVERSARY OF THE CLOSING
DATE] (THE "RESTRICTED PERIOD"). ON THE WRITTEN REQUEST OF THE HOLDER
OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE
LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE
DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Group 1 Common Stock to be
delivered to that Stockholder pursuant to this Agreement have not been and, if
applicable, will not be registered under the Securities Act and therefore may
not be resold by that Stockholder without compliance with the Securities Act
and (ii) covenants that none of the shares of Group 1 Common Stock issued to
that Stockholder pursuant to this Agreement will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the Commission and applicable state securities laws
and regulations. All certificates evidencing shares of Group 1 Common Stock
issued pursuant to this Agreement will bear the following legend in addition to
the legend prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
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<PAGE> 31
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 963-8851
Attention: Robert E. Howard II
with a copy to: 6520 N. Western, Suite 100
Oklahoma City, Oklahoma 73116
Telecopy: (405) 848-5052
Attention: Randall K. Calvert
if to the Stockholders: 13300 N. Broadway Extension
Oklahoma City, Oklahoma 73114
Telecopy: (405) 963-8851
Attention: Robert E. Howard II
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<PAGE> 32
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience only
and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
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<PAGE> 33
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
BOB HOWARD DODGE, INC.
By: /s/ ROBERT E. HOWARD II
-----------------------------------
Robert E. Howard II Secretary
STOCKHOLDERS:
/s/ ROBERT E. HOWARD II
---------------------------------------
Robert E. Howard II
/s/ JEFF POWELL
---------------------------------------
Jeff Powell
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<PAGE> 34
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
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<PAGE> 35
SCHEDULE II
<TABLE>
<CAPTION> Shares of Class B
Shares of Class A Non-Voting Shares of Group 1
Stockholder Voting Common Stock Common Stock Common Stock(1)(2)
- ----------- ------------------- ----------------- ------------------
<S> <C> <C> <C>
Robert E. Howard II . . . . . . . . . 750 (3)
Jeff Powell . . . . . . . . . . . . . 250 (4)
</TABLE>
__________________________________
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
that shall be distributed to the Stockholders as result of the failure of Howard
Pontiac-GMC, Inc. and Group 1 to acquire the Chevrolet dealership in Tulsa,
Oklahoma, all in accordance with the provisions of the Stock Purchase Agreement
among Group 1, Howard Pontiac-GMC, Inc. and the stockholders of Howard
Pontiac-GMC, Inc. dated as of June 14, 1997.
(3) Robert E. Howard II is to receive 216,841 shares less the quotient
of 1,030,000 divided by the per share IPO price of Group 1 Common Stock. Any
fractional share resulting from this calculation shall be rounded up to the
nearest whole share.
(4) Jeff Powell is to receive a number of shares equal to 1,030,000
divided by the per share IPO price of Group 1 Common Stock. Any fractional
share resulting from this calculation shall be rounded up to the nearest whole
share.
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<PAGE> 36
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
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<PAGE> 37
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
-33-
<PAGE> 1
EXHIBIT 2.6
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
SOUTHWEST TOYOTA, INC.
AND
THE STOCKHOLDERS OF
SOUTHWEST TOYOTA, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE ACQUISITION
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 15
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Subordination and Non-Disturbance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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6.6 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 19
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 20
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 21
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
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STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Southwest Toyota, Inc., a Texas corporation (the "Company"), and
the Persons (defined in Section 2.6 below) listed on the signature pages hereof
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
1
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
2
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
3
<PAGE> 8
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter pursuant to Section 2.4) (a)
violate or breach the terms of or cause a default under (i) any applicable
federal, state, foreign or local statute or other applicable law, (ii) any
applicable judgment, order or decree or any applicable rule or regulation of
any federal, state, foreign or local court, tribunal or governmental agency or
authority, (iii) any applicable permits received from any federal, state,
foreign or local governmental agency, (iv) the articles of incorporation or
bylaws of the Company, or (v) any contract or agreement to which the Company is
a party or by which it, or any of its properties, is bound, or (b) result in
the creation or imposition of any lien, claim or encumbrance on any of the
properties or assets of the Company, or (c) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
federal, state, foreign or local court, tribunal or governmental agency or
authority, or (d) with the passage of time or the giving of notice or the
taking of any action of any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 500,000 shares of the Company Common Stock, of which 70,278 shares
are issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company
4
<PAGE> 9
as of December 31, 1995 and 1994, and the related unaudited statements of
income, changes in stockholders' equity and cash flows for the calendar years
then ended (including the notes thereto) (collectively with the Company 1996
Financial Statements, the "Company Financial Statements"). The Company
Financial Statements present fairly the financial position of the Company and
the results of its operations and changes in financial position as of the dates
and for the periods indicated therein in conformity with generally accepted
accounting principles applied on a consistent basis. The Company Financial
Statements do not omit to state any liabilities, absolute or contingent,
required to be stated therein in accordance with generally accepted accounting
principles consistently applied. All accounts receivable of the Company
reflected in the Company 1996 Financial Statements and as incurred since
December 31, 1996 represent sales made in the ordinary course of business, are
collectible (net of any reserves for doubtful accounts shown in the Company
1996 Financial Statements) in the ordinary course of business and, except as
set forth in the Company Disclosure Letter, are not in dispute or subject to
counterclaim, set-off or renegotiation. The Company Disclosure Letter contains
an aged schedule of accounts receivable included in the Company Financial
Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this
5
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Agreement. Notwithstanding the preceding sentence, the Company makes no
representation regarding, and need not disclose, increases in compensation (of
the type contemplated in Section 5.3(f)) since December 31, 1996, for any
employee who after such increase would receive annual compensation of less than
$50,000.
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
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(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as a result of a change
in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
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2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multi employer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
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from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
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2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director, of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, is required by any applicable
statute or other applicable law or by any applicable judgment, order or decree
or any applicable rule or regulation of any court, tribunal or governmental
agency or authority, federal, state, foreign or local, to permit such
Stockholder to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it,
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or any of its properties, is bound, or (b) result in the creation or imposition
of any lien, claim or encumbrance on any of the properties or assets of such
Stockholder, or (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit, certificate or order of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, or (d) with
the passage of time or the giving of notice or the taking of any action of any
third party have any of the effects set forth in clause (a), (b) or (c) of this
Section, except, with respect to clauses (a), (b), (c) or (d) of this Section,
where such matter would not have a Material Adverse Effect on the Company or
the ability of the Company or such Stockholder to consummate the transactions
contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares; (ii) such Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of Group 1 Common Stock other
than this Agreement; (iii) such Stockholder (other than Rebecca Carder, SBM-T
Family Limited Partnerships and Gulf Coast Family Limited Partnership) is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition for a period of two years from the Closing Date;
(vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1
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with written opinion of counsel opining that the proposed disposition would not
require registration of any securities under federal or state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with
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the passage of time or the giving of notice or the taking of any action by any
third party have any of the effects set forth in clause (a), (b) or (c) of this
Section, except, with respect to clauses (a), (b), (c) or (d) of this Section,
where such matter would not have a material adverse effect on the business,
assets, prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock , less
applicable underwriting discounts and a prorata portion of expenses
relating to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
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5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding, (iv) redeem, purchase or acquire or
offer to acquire any of its capital stock, (v) incur any indebtedness
for borrowed money, or (vi) except in the ordinary course of business
and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
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(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring any costs to third parties) to defend against and
respond thereto.
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5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock currently owned,
either beneficially or of record, by such Stockholder, except pursuant to
Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act of 1933, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Employment Agreements. Sterling B. McCall, Jr. and Kevin H.
Whalen hereby agree to enter into, on or prior to the Closing Date, Employment
Agreements substantially in the form of Exhibit A attached hereto (the
"Employment Agreements"), which agreements shall (i) employ Sterling B. McCall,
Jr. as President of McCall Group, provide for an annual salary of $300,000 and
have a term of
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five years and (ii) employ Kevin H. Whalen as Chief Operating Officer of McCall
Group, provide for an annual salary of $300,000 and have a term of five years.
5.15 Leases. Sterling B. McCall, Jr. hereby agrees to enter into,
or cause his affiliates to enter into, on or prior to the Closing Date, leases
with the Company, in form substantially similar to the lease attached hereto as
Exhibit B (the "Lease") covering the properties owned by Sterling B. McCall,
Jr. or his affiliates identified on Exhibit C to the Lease, including any
changes that may be reasonably required by (i) any lender to Sterling B.
McCall, Jr. or any of his affiliates or (ii) any automobile manufacturer with
whom the Company or any of its affiliates does business solely in connection
with the properties identified in Exhibit C to the Lease, in each case (i) or
(ii) above, whose consent must be obtained pursuant to any agreement with
Sterling B. McCall, Jr. or any of his affiliates existing on the date hereof.
5.16 Subordination and Non-Disturbance Agreement. Sterling B.
McCall, Jr. ("McCall") hereby agrees to cause his affiliates SBM-T I&E Family
Limited Partnership, SBM-T Family Limited Partnership, SMC Investment, Inc. and
Dodge Financial Family Limited Partnership to grant to Group 1 an option to
purchase the premises (the "Premises") located at 9400 Southwest Freeway and
6015 Skyline each in Houston, Texas, to be described more particularly at a
later date in Exhibit A to the Lease (the "SNDA Purchase Option"). The SNDA
Purchase Option shall be granted to Group 1 pursuant to a written option
agreement executed by Group 1 and the appropriate McCall affiliate, in form and
substance satisfactory to Group 1, and delivered to Group 1 on or before the
tenth (10th) day after the date hereof. The SNDA Purchase Option shall be
exercisable only by written notice to the appropriate McCall affiliate, on a
date (the "SNDA Exercise Date") at any time after (i) the expiration of ninety
(90) days after the Closing Date, and (ii) the failure of the appropriate
McCall affiliate to obtain a Mutual Recognition and Attornment Agreement in the
form required under Article 11 to the Lease ("SNDA"), in form and substance
reasonably satisfactory to Group 1, from each then current holder and owner of
any indebtedness which is secured by liens or security interests covering the
Premises (the "Indebtedness"). The SNDA Purchase Option may only be exercised
by Group 1 with respect to those premises for which a SNDA has not been
obtained. The purchase price of the SNDA Purchase Option shall be the
principal amount outstanding under that portion of the Indebtedness
attributable to the premises being purchased on the SNDA Exercise Date;
provided, however, that the same has not been modified or amended after the
date hereof. The purchase of such premises shall occur on or before thirty
(30) days after the SNDA Exercise Date, and the appropriate McCall affiliate
shall deliver to Group 1 a Special Warranty Deed and Bill of Sale, executed and
acknowledged by such affiliate covering the premises being purchased, subject
to all matters currently affecting such premises (except the Indebtedness),
together with all other documents customarily used for the sale of real
property in Texas. Article 11(iv) of the Lease shall be modified to the extent
necessary to reflect the foregoing provisions.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated
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hereby or as necessary to the operation of Group 1's business; and (iii) for
information which becomes publicly available other than through the actions of
Group 1. In the event the Acquisition is not consummated, Group 1 will return
all non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Employment Agreement. Group 1 hereby agrees to enter into the
Employment Agreements.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which
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the failure to obtain would have a material adverse effect on the
business, assets, prospects or condition (financial or otherwise) of
Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto, except as permitted under Section 5.12 hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not
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have suffered any damage, destruction or loss (whether or not covered
by insurance) materially adversely affecting the properties or
business of the Company, and Group 1 shall have received a certificate
signed by the chief executive officer of the Company dated the Closing
Date to such effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.16, 6.1, 6.4, 6.5, 8.2,
8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
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8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such
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Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified
Party). Notwithstanding the foregoing, the Indemnifying Party shall
not, in connection with any one such action or proceeding or separate
but substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group
1 on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 8.2(d)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences of this Section 8.2(d). The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8.2(d), no Stockholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the securities of such Stockholder were offered
to the public exceeds the amount of any damages which such Stockholder
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)(1)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
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8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Sterling B. McCall, Jr. and Kevin H.
Whalen (the "Designated Stockholders"), and Group 1 agree to the
non-competition provisions of this Section 8.3. The Designated
Stockholders agree that during the period of the Designated
Stockholder's non-competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its subsidiaries or affiliated companies are
conducting any business as of the date in question or have during the
previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section
8.3, an "affiliate" of Group 1 is any person who directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or
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affiliates shall be entitled to enforce the provisions of this Section
8.3 by terminating any payments then owing to the Designated
Stockholders under this Agreement and/or to specific performance and
injunctive relief as remedies for such breach or any threatened
breach, without any requirement for the securing or posting of any
bond in connection with such remedies. Such remedies shall not be
deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholders' agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time,
25
<PAGE> 30
reasonable efforts have begun to cure such breach and such breach is
then cured within 30 days after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; and
(iii) transfer shares by will or the laws of descent and distribution or
otherwise by reason of such Stockholder's death. The certificates evidencing
the Group 1 Common Stock delivered to each Stockholder pursuant to this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED,
26
<PAGE> 31
ENCUMBERED, PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF,
AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED
VOLUNTARY SALE, ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE,
DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES,
DURING THE TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Group 1 Common Stock to be
delivered to that Stockholder pursuant to this Agreement have not been and, if
applicable, will not be registered under the Securities Act and therefore may
not be resold by that Stockholder without compliance with the Securities Act
and (ii) covenants that none of the shares of Group 1 Common Stock issued to
that Stockholder pursuant to this Agreement will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the Commission and applicable state securities laws
and regulations. All certificates evidencing shares of Group 1 Common Stock
issued pursuant to this Agreement will bear the following legend in addition to
the legend prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due
27
<PAGE> 32
diligence investigations that have been or will be made or performed by, any
prospective underwriter relative to Group 1 or the IPO. The Underwriters shall
have no obligation to any of the Company and the Stockholders with respect to
any disclosure contained in the Registration Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 9400 Southwest Freeway
Houston, Texas 77024
Telecopy: (713) 270-3903
Attention: Sterling B. McCall, Jr.
with a copy to: Two Memorial City Plaza
820 Gessner, Suite 1360
Houston, Texas 77024
Telecopy: (713) 465-8018
Attention: Robert D. Remy
28
<PAGE> 33
if to the Stockholders: 9400 Southwest Freeway
Houston, Texas 77024
Telecopy: (713) 270-3903
Attention: Sterling B. McCall, Jr.
with a copy to: Two Memorial City Plaza
820 Gessner, Suite 1360
Houston, Texas 77024
Telecopy: (713) 465-8018
Attention: Robert D. Remy
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief
Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
29
<PAGE> 34
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement), and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
30
<PAGE> 35
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
--------------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
SOUTHWEST TOYOTA, INC.
By: /s/ STERLING B. MCCALL, JR.
--------------------------------------
Sterling B. McCall, Jr.
Chairman of the Board and Vice
President
STOCKHOLDERS:
/s/ STERLING B. MCCALL, JR.
-----------------------------------------
Sterling B. McCall, Jr.
/s/ KEVIN H. WHALEN
-----------------------------------------
Kevin H. Whalen
/s/ JEFFREY I. MAYNARD
-----------------------------------------
Jeffery I. Maynard
/s/ REBECCA CARDER
-----------------------------------------
Rebecca Carder
31
<PAGE> 36
GULF COAST FAMILY LIMITED
PARTNERSHIP
BY: GULF COAST FINANCIAL LIMITED-
LIABILITY COMPANY
General Partner
By: /s/ RAYMOND O. MCCALL
--------------------------------------
Raymond O. McCall
Operating Manager
SBM-T FAMILY LIMITED PARTNERSHIP
BY: SBM-T LIMITED-LIABILITY
COMPANY, General Partner
By: /s/ RAYMOND O. MCCALL
--------------------------------------
Raymond O. McCall
Operating Manager
SMC INVESTMENT, INC.
By: /s/ STERLING B. MCCALL, JR.
--------------------------------------
Sterling B. McCall, Jr.
President
32
<PAGE> 37
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
33
<PAGE> 38
Southwest Toyota
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock(1) (2)
- ----------- ----------------- -------------------
<S> <C> <C>
Sterling B. McCall, Jr. . . . . . . . . . . . . . . . . 17,600 436,638
Kevin H. Whalen . . . . . . . . . . . . . . . . . . . . 31,200 774,040
Gulf Coast Family Limited Partnership . . . . . . . . . 10,087 250,248
SBM-T Family Limited Partnership . . . . . . . . . . . 3,513 87,154
SMC Investment, Inc. . . . . . . . . . . . . . . . . . 4,502 111,690
Jeffery I. Maynard . . . . . . . . . . . . . . . . . . 2,251 55,845
Rebecca Carder . . . . . . . . . . . . . . . . . . . . 1,125 27,910
</TABLE>
- ----------------------
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Robert E. Howard II that shall be distributed to the Stockholders as
result of the failure of Howard Pontiac - GMC, Inc. and Group 1 to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac-GMC, Inc. and the
stockholders of Howard Pontiac - GMC, Inc. dated as of June 14, 1997.
34
<PAGE> 39
EXHIBIT A
[EMPLOYMENT AGREEMENT]
<PAGE> 40
EXHIBIT B
[LEASE]
<PAGE> 1
EXHIBIT 2.7
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
SMC LUXURY CARS, INC.
AND
THE STOCKHOLDERS OF
SMC LUXURY CARS, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
<TABLE>
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . 10
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . 17
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . 17
5.14 Employment Agreement . . . . . . . . . . . . . . . . . . . . . 17
5.15 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Subordination and Non-Disturbance Agreement . . . . . . . . . 18
</TABLE>
ARTICLE VI
COVENANTS OF GROUP 1
<TABLE>
<S> <C> <C>
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . 19
ii
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
6.6 Employment Agreement . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . 19
7.2 Additional Conditions Precedent to Obligations of Group 1 . . 20
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS;INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . 24
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . 26
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . 28
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .28
9.12 Severability. . . . . . . . . . . . . . . . . . . . . . . . . ..28
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . 30
iii
</TABLE>
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), SMC Luxury Cars, Inc., a Texas corporation (the "Company"), and
the Persons (defined in Section 2.6 below) listed on the signature pages hereof
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best long-
term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and outstanding
common stock, par value $.01 per share, of the Company from the
Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all of the
common stock of the entities listed in the accompanying Schedule I (each
an "Other Founding Company" and, collectively with the Company, the
"Founding Companies") pursuant to agreements that are (i) similar to
this Agreement and (ii) entered into among those entities and their
equity owners and Group 1 (collectively, the "Other Agreements"); and
(C) Group 1 shall effect a public offering of shares of its
common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition and
the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual representations, warranties and covenants herein contained, the
parties hereto hereby agree as follows:
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ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $.01 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group 1
as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property owned
or leased by it makes such qualification necessary, except where the failure to
be so qualified or in good standing would not have a material adverse affect on
the business, assets, prospects or condition (financial or otherwise) of the
Company (a "Material Adverse Effect"). The Company Disclosure Letter sets
forth a list of the jurisdictions in which the Company is qualified to do
business, if any.
2.3 Authorization. The execution and delivery by the Company of this
Agreement, the performance of its obligations pursuant to this Agreement and
the execution, delivery and performance of each instrument required hereby to
be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
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under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter pursuant to Section 2.4) (a)
violate or breach the terms of or cause a default under (i) any applicable
federal, state, foreign or local statute or other applicable law, (ii) any
applicable judgment, order or decree or any applicable rule or regulation of
any federal, state, foreign or local court, tribunal or governmental agency or
authority, (iii) any applicable permits received from any federal, state,
foreign or local governmental agency, (iv) the articles of incorporation or
bylaws of the Company, or (v) any contract or agreement to which the Company is
a party or by which it, or any of its properties, is bound, or (b) result in
the creation or imposition of any lien, claim or encumbrance on any of the
properties or assets of the Company, or (c) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
federal, state, foreign or local court, tribunal or governmental agency or
authority, or (d) with the passage of time or the giving of notice or the
taking of any action of any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not control
directly or indirectly, or have any direct or indirect equity participation in
any individual, firm corporation, partnership, limited partnership, limited
liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists of
1,000,000 shares of the Company Common Stock, of which 100,000 shares
are issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly authorized,
is validly issued, fully paid and nonassessable and was not issued in
violation of any preemptive rights of any stockholder. Set forth in the
Company Disclosure Letter are the names and addresses (as reflected in
the corporate records of the Company) of each record holder of the
Company Common Stock, together with the number of shares held by each
such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except as
disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any shares
of, any class of capital stock of the Company or (ii) to redeem,
purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities that
are convertible into or exercisable or exchangeable for, any shares of,
any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure Letter
are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company
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as of December 31, 1995 and 1994, and the related unaudited statements of
income, changes in stockholders' equity and cash flows for the calendar years
then ended (including the notes thereto) (collectively with the Company 1996
Financial Statements, the "Company Financial Statements"). The Company
Financial Statements present fairly the financial position of the Company and
the results of its operations and changes in financial position as of the dates
and for the periods indicated therein in conformity with generally accepted
accounting principles applied on a consistent basis. The Company Financial
Statements do not omit to state any liabilities, absolute or contingent,
required to be stated therein in accordance with generally accepted accounting
principles consistently applied. All accounts receivable of the Company
reflected in the Company 1996 Financial Statements and as incurred since
December 31, 1996 represent sales made in the ordinary course of business, are
collectible (net of any reserves for doubtful accounts shown in the Company
1996 Financial Statements) in the ordinary course of business and, except as
set forth in the Company Disclosure Letter, are not in dispute or subject to
counterclaim, set-off or renegotiation. The Company Disclosure Letter contains
an aged schedule of accounts receivable included in the Company Financial
Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this
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Agreement. Notwithstanding the preceding sentence, the Company makes no
representation regarding, and need not disclose, increases in compensation (of
the type contemplated in Section 5.3(f)) since December 31, 1996, for any
employee who after such increase would receive annual compensation of less than
$50,000.
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter (and
except for filings and payments of assessments the failure of which to
file or pay will not materially adversely affect the Company), (i) all
returns and reports ("Tax Returns") of or with respect to any Tax (as
defined below) which is required to be filed on or before the Closing
Date by or with respect to the Company have been or will be duly and
timely filed, (ii) all items of income, gain, loss, deduction and credit
or other items required to be included in each such Tax Return have been
or will be so included and all information provided in each such Tax
Return is true, correct and complete, (iii) all Taxes which have become
or will become due with respect to the period covered by each such Tax
Return have been or will be timely paid in full, (iv) all withholding
Tax requirements imposed on or with respect to the Company have been or
will be satisfied in full, and (v) no penalty, interest or other charge
is or will become due with respect to the late filing of any such Tax
Return or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies or
other similar assessments or liabilities, including income taxes, ad
valorem taxes, excise taxes, withholding taxes, stamp taxes or other
taxes of or with respect to gross receipts, premiums, real property,
personal property, windfall profits, sales, use, transfers, licensing,
employment, payroll and franchises imposed by or under any law; and such
terms shall include any interest, fines, penalties, assessments or
additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof.
(b) The Company Disclosure Letter sets forth all periods for
which Tax Returns of the Company (i) have been audited by the applicable
governmental authorities or (ii) are no longer subject to audit due to
the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes, and
no assessment, deficiency or adjustment has been asserted or proposed
with respect to any Tax Return of or with respect to the Company, other
than those disclosed (and to which are attached true and complete copies
of all audit or similar reports) in the Company Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due date
for the filing of any Tax Return of or with respect to the Company or
any waiver or agreement for any extension of time for the assessment or
payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current and
deferred Taxes in the Balance Sheet are sufficient to cover the payment
of all Taxes, whether or not assessed or disputed, which are, or are
hereafter found to be, or to have been, due by or with respect to the
Company up to and through the periods covered thereby.
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(f) All Tax allocation or sharing agreements affecting the
Company shall be terminated prior to the Closing Date and no payments
shall be due or will become due by the Company on or after the Closing
Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter, the
Company will not be required to include any amount in income for any
taxable period beginning the Closing Date as a result of a change in
accounting method for any taxable period ending on or before the Closing
Date or pursuant to any agreement with any Tax authority with respect to
any such taxable period.
(h) The Company has not consented to have the provisions of
Section 341(f)(2) of the Code apply with respect to a sale of its stock.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except to the
extent set forth in the Company Disclosure Letter, the Company has
substantially performed all obligations required to be performed by it
to date and is not in default under, and, to the knowledge of the
Company, no event has occurred which, with the lapse of time or action
by a third party could result in a default under any contract or other
agreement to which the Company is a party or by which it or any of its
properties is bound or under any applicable judgment, order or decree of
any federal, state, foreign or local court, tribunal or governmental
agency or authority, other than such defaults that would not,
individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure Letter,
the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
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2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description of
each of the following which is sponsored, maintained or contributed to
by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy, severance
pay plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income
arrangement, consulting agreement, employment agreement and each
other employee benefit plan, agreement, arrangement, program,
practice or understanding that is not described in Section
2.17(a)(i) ("Benefit Program or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an obligation
to contribute to, and has not at any time contributed to or had an
obligation to contribute to, a plan subject to Title IV of ERISA,
including, without limitation, a multiemployer plan within the meaning
of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company Disclosure
Letter,
(i) Each Plan and each Benefit Program or Agreement has
been administered, maintained and operated in accordance with the
terms thereof and in compliance with its governing documents and
applicable law (including, where applicable, ERISA and the Code);
(ii) There is no matter pending with respect to any of
the Plans before any governmental agency, and there are no
actions, suits or claims pending (other than routine claims for
benefits) or threatened against, or with respect to, any of the
Plans or Benefit Programs or Agreements or their assets;
(iii) No act, omission or transaction has occurred which
would result in imposition on the Company of (A) breach of
fiduciary duty liability damages under Section 409 of ERISA, (B)
a civil penalty assessed pursuant to subsections (c), (i) or (l)
of Section 502 of ERISA or (C) a tax imposed pursuant to Chapter
43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified under
Section 401 of the Code satisfies the requirements of such
Section, has received a favorable determination letter
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from the Internal Revenue Service regarding such qualified status
and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or partial
termination of the Plan within the meaning of Section 411(d)(3)
of the Code; and
(vi) The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby will not
(A) require the Company to make a larger contribution to, or pay
greater benefits under, any Plan or Benefit Program or Agreement
than it otherwise would or (B) create or give rise to any
additional vested rights or service credits under any Plan or
Benefit Program or Agreement.
(d) There does not currently exist, and there has not at any
time existed, any corporation, trade, business or entity under common
control with the Company, within the meaning of Section 414(b), (c), (m)
or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the Company
after consummation of the transactions contemplated by this Agreement
would not result in payments under the Plans or Benefit Programs or
Agreements which, in the aggregate, would result in imposition of the
sanctions imposed under Sections 280G and 4999 of the Code.
(f) Each Plan which is an "employee welfare benefit plan", as
such term is defined in Section 3(1) of ERISA, may be unilaterally
amended or terminated in its entirety without liability except as to
benefits accrued thereunder prior to such amendment or termination.
(g) The Company Disclosure Letter sets forth by name and job
description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are subject
to union or collective bargaining agreements. The Company has not at
any time had or been threatened with any work stoppages or other labor
disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter, the
Company has good and valid title to all properties and assets which it purports
to own, including without limitation the properties and assets which are
reflected in the 1996 Balance Sheet (other than those disposed of since such
date in the ordinary course of business) and good and valid leasehold interests
in all properties and assets which it purports to hold under lease, and each
such ownership or leasehold interest is free and clear of all liens, claims and
encumbrances other than as set forth in the applicable lease agreements and
those reflected in the Company Financial Statements or the Company Disclosure
Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name of
underwriter, risk insured, amount insured, policy number and date of issuance
all policies of insurance owned by the Company as of the date hereof or as to
which the Company, as of the date hereof, is a beneficiary. All such policies
are currently in full force and effect.
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2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the names
and locations of all banks in which the Company has an account or safe deposit
box and the names of all Persons authorized to draw thereon or to have access
thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant to
this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power, capacity and
authority to execute, deliver and perform its obligations pursuant to
this Agreement and to execute, deliver and perform its obligations under
each instrument required hereby to be executed and delivered by such
Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and this
Agreement constitutes and, to the extent it purports to obligate such
Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto), the
legal, valid and binding obligation of such Stockholder enforceable
against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, is required by any applicable
statute or other applicable law or by any applicable judgment, order or decree
or any applicable rule or regulation of any court, tribunal or governmental
agency or authority, federal, state, foreign or local, to permit such
Stockholder to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it,
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or any of its properties, is bound, or (b) result in the creation or imposition
of any lien, claim or encumbrance on any of the properties or assets of such
Stockholder, or (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit, certificate or order of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, or (d) with
the passage of time or the giving of notice or the taking of any action of any
third party have any of the effects set forth in clause (a), (b) or (c) of this
Section, except, with respect to clauses (a), (b), (c) or (d) of this Section,
where such matter would not have a Material Adverse Effect on the Company or
the ability of the Company or such Stockholder to consummate the transactions
contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares; (ii) such Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of Group 1 Common Stock other
than this Agreement; (iii) such Stockholder is an "accredited investor" as
defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to
bear the economic risk of an investment in the Group 1 Common Stock acquired
pursuant to this Agreement, (B) can afford to sustain a total loss of that
investment, (C) has such knowledge and experience in financial and business
matters, and such past participation in investments, that he or she is capable
of evaluating the merits and risks of the proposed investment in the Group 1
Common Stock, (D) has received and reviewed the draft Registration Statement,
(E) has had an adequate opportunity to ask questions and receive answers from
the officers of Group 1 concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience of
the current and proposed officers and directors of Group 1, the plans for the
operations of the business of Group 1, the business, operations and financial
condition of the Other Founding Companies and any plans of Group 1 for
additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition for a period of two years from the Closing Date;
(vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with all requisite corporate power and authority to execute, deliver and
perform this Agreement and each instrument required hereby to be executed and
delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d)
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of this Section, where such matter would not have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise) of Group
1 and its subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share, issuable
in series, of which preferred stock none is outstanding and 50,000,000
shares of Group 1 Common Stock, of which 450,000 shares are issued and
outstanding; in addition, options have been granted to purchase 565,000
shares of Group 1 Common Stock. Each outstanding share of Group 1
Common Stock has been duly authorized, is validly issued, fully paid and
nonassessable and was not issued in violation of the preemptive rights
of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of Group 1
Common Stock (less 2,000,000 divided by the Net IPO Price) in connection
with the Acquisition and the Other Acquisitions, subject to adjustment
as provided in the Stock Purchase Agreements to be executed in
connection with the Acquisition and the Other Acquisitions. "Net IPO
Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant to
the Acquisition are duly authorized and will, when issued, be validly
issued, fully paid and nonassessable and not issued in violation of the
preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers, employees,
counsel, accountants and other authorized representatives access, during normal
business hours throughout the period prior to the Closing Date, to all its
properties, books, contracts, commitments and records and, during such period,
the Company shall furnish promptly to Group 1 any information concerning its
business, properties and personnel as Group 1 may reasonably request; provided,
however, that no investigation pursuant to this Section or otherwise shall
affect or be deemed to modify any representation or warranty made by the
Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition. The
Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless
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Group 1 shall otherwise agree in writing or as otherwise expressly contemplated
by this Agreement or as disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only in,
and the Company shall not take any action except in, the ordinary course
of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any of the
following: (i) issue, sell, pledge, dispose of or encumber, (A) any
capital stock of the Company or (B) other than in the ordinary course of
business and consistent with past practice and not relating to the
borrowing of money, any assets of the Company, (ii) amend or propose to
amend the articles of incorporation or bylaws of the Company, (iii)
split, combine or reclassify any outstanding capital stock, or declare,
set aside or pay any dividend payable in cash, stock, property or
otherwise with respect to its capital stock whether now or hereafter
outstanding (other than cash dividends paid to Stockholders to the
extent necessary to pay federal, state or corporate income taxes or
earnings of the Company attributable to such Stockholder under state or
federal law), (iv) redeem, purchase or acquire or offer to acquire any
of its capital stock, (v) incur any indebtedness for borrowed money, or
(vi) except in the ordinary course of business and consistent with past
practice, enter into any contract, agreement, commitment or arrangement
with respect to any of the matters set forth in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to preserve
intact the business organization of the Company, (ii) to maintain in
effect any franchises, authorizations or similar rights of the Company,
(iii) to keep available the services of its current officers and key
employees, (iv) to preserve the goodwill of those having business
relationships with it, (v) to maintain and keep its properties in as
good a repair and condition as presently exists, except for
deterioration due to ordinary wear and tear; and (vi) to maintain in
full force and effect insurance comparable in amount and scope of
coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any single
capital expenditure or enter into any purchase commitments in excess of
$25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits, stock
options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or that
reasonably could be expected to, result in any of the representations
and warranties set forth in this Agreement becoming untrue or any of the
conditions to the Acquisition set forth in Article VII not being
satisfied. The Company promptly shall advise Group 1 orally and in
writing of any change or event having, or which, insofar as reasonably
can be foreseen, would have, a Material Adverse Effect; and
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(h) The Company shall not (i) amend or terminate any Plan or
Benefit Program or Agreement except as may be required by applicable
law, (ii) increase or accelerate the payment or vesting of the amounts
payable under any Plan or Benefit Program or Agreement, or (iii) adopt
or enter into any personnel policy, stock option plan, collective
bargaining agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement,
deferred compensation agreement or arrangement, executive compensation
or supplemental income arrangement, consulting agreement, employment
agreement or any other employee benefit plan, agreement, arrangement,
program, practice or understanding (other than the Plans and the Benefit
Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and the
Company agrees to cause its officers, directors, employees, representatives and
consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give prompt
notice to Group 1, orally and in writing, of (i) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Closing or (ii) any material
failure of the Company, or any officer, director, employee or agent thereof, or
any Stockholder to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this Agreement,
the Company shall (i) take all reasonable steps to obtain all consents,
waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring any costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the Stockholders
hereby covenants and agrees not to sell, pledge, transfer or dispose of or
encumber any shares of Company Common Stock
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currently owned, either beneficially or of record, by such Stockholder except
pursuant to Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except for those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates, except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as transactions
or agreements that shall not be subject to this Section 5.13.
5.14 Employment Agreement. Sterling B. McCall, Jr. and Kevin H.
Whalen hereby agree to enter on or prior to the Closing Date into Employment
Agreements substantially in the form of Exhibit A attached hereto (the
"Employment Agreements"), which agreements shall (i) employ Sterling B. McCall,
Jr. as President of McCall Group, provide for an annual salary of $300,000 and
have a term of five years and (ii) employ Kevin H. Whalen as Chief Operating
Officer of McCall Group, provide for an annual salary of $300,000 and have a
term of five years.
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5.15 Leases. Sterling B. McCall, Jr. hereby agrees to enter into, or
cause his affiliates to enter into, on or prior to the Closing Date, leases
with the Company, in form substantially similar to the lease attached hereto as
Exhibit B (the "Lease") covering the properties owned by Sterling B. McCall,
Jr. or his affiliates identified on Exhibit C to the Lease, including any
changes that may be reasonably required by (i) any lender to Sterling B.
McCall, Jr. or any of his affiliates or (ii) any automobile manufacturer with
whom the Company or any of its affiliates does business solely in connection
with the properties identified in Exhibit C to the Lease, in each case (i) or
(ii) above, whose consent must be obtained pursuant to any agreement with
Sterling B. McCall, Jr. or any of his affiliates existing on the date hereof.
5.16 Subordination and Non-Disturbance Agreement. Sterling B. McCall,
Jr. ("McCall") hereby agrees to cause his affiliates SBM-L Family Limited
Partnership and SBM-L I&E Family Limited Partnership to grant to Group 1 an
option to purchase the premises (the "Premises") located at 10422 Southwest
Freeway and 10610 Wilcrest, each in Houston, Texas, to be described more
particularly at a later date in Exhibit A to the Leases (the "SNDA Purchase
Option"). The SNDA Purchase Option shall be granted to Group 1 pursuant to a
written option agreement executed by Group 1 and the appropriate McCall
affiliate, in form and substance satisfactory to Group 1, and delivered to
Group 1 on or before the tenth (10th) day after the date hereof. The SNDA
Purchase Option shall be exercisable only by written notice to the appropriate
McCall affiliate, on a date (the "SNDA Exercise Date") at any time after (i)
the expiration of ninety (90) days after the Closing Date, and (ii) the failure
of the appropriate McCall affiliate to obtain a Mutual Recognition and
Attornment Agreement in the form required under Article 11 to the Lease
("SNDA"), in form and substance reasonably satisfactory to Group 1, from each
then current holder and owner of any indebtedness which is secured by liens or
security interests covering the Premises (the "Indebtedness"). The SNDA
Purchase Option may only be exercised by Group 1 with respect to those premises
for which a SNDA has not been obtained. The purchase price of the SNDA
Purchase Option shall be the principal amount outstanding under that portion of
the Indebtedness attributable to the premises being purchased on the SNDA
Exercise Date; provided, however, that the same has not been modified or
amended after the date hereof. The purchase of such premises shall occur on or
before thirty (30) days after the SNDA Exercise Date, and the appropriate
McCall affiliate shall deliver to Group 1 a Special Warranty Deed and Bill of
Sale, executed and acknowledged by such affiliate covering the premises being
purchased, subject to all matters currently affecting such premises (except the
Indebtedness), together with all other documents customarily used for the sale
of real property in Texas. Article 11(iv) of the Lease shall be modified to
the extent necessary to reflect the foregoing provisions.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause its
officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the
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Company or its representatives in connection with the transactions contemplated
hereby or certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve for
issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this Agreement,
Group 1 shall (i) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Acquisition; and (ii) take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Employment Agreement. Group 1 hereby agrees to enter into the
Employment Agreements.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect in
any action or proceeding before any federal, state, foreign or local
court or governmental agency or other federal, state, foreign or local
regulatory or administrative agency or commission that would prevent or
make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky" commissions
of each jurisdiction and of any other governmental agency or authority,
with respect to the consummation of the Acquisition, which the failure
to obtain would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole;
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(c) Group 1 and the underwriters of the IPO shall have entered
into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have delivered a
written representation (a "Closing Representation") to the Company and
Group 1 to the effect that no conditions to their obligations to
consummate the Other Acquisitions remain to be satisfied and that such
parties will consummate the Other Acquisitions simultaneously with the
Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1. The
obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and the
Stockholders contained in Article II and Article III, respectively,
shall be accurate as of the Closing Date as though such representations
and warranties had been made at and as of the Closing Date; all of the
terms, covenants and conditions of this Agreement to be complied with
and performed by the Company and the Stockholders on or before the
Closing Date shall have been duly complied with and performed in all
material respects, and a certificate to the foregoing effect dated the
Closing Date and signed by the chief executive officer of the Company
and each of the Stockholders shall have been delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions of
any jurisdiction, and of any other governmental body or agency, that
reasonably may be deemed necessary so that the consummation of the
Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which would
have a material adverse effect on the business, assets, prospects or
condition (financial or otherwise) of Group 1 and its subsidiaries,
taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto, except as permitted under Section 5.12 hereto.
(d) Group 1 shall have received executed representations from
each Stockholder stating that such Stockholder (with respect to shares
owned beneficially or of record by him or her) has no current plan or
intention to sell or otherwise dispose of the Group 1 Common Stock to be
received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the Company
shall have occurred, and the Company shall not have suffered any damage,
destruction or loss (whether or not covered by insurance) materially
adversely affecting the properties or business of the Company, and Group
1 shall have received
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a certificate signed by the chief executive officer of the Company dated
the Closing Date to such effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1 contained in
Article IV, other than the representation contained in Section 4.5(a),
shall be accurate as of the Closing Date as though such representations
and warranties had been made at and as of the Closing Date, except that
Group 1 shall be permitted to accomplish a reverse stock split pursuant
to the provisions of Section 1.1; all the terms, covenants and
conditions of this Agreement to be complied with and performed by Group
1 on or before the Closing Date shall have been duly complied with and
performed in all material respects; and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive officer
of Group 1 shall have been delivered to the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that the
Acquisition, the Other Acquisitions and IPO, in the aggregate, will
constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this Agreement,
the representations, warranties and agreements of each party hereto
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any other party hereto, any Person
controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of
this Agreement.
(b) The representations, warranties and agreements in this
Agreement shall terminate at the Closing, except that the agreements set
forth in Sections 5.4, 5.7, 5.16, 6.1, 6.4, 6.5, 8.2, 8.3, 9.4 and 9.5
shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described in,
or contemplated by this Agreement are those set forth in this Agreement,
and that no claim may be made by any party hereto for any matter in
connection with the transactions described in, or contemplated by, this
Agreement unless specifically set forth in this Agreement and then only
pursuant to the terms of this Agreement.
21
<PAGE> 26
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages, liabilities
or expenses arise out of, or are based upon, any such untrue statement
or omission or allegation thereof based upon information furnished in
writing to Group 1 by such Stockholder or underwriter or on such
Stockholder's or underwriter's behalf expressly for use therein.
(b) Each Stockholder, severally and not jointly, agrees to
indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and property
received by such Stockholder pursuant to the sale of Group 1 Common
Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any governmental
investigation) shall be brought or asserted against any Person entitled
to indemnification under Section 8.2(a) or 8.2(b) above (an "Indemnified
Party") in respect of which indemnity may be sought from any party who
has agreed to provide such indemnification under Section 8.2(a) or
8.2(b) above (an "Indemnifying Party"), the Indemnified Party shall give
prompt notice to the Indemnifying Party and the Indemnifying Party shall
assume the defense thereof, including the employment of counsel
reasonably satisfactory to such Indemnified Party, and shall assume the
payment of all reasonable expenses of such defense. Such Indemnified
Party shall have the right to employ separate counsel in any such action
or proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Party unless (i) the Indemnifying Party has agreed to pay such fees and
expenses or (ii) the Indemnifying Party fails promptly to assume the
defense of such action or proceeding or fails to employ counsel
reasonably satisfactory to such Indemnified Party or (iii) the named
parties to any such action or proceeding (including any impleaded
parties) include both such Indemnified Party and Indemnifying Party (or
an Affiliate of the Indemnifying Party), and such Indemnified Party
shall have been advised by counsel that there is a conflict of interest
on the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such
22
<PAGE> 27
Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the
defense of such action or proceeding on behalf of such Indemnified
Party). Notwithstanding the foregoing, the Indemnifying Party shall
not, in connection with any one such action or proceeding or separate
but substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be liable
for any settlement of any such action or proceeding effected without its
written consent (which consent will not be unreasonably withheld), but
if settled with its written consent, or if there be a final judgment for
the plaintiff in any such action of proceeding, the Indemnifying Party
shall indemnify and hold harmless such Indemnified Party from and
against any loss or liability (to the extent stated above) by reason of
such settlement or judgment. The Indemnifying Party shall not consent
to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release, in form and substance
reasonably satisfactory to the Indemnified Party, from all liability in
respect of such action or proceeding for which such Indemnified Party
would be entitled to indemnification hereunder.
(d) If the indemnification provided for in this Section 8.2(d)
is unavailable to the Indemnified Parties in respect of any losses,
claims, damages, liabilities or judgments referred to herein, then each
such Indemnifying Party, in lieu of indemnifying such Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities and judgments
as between Group 1 on the one hand and each Stockholder on the other, in
such proportion as is appropriate to reflect the relative fault of the
Stockholder and of each Stockholder in connection with the statements or
omissions which resulted in such losses, claims, damages, liabilities or
judgments, as well as any other relevant equitable considerations. The
relative fault of Group 1 on the one hand and of each Stockholder on the
other shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. Group 1 and the Stockholders agree that it
would not be just and equitable if contribution pursuant to this Section
8.2(d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences of this Section 8.2(d). The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 8.2(d), no Stockholder shall be required to contribute any
amount in excess of the amount by which the total price at which the
securities of such Stockholder were offered to the public exceeds the
amount of any damages which such Stockholder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f)(1) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
23
<PAGE> 28
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of the
Company Common Stock, and as an additional incentive for Group 1 to
enter into this Agreement, Sterling B. McCall, Jr. and Kevin H. Whalen
(the "Designated Stockholders"), and Group 1 agree to the non-
competition provisions of this Section 8.3. The Designated Stockholders
agree that during the period of the Designated Stockholder's non-
competition obligations hereunder, the Designated Stockholders will not,
directly or indirectly for the Designated Stockholders or for others, in
any geographic area or market where Group 1 or any of its subsidiaries
or affiliated companies are conducting any business as of the date in
question or have during the previous twelve months conducted any
business:
(i) engage in any business competitive with any line of
business conducted by Group 1 or any of its subsidiaries or
affiliates;
(ii) render advice or services to, or otherwise assist,
any other person, association, or entity who is engaged, directly
or indirectly, in any business competitive with any line of
business conducted by Group 1 or any of its subsidiaries or
affiliates;
(iii) encourage or induce any current or former employee
of Group 1 or any of its subsidiaries or affiliates to leave the
employment of Group 1 or any of its subsidiaries or affiliates or
proselytize, offer employment, retain, hire or assist in the
hiring of any such employee by any person, association, or entity
not affiliated with Group 1 or any of its subsidiaries or
affiliates; provided, however, that nothing in this subsection
(iii) shall prohibit a Designated Stockholder from offering
employment to any prior employee of Group 1 or any of its
subsidiaries or affiliates who was not employed by Group 1 or any
of its subsidiaries or affiliates at any time in the twelve (12)
months prior to the termination of such Designated Stockholder's
employment.
The non-competition obligations set forth in subsections (i) and
(ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of five
(5) years after termination of employment. If Group 1 or any of its
subsidiaries or affiliates abandons a particular aspect of its business,
that is, ceases such aspect of its business with the intention to
permanently refrain from such aspect of its business, then this post-
employment non-competition covenant shall not apply to such former
aspect of that business. For purposes of this Section 8.3, an
"affiliate" of Group 1 is any person who directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, Group 1.
(b) The Designated Stockholders understand that the foregoing
restrictions may limit their ability to engage in certain businesses
anywhere in the world during the period provided for above, but
acknowledge that the Designated Stockholders will receive sufficiently
high remuneration and other benefits under this Agreement to justify
such restriction. The Designated Stockholders acknowledge that money
damages would not be sufficient remedy for any breach of this Section
8.3 by the Designated Stockholders, and Group 1 or any of its
subsidiaries or
24
<PAGE> 29
affiliates shall be entitled to enforce the provisions of this Section
8.3 by terminating any payments then owing to the Designated
Stockholders under this Agreement and/or to specific performance and
injunctive relief as remedies for such breach or any threatened breach,
without any requirement for the securing or posting of any bond in
connection with such remedies. Such remedies shall not be deemed the
exclusive remedies for a breach of this Section 8.3, but shall be in
addition to all remedies available at law or in equity to Group 1 or any
of its subsidiaries or affiliates, including, without limitation, the
recovery of damages by Group 1 from the Designated Stockholders' agents
involved in such breach.
(c) It is expressly understood and agreed that Group 1 and the
Designated Stockholders consider the restrictions contained in this
Section 8.3 to be reasonable and necessary to protect the confidential
and proprietary information and trade secrets of Group 1 and its
subsidiaries and affiliates. Nevertheless, if any of the aforesaid
restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions therein
set forth to be modified by such courts so as to be reasonable and
enforceable and, as so modified by the court, to be fully enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the Acquisition
and all of the Other Acquisitions have not been effected on or before
December 31, 1997;
(c) by either Group 1 or the Company if a final, unappealable
order to restrain, enjoin or otherwise prevent, or awarding substantial
damages in connection with, a consummation of the Acquisition or the
other transactions contemplated hereby shall have been entered;
(d) by Group 1 if (i) since the date of this Agreement there
has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement by
the Company which breach has not been cured within ten business days
following receipt by the
25
<PAGE> 30
Company of notice of such breach (or if such breach cannot be cured
within such time, reasonable efforts have begun to cure such breach and
such breach is then cured within 30 days after notice); or
(e) by the Company if there has been a material breach of any
representation or warranty set forth in this Agreement by Group 1 which
breach has not been cured within ten business days following receipt by
Group 1 of notice of such breach (or if such breach cannot be cured
within such time, reasonable efforts have begun to cure such breach and
such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is consummated,
all costs and expenses in connection with this Agreement and the transactions
contemplated hereby incurred by Group 1 shall be paid by Group 1 and all such
costs and expenses incurred by the Company shall be paid by the Company;
subject, however, to the agreement set forth in the letter of intent dated
April 15, 1997 with respect to the funding of the expenses of Group 1 by the
Founding Companies. The Company and Group 1 each represent and warrant to each
other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During the
two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; and
(iii) transfer shares by will or the laws of descent and distribution or
otherwise by reason of such Stockholder's death. The certificates evidencing
the Group 1 Common Stock delivered to each Stockholder pursuant to this
Agreement will bear a legend substantially in the form set forth below and
containing such other information as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY
26
<PAGE> 31
NOT BE VOLUNTARILY SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER
SHALL NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE TWO-
YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE SECOND-
ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO
REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement have not been and, if applicable,
will not be registered under the Securities Act and therefore may not be resold
by that Stockholder without compliance with the Securities Act and (ii)
covenants that none of the shares of Group 1 Common Stock issued to that
Stockholder pursuant to this Agreement will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the Commission and applicable state securities laws
and regulations. All certificates evidencing shares of Group 1 Common Stock
issued pursuant to this Agreement will bear the following legend in addition to
the legend prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made
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<PAGE> 32
independent of, and without reliance on, any statements, opinions or other
communications of, or due diligence investigations that have been or will be
made or performed by, any prospective underwriter relative to Group 1 or the
IPO. The Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 9400 Southwest Freeway
Houston, Texas 77024
Telecopy: (713) 270-3903
Attention: Sterling B. McCall, Jr.
with a copy to: Two Memorial City Plaza
820 Gessner, Suite 1360
Houston, Texas 77024
Telecopy: (713) 465-8018
Attention: Robert D. Remy
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<PAGE> 33
if to the Stockholders: 9400 Southwest Freeway
Houston, Texas 77024
Telecopy: (713) 270-3903
Attention: Sterling B. McCall, Jr.
with a copy to: Two Memorial City Plaza
820 Gessner, Suite 1360
Houston, Texas 77024
Telecopy: (713) 465-8018
Attention: Robert D. Remy
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and
Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, excluding any choice of
law rules that may direct the application of the laws of another jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
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<PAGE> 34
9.14 Headings. The Section headings herein are for convenience only
and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
30
<PAGE> 35
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
------------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
SMC LUXURY CARS, INC.
By: /s/ STERLING B. MCCALL, JR.
-----------------------------------
Sterling B. McCall, Jr.
Chairman of the Board
STOCKHOLDERS:
SMC INVESTMENT, INC.
By: /s/ STERLING B. MCCALL, JR.
-----------------------------------
Sterling B. McCall, Jr.
President
SBM-T FAMILY LIMITED PARTNERSHIP
BY: SBM-T LIMITED-LIABILITY
COMPANY, General Partner
By: /s/ STERLING B. MCCALL, JR.
------------------------------------
Name: Sterling B. McCall, Jr.
Title:
/s/ MARIANNE O. MCCALL
--------------------------------------
Marianne O. McCall
31
<PAGE> 36
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
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<PAGE> 37
SMC Luxury
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock(1)(2)
- ---------- ----------------- -------------------
<S> <C> <C>
SMC Investment, Inc. . . . . . . . . . . . . . . . . . 91,393 525,785
Marianne O. McCall . . . . . . . . . . . . . . . . . . 5,324 30,629
SBM-T Family Limited Partnership . . . . . . . . . . . 3,283 18,887
</TABLE>
--------------------------------
(1) As may be appropriately adjusted for stock splits,
reverse stock splits and/or stock dividends. In the event
that the Board of Directors of Group 1 approves a reverse
stock split upon the recommendation of the Representatives of
the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the
shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split;
provided, however, that in the event that the number of shares
of Group 1 Common Stock resulting from the reverse stock split
recommended by the Representatives of the Underwriters is less
than the number of shares resulting from a 4.444 for 5 reverse
stock split, a 4.444 for 5 reverse stock split shall be
implemented and the number of shares of Group 1 Common Stock
resulting from such 4.444 for 5 reverse stock split to be
received by the shareholders of the Founding Companies shall
be further decreased proportionately to the number of shares
that would have been issued to the shareholders of the
Founding Companies had the reverse stock split recommended by
the Representatives of the Underwriters been implemented. If
the number of shares of Group 1 Common Stock received by a
Stockholder pursuant to this Agreement includes a fractional
share as a result of a reverse stock split affecting the Group
1 Common Stock, such fractional share shall be rounded up to
the nearest whole share of Group 1 Common Stock.
(2) The shares of Group 1 Common Stock to be issued to
each of the Stockholders as set forth on this Schedule II
shall be increased proportionately as a result of the release
from escrow of 592,303 shares of Group 1 Common Stock issued
to Robert E. Howard II that shall be distributed to the
Stockholders as result of the failure of Howard Pontiac -
GMC, Inc. and Group 1 to acquire the Chevrolet dealership in
Tulsa, Oklahoma, all in accordance with the provisions of the
Stock Purchase Agreement among Group 1, Howard Pontiac - GMC,
Inc. and the stockholders of Howard Pontiac - GMC, Inc. dated
as of June 14, 1997.
33
<PAGE> 38
EXHIBIT A
[EMPLOYMENT AGREEMENT]
34
<PAGE> 39
EXHIBIT B
[LEASE]
35
<PAGE> 1
EXHIBIT 2.8
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
SMITH, LIU & KUTZ, INC.
AND
THE STOCKHOLDERS OF
SMITH, LIU & KUTZ, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
<TABLE>
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 15
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.15 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<PAGE> 4
ARTICLE VII
CONDITIONS
<TABLE>
<S> <C>
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 19
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 19
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 20
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Smith, Liu & Kutz, Inc., a Texas corporation (the "Company") and
the Persons (defined in Section 2.6 below) listed on the signature pages hereof
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $.01 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $.01 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
-2-
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. Each of the Company and its
Subsidiaries (as hereinafter defined) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation with all requisite corporate power and authority to own or lease
its properties and conduct its business as now owned, leased or conducted and
to execute, deliver and perform this Agreement and each instrument required
hereby to be executed and delivered by it at the Closing. The disclosure
letter delivered by the Company prior to the execution and delivery of this
Agreement (the "Company Disclosure Letter") includes true and complete copies
of the articles of incorporation and bylaws of the Company and each corporation
("Subsidiary") of which the Company, directly or indirectly, owns a majority of
the common stock or has the power to vote or direct the voting of sufficient
securities to elect a majority of directors as amended and presently in effect.
2.2 Qualification. Each of the Company and its Subsidiaries is
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 conducted or
the character of the property owned or leased by it makes such qualification
necessary, except where the failure to be so qualified or in good standing
would not have a material adverse affect on the business, assets, prospects or
condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole (a "Material Adverse Effect"). The Company Disclosure Letter sets
forth a list of the jurisdictions in which each of the Company and its
Subsidiaries is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby
-3-
<PAGE> 8
to be executed and delivered by it at the Closing, nor the performance by the
Company or its Subsidiaries of its obligations under this Agreement or any such
instrument will (assuming receipt of all consents, approvals, authorizations,
permits, certificates and orders disclosed as requisite in the Company
Disclosure Letter pursuant to Section 2.4) (a) violate or breach the terms of
or cause a default under (i) any applicable federal, state, foreign or local
statute or other applicable law, (ii) any applicable judgment, order or decree
or any applicable rule or regulation of any federal, state, foreign or local
court, tribunal or governmental agency or authority, (iii) any applicable
permits received from any federal, state, foreign or local governmental agency
(iv) the articles of incorporation or bylaws of the Company or any of its
Subsidiaries or (v) any contract or agreement to which the Company or any of
its Subsidiaries is a party or by which they, or any of their properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company or any of its
Subsidiaries, or (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit, certificate or order of any federal, state,
foreign or local court, tribunal or governmental agency or authority, or (d)
with the passage of time or the giving of notice or the taking of any action of
any third party have any of the effects set forth in clause (a), (b) or (c) of
this Section, except, with respect to clauses (a), (b), (c) or (d) of this
Section, where such matter would not have a Material Adverse Effect or a
material adverse effect upon the ability of the Company to consummate the
transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. All of the issued and
outstanding shares of capital stock of each Subsidiary of the Company have been
duly authorized and are validly issued, fully paid, and nonassessable. Except
as disclosed in this Agreement or on the Disclosure letter, either the Company
or one of its Subsidiaries holds of record and owns beneficially all of the
outstanding shares of each Subsidiary of the Company, free and clear of any
taxes, security interests, equities, claims, and demands and any restrictions
on transfer (other than any restrictions under the Securities Act and state
securities laws), options, warrants, purchase rights, conversion rights,
exchange rights, or other contracts or commitments that could require said
beneficial and record owner to sell, transfer, or otherwise dispose of any
capital stock of such Subsidiary. There are no outstanding or authorized
options, warrants, purchase rights, conversion rights, exchange rights, or
other contracts or commitments that could require any Subsidiary of the Company
to issue, sell, or otherwise cause to become outstanding any of its own capital
stock. There are no outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to any Subsidiary of the Company.
There are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of the Company.
None of the Company and its Subsidiaries controls directly or indirectly, or
has any direct or indirect equity participation in any individual, firm
corporation, partnership, limited partnership, limited liability company, trust
or other entity ("Person") that is not a Subsidiary of the Company.
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 1,000 shares of the Company Common Stock, of which 1,000 shares are
issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to
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<PAGE> 9
purchase or otherwise acquire any shares of capital stock of the
Company. Except as disclosed in the Company Disclosure Letter, there
are no contracts, agreements, commitments or arrangements obligating
the Company (i) to issue, sell, pledge, dispose of or encumber any
shares of, or any options, warrants or rights of any kind to acquire,
or any securities that are convertible into or exercisable or
exchangeable for, any shares of, any class of capital stock of the
Company or (ii) to redeem, purchase or acquire or offer to acquire any
shares of, or any outstanding option, warrant or right to acquire, or
any securities that are convertible into or exercisable or
exchangeable for, any shares of, any class of capital stock of the
Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
and its Subsidiaries consisting of (i) an unaudited balance sheet of the
Company as of December 31, 1996 (the "1996 Balance Sheet") and the related
unaudited statements of income, changes in stockholders' equity and cash flows
for the year then ended (including the notes thereto) (the "Company 1996
Financial Statements") and (ii) unaudited balance sheets of the Company as of
December 31, 1995 and 1994, and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the calendar years then
ended (including the notes thereto) (collectively with the Company 1996
Financial Statements, the "Company Financial Statements"). The Company
Financial Statements present fairly the financial position of the Company and
its Subsidiaries and the results of its operations and changes in financial
position as of the dates and for the periods indicated therein in conformity
with generally accepted accounting principles applied on a consistent basis.
The Company Financial Statements do not omit to state any liabilities, absolute
or contingent, required to be stated therein in accordance with generally
accepted accounting principles consistently applied. All accounts receivable
of the Company and its Subsidiaries reflected in the Company 1996 Financial
Statements and as incurred since December 31, 1996 represent sales made in the
ordinary course of business, are collectible (net of any reserves for doubtful
accounts shown in the Company 1996 Financial Statements) in the ordinary course
of business and, except as set forth in the Company Disclosure Letter, are not
in dispute or subject to counterclaim, set-off or renegotiation. The Company
Disclosure Letter contains an aged schedule of accounts receivable included in
the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company and its Subsidiaries do
not have any material liabilities or obligations of any nature whether
absolute, accrued, contingent or otherwise, and whether due or to become due.
The reserves reflected in the 1996 Balance Sheet are adequate, appropriate and
reasonable in accordance with generally accepted accounting principles applied
on a consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company, its Subsidiaries nor any of their
officers or directors, is a party to, or bound by, any contract, agreement or
organizational document which purports to restrict, by virtue of a
noncompetition, territorial exclusivity or other provision covering such
subject matter purportedly enforceable by a third party against the Company,
any of its Subsidiaries, or any of their officers or directors, the scope of
the business or operations of the Company, any of its Subsidiaries, or any of
their officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company or any of its
Subsidiaries is a party or by which its property is bound that involve
consideration or other expenditure in excess of $50,000 or performance over a
period of more than six months or that is otherwise material to the business or
operations of the Company and its
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<PAGE> 10
Subsidiaries, taken as a whole ("Material Contracts"); (ii) a list of all real
or personal property leases to which the Company or any of its Subsidiaries is
a party involving consideration or other expenditure in excess of $50,000 over
the term of the lease ("Material Leases"); (iii) a list of all guarantees of,
or agreements to indemnify or be contingently liable for, the payment or
performance by any Person to which the Company or any of its Subsidiaries is a
party ("Guarantees") and (iv) a list of all contracts or other formal or
informal understandings between the Company or any of its Subsidiaries and any
of their officers, directors, employees, agents or stockholders or their
affiliates ("Related Party Agreements"). True and complete copies of each
Material Contract, Material Lease, Guarantee and Related Party Agreement have
been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole.
Except as set forth in the Company Disclosure Letter, since December 31, 1996,
the Company has not engaged in any transaction or conduct of any kind which
would be proscribed by Section 5.3 herein after execution and delivery of this
Agreement. Notwithstanding the preceding sentence, the Company makes no
representation regarding, and need not disclose, increases in compensation (of
the type contemplated in Section 5.3(f)) since December 31, 1996, for any
employee who after such increase would receive annual compensation of less than
$50,000.
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company or any of
its Subsidiaries have been or will be duly and timely filed, (ii) all
items of income, gain, loss, deduction and credit or other items
required to be included in each such Tax Return have been or will be
so included and all information provided in each such Tax Return is
true, correct and complete, (iii) all Taxes which have become or will
become due with respect to the period covered by each such Tax Return
have been or will be timely paid in full, (iv) all withholding Tax
requirements imposed on or with respect to the Company or any of its
Subsidiaries have been or will be satisfied in full, and (v) no
penalty, interest or other charge is or will become due with respect
to the late filing of any such Tax Return or late payment of any such
Tax. For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, imposts, tariffs, fees, levies or other similar assessments
or liabilities, including income taxes, ad valorem taxes, excise
taxes, withholding taxes, stamp taxes or other taxes of or with
respect to gross receipts, premiums, real property, personal property,
windfall profits, sales, use, transfers, licensing, employment,
payroll and franchises imposed by or under any law; and such terms
shall include any interest, fines, penalties, assessments or additions
to tax resulting from, attributable to or incurred in connection with
any such tax or any contest or dispute thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company or any of its
Subsidiaries for any Taxes, and no assessment, deficiency or
adjustment has been asserted or proposed with respect to any
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<PAGE> 11
Tax Return of or with respect to the Company, or any of its
Subsidiaries other than those disclosed (and to which are attached
true and complete copies of all audit or similar reports) in the
Company Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company, or any Subsidiary or any waiver or agreement for any
extension of time for the assessment or payment of any Tax of or with
respect to the Company or any of its Subsidiaries.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company or its Subsidiaries up to and through the periods
covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company or its Subsidiaries shall be terminated prior to the
Closing Date and no payments shall be due or will become due by the
Company or any Subsidiary on or after the Closing Date pursuant to any
such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries will be required to
include any amount in income for any taxable period beginning the
Closing Date as a result of a change in accounting method for any
taxable period ending on or before the Closing Date or pursuant to any
agreement with any Tax authority with respect to any such taxable
period.
(h) Neither the Company nor any of its Subsidiaries has
consented to have the provisions of Section 341(f)(2) of the Code
apply with respect to a sale of its stock.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company or any of its
Subsidiaries before or by any federal, state, foreign or local court,
tribunal or governmental agency or authority which if determined
adversely to the Company would have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, each of the
Company and its Subsidiaries has substantially performed all
obligations required to be performed by it to date and is not in
default under, and, to the knowledge of the Company, no event has
occurred which, with the lapse of time or action by a third party
could result in a default under any contract or other agreement to
which the Company or any of its Subsidiaries is a party or by which
they or any of their properties is bound or under any applicable
judgment, order or decree of any federal, state, foreign or local
court, tribunal or governmental agency or authority, other than such
defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, each of the Company and its Subsidiaries is in compliance
with all applicable statutes and other applicable laws and
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<PAGE> 12
all applicable rules and regulations of all federal, state, foreign and local
governmental agencies and authorities, except where the failure to be in
compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company or its Subsidiaries owns or holds all franchises, licenses,
permits, consents, approvals and authorizations of all governmental agencies
and authorities, federal, state, foreign and local, necessary for the conduct
of their business, except for those franchises, licenses, permits, consents,
approvals and authorizations which the failure to own or hold would not, in the
aggregate, have a Material Adverse Effect. Each franchise, license, permit,
consent, approval and authorization so owned or held is in full force and
effect, and each of the Company and its Subsidiaries is in compliance with all
of their obligations with respect thereto, except where the failure to be in
full force and effect or to be in compliance would not, in the aggregate, have
a Material Adverse Effect, and, to the knowledge of the Company, no event has
occurred which allows, or upon the giving of notice or the lapse of time or
otherwise would allow, revocation or termination of any franchise, license,
permit, consent, approval or authorization so owned or held.
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company or its Subsidiaries for the benefit of its
employees, or has been so sponsored, maintained or contributed to
within six years prior to the Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company and its Subsidiaries do not contribute to
or have an obligation to contribute to, and have not at any time
contributed to or had an obligation to contribute to, a plan subject
to Title IV of ERISA, including, without limitation, a multi employer
plan within the meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
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<PAGE> 13
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company or any of its
Subsidiaries of (A) breach of fiduciary duty liability damages
under Section 409 of ERISA, (B) a civil penalty assessed
pursuant to subsections (c), (i) or (l) of Section 502 of
ERISA or (C) a tax imposed pursuant to Chapter 43 of Subtitle
D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company or its Subsidiaries to make a
larger contribution to, or pay greater benefits under, any
Plan or Benefit Program or Agreement than it otherwise would
or (B) create or give rise to any additional vested rights or
service credits under any Plan or Benefit Program or
Agreement.
(d) Except for the Subsidiaries of the Company, there
does not currently exist, and there has not at any time existed, any
corporation, trade, business or entity under common control with the
Company or any of its Subsidiaries, within the meaning of Section
414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company or its Subsidiaries after consummation of the transactions
contemplated by this Agreement would not result in payments under the
Plans or Benefit Programs or Agreements which, in the aggregate, would
result in imposition of the sanctions imposed under Sections 280G and
4999 of the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company and its Subsidiaries
as of the date of this Agreement (the "Company Employees"). None of
said employees are subject to union or collective bargaining
agreements. The Company and its Subsidiaries have not at any time had
or been threatened with any work stoppages or other labor disputes or
controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
each of the Company and its Subsidiaries has good and valid title to all
properties and assets which it purports to own, including
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<PAGE> 14
without limitation the properties and assets which are reflected in the 1996
Balance Sheet (other than those disposed of since such date in the ordinary
course of business) and good and valid leasehold interests in all properties
and assets which it purports to hold under lease, and each such ownership or
leasehold interest is free and clear of all liens, claims and encumbrances
other than as set forth in the applicable lease agreements and those reflected
in the Company Financial Statements or the Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company or any of its
Subsidiaries as of the date hereof or as to which the Company or any of its
Subsidiaries, as of the date hereof, is a beneficiary. All such policies are
currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company or any of its Subsidiaries has any interest
in any property, tangible or intangible, including without limitation, patents,
trade secrets, other confidential business information, trademarks, service
marks or trade names, used in or pertaining to the business of the Company or
any of its Subsidiaries, except for the normal rights of employees and
stockholders.
2.21 Environmental Matters. The Company and its Subsidiaries are
in compliance in all material respects with all laws, rules, regulations, and
other legal requirements relating to the prevention of pollution and the
protection of the environment (collectively, "Environmental Laws"), and the
Company and its Subsidiaries possess and can transfer to Group 1 or a
Subsidiary of Group 1 all permits, licenses, and similar authorizations
required under Environmental Laws for operation of its business as currently
conducted. Furthermore, there is no physical condition existing on any
property ever owned or operated by the Company or any of its Subsidiaries nor
are there any physical conditions existing on any other property that may have
been affected by the Company's or any of its Subsidiaries' operations which
could give rise to any material remedial obligation under any Environmental
Laws or which could result in any material liability to any third party
pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company and its Subsidiaries own, or are licensed or
otherwise have the right to use all patents, trademarks, copyrights, and other
proprietary rights ("Intellectual Property") that are material to the condition
(financial or otherwise) or conduct of the business and operations of the
Company and its Subsidiaries. To the knowledge of the Company, (a) the use of
the Intellectual Property by the Company and its Subsidiaries does not infringe
on the rights of any Person, subject to such claims and infringements as do
not, in the aggregate, give rise to any liability on the part of the Company
and its Subsidiaries which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company and its Subsidiaries with
respect to any Intellectual Property. No claims are pending or, to the
knowledge of the Company , threatened that the Company or any of its
Subsidiaries is infringing or otherwise adversely affecting the rights of any
Person with regard to any Intellectual Property. All of the Intellectual
Property that is owned by the Company or any of its Subsidiaries is owned free
and clear of all encumbrances and was not misappropriated from any Person. All
of the Intellectual Property that is licensed by the Company or any of its
Subsidiaries is licensed pursuant to valid and existing license agreements.
The consummation of the transactions contemplated by this Agreement will not
result in the loss of any Intellectual Property.
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<PAGE> 15
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company and its Subsidiaries have
an account or safe deposit box and the names of all Persons authorized to draw
thereon or to have access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company and its Subsidiaries, taken as a whole. No representation or warranty
to Group 1 by the Company contained in this Agreement, and no statement
contained in the Company Disclosure Letter, any certificate, list or other
writing furnished to Group 1 by the Company pursuant to the provisions hereof
or in connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein not misleading. All statements
contained in this Agreement, the Company Disclosure Letter, and any
certificate, list, document or other writing delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed a
representation and warranty of the Company for all purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval,
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authorization, permit, certificate or order of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, is required
by any applicable statute or other applicable law or by any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
to permit such Stockholder to execute, deliver or perform this Agreement or any
instrument required hereby to be executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, or (d) with the passage of time or
the giving of notice or the taking of any action of any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a Material Adverse Effect on the Company or the ability of the
Company or such Stockholder to consummate the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares (other than with respect to the shares listed in the Company Disclosure
Letter which will be sold by such Stockholder ("Selling Stockholder") in the
IPO ("Selling Stockholder IPO Shares")); (ii) such Stockholder is not a party
to any agreement or other arrangement for the disposition of any shares of
Group 1 Common Stock other than this Agreement (other than an Underwriting
Agreement to be entered into by certain of the Stockholders in connection with
the sale of the Selling Stockholder IPO Shares); (iii) such Stockholder is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held
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<PAGE> 17
for an indefinite period of time and may not be resold by such Stockholder
without compliance with the Securities Act; (vi) such Stockholder acknowledges
that he or she has agreed, pursuant to Section 9.5 herein, not to sell the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition (other than any Selling Stockholder IPO Shares) for a period of
two years from the Closing Date; (vii) such Stockholder acknowledges that as a
result of the substantial restrictions, imposed both contractually and by the
Securities Act, on the resale of the shares of Group 1 Common Stock received in
the Acquisition, such shares of Group 1 Common Stock will have a substantially
lower value than those shares of Group 1 Common Stock that are registered under
the Securities Act and sold in the IPO; (viii) such Stockholder, if a
corporation, partnership, trust or other entity, acknowledges that it was not
formed for the specific purpose of acquiring the Group 1 Common Stock; and (ix)
without limiting any of the foregoing, such Stockholder agrees not to dispose
of any portion of Group 1 Common Stock unless either (1) a registration
statement under the Securities Act is in effect as to the applicable shares and
the disposition is made in accordance with that registration statement, or (2)
the Stockholder has notified Group 1 of the proposed disposition, provided
Group 1 with a detailed description of the circumstances surrounding the
proposed disposition and furnished Group 1 with written opinion of counsel
opining that the proposed disposition would not require registration of any
securities under federal or state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
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<PAGE> 18
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its Subsidiaries (other than
any lien, claim or encumbrance created by the Company or any of its
Subsidiaries), or (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit certificate or order of any court, tribunal or
governmental agency or authority, federal, state, foreign or local or (d) with
the passage of time or the giving of notice or the taking of any action by any
third party have any of the effects set forth in clause (a), (b) or (c) of this
Section, except, with respect to clauses (a), (b), (c) or (d) of this Section,
where such matter would not have a material adverse effect on the business,
assets, prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisition, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO Price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion
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of the assets of, or a substantial equity interest in, the Company, other than
the transactions with Group 1 contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding, (iv) redeem, purchase or acquire or
offer to acquire any of its capital stock, (v) incur any indebtedness
for borrowed money, or (vi) except in the ordinary course of business
and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's
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compensation for the calendar month immediately preceding such
individual's grant of severance or termination pay, or (ii) $10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) Neither the Company nor its Subsidiaries shall (i)
amend or terminate any Plan or Benefit Program or Agreement except as
may be required by applicable law, (ii) increase or accelerate the
payment or vesting of the amounts payable under any Plan or Benefit
Program or Agreement, or (iii) adopt or enter into any personnel
policy, stock option plan, collective bargaining agreement, bonus plan
or arrangement, incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment agreement or any
other employee benefit plan, agreement, arrangement, program, practice
or understanding (other than the Plans and the Benefit Programs or
Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
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5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock currently owned,
either beneficially or of record, by such Stockholder except pursuant to
Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except for those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates, except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
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5.14 Founders Employment Agreement. Charles M. Smith, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A attached hereto
(the "Founders Employment Agreement"), which agreement shall employ Charles M.
Smith as President of Smith Group and shall provide for an annual salary of
$300,000 and a term of five years.
5.15 GM Employment Agreement. Randall Ross, a Stockholder, hereby
agrees to enter on or prior to the Closing Date into an Employment Agreement
substantially in the form of Exhibit B attached hereto (the "GM Employment
Agreement"), which agreement shall employ Randall Ross as Chief Operating
Officer of the Company, and shall provide for an annual salary of $60,000 and a
term of three years.
5.16 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
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6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Employment Agreement.
6.7 GM Employment Agreement. Group 1 hereby agrees to enter into
the GM Employment Agreement.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1, each of the Selling Stockholders and the
underwriters of the IPO shall have entered into an underwriting
agreement in connection with the IPO providing for the underwriters'
purchase from Group 1 and the Selling Stockholders of the shares to be
sold by Group 1 and the Selling Stockholders in the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of
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the terms, covenants and conditions of this Agreement to be complied
with and performed by the Company and the Stockholders on or before
the Closing Date shall have been duly complied with and performed in
all material respects, and a certificate to the foregoing effect dated
the Closing Date and signed by the chief executive officer of the
Company and each of the Stockholders shall have been delivered to
Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition other than the
Selling Stockholder IPO Shares.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company and its subsidiaries, taken as a whole, shall have occurred,
and the Company shall not have suffered any damage, destruction or
loss (whether or not covered by insurance) materially adversely
affecting the properties or business of the Company and its
subsidiaries, taken as a whole, and Group 1 shall have received a
certificate signed by the chief executive officer of the Company dated
the Closing Date to such effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
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ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS,
WARRANTIES AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.16, 6.1, 6.4, 6.5, 8.2,
8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any
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<PAGE> 26
registration statement or prospectus pursuant to which such
Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which
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resulted in such losses, claims, damages, liabilities or judgments, as
well as any other relevant equitable considerations. The relative
fault of Group 1 on the one hand and of each Stockholder on the other
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. Group 1 and the Stockholders agree that it
would not be just and equitable if contribution pursuant to this
Section 8.2(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the first two sentences of this Section
8.2(d). The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages, liabilities or judgments
referred to in Sections 8.2(a) and 8.2(b) hereof shall be deemed to
include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 8.2(d), no Stockholder
shall be required to contribute any amount in excess of the amount by
which the total price at which the securities of such Stockholder
were offered to the public exceeds the amount of any damages which
such Stockholder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission.
No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f)(1) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Charles M. Smith, Daniel C.Y. Liu,
Ronald Kutz and Randall Ross (the "Designated Stockholders") and Group
1 agree to the non-competition provisions of this Section 8.3. The
Designated Stockholders agree that during the period of the Designated
Stockholder's non- competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its subsidiaries or affiliated companies are
conducting any business as of the date in question or have during the
previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
-23-
<PAGE> 28
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. The non-competition
obligations set forth in this Section 8.3(a) shall not apply to
Charles M. Smith's activities relating to Russell & Smith Ford, Inc.
and Streater-Smith Honda-Nissan- Mitsubishi. If Group 1 or any of its
subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section
8.3, an "affiliate" of Group 1 is any person who directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholders under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholders' agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or
-24-
<PAGE> 29
section of the Agreement. A substantially complete draft of the Company
Disclosure Letter shall have been delivered to Group 1 at least five business
days prior to the date of this Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will (other than with respect
to the Selling Stockholder IPO Shares): (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Group 1 Common Stock received by any Stockholder in the Acquisition or (B) any
interest in (including any option to buy or sell) any of those shares of Group
1 Common Stock, in whole or in part, and Group 1 will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Group 1 Common Stock
-25-
<PAGE> 30
or any interest therein, the intent or effect of which is to reduce the risk of
owning the shares of Group 1 Common Stock acquired pursuant to this Agreement
(including for example engaging in put, call, short-sale, straddle or similar
market transactions). Notwithstanding the foregoing, each Stockholder may (i)
pledge shares of Group 1 Common Stock, provided that the pledgee of such
shares shall agree not to sell or otherwise dispose of any such shares for the
Restricted Period; (ii) transfer shares to immediate family members or the
estate of any such individual (including, without limitation, any transfer by
such Stockholder to or among any partnership, trust, custodial or other similar
accounts or funds that are for the benefit of his immediate family members),
provided that such person or entity shall agree not to sell or otherwise
dispose of (other than pursuant to this Section 9.5) any such shares for the
Restricted Period; and (iii) transfer shares by will or the laws of descent and
distribution or otherwise by reason of such Stockholder's death. The
certificates evidencing the Group 1 Common Stock delivered to each Stockholder
pursuant to this Agreement will bear a legend substantially in the form set
forth below and containing such other information as Group 1 may deem necessary
or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Group 1 Common Stock to be
delivered to that Stockholder pursuant to this Agreement (other than the
Selling Stockholder IPO Shares) have not been and, if applicable, will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of Group 1 Common Stock issued to that Stockholder pursuant
to this Agreement will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations of
the Commission and applicable state securities laws and regulations. All
certificates evidencing shares of Group 1 Common Stock issued pursuant to this
Agreement will bear the following legend in addition to the legend prescribed
by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
-26-
<PAGE> 31
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required by
the securities or blue sky laws of the state in which that Stockholder resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
-27-
<PAGE> 32
if to the Company: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
if to the Stockholders: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
with a copy to: Ryan & Sudan, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010-1010
Attention: James W. Ryan
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
-28-
<PAGE> 33
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
-29-
<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-------------------------------------------------
Name: B.B. Hollingsworth, Jr.
Title: President and Chief Executive Officer
SMITH, LIU & KUTZ, INC.
By: /s/ CHARLES M. SMITH
--------------------------------------------------
Name: Charles M. Smith
Title:
STOCKHOLDERS
/s/ W.C. SMITH
-----------------------------------------------------
W.C. Smith
/s/ CHARLES M. SMITH
-----------------------------------------------------
Charles M. Smith
/s/ DANIEL C.Y. LIU
-----------------------------------------------------
Daniel C.Y. Liu
/s/ KUO KANG LIU
-----------------------------------------------------
Kuo Kang Liu
/s/ RONALD KUTZ
-----------------------------------------------------
Ronald Kutz
/s/ RANDALL ROSS
-----------------------------------------------------
Randall Ross
-30-
<PAGE> 35
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Southwest Toyota, Inc.
-31-
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholders Common Stock Common Stock(1) (2)
------------ ------------ ------------
<S> <C> <C>
W.C. Smith 250 201,445
Charles M. Smith 250 201,445
Daniel C.Y. Liu 150 120,867
Kuo Kang Liu 150 120,867
Ronald Kutz 100 80,578
Randall Ross 100 80,578
</TABLE>
- ---------------
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Howard Pontiac-GMC, Inc. and Group 1 that shall be distributed to the
Stockholders as result of the failure of Robert E. Howard II to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac-GMC, Inc. and
Group 1 and the stockholders of Howard Pontiac-GMC, Inc. and Group 1 dated as of
June 14, 1997.
-32-
<PAGE> 37
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
-33-
<PAGE> 38
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
-34-
<PAGE> 1
EXHIBIT 2.9
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
SMITH, LIU & CORBIN, INC.
AND
THE STOCKHOLDERS OF
SMITH, LIU & CORBIN, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
<TABLE>
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
-i-
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
<TABLE>
<S> <C> <C>
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
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<PAGE> 4
ARTICLE VII
CONDITIONS
<TABLE>
<S> <C> <C>
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 18
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 19
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 20
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 20
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Smith, Liu & Corbin, Inc., a Texas corporation (the "Company"),
and the Persons (defined in Section 2.6 below) listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $.01 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $.01 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock")set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
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<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly, or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 2,000 shares of the Company Common Stock, of which 2,000 shares are
issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its
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<PAGE> 9
operations and changes in financial position as of the dates and for the
periods indicated therein in conformity with generally accepted accounting
principles applied on a consistent basis. The Company Financial Statements do
not omit to state any liabilities, absolute or contingent, required to be
stated therein in accordance with generally accepted accounting principles
consistently applied. All accounts receivable of the Company reflected in the
Company 1996 Financial Statements and as incurred since December 31, 1996
represent sales made in the ordinary course of business, are collectible (net
of any reserves for doubtful accounts shown in the Company 1996 Financial
Statements) in the ordinary course of business and, except as set forth in the
Company Disclosure Letter, are not in dispute or subject to counterclaim,
set-off or renegotiation. The Company Disclosure Letter contains an aged
schedule of accounts receivable included in the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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<PAGE> 10
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as
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<PAGE> 11
a result of a change in accounting method for any taxable period
ending on or before the Closing Date or pursuant to any agreement with
any Tax authority with respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From January 1, 1990 through the Closing Date, (a)
the Company continuously has been and will be an S Corporation within
the meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
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<PAGE> 12
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multi employer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since
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receipt of the most recent favorable determination letter,
been amended or operated in a way which would adversely affect
such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential
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<PAGE> 14
business information, trademarks, service marks or trade names, used in or
pertaining to the business of the Company, except for the normal rights of
employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Shareholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, is required by any applicable
statute or other applicable law or by any applicable judgment, order or decree
or any applicable rule or regulation of any court, tribunal or governmental
agency or authority, federal, state, foreign or local, to permit such
Stockholder to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation,
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<PAGE> 16
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
court, tribunal or governmental agency or authority, federal, state, foreign or
local, or (d) with the passage of time or the giving of notice or the taking of
any action of any third party have any of the effects set forth in clause (a),
(b) or (c) of this Section, except, with respect to clauses (a), (b), (c) or
(d) of this Section, where such matter would not have a Material Adverse Effect
on the Company or the ability of the Company or such Stockholder to consummate
the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares (other than with respect to the shares listed in the Company Disclosure
Letter which will be sold by such Stockholder ("Selling Stockholder") in the
IPO ("Selling Stockholder IPO Shares")); (ii) such Stockholder is not a party
to any agreement or other arrangement for the disposition of any shares of
Group 1 Common Stock other than this Agreement (other than an Underwriting
Agreement to be entered into by certain of the Stockholders in connection with
the sale of the Selling Stockholder IPO Shares); (iii) such Stockholder is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition (other than any Selling Stockholder IPO Shares) for
a period of two years from the Closing Date; (vii) such Stockholder
acknowledges that as a result of the substantial restrictions, imposed both
contractually and by the Securities Act, on the resale of the shares of Group 1
Common Stock received in the Acquisition, such shares of Group 1 Common Stock
will have a substantially lower value than those shares of Group 1 Common Stock
that are registered under the Securities Act and sold in the IPO; (viii) such
Stockholder, if a corporation, partnership, trust or other entity, acknowledges
that it was not formed for the specific purpose of acquiring the Group 1 Common
Stock; and (ix) without limiting any of the foregoing, such Stockholder agrees
not to dispose of any portion of Group 1 Common Stock unless either (1) a
registration statement under the Securities Act is in effect as to the
applicable shares and the disposition is made in accordance with that
registration statement, or (2) the Stockholder has notified Group 1 of the
proposed disposition, provided Group 1 with a detailed description of the
circumstances surrounding the proposed disposition and furnished Group 1 with
written opinion of counsel opining that the proposed disposition would not
require registration of any securities under federal or state securities law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
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<PAGE> 18
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
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<PAGE> 19
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (i) cash dividends paid to
Stockholders in a manner consistent with the past practice of the
Company as disclosed to its independent auditors, and (ii) previously
taxed retained earnings of $500,000.00, which amount may be increased
to a consistently determined amount reflecting the effect of 1997
earnings prior to the Closing Date, so long as the working capital
position of the Company is not reduced below the level resulting from
the $500,000.00 dividend amount), (iv) redeem, purchase or acquire or
offer to acquire any of its capital stock, (v) incur any indebtedness
for borrowed money, or (vi) except in the ordinary course of business
and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan
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or arrangement, incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment agreement or any
other employee benefit plan, agreement, arrangement, program, practice
or understanding (other than the Plans and the Benefit Programs or
Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock currently owned,
either beneficially or of record, by such Stockholder except pursuant to
Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or
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any misappropriation or disclosure of any trade secret, confidential
information or know-how that forms a part of the Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Charles M. Smith, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A (the "Founders
Employment Agreement"), which agreement shall employ Charles M. Smith as
President of Smith Group, and shall provide for an annual salary of $300,000
and a term of five years.
5.15 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
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(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1, each of the Selling Stockholders and the
underwriters of the IPO shall have entered into an underwriting
agreement in connection with the IPO providing for the underwriters'
purchase from Group 1 and the Selling Stockholders of the shares to be
sold by Group 1 and the Selling Stockholders in the IPO.
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related
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Guarantees shall have been terminated, waived or released pursuant to
Sections 5.11 and 5.12 hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition other than the
Selling Stockholder IPO Shares.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.15, 6.1, 6.4, 6.5, 8.2,
8.3, 9.4 and 9.5 shall survive the Closing.
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(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless
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(i) the Indemnifying Party has agreed to pay such fees and expenses or
(ii) the Indemnifying Party fails promptly to assume the defense of
such action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group
1 on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 8.2(d)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences of this Section 8.2(d). The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8.2(d), no Stockholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the securities of such Stockholder were offered
to the public exceeds the amount of any damages
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which such Stockholder has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f)(1) of the Securities Act) shall be
entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Charles M. Smith, Daniel C.Y. Liu and
Michael Smith (the "Designated Stockholders") and Group 1 agree to the
non-competition provisions of this Section 8.3. The Designated
Stockholders agree that during the period of the Designated
Stockholder's non-competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its subsidiaries or affiliated companies are
conducting any business as of the date in question or have during the
previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. The non-competition
obligations set forth in this Section 8.3(a) shall not apply to
Charles M. Smith's activities relating to Russell & Smith Ford, Inc.
and Streater-Smith Honda-Nissan- Mitsubishi, nor shall such
obligations apply to Michael G. Smith's activities relating to Russell
& Smith Ford, Inc. If Group 1 or any of its subsidiaries or
affiliates abandons a particular aspect of its business, that is,
ceases such aspect of its business with the intention to permanently
refrain from such aspect of its business, then this post-employment
non-competition covenant shall not apply to such former aspect of that
business. For purposes of this Section 8.3, an "affiliate" of Group 1
is any person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, Group 1.
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(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholders under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholders' agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
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(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will (other than with respect
to the Selling Stockholder IPO Shares): (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Group 1 Common Stock received by any Stockholder in the Acquisition or (B) any
interest in (including any option to buy or sell) any of those shares of Group
1 Common Stock, in whole or in part, and Group 1 will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Group 1 Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Group 1 Common Stock acquired
pursuant to this Agreement (including for example engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, each Stockholder may (i) pledge shares of Group 1 Common Stock,
provided that the pledgee of such shares shall agree not to sell or otherwise
dispose of any such shares for the Restricted Period; (ii) transfer shares to
immediate family members or the estate of any such individual (including,
without limitation, any transfer by such Stockholder to or among any
partnership, trust, custodial or other similar accounts or funds that are for
the benefit of his immediate family members), provided that such person or
entity shall agree not to sell or otherwise dispose of (other than pursuant to
this Section 9.5) any such shares for the Restricted Period; and (iii) transfer
shares by will or the laws of descent and distribution or otherwise by reason
of such Stockholder's death. The certificates evidencing the Group 1 Common
Stock delivered to each Stockholder pursuant to this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as Group 1 may deem necessary or appropriate:
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EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Group 1 Common Stock to be
delivered to that Stockholder pursuant to this Agreement (other than the
Selling Stockholder IPO Shares) have not been and, if applicable, will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of Group 1 Common Stock issued to that Stockholder pursuant
to this Agreement will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations of
the Commission and applicable state securities laws and regulations. All
certificates evidencing shares of Group 1 Common Stock issued pursuant to this
Agreement will bear the following legend in addition to the legend prescribed
by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or
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to occur at all; and (c) the decision of Stockholders to enter into this
Agreement, has been or will be made independent of, and without reliance on,
any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to Group 1 or the IPO. The Underwriters shall have no
obligation to any of the Company and the Stockholders with respect to any
disclosure contained in the Registration Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
-27-
<PAGE> 32
if to the Stockholders: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
with a copy to: Ryan & Sudan, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010-1010
Attention: James W. Ryan
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
-28-
<PAGE> 33
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
-29-
<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-------------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
SMITH, LIU & CORBIN, INC.
By: /s/ CHARLES M. SMITH
-------------------------------------
Charles M. Smith
President
STOCKHOLDERS:
/s/ W. C. SMITH
----------------------------------------
W. C. Smith
/s/ CHARLES M. SMITH
----------------------------------------
Charles M. Smith
/s/ MICHAEL G. SMITH
----------------------------------------
Michael G. Smith
/s/ LENORA SMITH
----------------------------------------
Lenora Smith
/s/ RALPH S. O'CONNOR
----------------------------------------
Ralph S. O'Connor
/s DANIEL C. Y. LIU
----------------------------------------
Daniel C. Y. Liu
-30-
<PAGE> 35
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
-31-
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock(1)(2)
- ----------- ------------ --------------------
<S> <C> <C>
W. C. Smith ................ 300 60,816
Charles M. Smith ............ 350 70,952
Michael G. Smith ............ 150 30,408
Lenora Smith ................ 50 10,136
Ralph S. O'Connor .......... 1000 202,719
Daniel C. Y. Liu ........... 150 30,408
</TABLE>
- ------------
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Robert E. Howard II that shall be distributed to the Stockholders as
result of the failure of Howard Pontiac - GMC, Inc. and Group 1 to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac - GMC, Inc. and
the stockholders of Howard Pontiac - GMC, Inc. dated as of June 14, 1997.
-32-
<PAGE> 37
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
-33-
<PAGE> 1
EXHIBIT 2.10
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
ROUND ROCK NISSAN, INC.
AND
THE STOCKHOLDERS OF
ROUND ROCK NISSAN, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
THE ACQUISITION
<TABLE>
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OFTHE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 3
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
<TABLE>
<S> <C> <C>
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 GM Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.17 Subordination and Non-Disturbance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.18 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 GM Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
-ii-
<PAGE> 4
ARTICLE VII
CONDITIONS
<TABLE>
<S> <C>
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 20
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 20
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 21
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
-iii-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Round Rock Nissan Inc., a Texas corporation (the "Company"), and
the Persons (defined in Section 2.6 below) listed on the signature pages hereof
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
-2-
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
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<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly, or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 2,000 shares of the Company Common Stock, of which 1,000 shares are
issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that areconvertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its
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<PAGE> 9
operations and changes in financial position as of the dates and for the
periods indicated therein in conformity with generally accepted accounting
principles applied on a consistent basis. The Company Financial Statements do
not omit to state any liabilities, absolute or contingent, required to be
stated therein in accordance with generally accepted accounting principles
consistently applied. All accounts receivable of the Company reflected in the
Company 1996 Financial Statements and as incurred since December 31, 1996
represent sales made in the ordinary course of business, are collectible (net
of any reserves for doubtful accounts shown in the Company 1996 Financial
Statements) in the ordinary course of business and, except as set forth in the
Company Disclosure Letter, are not in dispute or subject to counterclaim,
set-off or renegotiation. The Company Disclosure Letter contains an aged
schedule of accounts receivable included in the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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<PAGE> 10
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of orwith respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as
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<PAGE> 11
a result of a change in accounting method for any taxable period
ending on or before the Closing Date or pursuant to any agreement with
any Tax authority with respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
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<PAGE> 12
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multi employer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
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<PAGE> 13
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no
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<PAGE> 14
physical condition existing on any property ever owned or operated by the
Company nor are there any physical conditions existing on any other property
that may have been affected by the Company's operations which could give rise
to any material remedial obligation under any Environmental Laws or which could
result in any material liability to any third party pursuant to any
Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option,
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<PAGE> 15
warrant or right entitling the holder thereof to purchase or otherwise acquire
any shares of capital stock of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, is required by any applicable
statute or other applicable law or by any applicable judgment, order or decree
or any applicable rule or regulation of any court, tribunal or governmental
agency or authority, federal, state, foreign or local, to permit such
Stockholder to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, or (d) with the passage of time or
the giving of notice or the taking of any action of any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a Material Adverse Effect on the Company or the ability of the
Company or such Stockholder to consummate the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute,
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<PAGE> 16
sell or otherwise dispose of any of those shares; (ii) such Stockholder is not
a party to any agreement or other arrangement for the disposition of any shares
of Group 1 Common Stock other than this Agreement; (iii) such Stockholder,
other than Janet M. Sopronyi and William D. Lawrence, is an "accredited
investor" as defined in Securities Act Rule 501(a); (iv) such Stockholder (A)
is able to bear the economic risk of an investment in the Group 1 Common Stock
acquired pursuant to this Agreement, (B) can afford to sustain a total loss of
that investment, (C) has such knowledge and experience in financial and
business matters, and such past participation in investments, that he or she is
capable of evaluating the merits and risks of the proposed investment in the
Group 1 Common Stock, (D) has received and reviewed the draft Registration
Statement, (E) has had an adequate opportunity to ask questions and receive
answers from the officers of Group 1 concerning any and all matters relating to
the transactions contemplated hereby, including the background and experience
of the current and proposed officers and directors of Group 1, the plans for
the operations of the business of Group 1, the business, operations and
financial condition of the Other Founding Companies and any plans of Group 1
for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition for a period of two years from the Closing Date;
(vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and
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performance of each instrument required hereby to be executed and delivered by
Group 1 at the Closing have been duly and validly authorized by all requisite
corporate action on the part of Group 1. This Agreement has been, and each
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing will then be, duly executed and delivered by Group 1. This
Agreement constitutes, and, to the extent it purports to obligate Group 1, each
such instrument will constitute (assuming due authorization, execution and
delivery by each other party thereto), the legal, valid and binding obligation
of Group 1, enforceable against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" shall be the per
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share IPO price of Group 1 Common Stock, less applicable underwriting
discounts and a pro rata portion of expenses related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding, (iv) redeem, purchase or acquire or
offer to acquire any of its capital stock, (v) incur any indebtedness
for borrowed money, or (vi) except in the ordinary course of business
and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
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(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
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<PAGE> 20
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock currently owned,
either beneficially or of record, by such Stockholder except pursuant to
Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
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<PAGE> 21
5.11 Removal of Related Party Guarantees.
(a) The Company and the Stockholders agree to take, or
cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to terminate, waive or
release all Company guarantees (such guarantees shall be referred to
herein as "Related Guarantees," as described in the Company Disclosure
Letter pursuant to Section 2.11 of this Agreement) of indebtedness or
other obligations of any of the Company's officers, directors,
shareholders or employees or their affiliates.
(b) Without limiting the generality of the foregoing
subsection 5.11(a), and in further consideration of Group 1 entering
into this Agreement, the Stockholders hereby agree to cause SKLR Round
Rock, L.L.C., a Texas limited liability company of which the
Stockholders are the sole members ("SKLR"), to grant to Group 1 an
option to purchase the premises (the "Premises") located at 3050 North
IH 35, in Round Rock, Texas, to be described more particularly at a
later date in Exhibit A to the form of Lease Agreement attached as
Exhibit D hereto (the "Guaranty Purchase Option"). The Guaranty
Purchase Option shall be granted to Group 1 pursuant to a written
option agreement executed by Group 1 and SKLR, in form and substance
satisfactory to Group 1, such option agreement to be delivered to
Group 1 on or before the tenth (10th) day after the date hereof. The
Guaranty Purchase Option shall only be exercisable by written notice
to SKLR, on a date (the "Guaranty Exercise Date") at any time after
(i) the expiration of ninety (90) days after the Closing Date, and
(ii) the failure of SKLR to obtain full and complete written releases
(the "Required Releases") of all Related Guarantees of any
indebtedness which is secured by liens or security interests covering
the Premises (the "Indebtedness"). The Required Releases shall be
executed by the then current owner and holder of the Indebtedness.
The purchase price of the Guaranty Purchase Option shall be the
principal amount outstanding under the Indebtedness on the Guaranty
Exercise Date; provided, however, that the same has not been modified
or amended after the date hereof. The purchase of such premises shall
occur on or before thirty (30) days after the Guaranty Exercise Date,
and SKLR shall deliver to Group 1 a Special Warranty Deed and Bill of
Sale, executed and acknowledged by SKLR covering such premises,
subject to all matters currently affecting such premises (except the
Indebtedness), together with all other documents customarily used for
the sale of real property in Texas.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except for those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Charles M. Smith, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A (the "Employment
Agreement"), which agreement shall employ Charles M. Smith as President of
Smith Group, and shall provide for an annual salary of $300,000 and a term of
five years.
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5.15 GM Employment Agreements. Randall Ross, Ronald J. Kutz,
William D. Lawrence and Janet M. Sopronyi, as Stockholders, hereby agree to
enter on or prior to the Closing Date into Employment Agreements substantially
in the form of Exhibit B attached hereto (the "GM Employment Agreement"), which
agreements shall employ (i) Randall Ross as Chief Operating Officer of the
Company, at an annual salary of $60,000 and for a term of three years; (ii)
Ronald J. Kutz as Chief Operating Officer of Courtesy Nissan, Inc., at an
annual salary of $60,000 and for a term of three years; (iii) William D.
Lawrence as Chief Financial Officer of Courtesy Nissan, Inc., at an annual
salary of $60,000 and for a term of three years; and (iv) Janet M. Sopronyi as
Chief Financial Officer of Smith, Liu & Kutz, Inc., at an annual salary of
$60,000 and for a term of three years.
5.16 Leases. The Stockholders shall cause SKLR Round Rock, L.L.C.,
to enter on or prior to the Closing Date into a lease with the Company, in form
substantially similar to the lease attached hereto as Exhibit C (the "Lease")
covering the properties owned by SKLR Round Rock, L.L.C., identified on Exhibit
C to the Lease, including any changes that may be reasonably required by (i)
any lender to SKLR Round Rock, L.L.C. or (ii) any automobile manufacturer with
whom the Company or any of its affiliates does business solely in connection
with the properties identified in Exhibit C to the Lease, in each case (i) or
(ii) above, whose consent must be obtained pursuant to any agreement with SKLR
Round Rock, L.L.C. existing on the date hereof.
5.17 Subordination and Non-Disturbance Agreement. The Stockholders
hereby agree to cause SKLR Round Rock, L.L.C., a Texas limited liability
company of which the Stockholders are the sole members ("SKLR"), to grant to
Group 1 an option to purchase the premises (the "Premises") located at 3050
North IH 35, in Round Rock, Texas, to be described more particularly at a later
date in Exhibit A to the Lease (the "SNDA Purchase Option"). The SNDA Purchase
Option shall be granted to Group 1 pursuant to a written option agreement
executed by Group 1 and SKLR, in form and substance satisfactory to Group 1,
and delivered to Group 1 on or before the tenth (10th) day after the date
hereof. The SNDA Purchase Option shall be exercisable only by written notice
to SKLR, on a date (the "SNDA Exercise Date") at any time after (i) the
expiration of ninety (90) days after the Closing Date, and (ii) the failure of
SKLR to obtain a Mutual Recognition and Attornment Agreement ("SNDA") in the
form required under Article 11 to the Lease, in form and substance reasonably
satisfactory to Group 1, from each then current holder and owner of any
indebtedness which is secured by liens or security interests covering the
Premises (the "Indebtedness"). The SNDA Purchase Option may only be exercised
by Group 1 with respect to those premises for which a SNDA has not been
obtained. The purchase price of the SNDA Purchase Option shall be the
principal amount outstanding under that portion of the Indebtedness
attributable to the premises being purchased on the SNDA Exercise Date;
provided, however, that the same has not been modified or amended after the
date hereof. The purchase of such premises shall occur on or before thirty
(30) days after the SNDA Exercise Date, and SKLR shall deliver to Group 1 a
Special Warranty Deed and Bill of Sale, executed and acknowledged by SKLR
covering the premises being purchased, subject to all matters currently
affecting such premises (except the Indebtedness), together with all other
documents customarily used for the sale of real property in Texas. Article
11(iv) of the Lease shall be modified to the extent necessary to reflect the
foregoing provisions.
5.18 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
6.7 GM Employment Agreements. Group 1 hereby agrees to enter into
the GM Employment Agreements.
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ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1 and the underwriters of the IPO shall have
entered into an underwriting agreement in connection with the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
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<PAGE> 25
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto, except as contemplated by Section 5.11(b).
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person
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<PAGE> 26
controlling any such party or any of their officers, directors,
representatives or agents whether prior to or after the execution of
this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.11(b), 5.17, 5.18, 6.1,
6.4, 6.5, 8.2, 8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who
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<PAGE> 27
has agreed to provide such indemnification under Section 8.2(a) or
8.2(b) above (an "Indemnifying Party"), the Indemnified Party shall
give prompt notice to the Indemnifying Party and the Indemnifying
Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party, and shall
assume the payment of all reasonable expenses of such defense. Such
Indemnified Party shall have the right to employ separate counsel in
any such action or proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party
has agreed to pay such fees and expenses or (ii) the Indemnifying
Party fails promptly to assume the defense of such action or
proceeding or fails to employ counsel reasonably satisfactory to such
Indemnified Party or (iii) the named parties to any such action or
proceeding (including any impleaded parties) include both such
Indemnified Party and Indemnifying Party (or an Affiliate of the
Indemnifying Party), and such Indemnified Party shall have been
advised by counsel that there is a conflict of interest on the part of
counsel employed by the Indemnifying Party to represent such
Indemnified Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in writing that it elects to employ separate
counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party). Notwithstanding the
foregoing, the Indemnifying Party shall not, in connection with any
one such action or proceeding or separate but substantially similar
related actions or proceedings in the same jurisdiction arising out of
the same general allegations or circumstances, be liable at any time
for the fees and expenses of more than one separate firm of attorneys
(together in each case with appropriate local counsel). The
Indemnifying Party shall not be liable for any settlement of any such
action or proceeding effected without its written consent (which
consent will not be unreasonably withheld), but if settled with its
written consent, or if there be a final judgment for the plaintiff in
any such action of proceeding, the Indemnifying Party shall indemnify
and hold harmless such Indemnified Party from and against any loss or
liability (to the extent stated above) by reason of such settlement or
judgment. The Indemnifying Party shall not consent to entry of any
judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release, in form and substance reasonably
satisfactory to the Indemnified Party, from all liability in respect
of such action or proceeding for which such Indemnified Party would be
entitled to indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group
1 on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 8.2(d)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences
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<PAGE> 28
of this Section 8.2(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or
judgments referred to in Sections 8.2(a) and 8.2(b) hereof shall be
deemed to include, subject to the limitations set forth above, any
legal or other expenses reasonably incurred by such Indemnified Party
in connection with investigating or defending any such action or
claim. Notwithstanding the provisions of this Section 8.2(d), no
Stockholder shall be required to contribute any amount in excess of
the amount by which the total price at which the securities of such
Stockholder were offered to the public exceeds the amount of any
damages which such Stockholder has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f)(1) of the Securities Act) shall
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Charles M. Smith, Daniel C.Y. Liu,
Ronald J. Kutz, Randall Ross, William D. Lawrence and Janet M.
Sopronyi (the "Designated Stockholders") and Group 1 agree to the
non-competition provisions of this Section 8.3. The Designated
Stockholders agree that during the period of the Designated
Stockholder's non-competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its subsidiaries or affiliated companies are
conducting any business as of the date in question or have during the
previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. The Non-competition
obligations set forth in this Section 8.3(a) shall not apply to
Charles M. Smith's activities relating to Russell & Smith Ford, Inc.
and Streater-Smith Honda-Nissan- Mitsubishi. If Group 1 or any of its
subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such
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<PAGE> 29
aspect of its business with the intention to permanently refrain from
such aspect of its business, then this post-employment non-competition
covenant shall not apply to such former aspect of that business. For
purposes of this Section 8.3, an "affiliate" of Group 1 is any person
who directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, Group
1.
(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholders under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholders' agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
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<PAGE> 30
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group 1 each represent and warrant to
each other that there is no broker or finder involved in the transactions
contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will: (i) sell, assign,
exchange, transfer, encumber, pledge, distribute, appoint or otherwise dispose
of (A) any shares of Group 1 Common Stock received by any Stockholder in the
Acquisition or (B) any interest in (including any option to buy or sell) any of
those shares of Group 1 Common Stock, in whole or in part, and Group 1 will
have no obligation to, and shall not, treat any such attempted transfer as
effective for any purpose; or (ii) engage in any transaction, whether or not
with respect to any shares of Group 1 Common Stock or any interest therein, the
intent or effect of which is to reduce the risk of owning the shares of Group 1
Common Stock acquired pursuant to this Agreement (including for example
engaging in put, call, short-sale, straddle or similar market transactions).
Notwithstanding the foregoing, each Stockholder may (i) pledge shares of Group
1 Common Stock, provided that the pledgee of such shares shall agree not to
sell or otherwise dispose of any such shares for the Restricted Period; (ii)
transfer shares to immediate family members or the estate of any such
individual (including, without limitation, any transfer by such Stockholder to
or among any partnership, trust, custodial or other similar accounts or funds
that are for the benefit of his immediate family members), provided that such
person or entity shall agree not to sell or otherwise dispose of (other than
pursuant to this Section 9.5) any such shares for the Restricted Period; and
(iii) transfer shares by will or the laws of descent and distribution or
otherwise by reason of such Stockholder's death. The certificates evidencing
the Group 1 Common Stock delivered to each Stockholder pursuant to this
Agreement will bear a legend substantially in the
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<PAGE> 31
form set forth below and containing such other information as Group 1 may deem
necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other
Person, (i) acknowledges that the shares of Group 1 Common Stock to be
delivered to that Stockholder pursuant to this Agreement have not been and, if
applicable, will not be registered under the Securities Act and therefore may
not be resold by that Stockholder without compliance with the Securities Act
and (ii) covenants that none of the shares of Group 1 Common Stock issued to
that Stockholder pursuant to this Agreement will be offered, sold, assigned,
pledged, hypothecated, transferred or otherwise disposed of except after full
compliance with all the applicable provisions of the Securities Act and the
rules and regulations of the Commission and applicable state securities laws
and regulations. All certificates evidencing shares of Group 1 Common Stock
issued pursuant to this Agreement will bear the following legend in addition to
the legend prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates
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<PAGE> 32
for any failure of (i) the Registration Statement to become effective
(provided, however, that Group 1 will use its reasonable best efforts to cause
the Registration Statement to become effective prior to December 31, 1997) or
(ii) the IPO to occur at a particular price or within a particular range of
prices or to occur at all; and (c) the decision of Stockholders to enter into
this Agreement, has been or will be made independent of, and without reliance
on, any statements, opinions or other communications of, or due diligence
investigations that have been or will be made or performed by, any prospective
underwriter relative to Group 1 or the IPO. The Underwriters shall have no
obligation to any of the Company and the Stockholders with respect to any
disclosure contained in the Registration Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
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<PAGE> 33
if to the Stockholders: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
with a copy to: Ryan & Sudan, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010-1010
Attention: James W. Ryan
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and
Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
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<PAGE> 34
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as otherwise contemplated by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
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<PAGE> 35
EXHIBIT 2.10
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
ROUND ROCK NISSAN, INC.
By: /s/ CHARLES M. SMITH
-----------------------------------
Charles M. Smith
President
STOCKHOLDERS:
/s/ CHARLES M. SMITH
--------------------------------------
Charles M. Smith
/s/ RONALD J. KUTZ
--------------------------------------
Ronald J. Kutz
/s/ WILLIAM D. LAWRENCE
--------------------------------------
William D. Lawrence
/s/ RANDALL ROSS
--------------------------------------
Randall Ross
/s/ DANIEL C. Y. LIU
--------------------------------------
Daniel C. Y. Liu
/s/ JANET M. SOPRONYI
--------------------------------------
Janet M. Sopronyi
/s/ THOMAS PARK
--------------------------------------
Thomas Park
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<PAGE> 36
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
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<PAGE> 37
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock(1)(2)
----------- ----------------- ------------------
<S> <C> <C>
Charles M. Smith . . . . . . . . . 220 89,594
Ronald J. Kutz . . . . . . . . . . 200 81,449
William D. Lawrence . . . . . . . . 40 16,290
Randall Ross . . . . . . . . . . . 200 81,449
Daniel C. Y. Liu . . . . . . . . . 200 81,449
Janet M. Sopronyi . . . . . . . . . 40 16,290
Thomas Park . . . . . . . . . . . . 100 40,725
</TABLE>
- ---------------
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Robert E. Howard II that shall be distributed to the Stockholders as
result of the failure of Howard Pontiac-GMC, Inc. and Group 1 to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac-GMC, Inc. and the
stockholders of Howard Pontiac-GMC, Inc. dated as of June 14, 1997.
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<PAGE> 38
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
-34-
<PAGE> 39
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
-35-
<PAGE> 40
EXHIBIT C
[LEASE]
-36-
<PAGE> 1
EXHIBIT 2.11
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
MIKE SMITH AUTOPLAZA, INC.
AND
THE STOCKHOLDERS OF
MIKE SMITH AUTOPLAZA, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
THE ACQUISITION
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<TABLE>
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3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 14
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.15 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.16 Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.17 Subordination and Non-Disturbance Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.18 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 GM Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
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<TABLE>
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ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 19
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 20
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 20
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Mike Smith Autoplaza, Inc., a Texas corporation (the "Company"),
and the Persons (defined in Section 2.6 below) listed on the signature pages
hereof under the caption "Stockholders" (collectively, the "Stockholders," and
each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of the Company
from the Stockholders (the "Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $.01 per share of Group 1 ("Group 1 Common Stock") set forth
opposite their respective names in Schedule II hereto (as may be appropriately
adjusted for stock splits, reverse stock splits and/or stock dividends). In
the event that the Board of Directors of Group 1 approves a reverse stock split
upon the recommendation of the Representatives of the Underwriters in
connection with the IPO, the number of shares of Group 1 Common Stock to be
received by the shareholders of the Founding Companies shall be decreased
proportionately as a result of the reverse stock split; provided, however, that
in the event that the number of shares of Group 1 Common Stock resulting from
the reverse stock split recommended by the Representatives of the Underwriters
is less than the number of shares resulting from a 4.444 for 5 reverse stock
split, a 4.444 for 5 reverse stock split shall be implemented and the number of
shares of Group 1 Common Stock resulting from such 4.444 for 5 reverse stock
split to be received by the shareholders of the Founding Companies shall be
further decreased proportionately to the number of shares that would have been
issued to the shareholders of the Founding Companies had the reverse stock
split recommended by the Representatives of the Underwriters been implemented.
If the number of shares of Group 1 Common Stock received by a Stockholder
pursuant to this Agreement includes a fractional share as a result of a reverse
stock split affecting the Group 1 Common Stock, such fractional share shall be
rounded up to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
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<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter
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<PAGE> 8
pursuant to Section 2.4) (a) violate or breach the terms of or cause a default
under (i) any applicable federal, state, foreign or local statute or other
applicable law, (ii) any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority, (iii) any applicable permits received from
any federal, state, foreign or local governmental agency, (iv) the articles of
incorporation or bylaws of the Company, or (v) any contract or agreement to
which the Company is a party or by which it, or any of its properties, is
bound, or (b) result in the creation or imposition of any lien, claim or
encumbrance on any of the properties or assets of the Company, or (c) result in
the cancellation, forfeiture, revocation, suspension or adverse modification of
any existing consent, approval, authorization, license, permit, certificate or
order of any federal, state, foreign or local court, tribunal or governmental
agency or authority, or (d) with the passage of time or the giving of notice or
the taking of any action of any third party have any of the effects set forth
in clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly, or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 10,000 shares of the Company Common Stock, of which 800 shares are
issued and outstanding (200 shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Company Disclosure Letter are the names and addresses
(as reflected in the corporate records of the Company) of each record
holder of the Company Common Stock, together with the number of shares
held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its
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<PAGE> 9
operations and changes in financial position as of the dates and for the
periods indicated therein in conformity with generally accepted accounting
principles applied on a consistent basis. The Company Financial Statements do
not omit to state any liabilities, absolute or contingent, required to be
stated therein in accordance with generally accepted accounting principles
consistently applied. All accounts receivable of the Company reflected in the
Company 1996 Financial Statements and as incurred since December 31, 1996
represent sales made in the ordinary course of business, are collectible (net
of any reserves for doubtful accounts shown in the Company 1996 Financial
Statements) in the ordinary course of business and, except as set forth in the
Company Disclosure Letter, are not in dispute or subject to counterclaim,
set-off or renegotiation. The Company Disclosure Letter contains an aged
schedule of accounts receivable included in the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
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2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as a result of a change
in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
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(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From January 1, 1987 through the Closing Date, (a)
the Company continuously has been and will be an S Corporation within
the meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
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<PAGE> 12
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
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<PAGE> 13
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of all liens,
claims and encumbrances other than as set forth in the applicable lease
agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no
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<PAGE> 14
physical condition existing on any property ever owned or operated by the
Company nor are there any physical conditions existing on any other property
that may have been affected by the Company's operations which could give rise
to any material remedial obligation under any Environmental Laws or which could
result in any material liability to any third party pursuant to any
Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any certificate, list or other writing furnished to Group 1 by the Company
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. All statements contained in this Agreement, the
Company Disclosure Letter, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of the Company for all
purposes of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own,
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<PAGE> 15
beneficially or of record, any capital stock or other security, including
without limitation any option, warrant or right entitling the holder thereof to
purchase or otherwise acquire any shares of capital stock of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, is required by any applicable
statute or other applicable law or by any applicable judgment, order or decree
or any applicable rule or regulation of any court, tribunal or governmental
agency or authority, federal, state, foreign or local, to permit such
Stockholder to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, or (d) with the passage of time or
the giving of notice or the taking of any action of any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a Material Adverse Effect on the Company or the ability of the
Company or such Stockholder to consummate the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute,
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<PAGE> 16
sell or otherwise dispose of any of those shares (other than with respect to
the shares listed in the Company Disclosure Letter which will be sold by such
Stockholder ("Selling Stockholder") in the IPO ("Selling Stockholder IPO
Shares")); (ii) such Stockholder is not a party to any agreement or other
arrangement for the disposition of any shares of Group 1 Common Stock other
than this Agreement (other than an Underwriting Agreement to be entered into by
certain of the Stockholders in connection with the sale of the Selling
Stockholder IPO Shares); (iii) such Stockholder is an "accredited investor" as
defined in Securities Act Rule 501(a); (iv) such Stockholder (A) is able to
bear the economic risk of an investment in the Group 1 Common Stock acquired
pursuant to this Agreement, (B) can afford to sustain a total loss of that
investment, (C) has such knowledge and experience in financial and business
matters, and such past participation in investments, that he or she is capable
of evaluating the merits and risks of the proposed investment in the Group 1
Common Stock, (D) has received and reviewed the draft Registration Statement,
(E) has had an adequate opportunity to ask questions and receive answers from
the officers of Group 1 concerning any and all matters relating to the
transactions contemplated hereby, including the background and experience of
the current and proposed officers and directors of Group 1, the plans for the
operations of the business of Group 1, the business, operations and financial
condition of the Other Founding Companies and any plans of Group 1 for
additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition (other than any Selling Stockholder IPO Shares) for
a period of two years from the Closing Date; (vii) such Stockholder
acknowledges that as a result of the substantial restrictions, imposed both
contractually and by the Securities Act, on the resale of the shares of Group 1
Common Stock received in the Acquisition, such shares of Group 1 Common Stock
will have a substantially lower value than those shares of Group 1 Common Stock
that are registered under the Securities Act and sold in the IPO; (viii) such
Stockholder, if a corporation, partnership, trust or other entity, acknowledges
that it was not formed for the specific purpose of acquiring the Group 1 Common
Stock; and (ix) without limiting any of the foregoing, such Stockholder agrees
not to dispose of any portion of Group 1 Common Stock unless either (1) a
registration statement under the Securities Act is in effect as to the
applicable shares and the disposition is made in accordance with that
registration statement, or (2) the Stockholder has notified Group 1 of the
proposed disposition, provided Group 1 with a detailed description of the
circumstances surrounding the proposed disposition and furnished Group 1 with
written opinion of counsel opining that the proposed disposition would not
require registration of any securities under federal or state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority
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<PAGE> 17
to execute, deliver and perform this Agreement and each instrument required
hereby to be executed and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or the giving of notice or the
taking of any action by any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a material
adverse effect on the business, assets, prospects or condition (financial or
otherwise) of Group 1 and its subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
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(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
relating to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion of the assets of, or a substantial
equity interest in, the Company, other than the transactions with Group 1
contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (i) cash dividends paid to
Stockholders in a manner consistent with past practice of the Company
as disclosed to its independent auditors and (ii) previously taxed
retained earnings of $800,000.00, which amount
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may be increased to a consistently determined amount reflecting the
effect of 1997 earnings prior to the Closing Date, so long as the
working capital position of the Company is not reduced below the level
resulting from the $800,000.00 dividend amount), (iv) redeem, purchase
or acquire or offer to acquire any of its capital stock, (v) incur any
indebtedness for borrowed money, or (vi) except in the ordinary course
of business and consistent with past practice, enter into any
contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
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representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer, dispose
of or encumber any shares of Company Common Stock currently owned, either
beneficially or of record, by such Stockholder except pursuant to Section 9.5
of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in
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which a prospectus relating to the IPO is required to be delivered under the
Securities Act, any information contained in the then current Registration
Statement prospectus concerning the Company or any of the Stockholders becomes
incorrect or incomplete in any material respect and (b) provide Group 1 with
information needed to correct or complete such information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements, except for those Related Party Agreements that
are disclosed in the Company Disclosure Letter as agreements that shall not be
subject to this Section 5.12.
5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Founders Employment Agreement. Charles M. Smith, a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A attached hereto
(the "Founders Employment Agreement"), which agreement shall employ Charles M.
Smith as President of Smith Group, and shall provide for an annual salary of
$300,000 and a term of five years.
5.15 GM Employment Agreement. Michael G. Smith, a Stockholder,
hereby agrees to enter on or prior to the Closing Date into an Employment
Agreement substantially in the form of Exhibit B attached hereto (the "GM
Employment Agreement"), which agreement shall employ Michael G. Smith as
President of the Company, and shall provide for an annual salary of $120,000
and a term of three years.
5.16 Leases. The Stockholders shall cause Olds-Honda Realty to
enter on or prior to the Closing Date into a lease with the Company, in form
substantially similar to the lease attached hereto as Exhibit C (the "Lease")
covering the properties owned by Olds-Honda Realty identified on Exhibit C to
the Lease, including any changes that may be reasonably required by (i) any
lender to Olds-Honda Realty or (ii) any automobile manufacturer with whom the
Company or any of its affiliates does business solely in connection with the
properties identified in Exhibit C to the Lease, in each case (i) or (ii)
above, whose consent must be obtained pursuant to any agreement with Olds-Honda
Realty existing on the date hereof.
5.17 Subordination and Non-Disturbance Agreement. The Stockholders
hereby agree to cause Olds-Honda Realty, a Texas limited partnership
("Olds-Honda"), to grant to Group 1 an option to purchase the premises (the
"Premises") located at 1515 I-10 South, in Beaumont, Texas, to be described
more particularly at a later date in Exhibit A to the Lease (the "SNDA Purchase
Option"). The SNDA Purchase Option shall be granted to Group 1 pursuant to a
written option agreement executed by Group 1 and Olds-Honda Realty, in form and
substance satisfactory to Group 1, and delivered to Group 1 on or
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before the tenth (10) day after the date hereof. The SNDA Purchase Option
shall be exercisable only by written notice to Olds-Honda, on a date (the "SNDA
Exercise Date") at any time after (i) the expiration of ninety (90) days after
the Closing Date, and (ii) the failure of Olds-Honda to obtain a Mutual
Recognition and Attornment Agreement in the form required under Article 11 to
the Lease ("SNDA"), in form and substance reasonably satisfactory to Group 1,
from each then current holder and owner of any indebtedness which is secured by
liens or security interests covering the Premises (the "Indebtedness"). The
SNDA Purchase Option may only be exercised by Group 1 with respect to those
premises for which a SNDA has not been obtained. The purchase price of the
SNDA Purchase Option shall be the principal amount outstanding under that
portion of the Indebtedness attributable to the premises being purchased on the
SNDA Exercise Date; provided, however, that the same has not been modified or
amended after the date hereof. The purchase of such premises shall occur on or
before thirty (30) days after the SNDA Exercise Date, and Olds-Honda shall
deliver to Group 1 a Special Warranty Deed and Bill of Sale, executed and
acknowledged by Olds-Honda covering the premises being purchased, subject to
all matters currently affecting such premises (except the Indebtedness),
together with all other documents customarily used for the sale of real
property in Texas. Article 11(iv) of the Lease shall be modified to the extent
necessary to reflect the foregoing provisions.
5.18 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
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6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Employment Agreement.
6.7 GM Employment Agreement. Group 1 hereby agrees to enter into
the GM Employment Agreement.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1, each of the Selling Stockholders and the
underwriters of the IPO shall have entered into an underwriting
agreement in connection with the IPO providing for the underwriters'
purchase from Group 1 and the Selling Stockholders of the shares to be
sold by Group 1 and the Selling Stockholders in the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
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7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of the terms, covenants and conditions of this Agreement to
be complied with and performed by the Company and the Stockholders on
or before the Closing Date shall have been duly complied with and
performed in all material respects, and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of the Company and each of the Stockholders shall have been
delivered to Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition other than the
Selling Stockholder IPO Shares.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and
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performed in all material respects; and a certificate to the foregoing
effect dated the Closing Date and signed by the chief executive
officer of Group 1 shall have been delivered to the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.17, 5.18, 6.1, 6.4, 6.5,
8.2, 8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
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information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such
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action or proceeding for which such Indemnified Party would be
entitled to indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group
1 on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 8.2(d)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences of this Section 8.2(d). The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8.2(d), no Stockholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the securities of such Stockholder were offered
to the public exceeds the amount of any damages which such Stockholder
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)(1)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Charles M. Smith and Michael G. Smith
(the "Designated Stockholders") and Group 1 agree to the
non-competition provisions of this Section 8.3. The Designated
Stockholders agree that during the period of the Designated
Stockholder's non-competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its subsidiaries or affiliated companies are
conducting any business as of the date in question or have during the
previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
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(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. The non-competition
obligations set forth in this Section 8.3(a) shall not apply to
Charles M. Smith's activities relating to Russell & Smith Ford, Inc.
and Streater-Smith Honda-Nissan- Mitsubishi, nor shall such
obligations apply to Michael G. Smith's activities relating to Russell
& Smith Ford, Inc. If Group 1 or any of its subsidiaries or
affiliates abandons a particular aspect of its business, that is,
ceases such aspect of its business with the intention to permanently
refrain from such aspect of its business, then this post-employment
non-competition covenant shall not apply to such former aspect of that
business. For purposes of this Section 8.3, an "affiliate" of Group 1
is any person who directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with, Group 1.
(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholders under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholders' agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
-24-
<PAGE> 29
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all the Other Acquisitions have not been effected on
or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group
-25-
<PAGE> 30
1 each represent and warrant to each other that there is no broker or finder
involved in the transactions contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will (other than with respect
to the Selling Stockholder IPO Shares): (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Group 1 Common Stock received by any Stockholder in the Acquisition or (B) any
interest in (including any option to buy or sell) any of those shares of Group
1 Common Stock, in whole or in part, and Group 1 will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Group 1 Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Group 1 Common Stock acquired
pursuant to this Agreement (including for example engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, each Stockholder may (i) pledge shares of Group 1 Common Stock,
provided that the pledgee of such shares shall agree not to sell or otherwise
dispose of any such shares for the Restricted Period; (ii) transfer shares to
immediate family members or the estate of any such individual (including,
without limitation, any transfer by such Stockholder to or among any
partnership, trust, custodial or other similar accounts or funds that are for
the benefit of his immediate family members), provided that such person or
entity shall agree not to sell or otherwise dispose of (other than pursuant to
this Section 9.5) any such shares for the Restricted Period; and (iii) transfer
shares by will or the laws of descent and distribution or otherwise by reason
of such Stockholder's death. The certificates evidencing the Group 1 Common
Stock delivered to each Stockholder pursuant to this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement (other than the Selling
Stockholder IPO Shares) have not been and, if applicable, will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of Group 1 Common Stock issued to that Stockholder pursuant
to this Agreement will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations of
the Commission and applicable state securities laws and regulations.
-26-
<PAGE> 31
All certificates evidencing shares of Group 1 Common Stock issued pursuant to
this Agreement will bear the following legend in addition to the legend
prescribed by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
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<PAGE> 32
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
if to the Stockholders: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
with a copy to: Ryan & Sudan, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010-1010
Attention: James W. Ryan
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
-28-
<PAGE> 33
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as otherwise contemplated by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
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<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. Hollingsworth, Jr.
------------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
MIKE SMITH AUTOPLAZA, INC.
By: /s/ Michael G. Smith
------------------------------------
Michael G. Smith
President
STOCKHOLDERS:
/s/ W. C. Smith
---------------------------------------
W. C. Smith
/s/ Charles M. Smith
---------------------------------------
Charles M. Smith
/s/ Michael G. Smith
---------------------------------------
Michael G. Smith
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<PAGE> 35
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive -- H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Howard Pontiac-GMC, Inc.
Foyt Motors, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
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<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1
Stockholder Common Stock Common Stock (1) (2)
----------- ----------------- --------------------
<S> <C> <C>
W. C. Smith . . . . . . . . . . . . . . . . 300 241,936
Charles M. Smith . . . . . . . . . . . . . . 250 201,613
Michael G. Smith . . . . . . . . . . . . . . 250 201,613
</TABLE>
- --------------------------
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Robert E. Howard II that shall be distributed to the Stockholders as
result of the failure of Howard Pontiac - GMC, Inc. and Group 1 to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac - GMC, Inc. and
the stockholders of Howard Pontiac - GMC, Inc. dated as of June 14, 1997.
-32-
<PAGE> 37
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
-33-
<PAGE> 38
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
-34-
<PAGE> 39
EXHIBIT C
[LEASE]
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<PAGE> 1
EXHIBIT 2.12
STOCK PURCHASE AGREEMENT
AMONG
GROUP 1 AUTOMOTIVE, INC.,
COURTESY NISSAN, INC.
AND
THE STOCKHOLDERS OF
COURTESY NISSAN, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
ARTICLE I
THE ACQUISITION
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries; Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.7 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10 Certain Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.11 Contracts and Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 Absence of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.14 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.17 Employee Benefit Plans and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.18 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.19 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.20 Affiliate Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.21 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.22 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.23 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.24 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Conduct of Business by the Company Pending the Acquisition . . . . . . . . . . . . . . . . . . . . . 15
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Notification of Certain Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.12 Termination of Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.14 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.15 LIFO Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
<TABLE>
ARTICLE VII
CONDITIONS
<S> <C> <C>
7.1 Conditions Precedent to Obligation of Each Party to Effect the Acquisition . . . . . . . . . . . . . 19
7.2 Additional Conditions Precedent to Obligations of Group 1 . . . . . . . . . . . . . . . . . . . . . 19
7.3 Additional Conditions Precedent to Obligations of the Stockholders. . . . . . . . . . . . . . . . 20
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements . . . . . . . . . . . . . . . . . . . . 21
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
8.3 Non-Competition Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1"), Courtesy Nissan, Inc., a Texas corporation (the "Company"), and
the Persons (defined in Section 2.6 below) listed on the signature pages hereof
under the caption "Stockholders" (collectively, the "Stockholders," and each of
those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding Class A Voting and Class B Non-Voting Common Stock, each
par value $.01 per share, of the Company from the Stockholders (the
"Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Board of Directors of the Company and the
Stockholders a draft of the Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") describing Group 1 and its subsidiaries after giving effect
to the Acquisition and the Other Acquisitions.
The respective Boards of Directors of Group 1 and the Company have
approved this Agreement and the Acquisition pursuant to the terms and
conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO shall constitute a transaction described
in Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
1
<PAGE> 6
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of Class A Common Voting Stock, par value
$.01 per share of the Company ("Voting Stock") and that number of Class B
Non-Voting Stock, par value $.01 per share of the Company ("Non-Voting Stock",
and together with the Voting Stock, the "Company Common Stock") as set forth
opposite their respective names in Schedule II hereto in exchange for that
number of shares of common stock, par value $.01 per share of Group 1 ("Group 1
Common Stock") set forth opposite their respective names in Schedule II hereto
(as may be appropriately adjusted for stock splits, reverse stock splits and/or
stock dividends). In the event that the Board of Directors of Group 1 approves
a reverse stock split upon the recommendation of the Representatives of the
Underwriters in connection with the IPO, the number of shares of Group 1 Common
Stock to be received by the shareholders of the Founding Companies shall be
decreased proportionately as a result of the reverse stock split; provided,
however, that in the event that the number of shares of Group 1 Common Stock
resulting from the reverse stock split recommended by the Representatives of
the Underwriters is less than the number of shares resulting from a 4.444 for 5
reverse stock split, a 4.444 for 5 reverse stock split shall be implemented and
the number of shares of Group 1 Common Stock resulting from such 4.444 for 5
reverse stock split to be received by the shareholders of the Founding
Companies shall be further decreased proportionately to the number of shares
that would have been issued to the shareholders of the Founding Companies had
the reverse stock split recommended by the Representatives of the Underwriters
been implemented. If the number of shares of Group 1 Common Stock received by
a Stockholder pursuant to this Agreement includes a fractional share as a
result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Company shall agree; provided, that the
conditions set forth in Article VII shall have been satisfied or waived at or
prior to such time. The date on which the Closing occurs is herein referred to
as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
2
<PAGE> 7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS
The Company and the Stockholders hereby represent and warrant to Group
1 as follows:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at the Closing.
The disclosure letter delivered by the Company prior to the execution and
delivery of this Agreement (the "Company Disclosure Letter") includes true and
complete copies of the articles of incorporation and bylaws of the Company, as
amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Company
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Authorization. The execution and delivery by the Company of
this Agreement, the performance of its obligations pursuant to this Agreement
and the execution, delivery and performance of each instrument required hereby
to be executed and delivered by the Company at the Closing have been duly and
validly authorized by all requisite corporate action on the part of the
Company. This Agreement has been, and each instrument required hereby to be
executed and delivered by the Company at the Closing will then be, duly
executed and delivered by it, and this Agreement constitutes, and, to the
extent it purports to obligate the Company, each such instrument will
constitute (assuming due authorization, execution and delivery by each other
party thereto), the legal, valid and binding obligation of the Company
enforceable against it in accordance with its terms.
2.4 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act, and the Texas Motor Vehicle Commission, and except
to the extent set forth in the Company Disclosure Letter, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any federal, state, foreign or local court, tribunal or
governmental agency or authority to permit the Company to execute, deliver or
perform this Agreement or any instrument required hereby to be executed and
delivered by it at the Closing.
2.5 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by the Company of
this Agreement or any instrument required hereby to be executed and delivered
by it at the Closing, nor the performance by the Company of its obligations
3
<PAGE> 8
under this Agreement or any such instrument will (assuming receipt of all
consents, approvals, authorizations, permits, certificates and orders disclosed
as requisite in the Company Disclosure Letter pursuant to Section 2.4) (a)
violate or breach the terms of or cause a default under (i) any applicable
federal, state, foreign or local statute or other applicable law, (ii) any
applicable judgment, order or decree or any applicable rule or regulation of
any federal, state, foreign or local court, tribunal or governmental agency or
authority, (iii) any applicable permits received from any federal, state,
foreign or local governmental agency (iv) the articles of incorporation or
bylaws of the Company or (v) any contract or agreement to which the Company is
a party or by which it, or any of its properties, is bound, or (b) result in
the creation or imposition of any lien, claim or encumbrance on any of the
properties or assets of the Company, or (c) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit, certificate or order of any
federal, state, foreign or local court, tribunal or governmental agency or
authority, or (d) with the passage of time or the giving of notice or the
taking of any action of any third party have any of the effects set forth in
clause (a), (b) or (c) of this Section, except, with respect to clauses (a),
(b), (c) or (d) of this Section, where such matter would not have a Material
Adverse Effect or a material adverse effect upon the ability of the Company to
consummate the transactions contemplated hereby.
2.6 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly, or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.7 Capitalization.
(a) The authorized capital stock of the Company consists
of 2,000 shares of the Company Common Stock, consisting of 1,000
shares of Voting Stock of which 700 shares are issued and outstanding
and 1,000 shares of Non-Voting Stock of which 300 shares are issued
and outstanding (no shares being held in treasury). Each outstanding
share of the Company Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of any preemptive rights of any stockholder. Set forth in the Company
Disclosure Letter are the names and addresses (as reflected in the
corporate records of the Company) of each record holder of the Company
Common Stock, together with the number of shares held by each such
Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Company Disclosure Letter, there are no contracts,
agreements, commitments or arrangements obligating the Company (i) to
issue, sell, pledge, dispose of or encumber any shares of, or any
options, warrants or rights of any kind to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company or (ii) to
redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.8 Financial Statements. Included in the Company Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of
4
<PAGE> 9
income, changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its operations and changes
in financial position as of the dates and for the periods indicated therein in
conformity with generally accepted accounting principles applied on a
consistent basis. The Company Financial Statements do not omit to state any
liabilities, absolute or contingent, required to be stated therein in
accordance with generally accepted accounting principles consistently applied.
All accounts receivable of the Company reflected in the Company 1996 Financial
Statements and as incurred since December 31, 1996 represent sales made in the
ordinary course of business, are collectible (net of any reserves for doubtful
accounts shown in the Company 1996 Financial Statements) in the ordinary course
of business and, except as set forth in the Company Disclosure Letter, are not
in dispute or subject to counterclaim, set-off or renegotiation. The Company
Disclosure Letter contains an aged schedule of accounts receivable included in
the Company Financial Statements.
2.9 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Company Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.10 Certain Agreements. Except as set forth in the Company
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.11 Contracts and Commitments. The Company Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.12 Absence of Changes. Except as set forth in the Company
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the Company
5
<PAGE> 10
Disclosure Letter, since December 31, 1996, the Company has not engaged in any
transaction or conduct of any kind which would be proscribed by Section 5.3
herein after execution and delivery of this Agreement. Notwithstanding the
preceding sentence, the Company makes no representation regarding, and need not
disclose, increases in compensation (of the type contemplated in Section
5.3(f)) since December 31, 1996, for any employee who after such increase would
receive annual compensation of less than $50,000.
2.13 Tax Matters.
(a) Except as set forth in the Company Disclosure Letter
(and except for filings and payments of assessments the failure of
which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the Company
Disclosure Letter.
(d) Except as set forth in the Company Disclosure Letter,
there is not in force any extension of time with respect to the due
date for the filing of any Tax Return of or with respect to the
Company or any waiver or agreement for any extension of time for the
assessment or payment of any Tax of or with respect to the Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or
6
<PAGE> 11
disputed, which are, or are hereafter found to be, or to have been,
due by or with respect to the Company up to and through the periods
covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
(g) Except as set forth in the Company Disclosure Letter,
the Company will not be required to include any amount in income for
any taxable period beginning the Closing Date as a result of a change
in accounting method for any taxable period ending on or before the
Closing Date or pursuant to any agreement with any Tax authority with
respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From January 1, 1990 through the Closing Date, (a)
the Company continuously has been and will be an S Corporation within
the meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.14 Litigation.
(a) Except as set forth in the Company Disclosure Letter,
there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Company Disclosure Letter, the Company
has substantially performed all obligations required to be performed
by it to date and is not in default under, and, to the knowledge of
the Company, no event has occurred which, with the lapse of time or
action by a third party could result in a default under any contract
or other agreement to which the Company is a party or by which it or
any of its properties is bound or under any applicable judgment, order
or decree of any federal, state, foreign or local court, tribunal or
governmental agency or authority, other than such defaults that would
not, individually or in the aggregate, have a Material Adverse Effect.
2.15 Compliance with Law. Except as set forth in the Company
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.16 Permits. Except as set forth in the Company Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold
7
<PAGE> 12
would not, in the aggregate, have a Material Adverse Effect. Each franchise,
license, permit, consent, approval and authorization so owned or held is in
full force and effect, and the Company is in compliance with all of its
obligations with respect thereto, except where the failure to be in full force
and effect or to be in compliance would not, in the aggregate, have a Material
Adverse Effect, and, to the knowledge of the Company, no event has occurred
which allows, or upon the giving of notice or the lapse of time or otherwise
would allow, revocation or termination of any franchise, license, permit,
consent, approval or authorization so owned or held.
2.17 Employee Benefit Plans and Policies.
(a) The Company Disclosure Letter provides a description
of each of the following which is sponsored, maintained or contributed
to by the Company for the benefit of its employees, or has been so
sponsored, maintained or contributed to within six years prior to the
Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multi employer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Company
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
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(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby
will not (A) require the Company to make a larger contribution
to, or pay greater benefits under, any Plan or Benefit Program
or Agreement than it otherwise would or (B) create or give
rise to any additional vested rights or service credits under
any Plan or Benefit Program or Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company, within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Company Disclosure Letter sets forth by name and
job description of the employees of the Company as of the date of this
Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
2.18 Title. Except as set forth in the Company Disclosure Letter,
the Company has good and valid title to all properties and assets which it
purports to own, including without limitation the properties and assets which
are reflected in the 1996 Balance Sheet (other than those disposed of since
such date in the ordinary course of business) and good and valid leasehold
interests in all properties and assets which it purports to hold under lease,
and each such ownership or leasehold interest is free and clear of
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all liens, claims and encumbrances other than as set forth in the applicable
lease agreements and those reflected in the Company Financial Statements or the
Company Disclosure Letter.
2.19 Insurance. The Company Disclosure Letter identifies, by name
of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.20 Affiliate Interests. Except as set forth in the Company
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.21 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.22 Intellectual Property. Except as set forth in the Company
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Company, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Company, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intellectual
Property.
2.23 Bank Accounts. The Company Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.24 Disclosure. The Company has disclosed in writing, or pursuant
to this Agreement and the Company Disclosure Letter, all facts material to the
business, assets, prospects and condition (financial or otherwise) of the
Company. No representation or warranty to Group 1 by the Company contained in
this Agreement, and no statement contained in the Company Disclosure Letter,
any
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certificate, list or other writing furnished to Group 1 by the Company pursuant
to the provisions hereof or in connection with the transactions contemplated
hereby, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements herein or therein not
misleading. All statements contained in this Agreement, the Company Disclosure
Letter, and any certificate, list, document or other writing delivered pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed a representation and warranty of the Company for all purposes of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Company Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Company Disclosure Letter and Schedule II hereto, such
Stockholder does not own, beneficially or of record, any capital stock or other
security, including without limitation any option, warrant or right entitling
the holder thereof to purchase or otherwise acquire any shares of capital stock
of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, is required by any applicable
statute or other applicable law or by any applicable judgment, order or decree
or any applicable rule or regulation of any court, tribunal or governmental
agency or authority, federal, state, foreign or local, to permit such
Stockholder to execute, deliver or perform this Agreement or any instrument
required hereby to be executed and delivered by it at the Closing.
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3.4 Absence of Conflicts. Except to the extent set forth in the
Company Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local,
(iii) the organizational documents of such Stockholder or (iv) any contract or
agreement to which such Stockholder is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of such Stockholder, or
(c) result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, or (d) with the passage of time or
the giving of notice or the taking of any action of any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a Material Adverse Effect on the Company or the ability of the
Company or such Stockholder to consummate the transactions contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares (other than with respect to the shares listed in the Company Disclosure
Letter which will be sold by such Stockholder ("Selling Stockholder") in the
IPO ("Selling Stockholder IPO Shares")); (ii) such Stockholder is not a party
to any agreement or other arrangement for the disposition of any shares of
Group 1 Common Stock other than this Agreement (other than an Underwriting
Agreement to be entered into by certain of the Stockholders in connection with
the sale of the Selling Stockholder IPO Shares); (iii) such Stockholder is an
"accredited investor" as defined in Securities Act Rule 501(a); (iv) such
Stockholder (A) is able to bear the economic risk of an investment in the Group
1 Common Stock acquired pursuant to this Agreement, (B) can afford to sustain a
total loss of that investment, (C) has such knowledge and experience in
financial and business matters, and such past participation in investments,
that he or she is capable of evaluating the merits and risks of the proposed
investment in the Group 1 Common Stock, (D) has received and reviewed the draft
Registration Statement, (E) has had an adequate opportunity to ask questions
and receive answers from the officers of Group 1 concerning any and all matters
relating to the transactions contemplated hereby, including the background and
experience of the current and proposed officers and directors of Group 1, the
plans for the operations of the business of Group 1, the business, operations
and financial condition of the Other Founding Companies and any plans of Group
1 for additional acquisitions, and (F) has asked all questions of the nature
described in the preceding clause (E), and all those questions have been
answered to his or her satisfaction; (v) such Stockholder acknowledges that the
shares of Group 1 Common Stock to be delivered to such Stockholder pursuant to
the Acquisition have not been and will not be registered under the Securities
Act or qualified under applicable blue sky laws and therefore may be required
to be held for an indefinite period of time and may not be resold by such
Stockholder without compliance with the Securities Act; (vi) such Stockholder
acknowledges that he or she has agreed, pursuant to Section 9.5 herein, not to
sell the shares of Group 1 Common Stock to be delivered to such Stockholder
pursuant to the Acquisition (other than any Selling Stockholder IPO Shares) for
a period of two years from the Closing Date; (vii) such Stockholder
acknowledges that as a result of the substantial restrictions, imposed
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<PAGE> 17
both contractually and by the Securities Act, on the resale of the shares of
Group 1 Common Stock received in the Acquisition, such shares of Group 1 Common
Stock will have a substantially lower value than those shares of Group 1 Common
Stock that are registered under the Securities Act and sold in the IPO; (viii)
such Stockholder, if a corporation, partnership, trust or other entity,
acknowledges that it was not formed for the specific purpose of acquiring the
Group 1 Common Stock; and (ix) without limiting any of the foregoing, such
Stockholder agrees not to dispose of any portion of Group 1 Common Stock unless
either (1) a registration statement under the Securities Act is in effect as to
the applicable shares and the disposition is made in accordance with that
registration statement, or (2) the Stockholder has notified Group 1 of the
proposed disposition, provided Group 1 with a detailed description of the
circumstances surrounding the proposed disposition and furnished Group 1 with
written opinion of counsel opining that the proposed disposition would not
require registration of any securities under federal or state securities law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Company and the
Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by
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<PAGE> 18
Group 1 of its obligations under this Agreement or any such instrument will (a)
violate or breach the terms of or cause a default under (i) any applicable
statute or other applicable law, federal, state, foreign or local, (ii) any
applicable judgment, order or decree or any applicable rule or regulation of
any court, tribunal or governmental agency or authority, federal, state,
foreign or local, (iii) the organizational documents of Group 1 or (iv) any
contract or agreement to which Group 1 is a party or by which it or any of its
property is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of Group 1 or any of
its subsidiaries (other than any lien, claim or encumbrance created by the
Company), or (c) result in the cancellation, forfeiture, revocation, suspension
or adverse modification of any existing consent, approval, authorization,
license, permit certificate or order of any court, tribunal or governmental
agency or authority, federal, state, foreign or local or (d) with the passage
of time or the giving of notice or the taking of any action by any third party
have any of the effects set forth in clause (a), (b) or (c) of this Section,
except, with respect to clauses (a), (b), (c) or (d) of this Section, where
such matter would not have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO price) in
connection with the Acquisition and the Other Acquisitions, subject to
adjustment as provided in the Stock Purchase Agreements to be executed
in connection with the Acquisition and the Other Acquisitions. "Net
IPO Price" is the per share IPO price of Group 1 Common Stock, less
applicable underwriting discounts and a pro rata portion of expenses
related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE COMPANY AND
THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, neither the
Company, any of its officers, directors, employees or agents nor any
Stockholder shall agree to, solicit or encourage inquiries or proposals with
respect to, furnish any information relating to, or participate in any
negotiations or discussions concerning, any acquisition, business combination
or purchase of all or a substantial portion
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of the assets of, or a substantial equity interest in, the Company, other than
the transactions with Group 1 contemplated by this Agreement.
5.2 Access. The Company shall afford Group 1's officers,
employees, counsel, accountants and other authorized representatives access,
during normal business hours throughout the period prior to the Closing Date,
to all its properties, books, contracts, commitments and records and, during
such period, the Company shall furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to this Section or
otherwise shall affect or be deemed to modify any representation or warranty
made by the Company or the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Company and the Stockholders covenant and agree that, from the date of this
Agreement until the Closing Date, unless Group 1 shall otherwise agree in
writing or as otherwise expressly contemplated by this Agreement or as
disclosed in the Company Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than cash dividends paid to
Stockholders in a manner consistent with past practice of the Company
as disclosed to its independent auditors), (iv) redeem, purchase or
acquire or offer to acquire any of its capital stock, (v) incur any
indebtedness for borrowed money, or (vi) except in the ordinary course
of business and consistent with past practice, enter into any
contract, agreement, commitment or arrangement with respect to any of
the matters set forth in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
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(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Company and the Stockholders agree, and
the Company agrees to cause its officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Company and
the Stockholders will return all non-public documents and other material
obtained from Group 1 or its representatives in connection with the
transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Company shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Company, or any officer, director, employee or agent
thereof, or any Stockholder to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
5.6 Consents. Subject to the terms and conditions of this
Agreement, the Company shall (i) take all reasonable steps to obtain all
consents, waivers, approvals (including all applicable automobile manufacturers
approvals, and such approvals shall not contain any unreasonably burdensome
restrictions on the Company or Group 1), authorizations and orders required in
connection with the authorization, execution and delivery of this Agreement and
the consummation of the Acquisition; and (ii) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary or proper
to
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consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Company and
the Stockholders agree to cooperate and use reasonable efforts (such efforts
shall not include incurring any costs to third parties) to defend against and
respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock currently owned,
either beneficially or of record, by such Stockholder, except pursuant to
Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Company shall use its best
efforts to preserve its ownership rights to the Intellectual Property free and
clear of any liens, claims or encumbrances and shall use its best efforts to
assert, contest and prosecute any infringement of any issued foreign or
domestic patent, trademark, service mark, trade name or copyright that forms a
part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
5.10 Cooperating in connection with IPO. The Company and the
Stockholders will (a) provide Group 1 with all information concerning the
Company or the Stockholders which is reasonably requested by Group 1 from time
to time in connection with effecting the IPO and (b) cooperate with Group 1 and
their representatives in the preparation of the Registration Statement
(including the Financial Statements) and in responding to comments of the staff
of the Commission, if any, with respect thereto. The Company and the
Stockholders agree promptly to (a) advise Group 1, if at any time during the
period in which a prospectus relating to the IPO is required to be delivered
under the Securities Act, any information contained in the then current
Registration Statement prospectus concerning the Company or any of the
Stockholders becomes incorrect or incomplete in any material respect and (b)
provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
terminate, waive or release all Company guarantees (such guarantees shall be
referred to herein as "Related Guarantees," as described in the Company
Disclosure Letter pursuant to Section 2.11 of this Agreement) of indebtedness
or other obligations of any of the Company's officers, directors, shareholders
or employees or their affiliates.
5.12 Termination of Related Party Agreements. The Company and the
Stockholders agree to take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to terminate
the Related Party Agreements on or prior to the Closing Date, except those
Related Party Agreements that are disclosed in the Company Disclosure Letter as
agreements that shall not be subject to Section 5.12.
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5.13 Related Party Agreements. The Company agrees, and the
Stockholders agree to cause the Company, not to enter into any Related Party
Agreements or engage in any transactions with the Stockholders or their
affiliates; except for those Related Party Agreements or transactions with
affiliates that are disclosed in the Company Disclosure Letter as agreements or
transactions that shall not be subject to this Section 5.13.
5.14 Employment Agreement. Charles M. Smith, a Stockholder, hereby
agrees to enter on or prior to the Closing Date into an Employment Agreement
substantially in the form of Exhibit A (the "Employment Agreement"), which
agreement shall employ Charles M. Smith as President of Smith Group, and shall
provide for an annual salary of $300,000 and a term of five years.
5.15 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
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6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Employment Agreement. Group 1 hereby agrees to enter into the
Employment Agreement.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1, each of the Selling Stockholders and the
underwriters of the IPO shall have entered into an underwriting
agreement in connection with the IPO providing for the underwriters'
purchase from Group 1 and the Selling Stockholders of the shares to be
sold by Group 1 and the Selling Stockholders in the IPO;
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Company and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the Company and
the Stockholders contained in Article II and Article III,
respectively, shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date; all of
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the terms, covenants and conditions of this Agreement to be complied
with and performed by the Company and the Stockholders on or before
the Closing Date shall have been duly complied with and performed in
all material respects, and a certificate to the foregoing effect dated
the Closing Date and signed by the chief executive officer of the
Company and each of the Stockholders shall have been delivered to
Group 1;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition other than the
Selling Stockholder IPO Shares.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company and Group 1 shall have received a certificate signed by the
chief executive officer of the Company dated the Closing Date to such
effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation contained in
Section 4.5(a), shall be accurate as of the Closing Date as though
such representations and warranties had been made at and as of the
Closing Date, except that Group 1 shall be permitted to accomplish a
reverse stock split pursuant to the provisions of Section 1.1; all the
terms, covenants and conditions of this Agreement to be complied with
and performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company.
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code.
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ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.15, 6.1, 6.4, 6.5, 8.2,
8.3, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the
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foregoing indemnity from Group 1 to such Stockholder, but only with
respect to information furnished in writing by such Stockholder or on
such Stockholder's behalf expressly for use in any registration
statement or prospectus pursuant to which such Stockholder sells
shares of Group 1 Common Stock pursuant to an underwritten public
offering. The liability of any Stockholder under this Section 8.2(b)
shall be limited to the aggregate cash and property received by such
Stockholder pursuant to the sale of Group 1 Common Stock covered by
such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a
release, in form and substance reasonably satisfactory to the
Indemnified Party, from all liability in respect of such action or
proceeding for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall
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contribute to the amount paid or payable by such Indemnified Party as
a result of such losses, claims, damages, liabilities and judgments as
between Group 1 on the one hand and each Stockholder on the other, in
such proportion as is appropriate to reflect the relative fault of the
Stockholder and of each Stockholder in connection with the statements
or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of Group 1 on the one hand and of
each Stockholder on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of
a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. Group 1
and the Stockholders agree that it would not be just and equitable if
contribution pursuant to this Section 8.2(d) were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the first
two sentences of this Section 8.2(d). The amount paid or payable by
an Indemnified Party as a result of the losses, claims, damages,
liabilities or judgments referred to in Sections 8.2(a) and 8.2(b)
hereof shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
8.2(d), no Stockholder shall be required to contribute any amount in
excess of the amount by which the total price at which the securities
of such Stockholder were offered to the public exceeds the amount of
any damages which such Stockholder has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or
alleged omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f)(1) of the Securities Act) shall
be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8.3 Non-Competition Obligations.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, Charles M. Smith and Daniel C.Y. Liu
(the "Designated Stockholders") and Group 1 agree to the
non-competition provisions of this Section 8.3. The Designated
Stockholders agree that during the period of the Designated
Stockholder's non-competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its subsidiaries or affiliated companies are
conducting any business as of the date in question or have during the
previous twelve months conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the
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hiring of any such employee by any person, association, or
entity not affiliated with Group 1 or any of its subsidiaries
or affiliates; provided, however, that nothing in this
subsection (iii) shall prohibit a Designated Stockholder from
offering employment to any prior employee of Group 1 or any of
its subsidiaries or affiliates who was not employed by Group 1
or any of its subsidiaries or affiliates at any time in the
twelve (12) months prior to the termination of such Designated
Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. The non-competition
obligations set forth in this Section 8.3(a) shall not apply to
Charles M. Smith's activities relating to Russell & Smith Ford, Inc.
and Streater-Smith Honda-Nissan-Mitsubishi. If Group 1 or any of its
subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section
8.3, an "affiliate" of Group 1 is any person who directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholders under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the exclusive remedies for a breach of this Section 8.3, but
shall be in addition to all remedies available at law or in equity to
Group 1 or any of its subsidiaries or affiliates, including, without
limitation, the recovery of damages by Group 1 from the Designated
Stockholders' agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
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ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Company Disclosure Letter, executed by
the Company as of the date hereof, and delivered to Group 1 on the date hereof,
contains all disclosure required to be made by the Company under the various
terms and provisions of this Agreement. Each item of disclosure set forth in
the Company Disclosure Letter specifically refers to the article and section of
the Agreement to which such disclosure responds, and shall not be deemed to be
disclosed with respect to any other article or section of the Agreement. A
substantially complete draft of the Company Disclosure Letter shall have been
delivered to Group 1 at least five business days prior to the date of this
Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Company if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Company which breach has not been cured within ten business
days following receipt by the Company of notice of such breach (or if
such breach cannot be cured within such time, reasonable efforts have
begun to cure such breach and such breach is then cured within 30 days
after notice); or
(e) by the Company if there has been a material breach of
any representation or warranty set forth in this Agreement by Group 1
which breach has not been cured within ten business days following
receipt by Group 1 of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Company and Group 1 shall have no
obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Company shall be paid by the
Company; subject, however, to the agreement set forth in the letter of intent
dated April 15, 1997 with respect to the funding of the expenses of Group 1 by
the Founding Companies. The Company and Group
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1 each represent and warrant to each other that there is no broker or finder
involved in the transactions contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will (other than with respect
to the Selling Stockholder IPO Shares): (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Group 1 Common Stock received by any Stockholder in the Acquisition or (B) any
interest in (including any option to buy or sell) any of those shares of Group
1 Common Stock, in whole or in part, and Group 1 will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Group 1 Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Group 1 Common Stock acquired
pursuant to this Agreement (including for example engaging in put, call,
short-sale, straddle or similar market transactions). Notwithstanding the
foregoing, each Stockholder may (i) pledge shares of Group 1 Common Stock,
provided that the pledgee of such shares shall agree not to sell or otherwise
dispose of any such shares for the Restricted Period; (ii) transfer shares to
immediate family members or the estate of any such individual (including,
without limitation, any transfer by such Stockholder to or among any
partnership, trust, custodial or other similar accounts or funds that are for
the benefit of his immediate family members), provided that such person or
entity shall agree not to sell or otherwise dispose of (other than pursuant to
this Section 9.5) any such shares for the Restricted Period; and (iii) transfer
shares by will or the laws of descent and distribution or otherwise by reason
of such Stockholder's death. The certificates evidencing the Group 1 Common
Stock delivered to each Stockholder pursuant to this Agreement will bear a
legend substantially in the form set forth below and containing such other
information as Group 1 may deem necessary or appropriate:
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE
SECOND-ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON
THE WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER
AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED
WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement (other than the Selling
Stockholder IPO Shares) have not been and, if applicable, will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of Group 1 Common Stock issued to that Stockholder pursuant
to this Agreement will be offered, sold, assigned, pledged, hypothecated,
transferred
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or otherwise disposed of except after full compliance with all the applicable
provisions of the Securities Act and the rules and regulations of the
Commission and applicable state securities laws and regulations. All
certificates evidencing shares of Group 1 Common Stock issued pursuant to this
Agreement will bear the following legend in addition to the legend prescribed
by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Company and the Stockholders
acknowledges and agrees that: (a) no firm commitment, binding agreement or
promise or other assurance of any kind, whether express or implied, oral or
written, exists at the date hereof that the Registration Statement will become
effective or that the IPO will occur at a particular price or within a
particular range of prices or occur at all; (b) neither Group 1 or any of its
representatives nor any prospective underwriters in the IPO will have any
liability to the Company, the Stockholders or any of their respective
affiliates or associates for any failure of (i) the Registration Statement to
become effective (provided, however, that Group 1 will use its reasonable best
efforts to cause the Registration Statement to become effective prior to
December 31, 1997) or (ii) the IPO to occur at a particular price or within a
particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Company and the
Stockholders with respect to any disclosure contained in the Registration
Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
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9.8 Public Statements. The Company, the Stockholders and Group 1
agree to consult with each other prior to issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
if to the Company: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
if to the Stockholders: 10455 Southwest Freeway
Houston, Texas 77074
Telecopy: (713) 981-3777
Attention: Charles M. Smith
with a copy to: Ryan & Sudan, L.L.P.
909 Fannin, Suite 3900
Houston, Texas 77010-1010
Attention: James W. Ryan
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back
28
<PAGE> 33
is received, or (iii) if mailed, upon the earlier of five days after deposit in
the mail and the date of delivery as shown by the return receipt therefor.
Delivery to the Stockholders' representative, if any, of any notice to
Stockholders hereunder shall constitute delivery to all Stockholders and any
notice given by such Stockholders' representative shall be deemed to be notice
given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Company Disclosure Letter, constitutes
the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as otherwise contemplated by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
29
<PAGE> 34
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. HOLLINGSWORTH, JR.
-----------------------------------
B.B. Hollingsworth, Jr.
President and Chief Executive Officer
COURTESY NISSAN, INC.
By: /s/ CHARLES M. SMITH
-----------------------------------
Charles M. Smith
President
STOCKHOLDERS:
/s/ W. C. SMITH
--------------------------------------
W. C. Smith
/s/ CHARLES M. SMITH
--------------------------------------
Charles M. Smith
/s/ DANIEL C. Y. LIU
--------------------------------------
Daniel C. Y. Liu
/s/ KUO KANG LIU
--------------------------------------
Kuo Kang Liu
30
<PAGE> 35
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Foyt Motors, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
31
<PAGE> 36
SCHEDULE II
<TABLE>
<CAPTION>
Shares of
Shares of Non-Voting Shares of Group 1
Stockholder Voting Stock Stock Common Stock(1)(2)
- ----------- ------------ ------------ -------------------
<S> <C> <C> <C>
W. C. Smith . . . . . . 250 0 115,577
Charles M. Smith . . . . 250 0 115,577
Kuo Kang Liu . . . . . . 100 300 184,923
Daniel C. Y. Liu . . . . 100 0 46,231
</TABLE>
- ----------------------------------
(1) As may be appropriately adjusted for stock splits, reverse stock
splits and/or stock dividends. In the event that the Board of Directors of
Group 1 approves a reverse stock split upon the recommendation of the
Representatives of the Underwriters in connection with the IPO, the number of
shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the reverse
stock split; provided, however, that in the event that the number of shares of
Group 1 Common Stock resulting from the reverse stock split recommended by the
Representatives of the Underwriters is less than the number of shares resulting
from a 4.444 for 5 reverse stock split, a 4.444 for 5 reverse stock split shall
be implemented and the number of shares of Group 1 Common Stock resulting from
such 4.444 for 5 reverse stock split to be received by the shareholders of the
Founding Companies shall be further decreased proportionately to the number of
shares that would have been issued to the shareholders of the Founding Companies
had the reverse stock split recommended by the Representatives of the
Underwriters been implemented. If the number of shares of Group 1 Common Stock
received by a Stockholder pursuant to this Agreement includes a fractional share
as a result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Robert E. Howard II that shall be distributed to the Stockholders as
result of the failure of Howard Pontiac-GMC, Inc. and Group 1 to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac-GMC, Inc. and the
stockholders of Howard Pontiac-GMC, Inc. dated as of June 14, 1997.
32
<PAGE> 37
EXHIBIT A
[Employment Agreement]
33
<PAGE> 1
EXHIBIT 2.13
STOCK PURCHASE AGREEMENT
BETWEEN
GROUP 1 AUTOMOTIVE, INC.,
AND
THE STOCKHOLDERS OF FOYT MOTORS, INC.
DATED AS OF
JUNE 14, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
THE ACQUISITION
<S> <C> <C>
1.1 The Acquisition . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS CONCERNING THE COMPANY
2.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 3
2.2 Qualification . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 3
2.4 Subsidiaries; Equity Investments . . . . . . . . . . . . . . 4
2.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 4
2.6 Financial Statements . . . . . . . . . . . . . . . . . . . . 4
2.7 Undisclosed Liabilities . . . . . . . . . . . . . . . . . . 5
2.8 Certain Agreements . . . . . . . . . . . . . . . . . . . . . 5
2.9 Contracts and Commitments . . . . . . . . . . . . . . . . . 5
2.10 Absence of Changes . . . . . . . . . . . . . . . . . . . . . 5
2.11 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . 6
2.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.13 Compliance with Law . . . . . . . . . . . . . . . . . . . . 7
2.14 Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.15 Employee Benefit Plans and Policies . . . . . . . . . . . . 8
2.16 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.18 Affiliate Interests . . . . . . . . . . . . . . . . . . . . 10
2.19 Environmental Matters . . . . . . . . . . . . . . . . . . . 10
2.20 Intellectual Property . . . . . . . . . . . . . . . . . . . 10
2.21 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . 11
2.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
<S> <C> <C>
3.1 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization of Agreement . . . . . . . . . . . . . . . . . 11
3.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 12
3.5 Investment Intent . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
4.1 Corporate Organization . . . . . . . . . . . . . . . . . . . 14
4.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Absence of Conflicts . . . . . . . . . . . . . . . . . . . . 14
4.5 Capitalization . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V
COVENANTS OF THE STOCKHOLDERS
5.1 Acquisition Proposals . . . . . . . . . . . . . . . . . . . 15
5.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.3 Conduct of Business by the Company Pending the Acquisition . 16
5.4 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 17
5.5 Notification of Certain Matters . . . . . . . . . . . . . . 17
5.6 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.7 Agreement to Defend . . . . . . . . . . . . . . . . . . . . 18
5.8 Stockholders' Agreements Not to Sell . . . . . . . . . . . . 18
5.9 Intellectual Property Matters . . . . . . . . . . . . . . . 18
5.10 Cooperating in connection with IPO . . . . . . . . . . . . . 18
5.11 Removal of Related Party Guarantees . . . . . . . . . . . . 18
5.12 Termination of Related Party Agreements . . . . . . . . . . 19
5.13 Related Party Agreements . . . . . . . . . . . . . . . . . . 19
5.14 Founders Employment Agreement . . . . . . . . . . . . . . . 19
5.15 GM Employment Agreement . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
5.16 Authorization to use the "Foyt" Name . . . . . . . . . . . . 19
5.17 LIFO Adjustment . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Reservation of Group 1 Common Stock . . . . . . . . . . . . 20
6.3 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Agreement to Defend . . . . . . . . . . . . . . . . . . . . 20
6.5 Removal of Personal Guarantee . . . . . . . . . . . . . . . 20
6.6 Founders Employment Agreement . . . . . . . . . . . . . . . 20
6.7 GM Employment Agreement . . . . . . . . . . . . . . . . . . 20
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Additional Conditions Precedent to Obligations of Group 1 . 21
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements 23
8.2 Indemnification . . . . . . . . . . . . . . . . . . . . . . 23
8.3 Non-Competition Obligations of Certain Stockholders . . . . 25
8.4 Non-Competition Obligations of A.J. Foyt, Jr. . . . . . . . 27
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter . . . . . . . . . . . . . . . . . . . . . 27
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 Effect of Termination . . . . . . . . . . . . . . . . . . . 28
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
9.5 Restrictions on Transfer of Group 1 Common Stock . . . . . . 28
9.6 Respecting the IPO . . . . . . . . . . . . . . . . . . . . . 30
9.7 Waiver and Amendment . . . . . . . . . . . . . . . . . . . . 30
9.8 Public Statements . . . . . . . . . . . . . . . . . . . . . 30
9.9 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.11 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 32
9.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . 32
9.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 32
9.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.15 Entire Agreement; Third Party Beneficiaries . . . . . . . . 32
</TABLE>
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of the 14th
day of June, 1997, is among Group 1 Automotive, Inc., a Delaware corporation
("Group 1") and the Persons (defined in Section 2.6 below) listed on the
signature pages hereof under the caption "Stockholders" (collectively, the
"Stockholders," and each of those Persons, individually, a "Stockholder").
PRELIMINARY STATEMENT
The parties to this Agreement have determined it is in their best
long- term interests to effect a business combination pursuant to which:
(A) Group 1 will acquire all of the issued and
outstanding common stock, par value $1.00 per share, of Foyt Motors,
Inc., a Texas corporation (the "Company") from the Stockholders (the
"Acquisition");
(B) Group 1 will acquire (the "Other Acquisitions") all
of the common stock of the entities listed in the accompanying
Schedule I (each an "Other Founding Company" and, collectively with
the Company, the "Founding Companies") pursuant to agreements that are
(i) similar to this Agreement and (ii) entered into among those
entities and their equity owners and Group 1 (collectively, the "Other
Agreements"); and
(C) Group 1 shall effect a public offering of shares of
its common stock and issue and sell those shares (the "IPO").
Group 1 has provided to the Stockholders a draft of the Registration
Statement on Form S-1 (the "Registration Statement") to be filed with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act") describing Group 1 and its
subsidiaries after giving effect to the Acquisition and the Other Acquisitions.
The Board of Directors of Group 1 has approved this Agreement and the
Acquisition pursuant to the terms and conditions herein set forth.
For federal income tax purposes, it is intended that the Acquisition
and the Other Acquisitions and the IPO constitute a transaction described in
Section 351 of the Internal Revenue Code of 1986, as amended (the "Code").
The parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Acquisition.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
representations, warranties and covenants herein contained, the parties hereto
hereby agree as follows:
1
<PAGE> 7
ARTICLE I
THE ACQUISITION
1.1 The Acquisition. At the Closing (as defined below), each
Stockholder shall sell to Group 1 and Group 1 shall purchase from each
Stockholder that number of shares of common stock, par value $1.00 per share of
the Company ("Company Common Stock") as set forth opposite their respective
names in Schedule II hereto in exchange for that number of shares of common
stock, par value $1.00 per share of Group 1 ("Group 1 Common Stock") (as may be
appropriately adjusted for stock splits, reverse stock splits and/or stock
dividends) and cash consideration, as applicable, set forth opposite their
respective names in Schedule II hereto. In the event that the Board of
Directors of Group 1 approves a reverse stock split upon the recommendation of
the Representatives of the Underwriters in connection with the IPO, the number
of shares of Group 1 Common Stock to be received by the shareholders of the
Founding Companies shall be decreased proportionately as a result of the
reverse stock split; provided, however, that in the event that the number of
shares of Group 1 Common Stock resulting from the reverse stock split
recommended by the Representatives of the Underwriters is less than the number
of shares resulting from a 4.444 for 5 reverse stock split, a 4.444 for 5
reverse stock split shall be implemented and the number of shares of Group 1
Common Stock resulting from such 4.444 for 5 reverse stock split to be received
by the shareholders of the Founding Companies shall be further decreased
proportionately to the number of shares that would have been issued to the
shareholders of the Founding Companies had the reverse stock split recommended
by the Representatives of the Underwriters been implemented. If the number of
shares of Group 1 Common Stock received by a Stockholder pursuant to this
Agreement includes a fractional share as a result of a reverse stock split
affecting the Group 1 Common Stock, such fractional share shall be rounded up
to the nearest whole share of Group 1 Common Stock.
1.2 Closing Date. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Vinson &
Elkins L.L.P., 2300 First City Tower, Houston, Texas 77002 on the same date as
the closing of the IPO, as soon as practicable after the satisfaction or waiver
of the conditions set forth in Article VII or at such other time and place and
on such other date as Group 1 and the Stockholders shall agree; provided, that
the conditions set forth in Article VII shall have been satisfied or waived at
or prior to such time. The date on which the Closing occurs is herein referred
to as the "Closing Date."
1.3 Transfer of Shares. At the Closing, and subject to the
satisfaction or waiver of the conditions set forth in Article VII, the
Stockholders will sell, transfer and deliver that number of shares of Company
Common Stock as set forth opposite their respective names in Schedule II hereto
to Group 1 (in proper form and duly endorsed for transfer) and Group 1 will
purchase such shares of Company Common Stock and will issue, transfer and
deliver to the Stockholders that number of shares of Group 1 Common Stock (in
proper form) set forth opposite their respective names in Schedule II hereto.
2
<PAGE> 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS CONCERNING THE COMPANY
Each Stockholder, severally and not jointly, represents and warrants
to Group 1 the following about the Company:
2.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and to execute, deliver and perform this Agreement and each
instrument required hereby to be executed and delivered by it at Closing. The
disclosure letter delivered by the Stockholders prior to the execution and
delivery of this Agreement (the "Stockholder Disclosure Letter") includes true
and complete copies of the articles of incorporation and bylaws of the Company
as amended and presently in effect.
2.2 Qualification. The Company is 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 conducted or the character of the property
owned or leased by it makes such qualification necessary, except where the
failure to be so qualified or in good standing would not have a material
adverse affect on the business, assets, prospects or condition (financial or
otherwise) of the Company (a "Material Adverse Effect"). The Stockholder
Disclosure Letter sets forth a list of the jurisdictions in which the Company
is qualified to do business, if any.
2.3 Absence of Conflicts. Except to the extent set forth in the
Stockholder Disclosure Letter, neither the execution and delivery by the
Stockholders of this Agreement or any instrument required hereby to be executed
and delivered by them at the Closing, nor the performance by the Stockholders
of their obligations under this Agreement or any such instrument will cause the
Company to (assuming receipt of all consents, approvals, authorizations,
permits, certificates and orders disclosed as requisite in the Stockholder
Disclosure Letter pursuant to Section 3.3) (a) violate or breach the terms of
or cause a default under (i) any applicable federal, state, foreign or local
statute or other applicable law, (ii) any applicable judgment, order or decree
or any applicable rule or regulation of any federal, state, foreign or local
court, tribunal or governmental agency or authority, (iii) any applicable
permits received from any federal, state, foreign or local governmental agency
(iv) the articles of incorporation or bylaws of the Company or (v) any contract
or agreement to which the Company is a party or by which it, or any of its
properties, is bound, or (b) result in the creation or imposition of any lien,
claim or encumbrance on any of the properties or assets of the Company, or (c)
result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any federal, state, foreign or local court, tribunal or
governmental agency or authority, or (d) with the passage of time or the giving
of notice or the taking of any action of any third party have any of the
effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this
3
<PAGE> 9
Section, where such matter would not have a Material Adverse Effect or a
material adverse effect upon the ability of the Company to consummate the
transactions contemplated hereby.
2.4 Subsidiaries; Equity Investments. The Company does not
control directly or indirectly, or have any direct or indirect equity
participation in any individual, firm corporation, partnership, limited
partnership, limited liability company, trust or other entity ("Person").
2.5 Capitalization.
(a) The authorized capital stock of the Company consists
of 100,000 shares of the Company Common Stock, of which 2,756 shares
are issued and outstanding (no shares being held in treasury). Each
outstanding share of the Company Common Stock has been duly
authorized, is validly issued, fully paid and nonassessable and was
not issued in violation of any preemptive rights of any stockholder.
Set forth in the Stockholder Disclosure Letter are the names and
addresses (as reflected in the corporate records of the Company) of
each record holder of the Company Common Stock, together with the
number of shares held by each such Person.
(b) There is not outstanding any capital stock or other
security, including without limitation any option, warrant or right
granted by the Company, entitling the holder thereof to purchase or
otherwise acquire any shares of capital stock of the Company. Except
as disclosed in the Stockholder Disclosure Letter, there are no
contracts, agreements, commitments or arrangements obligating the
Company (i) to issue, sell, pledge, dispose of or encumber any shares
of, or any options, warrants or rights of any kind to acquire, or any
securities that are convertible into or exercisable or exchangeable
for, any shares of, any class of capital stock of the Company or (ii)
to redeem, purchase or acquire or offer to acquire any shares of, or
any outstanding option, warrant or right to acquire, or any securities
that are convertible into or exercisable or exchangeable for, any
shares of, any class of capital stock of the Company.
2.6 Financial Statements. Included in the Stockholder Disclosure
Letter are true and complete copies of the financial statements of the Company
consisting of (i) an unaudited balance sheet of the Company as of December 31,
1996 (the "1996 Balance Sheet") and the related unaudited statements of income,
changes in stockholders' equity and cash flows for the year then ended
(including the notes thereto) (the "Company 1996 Financial Statements") and
(ii) unaudited balance sheets of the Company as of December 31, 1995 and 1994,
and the related unaudited statements of income, changes in stockholders' equity
and cash flows for the calendar years then ended (including the notes thereto)
(collectively with the Company 1996 Financial Statements, the "Company
Financial Statements"). The Company Financial Statements present fairly the
financial position of the Company and the results of its operations and
changes in financial position as of the dates and for the periods indicated
therein in conformity with generally accepted accounting principles applied on
a consistent basis. The Company Financial Statements do not omit to state any
liabilities, absolute or contingent, required to be stated therein in
accordance with generally accepted accounting principles consistently applied.
All accounts receivable of the Company reflected in the
4
<PAGE> 10
Company 1996 Financial Statements and as incurred since December 31, 1996
represent sales made in the ordinary course of business, are collectible (net
of any reserves for doubtful accounts shown in the Company 1996 Financial
Statements) in the ordinary course of business and, except as set forth in the
Stockholder Disclosure Letter, are not in dispute or subject to counterclaim,
set-off or renegotiation. The Stockholder Disclosure Letter contains an aged
schedule of accounts receivable included in the Company Financial Statements.
2.7 Undisclosed Liabilities. Except as and to the extent of the
amounts specifically reflected or accrued for in the 1996 Balance Sheet or as
set forth in the Stockholder Disclosure Letter, the Company does not have any
material liabilities or obligations of any nature whether absolute, accrued,
contingent or otherwise, and whether due or to become due. The reserves
reflected in the 1996 Balance Sheet are adequate, appropriate and reasonable in
accordance with generally accepted accounting principles applied on a
consistent basis.
2.8 Certain Agreements. Except as set forth in the Stockholder
Disclosure Letter, neither the Company nor any of its officers or directors, is
a party to, or bound by, any contract, agreement or organizational document
which purports to restrict, by virtue of a noncompetition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against the Company, or any of its officers or
directors, the scope of the business or operations of the Company or any of its
officers or directors, geographically or otherwise.
2.9 Contracts and Commitments. The Stockholder Disclosure Letter
includes (i) a list of all contracts to which the Company is a party or by
which its property is bound that involve consideration or other expenditure in
excess of $50,000 or performance over a period of more than six months or that
is otherwise material to the business or operations of the Company ("Material
Contracts"); (ii) a list of all real or personal property leases to which the
Company is a party involving consideration or other expenditure in excess of
$50,000 over the term of the lease ("Material Leases"); (iii) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which the Company is a party
("Guarantees") and (iv) a list of all contracts or other formal or informal
understandings between the Company and any of its officers, directors,
employees, agents or stockholders or their affiliates ("Related Party
Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreement have been furnished to Group 1.
2.10 Absence of Changes. Except as set forth in the Stockholder
Disclosure Letter, there has not been, since December 31, 1996, any material
adverse change with respect to the business, assets, prospects or condition
(financial or otherwise) of the Company. Except as set forth in the
Stockholder Disclosure Letter, since December 31, 1996, the Company has not
engaged in any transaction or conduct of any kind which would be proscribed by
Section 5.3 herein after execution and delivery of this Agreement.
Notwithstanding the preceding sentence, the Company makes no representation
regarding, and need not disclose, increases in compensation (of the type
contemplated in Section 5.3(f)) since December 31, 1996, for any employee who
after such increase would receive annual compensation less than $50,000.
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2.11 Tax Matters.
(a) Except as set forth in the Stockholder Disclosure
Letter (and except for filings and payments of assessments the failure
of which to file or pay will not materially adversely affect the
Company), (i) all returns and reports ("Tax Returns") of or with
respect to any Tax (as defined below) which is required to be filed on
or before the Closing Date by or with respect to the Company have been
or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in
each such Tax Return have been or will be so included and all
information provided in each such Tax Return is true, correct and
complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or
will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to the Company have been or will be
satisfied in full, and (v) no penalty, interest or other charge is or
will become due with respect to the late filing of any such Tax Return
or late payment of any such Tax. For purposes of this Agreement,
"Taxes" shall mean all taxes, charges, imposts, tariffs, fees, levies
or other similar assessments or liabilities, including income taxes,
ad valorem taxes, excise taxes, withholding taxes, stamp taxes or
other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers,
licensing, employment, payroll and franchises imposed by or under any
law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or
incurred in connection with any such tax or any contest or dispute
thereof.
(b) The Company Disclosure Letter sets forth all periods
for which Tax Returns of the Company (i) have been audited by the
applicable governmental authorities or (ii) are no longer subject to
audit due to the expiration of the applicable statute of limitations.
(c) There is no claim against the Company for any Taxes,
and no assessment, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return of or with respect to the
Company, other than those disclosed (and to which are attached true
and complete copies of all audit or similar reports) in the
Stockholder Disclosure Letter.
(d) Except as set forth in the Stockholder Disclosure
Letter, there is not in force any extension of time with respect to
the due date for the filing of any Tax Return of or with respect to
the Company or any waiver or agreement for any extension of time for
the assessment or payment of any Tax of or with respect to the
Company.
(e) The total amounts set up as liabilities for current
and deferred Taxes in the Balance Sheet are sufficient to cover the
payment of all Taxes, whether or not assessed or disputed, which are,
or are hereafter found to be, or to have been, due by or with respect
to the Company up to and through the periods covered thereby.
(f) All Tax allocation or sharing agreements affecting
the Company shall be terminated prior to the Closing Date and no
payments shall be due or will become due by the Company on or after
the Closing Date pursuant to any such agreement or arrangement.
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(g) Except as set forth in the Stockholder Disclosure
Letter, the Company will not be required to include any amount in
income for any taxable period beginning the Closing Date as a result
of a change in accounting method for any taxable period ending on or
before the Closing Date or pursuant to any agreement with any Tax
authority with respect to any such taxable period.
(h) The Company has not consented to have the provisions
of Section 341(f)(2) of the Code apply with respect to a sale of its
stock.
(i) From January 12, 1988 through the Closing Date, (a)
the Company continuously has been and will be an S Corporation within
the meaning of Section 1361 of the Code, and (b) each holder of the
Company stock has been an individual resident of the United States or
an estate or trust described in Section 1361(c)(2) of the Code that is
permitted to hold the stock of an S Corporation.
2.12 Litigation.
(a) Except as set forth in the Stockholder Disclosure
Letter, there are no actions at law, suits in equity, investigations,
proceedings or claims pending or, to the knowledge of the Company,
threatened against or specifically affecting the Company before or by
any federal, state, foreign or local court, tribunal or governmental
agency or authority which if determined adversely to the Company would
have a Material Adverse Effect.
(b) Except as contemplated by this Agreement and except
to the extent set forth in the Stockholder Disclosure Letter, the
Company has substantially performed all obligations required to be
performed by it to date and is not in default under, and, to the
knowledge of the Company, no event has occurred which, with the lapse
of time or action by a third party could result in a default under any
contract or other agreement to which the Company is a party or by
which it or any of its properties is bound or under any applicable
judgment, order or decree of any federal, state, foreign or local
court, tribunal or governmental agency or authority, other than such
defaults that would not, individually or in the aggregate, have a
Material Adverse Effect.
2.13 Compliance with Law. Except as set forth in the Stockholder
Disclosure Letter, the Company is in compliance with all applicable statutes
and other applicable laws and all applicable rules and regulations of all
federal, state, foreign and local governmental agencies and authorities, except
where the failure to be in compliance would not have a Material Adverse Effect.
2.14 Permits. Except as set forth in the Stockholder Disclosure
Letter, the Company owns or holds all franchises, licenses, permits, consents,
approvals and authorizations of all governmental agencies and authorities,
federal, state, foreign and local, necessary for the conduct of its business,
except for those franchises, licenses, permits, consents, approvals and
authorizations which the failure to own or hold would not, in the aggregate,
have a Material Adverse Effect. Each franchise, license, permit, consent,
approval and authorization so owned or held is in full force and effect, and
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the Company is in compliance with all of its obligations with respect thereto,
except where the failure to be in full force and effect or to be in compliance
would not, in the aggregate, have a Material Adverse Effect, and, to the
knowledge of the Company, no event has occurred which allows, or upon the
giving of notice or the lapse of time or otherwise would allow, revocation or
termination of any franchise, license, permit, consent, approval or
authorization so owned or held.
2.15 Employee Benefit Plans and Policies.
(a) The Stockholder Disclosure Letter provides a
description of each of the following which is sponsored, maintained or
contributed to by the Company for the benefit of its employees, or has
been so sponsored, maintained or contributed to within six years prior
to the Closing Date:
(i) each "employee benefit plan," as such term is
defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("Plan"); and
(ii) each personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement,
incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation
agreement or arrangement, executive compensation or
supplemental income arrangement, consulting agreement,
employment agreement and each other employee benefit plan,
agreement, arrangement, program, practice or understanding
that is not described in Section 2.17(a)(i) ("Benefit Program
or Agreement").
True and complete copies of each of the Plans, Benefit Programs or
Agreements, related trusts, if applicable, and all amendments thereto,
have been furnished to Group 1.
(b) The Company does not contribute to or have an
obligation to contribute to, and has not at any time contributed to or
had an obligation to contribute to, a plan subject to Title IV of
ERISA, including, without limitation, a multiemployer plan within the
meaning of Section 3(37) of ERISA.
(c) Except as otherwise set forth in the Stockholder
Disclosure Letter,
(i) Each Plan and each Benefit Program or
Agreement has been administered, maintained and operated in
accordance with the terms thereof and in compliance with its
governing documents and applicable law (including, where
applicable, ERISA and the Code);
(ii) There is no matter pending with respect to
any of the Plans before any governmental agency, and there are
no actions, suits or claims pending (other than routine claims
for benefits) or threatened against, or with respect to, any
of the Plans or Benefit Programs or Agreements or their
assets;
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(iii) No act, omission or transaction has occurred
which would result in imposition on the Company of (A) breach
of fiduciary duty liability damages under Section 409 of
ERISA, (B) a civil penalty assessed pursuant to subsections
(c), (i) or (l) of Section 502 of ERISA or (C) a tax imposed
pursuant to Chapter 43 of Subtitle D of the Code;
(iv) Each of the Plans intended to be qualified
under Section 401 of the Code satisfies the requirements of
such Section, has received a favorable determination letter
from the Internal Revenue Service regarding such qualified
status and has not, since receipt of the most recent favorable
determination letter, been amended or operated in a way which
would adversely affect such qualified status;
(v) As to any Plan intended to be qualified under
Section 401 of the Code, there has been no termination or
partial termination of the Plan within the meaning of Section
411(d)(3) of the Code; and
(vi) The execution and delivery of this Agreement
by the Stockholders and the consummation of the transactions
contemplated hereby will not (A) require the Company to make a
larger contribution to, or pay greater benefits under, any
Plan or Benefit Program or Agreement than it otherwise would
or (B) create or give rise to any additional vested rights or
service credits under any Plan or Benefit Program or
Agreement.
(d) There does not currently exist, and there has not at
any time existed, any corporation, trade, business or entity under
common control with the Company within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001 of ERISA.
(e) Termination of employment of any employee of the
Company after consummation of the transactions contemplated by this
Agreement would not result in payments under the Plans or Benefit
Programs or Agreements which, in the aggregate, would result in
imposition of the sanctions imposed under Sections 280G and 4999 of
the Code.
(f) Each Plan which is an "employee welfare benefit
plan", as such term is defined in Section 3(1) of ERISA, may be
unilaterally amended or terminated in its entirety without liability
except as to benefits accrued thereunder prior to such amendment or
termination.
(g) The Stockholder Disclosure Letter sets forth by name
and job description of the employees of the Company as of the date of
this Agreement (the "Company Employees"). None of said employees are
subject to union or collective bargaining agreements. The Company has
not at any time had or been threatened with any work stoppages or
other labor disputes or controversies with respect to its employees.
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2.16 Title. Except as set forth in the Stockholder Disclosure
Letter, the Company has good and valid title to all properties and assets which
it purports to own, including without limitation the properties and assets
which are reflected in the 1996 Balance Sheet (other than those disposed of
since such date in the ordinary course of business) and good and valid
leasehold interests in all properties and assets which it purports to hold
under lease, and each such ownership or leasehold interest is free and clear of
all liens, claims and encumbrances other than as set forth in the applicable
lease agreements and those reflected in the Company Financial Statements or the
Stockholder Disclosure Letter.
2.17 Insurance. The Stockholder Disclosure Letter identifies, by
name of underwriter, risk insured, amount insured, policy number and date of
issuance all policies of insurance owned by the Company as of the date hereof
or as to which the Company, as of the date hereof, is a beneficiary. All such
policies are currently in full force and effect.
2.18 Affiliate Interests. Except as set forth in the Stockholder
Disclosure Letter, no employee, officer or director, or former employee,
officer or director of the Company has any interest in any property, tangible
or intangible, including without limitation, patents, trade secrets, other
confidential business information, trademarks, service marks or trade names,
used in or pertaining to the business of the Company, except for the normal
rights of employees and stockholders.
2.19 Environmental Matters. The Company is in compliance in all
material respects with all laws, rules, regulations, and other legal
requirements relating to the prevention of pollution and the protection of the
environment (collectively, "Environmental Laws"), and the Company possesses and
can transfer to Group 1 or a Subsidiary of Group 1 all permits, licenses, and
similar authorizations required under Environmental Laws for operation of its
business as currently conducted. Furthermore, there is no physical condition
existing on any property ever owned or operated by the Company nor are there
any physical conditions existing on any other property that may have been
affected by the Company's operations which could give rise to any material
remedial obligation under any Environmental Laws or which could result in any
material liability to any third party pursuant to any Environmental Laws.
2.20 Intellectual Property. Except as set forth in the Stockholder
Disclosure Letter, the Company owns, or is licensed or otherwise has the right
to use all patents, trademarks, copyrights, and other proprietary rights
("Intellectual Property") that are material to the condition (financial or
otherwise) or conduct of the business and operations of the Company. To the
knowledge of the Stockholders, (a) the use of the Intellectual Property by the
Company does not infringe on the rights of any Person, subject to such claims
and infringements as do not, in the aggregate, give rise to any liability on
the part of the Company which could have a Material Adverse Effect and (b) no
Person is infringing on any right of the Company with respect to any
Intellectual Property. No claims are pending or, to the knowledge of the
Stockholders, threatened that the Company is infringing or otherwise adversely
affecting the rights of any Person with regard to any Intellectual Property.
All of the Intellectual Property that is owned by the Company is owned free and
clear of all encumbrances and was not misappropriated from any Person. All of
the Intellectual Property that is licensed by the Company is licensed pursuant
to valid and existing license agreements. The
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consummation of the transactions contemplated by this Agreement will not result
in the loss of any Intellectual Property.
2.21 Bank Accounts. The Stockholder Disclosure Letter includes the
names and locations of all banks in which the Company has an account or safe
deposit box and the names of all Persons authorized to draw thereon or to have
access thereto.
2.22 Disclosure. The Stockholders have disclosed in writing, or
pursuant to this Agreement and the Stockholder Disclosure Letter, all facts
material to the business, assets, prospects and condition (financial or
otherwise) of the Company. No representation or warranty to Group 1 by the
Stockholders contained in this Agreement, and no statement contained in the
Stockholder Disclosure Letter, any certificate, list or other writing furnished
to Group 1 by the Stockholders pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein not misleading. All statements
contained in this Agreement, the Stockholder Disclosure Letter, and any
certificate, list, document or other writing delivered pursuant hereto or in
connection with the transactions contemplated hereby shall be deemed a
representation and warranty of the Stockholders for all purposes of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder hereby individually with respect to the shares of
Company Common Stock owned by such Stockholder, severally and not jointly,
represents and warrants to Group 1 that:
3.1 Capital Stock. Such Stockholder is the beneficial and record
owner of the number of shares of Company Common Stock as set forth in the
Stockholder Disclosure Letter, free and clear of any lien, claim, pledge,
encumbrance or other adverse claim. Except for such shares of Company Common
Stock set forth in the Stockholder Disclosure Letter and Schedule II hereto,
such Stockholder does not own, beneficially or of record, any capital stock or
other security, including without limitation any option, warrant or right
entitling the holder thereof to purchase or otherwise acquire any shares of
capital stock of the Company.
3.2 Authorization of Agreement.
(a) Such Stockholder has full legal right, power,
capacity and authority to execute, deliver and perform its obligations
pursuant to this Agreement and to execute, deliver and perform its
obligations under each instrument required hereby to be executed and
delivered by such Stockholder at the Closing.
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(b) This Agreement has been, and each instrument required
hereby to be executed and delivered by such Stockholder at the Closing
will then be, duly executed and delivered by such Stockholder, and
this Agreement constitutes and, to the extent it purports to obligate
such Stockholder, each such instrument will constitute (assuming due
authorization, execution and delivery by each other party thereto),
the legal, valid and binding obligation of such Stockholder
enforceable against it in accordance with its terms.
3.3 Approvals. Except for applicable requirements, if any, of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act and the Texas Motor Vehicle Commission, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any court, tribunal or governmental agency or authority, federal,
state, foreign or local, is required by any applicable statute or other
applicable law or by any applicable judgment, order or decree or any applicable
rule or regulation of any court, tribunal or governmental agency or authority,
federal, state, foreign or local, to permit such Stockholder to execute,
deliver or perform this Agreement or any instrument required hereby to be
executed and delivered by it at the Closing.
3.4 Absence of Conflicts. Except to the extent set forth in the
Stockholder Disclosure Letter, neither the execution and delivery by such
Stockholder of this Agreement or any instrument required hereby to be executed
and delivered by it at the Closing, nor the performance by such Stockholder of
its obligations under this Agreement or any such instrument will (a) violate or
breach the terms of or cause a default under (i) any applicable statute or
other applicable law, federal, state, foreign or local, (ii) any applicable
judgment, order or decree or any applicable rule or regulation of any court,
tribunal or governmental agency or authority, federal, state, foreign or local
or (iii) any contract or agreement to which such Stockholder is a party or by
which it, or any of its properties, is bound, or (b) result in the creation or
imposition of any lien, claim or encumbrance on any of the properties or assets
of such Stockholder, or (c) result in the cancellation, forfeiture, revocation,
suspension or adverse modification of any existing consent, approval,
authorization, license, permit, certificate or order of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, or (d) with
the passage of time or the giving of notice or the taking of any action of any
third party have any of the effects set forth in clause (a), (b) or (c) of this
Section, except, with respect to clauses (a), (b), (c) or (d) of this Section,
where such matter would not have a Material Adverse Effect on the Company or
the ability of the Company or such Stockholder to consummate the transactions
contemplated hereby.
3.5 Investment Intent. Each Stockholder makes the following
representations relating to its acquisition of shares of Group 1 Common Stock:
(i) such Stockholder will be acquiring the shares of Group 1 Common Stock to be
issued pursuant to the Acquisition to such Stockholder solely for such
Stockholder's account, for investment purposes only and with no current
intention or plan to distribute, sell or otherwise dispose of any of those
shares (other than with respect to the shares listed in the Stockholder
Disclosure Letter which will be sold by such Stockholder ("Selling
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Stockholder") in the IPO ("Selling Stockholder IPO Shares")); (ii) such
Stockholder is not a party to any agreement or other arrangement for the
disposition of any shares of Group 1 Common Stock other than this Agreement
(other than an Underwriting Agreement to be entered into by certain of the
Stockholders in connection with the sale of the Selling Stockholder IPO
Shares); (iii) such Stockholder is an "accredited investor" as defined in
Securities Act Rule 501(a); (iv) such Stockholder (A) is able to bear the
economic risk of an investment in the Group 1 Common Stock acquired pursuant to
this Agreement, (B) can afford to sustain a total loss of that investment, (C)
has such knowledge and experience in financial and business matters, and such
past participation in investments, that he or she is capable of evaluating the
merits and risks of the proposed investment in the Group 1 Common Stock, (D)
has received and reviewed the draft Registration Statement, (E) has had an
adequate opportunity to ask questions and receive answers from the officers of
Group 1 concerning any and all matters relating to the transactions
contemplated hereby, including the background and experience of the current and
proposed officers and directors of Group 1, the plans for the operations of the
business of Group 1, the business, operations and financial condition of the
Other Founding Companies and any plans of Group 1 for additional acquisitions,
and (F) has asked all questions of the nature described in the preceding clause
(E), and all those questions have been answered to his or her satisfaction; (v)
such Stockholder acknowledges that the shares of Group 1 Common Stock to be
delivered to such Stockholder pursuant to the Acquisition have not been and
will not be registered under the Securities Act or qualified under applicable
blue sky laws and therefore may be required to be held for an indefinite period
of time and may not be resold by such Stockholder without compliance with the
Securities Act; (vi) such Stockholder acknowledges that he or she has agreed,
pursuant to Section 9.5 herein, not to sell the shares of Group 1 Common Stock
to be delivered to such Stockholder pursuant to the Acquisition (other than any
Selling Stockholder IPO Shares) for a period of two years from the Closing
Date; (vii) such Stockholder acknowledges that as a result of the substantial
restrictions, imposed both contractually and by the Securities Act, on the
resale of the shares of Group 1 Common Stock received in the Acquisition, such
shares of Group 1 Common Stock will have a substantially lower value than those
shares of Group 1 Common Stock that are registered under the Securities Act and
sold in the IPO; (viii) such Stockholder, if a corporation, partnership, trust
or other entity, acknowledges that it was not formed for the specific purpose
of acquiring the Group 1 Common Stock; and (ix) without limiting any of the
foregoing, such Stockholder agrees not to dispose of any portion of Group 1
Common Stock unless either (1) a registration statement under the Securities
Act is in effect as to the applicable shares and the disposition is made in
accordance with that registration statement, or (2) the Stockholder has
notified Group 1 of the proposed disposition, provided Group 1 with a detailed
description of the circumstances surrounding the proposed disposition and
furnished Group 1 with written opinion of counsel opining that the proposed
disposition would not require registration of any securities under federal or
state securities law.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF GROUP 1
Group 1 hereby represents and warrants to the Stockholders that:
4.1 Corporate Organization. Group 1 is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with all requisite corporate power and authority to execute, deliver
and perform this Agreement and each instrument required hereby to be executed
and delivered by it at the Closing.
4.2 Authorization. The execution and delivery by Group 1 of this
Agreement, the performance by Group 1 of its obligations pursuant to this
Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by Group 1 at the Closing have
been duly and validly authorized by all requisite corporate action on the part
of Group 1. This Agreement has been, and each instrument required hereby to be
executed and delivered by Group 1 at or prior to the Closing will then be, duly
executed and delivered by Group 1. This Agreement constitutes, and, to the
extent it purports to obligate Group 1, each such instrument will constitute
(assuming due authorization, execution and delivery by each other party
thereto), the legal, valid and binding obligation of Group 1, enforceable
against it in accordance with its terms.
4.3 Approvals. Except for applicable requirements, if any, of the
HSR Act, the Securities Act, and the Texas Motor Vehicle Commission, no filing
or registration with, and no consent, approval, authorization, permit,
certificate or order of any court, tribunal or government agency or authority,
federal, state, foreign or local, is required by any applicable statute or
other applicable law or by any applicable judgment, order or decree or any
applicable rule or regulation of any court, tribunal or governmental agency or
authority, federal, state, foreign or local, to permit Group 1, to execute,
deliver or consummate the transactions contemplated by this Agreement or any
instrument required hereby to be executed and delivered by Group 1 at or prior
to the Closing.
4.4 Absence of Conflicts. Neither the execution and delivery by
Group 1 of this Agreement or any instrument required hereby to be executed by
it at or prior to the Closing nor the performance by Group 1 of its obligations
under this Agreement or any such instrument will (a) violate or breach the
terms of or cause a default under (i) any applicable statute or other
applicable law, federal, state, foreign or local, (ii) any applicable judgment,
order or decree or any applicable rule or regulation of any court, tribunal or
governmental agency or authority, federal, state, foreign or local, (iii) the
organizational documents of Group 1 or (iv) any contract or agreement to which
Group 1 is a party or by which it or any of its property is bound, or (b)
result in the creation or imposition of any lien, claim or encumbrance on any
of the properties or assets of Group 1 or any of its subsidiaries (other than
any lien, claim or encumbrance created by the Company), or (c) result in the
cancellation, forfeiture, revocation, suspension or adverse modification of any
existing consent, approval, authorization, license, permit certificate or order
of any court, tribunal or governmental agency or authority, federal, state,
foreign or local or (d) with the passage of time or
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the giving of notice or the taking of any action by any third party have any of
the effects set forth in clause (a), (b) or (c) of this Section, except, with
respect to clauses (a), (b), (c) or (d) of this Section, where such matter
would not have a material adverse effect on the business, assets, prospects or
condition (financial or otherwise) of Group 1 and its subsidiaries, taken as a
whole.
4.5 Capitalization.
(a) The authorized capital stock of Group 1 consists of
1,000,000 shares of preferred stock, par value $.01 per share,
issuable in series, of which preferred stock none is outstanding and
50,000,000 shares of Group 1 Common Stock, of which 450,000 shares are
issued and outstanding; in addition, options have been granted to
purchase 565,000 shares of Group 1 Common Stock. Each outstanding
share of Group 1 Common Stock has been duly authorized, is validly
issued, fully paid and nonassessable and was not issued in violation
of the preemptive rights of any stockholder of Group 1.
(b) Group 1 will issue a total of 9,550,000 shares of
Group 1 Common Stock (less 2,000,000 divided by the Net IPO Price) in
connection with the Acquisitions and the Other Acquisitions, subject
to adjustment as provided in the Stock Purchase Agreements to be
executed in connection with the Acquisition and the Other
Acquisitions. "Net IPO Price" is the per share IPO price of Group 1
Common Stock, less applicable underwriting discounts and a pro rata
portion of expenses related to the IPO.
(c) All shares of Group 1 Common Stock issuable pursuant
to the Acquisition are duly authorized and will, when issued, be
validly issued, fully paid and nonassessable and not issued in
violation of the preemptive rights of any stockholder of Group 1.
ARTICLE V
COVENANTS OF THE STOCKHOLDERS
5.1 Acquisition Proposals. Prior to the Closing Date, the
Stockholders shall not, and shall cause the Company, its officers, directors,
employees or agents not to agree to, solicit or encourage inquiries or
proposals with respect to, furnish any information relating to, or participate
in any negotiations or discussions concerning, any acquisition, business
combination or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, the Company, other than the transactions with
Group 1 contemplated by this Agreement.
5.2 Access. The Stockholders shall cause the Company to allow
Group 1's officers, employees, counsel, accountants and other authorized
representatives access, during normal business hours throughout the period
prior to the Closing Date, to all of the Company's properties, books,
contracts, commitments and records and, during such period, the Stockholders
shall cause the Company to furnish promptly to Group 1 any information
concerning its business, properties and personnel as Group 1 may reasonably
request; provided, however, that no investigation pursuant to
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this Section or otherwise shall affect or be deemed to modify any
representation or warranty made by the Stockholders pursuant to this Agreement.
5.3 Conduct of Business by the Company Pending the Acquisition.
The Stockholders covenant and agree that they will take all action necessary to
ensure that, from the date of this Agreement until the Closing Date, unless
Group 1 shall otherwise agree in writing or as otherwise expressly contemplated
by this Agreement or as disclosed in the Stockholder Disclosure Letter:
(a) The business of the Company shall be conducted only
in, and the Company shall not take any action except in, the ordinary
course of business and consistent with past practice;
(b) The Company shall not directly or indirectly do any
of the following: (i) issue, sell, pledge, dispose of or encumber, (A)
any capital stock of the Company or (B) other than in the ordinary
course of business and consistent with past practice and not relating
to the borrowing of money, any assets of the Company, (ii) amend or
propose to amend the articles of incorporation or bylaws of the
Company, (iii) split, combine or reclassify any outstanding capital
stock, or declare, set aside or pay any dividend payable in cash,
stock, property or otherwise with respect to its capital stock whether
now or hereafter outstanding (other than (i) cash dividends paid to
Stockholders in a manner consistent with past practice of the Company
as disclosed to its independent auditors and (ii) previously taxed
retained earnings of $357,000.00, which amount may be increased to a
consistently determined amount reflecting the effect of 1997 earnings
prior to the Closing Date, so long as the working capital position of
the Company is not reduced below the level resulting from the
$357,000.00 dividend amount), (iv) redeem, purchase or acquire or
offer to acquire any of its capital stock, (v) incur any indebtedness
for borrowed money, or (vi) except in the ordinary course of business
and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth
in this Section 5.3(b);
(c) The Company shall use its best efforts (i) to
preserve intact the business organization of the Company, (ii) to
maintain in effect any franchises, authorizations or similar rights of
the Company, (iii) to keep available the services of its current
officers and key employees, (iv) to preserve the goodwill of those
having business relationships with it, (v) to maintain and keep its
properties in as good a repair and condition as presently exists,
except for deterioration due to ordinary wear and tear; and (vi) to
maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it;
(d) The Company shall not make or agree to make any
single capital expenditure or enter into any purchase commitments in
excess of $25,000;
(e) The Company shall perform its obligations under any
contracts and agreements to which it is a party or to which its assets
are subject, except for such obligations as the Company in good faith
may dispute;
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(f) The Company shall not increase the salary, benefits,
stock options, bonus or other compensation of any officer, director or
employee of the Company; and shall not grant, to any individual,
severance or termination pay that exceeds the lesser of (i) such
individual's compensation for the calendar month immediately preceding
such individual's grant of severance or termination pay, or (ii)
$10,000;
(g) The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming
untrue or any of the conditions to the Acquisition set forth in
Article VII not being satisfied. The Company promptly shall advise
Group 1 orally and in writing of any change or event having, or which,
insofar as reasonably can be foreseen, would have, a Material Adverse
Effect; and
(h) The Company shall not (i) amend or terminate any Plan
or Benefit Program or Agreement except as may be required by
applicable law, (ii) increase or accelerate the payment or vesting of
the amounts payable under any Plan or Benefit Program or Agreement, or
(iii) adopt or enter into any personnel policy, stock option plan,
collective bargaining agreement, bonus plan or arrangement, incentive
award plan or arrangement, vacation policy, severance pay plan, policy
or agreement, deferred compensation agreement or arrangement,
executive compensation or supplemental income arrangement, consulting
agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than
the Plans and the Benefit Programs or Agreements).
5.4 Confidentiality. The Stockholders agree, and the Stockholders
agree to cause the Company's officers, directors, employees, representatives
and consultants, to hold in confidence, and not to disclose to others for any
reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby except
(i) as required by law; (ii) for disclosure to officers, directors, employees
and representatives of the Company as necessary in connection with the
transactions contemplated hereby; and (iii) for information which becomes
publicly available other than through the actions of the Company or a
Stockholder. In the event the Acquisition is not consummated, the Stockholders
will return, and will cause the Company to return, all non-public documents and
other material obtained from Group 1 or its representatives in connection with
the transactions contemplated hereby or certify to Group 1 that all such
information has been destroyed.
5.5 Notification of Certain Matters. The Stockholders shall give
prompt notice to Group 1, orally and in writing, of (i) the occurrence, or
failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue
or inaccurate at any time from the date hereof to the Closing or (ii) any
material failure of the Stockholders, or any officer, director, employee or
agent of the Company to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder.
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5.6 Consents. Subject to the terms and conditions of this
Agreement, the Stockholders shall cause the Company to (i) take all reasonable
steps to obtain all consents, waivers, approvals (including all applicable
automobile manufacturers approvals, and such approvals shall not contain any
unreasonably burdensome restrictions on the Company or Group 1), authorizations
and orders required in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Acquisition; and (ii)
take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary or proper to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
5.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, the Stockholders
agree to cooperate and use reasonable efforts (such efforts shall not include
incurring costs to third parties) to defend against and respond thereto.
5.8 Stockholders' Agreements Not to Sell. Each of the
Stockholders hereby covenants and agrees not to sell, pledge, transfer or
dispose of or encumber any shares of Company Common Stock currently owned,
either beneficially or of record, by such Stockholder, except pursuant to
Section 9.5 of this Agreement.
5.9 Intellectual Property Matters. The Stockholders shall use
their best efforts to preserve the Company's ownership rights to the
Intellectual Property free and clear of any liens, claims or encumbrances and
shall use their best efforts, on behalf of the Company, to assert, contest and
prosecute any infringement of any issued foreign or domestic patent, trademark,
service mark, trade name or copyright that forms a part of the Intellectual
Property or any misappropriation or disclosure of any trade secret,
confidential information or know-how that forms a part of the Intellectual
Property.
5.10 Cooperating in connection with IPO. The Stockholders will,
and will cause the Company to (a) provide Group 1 with all information
concerning the Company or the Stockholders which is reasonably requested by
Group 1 from time to time in connection with effecting the IPO and (b)
cooperate with Group 1 and their representatives in the preparation of the
Registration Statement (including the Financial Statements) and in responding
to comments of the staff of the Commission, if any, with respect thereto. The
Stockholders agree, and will cause the Company promptly to (a) advise Group 1,
if at any time during the period in which a prospectus relating to the IPO is
required to be delivered under the Securities Act any information contained in
the then current Registration Statement prospectus concerning the Company or
any of the Stockholders becomes incorrect or incomplete in any material respect
and (b) provide Group 1 with information needed to correct or complete such
information.
5.11 Removal of Related Party Guarantees. The Stockholders agree
to take, or cause to be taken, all appropriate action, and do, or cause to be
done, all things necessary, proper or advisable to terminate, waive or release
all Company guarantees (such guarantees shall be referred to herein
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as "Related Guarantees," as described in the Stockholder Disclosure Letter
pursuant to Section 2.9 of this Agreement) of indebtedness or other obligations
of any of the Company's officers, directors, shareholders or employees or their
affiliates.
5.12 Termination of Related Party Agreements. The Stockholders
agree to take, or cause to be taken, all appropriate action, and do, or cause
to be done, all things necessary, proper or advisable to terminate the Related
Party Agreements on or prior to the Closing Date, except for those Related
Party Agreements that are disclosed in the Stockholder Disclosure Letter as
agreements that shall not be subject to this Section 5.12.
5.13 Related Party Agreements. The Stockholders agree to cause the
Company not to enter into any Related Party Agreements or engage in any
transactions with the Stockholders or their affiliates, except for those
Related Party Agreements or transactions with affiliates that are disclosed in
the Company Disclosure Letter as agreements or transactions that shall not be
subject to this Section 5.13.
5.14 Founders Employment Agreement. B. B. Hollingsworth, Jr., a
Stockholder, hereby agrees to enter on or prior to the Closing Date into an
Employment Agreement substantially in the form of Exhibit A attached hereto
(the "Founders Employment Agreement"), which agreement shall employ B. B.
Hollingsworth, Jr. as Chief Executive Officer of Group 1, and shall provide for
an annual salary of $360,000 and have a term of five years.
5.15 GM Employment Agreement. Robert L. Struzynski, a Stockholder,
hereby agrees to enter on or prior to the Closing Date into an Employment
Agreement substantially in the form of Exhibit B attached hereto (the "GM
Employment Agreement"), which agreement shall employ Robert L. Struzynski as
General Manager of the Company, and shall provide for an annual salary of
$72,000 and a term of three years.
5.16 Authorization to use the "Foyt" Name. A.J. Foyt, Jr. ("Foyt")
hereby agrees to allow the Company to use the name "A.J. Foyt" in the conduct
of its business, consistent with its past use of such name. However, the
Company agrees that if, after the Closing Date, it receives written notice from
Foyt to the effect that Foyt no longer consents to the Company's use of the
name "A.J. Foyt" in the conduct of its business, the Company shall cease all
use of such name within one year of receiving the requisite notice from Foyt.
5.17 LIFO Adjustment. The Company, and not the Stockholders, shall
be responsible for the payment of all costs and liabilities relating to any
LIFO adjustment caused by the termination of the Company's status as an S
corporation as a result of the transactions contemplated hereby.
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ARTICLE VI
COVENANTS OF GROUP 1
6.1 Confidentiality. Group 1 agrees, and Group 1 agrees to cause
its officers, directors, employees, representatives and consultants, to hold in
confidence all, and not to disclose to others for any reason whatsoever, any
non-public information received by it or its representatives in connection with
the transactions contemplated hereby except (i) as required by law; (ii) for
disclosure to officers, directors, employees and representatives of Group 1 as
necessary in connection with the transactions contemplated hereby or as
necessary to the operation of Group 1's business; and (iii) for information
which becomes publicly available other than through the actions of Group 1. In
the event the Acquisition is not consummated, Group 1 will return all
non-public documents and other material obtained from the Company or its
representatives in connection with the transactions contemplated hereby or
certify to the Company that all such information has been destroyed.
6.2 Reservation of Group 1 Common Stock. Group 1 shall reserve
for issuance and shall issue, out of its authorized but unissued capital stock,
such number of shares of Group 1 Common Stock as may be issuable upon
consummation of the Acquisition.
6.3 Consents. Subject to the terms and conditions of this
Agreement, Group 1 shall (i) obtain all consents, waivers, approvals,
authorizations and orders required in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Acquisition; and (ii) take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
6.4 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages
in connection therewith, whether before or after the Closing, Group 1 agrees to
cooperate and use reasonable efforts to defend against and respond thereto.
6.5 Removal of Personal Guarantees. Group 1 will use commercially
reasonable efforts to have all personal guarantees by any of the Company's
officers, directors, shareholders or employees of any obligation of the Company
terminated, waived or released.
6.6 Founders Employment Agreement. Group 1 hereby agrees to enter
into the Founders Employment Agreement.
6.7 GM Employment Agreement. Group 1 hereby agrees to enter into
the GM Employment Agreement.
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ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to Obligation of Each Party to Effect the
Acquisition. The respective obligations of each party to effect the
Acquisition shall be subject to the fulfillment at or prior to the Closing Date
of the following conditions:
(a) No order shall have been entered and remain in effect
in any action or proceeding before any federal, state, foreign or
local court or governmental agency or other federal, state, foreign or
local regulatory or administrative agency or commission that would
prevent or make illegal the consummation of the Acquisition;
(b) There shall have been obtained any and all material
permits, approvals and consents of securities or "blue sky"
commissions of each jurisdiction and of any other governmental agency
or authority, with respect to the consummation of the Acquisition,
which the failure to obtain would have a material adverse effect on
the business, assets, prospects or condition (financial or otherwise)
of Group 1 and its subsidiaries, taken as a whole;
(c) Group 1, each Selling Stockholder and the
underwriters of the IPO shall have entered into an underwriting
agreement in connection with the IPO providing for the underwriters'
purchase of the shares of Group 1 Common Stock to be offered by Group
1 in the IPO and, at the Selling Stockholder's option, some or all of
the shares of Group 1 Common Stock to be received by the Selling
Stockholder pursuant to this Agreement.
(d) The parties to the Other Agreements shall have
delivered a written representation (a "Closing Representation") to the
Stockholders and Group 1 to the effect that no conditions to their
obligations to consummate the Other Acquisitions remain to be
satisfied and that such parties will consummate the Other Acquisitions
simultaneously with the Closing of the Acquisition; and
(e) The applicable waiting period under the HSR Act with
respect to the transactions contemplated by this Agreement shall have
expired or been terminated.
7.2 Additional Conditions Precedent to Obligations of Group 1.
The obligation of Group 1 to effect the Acquisition is also subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The representations and warranties of the
Stockholders contained in Article II and Article III shall be accurate
as of the Closing Date as though such representations and warranties
had been made at and as of the Closing Date; all of the terms,
covenants and conditions of this Agreement to be complied with and
performed by the Stockholders on or before the Closing Date shall have
been duly complied with and performed in all material respects, and a
certificate to the foregoing effect dated the Closing Date and signed
by each of the Stockholders shall have been delivered to Group 1;
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(b) There shall have been obtained any and all material
permits, approvals and consents of securities or blue sky commissions
of any jurisdiction, and of any other governmental body or agency,
that reasonably may be deemed necessary so that the consummation of
the Acquisition and the transactions contemplated thereby will be in
compliance with applicable laws, the failure to comply with which
would have a material adverse effect on the business, assets,
prospects or condition (financial or otherwise) of Group 1 and its
subsidiaries, taken as a whole, after consummation of the Acquisition;
(c) Group 1 shall have received evidence, satisfactory to
Group 1, that all Related Party Agreements required to be terminated
shall have been terminated and all Related Guarantees shall have been
terminated, waived or released pursuant to Sections 5.11 and 5.12
hereto.
(d) Group 1 shall have received executed representations
from each Stockholder stating that such Stockholder (with respect to
shares owned beneficially or of record by him or her) has no current
plan or intention to sell or otherwise dispose of the Group 1 Common
Stock to be received by him or her in the Acquisition other than the
Selling Stockholder IPO Shares.
(e) Since the date of this Agreement, no material adverse
change in the business, operations or financial condition of the
Company shall have occurred, and the Company shall not have suffered
any damage, destruction or loss (whether or not covered by insurance)
materially adversely affecting the properties or business of the
Company, and Group 1 shall have received a certificate signed by the
Stockholders dated the Closing Date to such effect.
7.3 Additional Conditions Precedent to Obligations of the
Stockholders. The obligation of the Stockholders to effect the Acquisition is
also subject to the fulfillment at or prior to the Closing Date of the
following condition:
(a) The representations and warranties of Group 1
contained in Article IV, other than the representation in Section
4.5(a), shall be accurate as of the Closing Date as though such
representations and warranties had been made at and as of the Closing
Date, except that Group 1 shall be permitted to accomplish a reverse
stock split pursuant to the provisions of Section 1.1; all the terms,
covenants and conditions of this Agreement to be complied with and
performed by Group 1 on or before the Closing Date shall have been
duly complied with and performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date and signed
by the chief executive officer of Group 1 shall have been delivered to
the Company;
(b) The Stockholders shall have received an opinion from
Vinson & Elkins, L.L.P., dated as of the Closing, to the effect that
the Acquisition, the Other Acquisitions and IPO, in the aggregate,
will constitute a transaction described in Section 351 of the Code;
and
(c) A. J. Foyt, Jr. shall have received a payment of
$50,000 from Group 1 pursuant to Section 8.4 of this Agreement.
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ARTICLE VIII
EFFECTIVENESS OF REPRESENTATIONS, WARRANTIES
AND AGREEMENTS; INDEMNIFICATION; NON-COMPETITION
8.1 Effectiveness of representations, warranties and agreements.
(a) Except as set forth in Section 8.1(b) of this
Agreement, the representations, warranties and agreements of each
party hereto shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any other
party hereto, any Person controlling any such party or any of their
officers, directors, representatives or agents whether prior to or
after the execution of this Agreement.
(b) The representations, warranties and agreements in
this Agreement shall terminate at the Closing, except that the
agreements set forth in Sections 5.4, 5.7, 5.16, 5.17, 6.1, 6.4, 6.5,
8.2, 8.3, 8.4, 9.4 and 9.5 shall survive the Closing.
(c) The parties hereto agree that the sole and exclusive
remedies for breaches of this Agreement, for negligence, negligent
misrepresentation or for any tort (except for any tort based on intent
to deceive) committed in connection with the transactions described
in, or contemplated by this Agreement are those set forth in this
Agreement, and that no claim may be made by any party hereto for any
matter in connection with the transactions described in, or
contemplated by, this Agreement unless specifically set forth in this
Agreement and then only pursuant to the terms of this Agreement.
8.2 Indemnification.
(a) Group 1 agrees to indemnify and hold harmless each
Stockholder, each underwriter, each Person, if any, who controls such
Stockholder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, and the officers,
directors, agents, general and limited partners, and employees of each
Stockholder and each such controlling Person from and against any and
all losses, claims, damages, liabilities, and expenses (including
reasonable costs of investigation) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus pursuant to
which such Stockholder sells shares of Group 1 Common Stock pursuant
to an underwritten public offering or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of, or are based upon, any
such untrue statement or omission or allegation thereof based upon
information furnished in writing to Group 1 by such Stockholder or
underwriter or on such Stockholder's or underwriter's behalf expressly
for use therein.
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(b) Each Stockholder, severally and not jointly, agrees
to indemnify and hold harmless Group 1, and each Person, if any, who
controls Group 1 within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act and the officers,
directors, agents and employees of Group 1 and each such controlling
Person to the same extent as the foregoing indemnity from Group 1 to
such Stockholder, but only with respect to information furnished in
writing by such Stockholder or on such Stockholder's behalf expressly
for use in any registration statement or prospectus pursuant to which
such Stockholder sells shares of Group 1 Common Stock pursuant to an
underwritten public offering. The liability of any Stockholder under
this Section 8.2(b) shall be limited to the aggregate cash and
property received by such Stockholder pursuant to the sale of Group 1
Common Stock covered by such registration statement or prospectus.
(c) If any action or proceeding (including any
governmental investigation) shall be brought or asserted against any
Person entitled to indemnification under Section 8.2(a) or 8.2(b)
above (an "Indemnified Party") in respect of which indemnity may be
sought from any party who has agreed to provide such indemnification
under Section 8.2(a) or 8.2(b) above (an "Indemnifying Party"), the
Indemnified Party shall give prompt notice to the Indemnifying Party
and the Indemnifying Party shall assume the defense thereof, including
the employment of counsel reasonably satisfactory to such Indemnified
Party, and shall assume the payment of all reasonable expenses of such
defense. Such Indemnified Party shall have the right to employ
separate counsel in any such action or proceeding and to participate
in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party has agreed to pay such fees and expenses or (ii)
the Indemnifying Party fails promptly to assume the defense of such
action or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party or (iii) the named parties to
any such action or proceeding (including any impleaded parties)
include both such Indemnified Party and Indemnifying Party (or an
Affiliate of the Indemnifying Party), and such Indemnified Party shall
have been advised by counsel that there is a conflict of interest on
the part of counsel employed by the Indemnifying Party to represent
such Indemnified Party (in which case, if such Indemnified Party
notifies the Indemnifying Party in writing that it elects to employ
separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party).
Notwithstanding the foregoing, the Indemnifying Party shall not, in
connection with any one such action or proceeding or separate but
substantially similar related actions or proceedings in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable at any time for the fees and expenses of more
than one separate firm of attorneys (together in each case with
appropriate local counsel). The Indemnifying Party shall not be
liable for any settlement of any such action or proceeding effected
without its written consent (which consent will not be unreasonably
withheld), but if settled with its written consent, or if there be a
final judgment for the plaintiff in any such action of proceeding, the
Indemnifying Party shall indemnify and hold harmless such Indemnified
Party from and against any loss or liability (to the extent stated
above) by reason of such settlement or judgment. The Indemnifying
Party shall not consent to entry of any judgment or enter into any
settlement
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that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release, in
form and substance reasonably satisfactory to the Indemnified Party,
from all liability in respect of such action or proceeding for which
such Indemnified Party would be entitled to indemnification hereunder.
(d) If the indemnification provided for in this Section
8.2(d) is unavailable to the Indemnified Parties in respect of any
losses, claims, damages, liabilities or judgments referred to herein,
then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such losses, claims, damages,
liabilities and judgments as between Group 1 on the one hand and each
Stockholder on the other, in such proportion as is appropriate to
reflect the relative fault of the Stockholder and of each Stockholder
in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any
other relevant equitable considerations. The relative fault of Group
1 on the one hand and of each Stockholder on the other shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. Group 1 and the Stockholders agree that it would not be
just and equitable if contribution pursuant to this Section 8.2(d)
were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations
referred to in the first two sentences of this Section 8.2(d). The
amount paid or payable by an Indemnified Party as a result of the
losses, claims, damages, liabilities or judgments referred to in
Sections 8.2(a) and 8.2(b) hereof shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8.2(d), no Stockholder shall be
required to contribute any amount in excess of the amount by which the
total price at which the securities of such Stockholder were offered
to the public exceeds the amount of any damages which such Stockholder
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f)(1)
of the Securities Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
8.3 Non-Competition Obligations of Certain Stockholders.
(a) As part of the consideration for the acquisition of
the Company Common Stock, and as an additional incentive for Group 1
to enter into this Agreement, B. B. Hollingsworth and Robert L.
Struzynski (the "Designated Stockholders") and Group 1 agree to the
non- competition provisions of this Section 8.3. The Designated
Stockholders agree that during the period of the Designated
Stockholder's non-competition obligations hereunder, the Designated
Stockholders will not, directly or indirectly for the Designated
Stockholders or for others, in any geographic area or market where
Group 1 or any of its
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subsidiaries or affiliated companies are conducting any business as of
the date in question or have during the previous twelve months
conducted any business:
(i) engage in any business competitive with any
line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(ii) render advice or services to, or otherwise
assist, any other person, association, or entity who is
engaged, directly or indirectly, in any business competitive
with any line of business conducted by Group 1 or any of its
subsidiaries or affiliates;
(iii) encourage or induce any current or former
employee of Group 1 or any of its subsidiaries or affiliates
to leave the employment of Group 1 or any of its subsidiaries
or affiliates or proselytize, offer employment, retain, hire
or assist in the hiring of any such employee by any person,
association, or entity not affiliated with Group 1 or any of
its subsidiaries or affiliates; provided, however, that
nothing in this subsection (iii) shall prohibit a Designated
Stockholder from offering employment to any prior employee of
Group 1 or any of its subsidiaries or affiliates who was not
employed by Group 1 or any of its subsidiaries or affiliates
at any time in the twelve (12) months prior to the termination
of such Designated Stockholder's employment.
The non-competition obligations set forth in subsections (i)
and (ii) of this Section 8.3(a) shall apply during each Designated
Stockholder's employment and for a period of three (3) years after
termination of employment. The obligations set forth in subsection
(iii) of this Section 8.3(a) with respect to employees shall apply
during each Designated Stockholder's employment and for a period of
five (5) years after termination of employment. If Group 1 or any of
its subsidiaries or affiliates abandons a particular aspect of its
business, that is, ceases such aspect of its business with the
intention to permanently refrain from such aspect of its business,
then this post-employment non-competition covenant shall not apply to
such former aspect of that business. For purposes of this Section
8.3, an "affiliate" of Group 1 is any person who directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, Group 1.
(b) The Designated Stockholders understand that the
foregoing restrictions may limit their ability to engage in certain
businesses anywhere in the world during the period provided for above,
but acknowledge that the Designated Stockholders will receive
sufficiently high remuneration and other benefits under this Agreement
to justify such restriction. The Designated Stockholders acknowledge
that money damages would not be sufficient remedy for any breach of
this Section 8.3 by the Designated Stockholders, and Group 1 or any of
its subsidiaries or affiliates shall be entitled to enforce the
provisions of this Section 8.3 by terminating any payments then owing
to the Designated Stockholders under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any
threatened breach, without any requirement for the securing or posting
of any bond in connection with such remedies. Such remedies shall not
be deemed the
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<PAGE> 32
exclusive remedies for a breach of this Section 8.3, but shall be in
addition to all remedies available at law or in equity to Group 1 or
any of its subsidiaries or affiliates, including, without limitation,
the recovery of damages by Group 1 from the Designated Stockholders'
agents involved in such breach.
(c) It is expressly understood and agreed that Group 1
and the Designated Stockholders consider the restrictions contained in
this Section 8.3 to be reasonable and necessary to protect the
confidential and proprietary information and trade secrets of Group 1
and its subsidiaries and affiliates. Nevertheless, if any of the
aforesaid restrictions are found by a court having jurisdiction to be
unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions
therein set forth to be modified by such courts so as to be reasonable
and enforceable and, as so modified by the court, to be fully
enforced.
8.4 Non-Competition Obligations of A.J. Foyt, Jr.
A.J. Foyt, Jr. hereby agrees not to enter into a business
relationship (as a majority owner, employee, consultant or in a similar
relationship) with any franchised new car dealership located within ten (10)
miles of the Company's dealership located at 22575 Highway 59 North, Kingwood,
Texas 77339. Mr. Foyt's obligations under this Section 8.4 shall apply for a
period of five (5) years commencing with the Closing Date. In consideration of
the obligations set forth in this Section 8.4, Group 1 hereby agrees to pay to
Mr. Foyt (i) $50,000 on the Closing Date and (ii) $50,000 on each of the first,
second, third and fourth anniversaries of the Closing Date. The sole remedy for
breach of this covenant is termination of payment.
ARTICLE IX
MISCELLANEOUS
9.1 Disclosure Letter. The Stockholder Disclosure Letter,
executed by the Stockholders as of the date hereof, and delivered to Group 1 on
the date hereof, contains all disclosure required to be made by the
Stockholders under the various terms and provisions of this Agreement. Each
item of disclosure set forth in the Stockholder Disclosure Letter specifically
refers to the article and section of the Agreement to which such disclosure
responds, and shall not be deemed to be disclosed with respect to any other
article or section of the Agreement. A substantially complete draft of the
Stockholder Disclosure Letter shall have been delivered to Group 1 at least
five business days prior to the date of this Agreement.
9.2 Termination. This Agreement may be terminated and the
Acquisition and the other transactions contemplated herein may be abandoned at
any time prior to the Closing:
(a) by mutual consent of Group 1 and the Stockholders;
(b) by either Group 1 or the Stockholders if the
Acquisition and all of the Other Acquisitions have not been effected
on or before December 31, 1997;
(c) by either Group 1 or the Stockholders if a final,
unappealable order to restrain, enjoin or otherwise prevent, or
awarding substantial damages in connection with, a consummation of the
Acquisition or the other transactions contemplated hereby shall have
been entered;
(d) by Group 1 if (i) since the date of this Agreement
there has been a material adverse change in the business operations or
financial condition of the Company or (ii) there has been a material
breach of any representation or warranty set forth in this Agreement
by the Stockholders which breach has not been cured within ten
business days following receipt
27
<PAGE> 33
by the Stockholders of notice of such breach (or if such breach cannot
be cured within such time, reasonable efforts have begun to cure such
breach and such breach is then cured within 30 days after notice); or
(e) by the Stockholders if there has been a material
breach of any representation or warranty set forth in this Agreement
by Group 1 which breach has not been cured within ten business days
following receipt by Group 1 of notice of such breach (or if such
breach cannot be cured within such time, reasonable efforts have begun
to cure such breach and such breach is then cured within 30 days after
notice).
9.3 Effect of Termination. In the event of any termination of
this Agreement pursuant to Section 9.2, the Stockholders and Group 1 shall have
no obligation or liability to each other except that the provisions of Sections
5.4, 6.1, 9.3 and 9.4 shall survive any such termination.
9.4 Expenses. Regardless of whether the Acquisition is
consummated, all costs and expenses in connection with this Agreement and the
transactions contemplated hereby incurred by Group 1 shall be paid by Group 1
and all such costs and expenses incurred by the Stockholders shall be paid by
the Stockholders; subject, however, to the agreement set forth in the letter of
intent dated April 15, 1997 with respect to the funding of the expenses of
Group 1 by the Founding Companies. The Stockholders and Group 1 each represent
and warrant to each other that there is no broker or finder involved in the
transactions contemplated hereby.
9.5 Restrictions on Transfer of Group 1 Common Stock. (a) During
the two-year period ending on the second anniversary of the Closing Date (the
"Restricted Period"), no Stockholder voluntarily will (other than with respect
to the Selling Stockholder IPO Shares): (i) sell, assign, exchange, transfer,
encumber, pledge, distribute, appoint or otherwise dispose of (A) any shares of
Group 1 Common Stock received by any Stockholder in the Acquisition or (B) any
interest in (including any option to buy or sell) any of those shares of Group
1 Common Stock, in whole or in part, and Group 1 will have no obligation to,
and shall not, treat any such attempted transfer as effective for any purpose;
or (ii) engage in any transaction, whether or not with respect to any shares of
Group 1 Common Stock or any interest therein, the intent or effect of which is
to reduce the risk of owning the shares of Group 1 Common Stock acquired
pursuant to this Agreement (including for example engaging in put, call, short-
sale, straddle or similar market transactions). Notwithstanding the foregoing,
each Stockholder may (i) pledge shares of Group 1 Common Stock, provided that
the pledgee of such shares shall agree not to sell or otherwise dispose of any
such shares for the Restricted Period; (ii) transfer shares to immediate family
members or the estate of any such individual (including, without limitation,
any transfer by such Stockholder to or among any partnership, trust, custodial
or other similar accounts or funds that are for the benefit of his immediate
family members), provided that such person or entity shall agree not to sell or
otherwise dispose of (other than pursuant to this Section 9.5) any such shares
for the Restricted Period; and (iii) transfer shares by will or the laws of
descent and distribution or otherwise by reason of such Stockholder's death.
The certificates evidencing the Group 1 Common Stock delivered to each
Stockholder pursuant to this Agreement will bear a legend substantially in the
form set forth below and containing such other information as Group 1 may deem
necessary or appropriate:
28
<PAGE> 34
EXCEPT PURSUANT TO THE TERMS OF THE STOCK PURCHASE AGREEMENT AMONG THE
ISSUER, THE HOLDER OF THIS CERTIFICATE AND THE OTHER PARTIES THERETO,
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE VOLUNTARILY
SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED VOLUNTARY SALE,
ASSIGNMENT, EXCHANGE, TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION,
APPOINTMENT OR OTHER DISPOSITION OF ANY OF THOSE SHARES, DURING THE
TWO-YEAR PERIOD ENDING ON ______________ [DATE THAT IS THE SECOND-
ANNIVERSARY OF THE CLOSING DATE] (THE "RESTRICTED PERIOD"). ON THE
WRITTEN REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES
TO REMOVE THIS RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE
TRANSFER AGENT) AFTER THE DATE SPECIFIED ABOVE.
(b) Each Stockholder, severally and not jointly with any other Person,
(i) acknowledges that the shares of Group 1 Common Stock to be delivered to
that Stockholder pursuant to this Agreement (other than the Selling
Stockholder IPO Shares) have not been and, if applicable, will not be
registered under the Securities Act and therefore may not be resold by that
Stockholder without compliance with the Securities Act and (ii) covenants that
none of the shares of Group 1 Common Stock issued to that Stockholder pursuant
to this Agreement will be offered, sold, assigned, pledged, hypothecated,
transferred or otherwise disposed of except after full compliance with all the
applicable provisions of the Securities Act and the rules and regulations of
the Commission and applicable state securities laws and regulations. All
certificates evidencing shares of Group 1 Common Stock issued pursuant to this
Agreement will bear the following legend in addition to the legend prescribed
by Section 9.5(a):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT
BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT, OR SUCH
STATE LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED."
In addition, certificates evidencing shares of Group 1 Common Stock issued
pursuant to the Acquisition to each Stockholder will bear any legend required
by the securities or blue sky laws of the state in which that Stockholder
resides.
9.6 Respecting the IPO. Each of the Stockholders acknowledges and
agrees that: (a) no firm commitment, binding agreement or promise or other
assurance of any kind, whether express or implied, oral or written, exists at
the date hereof that the Registration Statement will become effective or that
the IPO will occur at a particular price or within a particular range of prices
or occur at all; (b) neither Group 1 or any of its representatives nor any
prospective underwriters in the IPO will have any liability to the Stockholders
or any of their respective affiliates or associates for any failure of (i) the
Registration
29
<PAGE> 35
Statement to become effective (provided, however, that Group 1 will use its
reasonable best efforts to cause the Registration Statement to become effective
prior to December 31, 1997) or (ii) the IPO to occur at a particular price or
within a particular range of prices or to occur at all; and (c) the decision of
Stockholders to enter into this Agreement, has been or will be made independent
of, and without reliance on, any statements, opinions or other communications
of, or due diligence investigations that have been or will be made or performed
by, any prospective underwriter relative to Group 1 or the IPO. The
Underwriters shall have no obligation to any of the Stockholders with respect
to any disclosure contained in the Registration Statement.
9.7 Waiver and Amendment. Any provision of this Agreement may be
waived at any time by the party that is, or whose stockholders are, entitled to
the benefits thereof. This Agreement may not be amended or supplemented at any
time, except by an instrument in writing signed on behalf of each party hereto,
only as may be permitted by applicable provisions of the Delaware General
Corporation Law or the Texas Business Corporation Act. The waiver by any party
hereto of any condition or of a breach of another provision of this Agreement
shall not operate or be construed as a waiver of any other condition or
subsequent breach. The waiver by any party hereto of any of the conditions
precedent to its obligations under this Agreement shall not preclude it from
seeking redress for breach of this Agreement other than with respect to the
condition so waived. Notwithstanding the above, no provision of this Agreement
may be waived nor may this Agreement be amended after the Registration
Statement has been filed with the SEC in accordance with the Securities Act
unless, in the opinion of counsel to Group 1, such waiver or amendment will not
result in the issuance of Group 1 Common Stock pursuant to the Acquisition
being integrated (under United States securities laws) with the IPO.
9.8 Public Statements. The Stockholders and Group 1 agree to
consult with each other prior to issuing any press release or otherwise making
any public statement with respect to the transactions contemplated hereby, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by law.
9.9 Assignment. This Agreement shall inure to the benefit of and
will be binding upon the parties hereto and their respective legal
representatives, successors and permitted assigns. This Agreement shall not be
assignable by the parties hereto without the written consent of the other
parties hereto.
9.10 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i)
delivered in person or by courier, (ii) sent by telecopy or facsimile
transmission, answer back requested, or (iii) mailed, by registered or
certified mail, postage prepaid, return receipt requested, to the parties
hereto at the following addresses:
30
<PAGE> 36
if to the Stockholders: 22575 Hwy. 59N
Kingwood, Texas 77339
Telecopy: (713) 358-2561
Attention: Robert L. Struzynski
950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B. B. Hollingsworth, Jr.
1000 Louisiana, Suite 3600
Houston, Texas 77002
Telecopy: (713) 652-6629
Attention: A. J. Foyt, Jr.
c/o Andrew J. Clark, III
5851 San Felipe #850
Houston, Texas 77057
Telecopy:
Attention: John H. Duncan
if to Group 1: 950 Echo Lane, Suite 350
Houston, Texas 77024
Telecopy: (713) 467-1513
Attention: B.B. Hollingsworth, Jr.
President and Chief Executive
Officer
with a copy to: Vinson & Elkins L.L.P.
2300 First City Tower
1001 Fannin Street
Houston, Texas 77002-6760
Telecopy: (713) 615-5236
Attention: John S. Watson
or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 9.10. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when
the answer back is received, or (iii) if mailed, upon the earlier of five days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor. Delivery to the Stockholders' representative, if any, of any
notice to Stockholders hereunder shall constitute delivery to all Stockholders
and any notice given by such Stockholders' representative shall be deemed to be
notice given by all Stockholders.
9.11 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, excluding any
choice of law rules that may direct the application of the laws of another
jurisdiction.
31
<PAGE> 37
9.12 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and
shall in no way be affected, impaired or invalidated unless such an
interpretation would materially alter the rights and privileges of any party
hereto or materially alter the terms of the transactions contemplated hereby.
9.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9.14 Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
9.15 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Exhibits hereto and the Stockholder Disclosure Letter,
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both oral and written, among the parties or any of them, with
respect to the subject matter hereof (except as contemplated otherwise by this
Agreement) and neither this nor any document delivered in connection with this
Agreement, confers upon any Person not a party hereto any rights or remedies
hereunder.
32
<PAGE> 38
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
GROUP 1 AUTOMOTIVE, INC.
By: /s/ B.B. Hollingsworth, Jr.
-----------------------------------------------
Name: B.B. Hollingsworth, Jr.
Title: President and Chief Executive Officer
STOCKHOLDERS
/s/ John H. Duncan
---------------------------------------------------
John H. Duncan
/s/ Jack T. Trotter
---------------------------------------------------
A. J. Foyt, Jr., by Jack T. Trotter as
Attorney-in-Fact
/s/ B.B. Hollingsworth, Jr.
---------------------------------------------------
B.B. Hollingsworth, Jr.
/s/ Robert L. Struzynski
---------------------------------------------------
Robert L. Struzynski
33
<PAGE> 39
SCHEDULE I
OTHER FOUNDING COMPANIES
Bob Howard Automotive-H, Inc.
Bob Howard Chevrolet, Inc.
Bob Howard Dodge, Inc.
Bob Howard Motors, Inc.
Courtesy Nissan, Inc.
Howard Pontiac-GMC, Inc.
Mike Smith Autoplaza, Inc.
Round Rock Nissan, Inc.
SMC Luxury Cars, Inc.
Smith, Liu & Corbin, Inc.
Smith, Liu & Kutz, Inc.
Southwest Toyota, Inc.
34
<PAGE> 40
SCHEDULE II
<TABLE>
<CAPTION>
Shares of Company Shares of Group 1 Cash
Stockholders Common Stock Common Stock(1) (2) Consideration
------------ ------------ ------------ -------------
<S> <C> <C> <C>
John H. Duncan 750 196,368
A.J. Foyt, Jr. 1,000 $3,100,000
B.B. Hollingsworth, Jr. 750 196,368
Robert L. Struzynski 256 67,116
</TABLE>
- ---------------------
(1) As may be appropriately adjusted for stock splits, reverse stock splits
and/or stock dividends. In the event that the Board of Directors of Group 1
approves a reverse stock split upon the recommendation of the Representatives
of the Underwriters in connection with the IPO, the number of shares of Group 1
Common Stock to be received by the shareholders of the Founding Companies shall
be decreased proportionately as a result of the reverse stock split; provided,
however, that in the event that the number of shares of Group 1 Common Stock
resulting from the reverse stock split recommended by the Representatives of
the Underwriters is less than the number of shares resulting from a 4.444 for 5
reverse stock split, a 4.444 for 5 reverse stock split shall be implemented and
the number of shares of Group 1 Common Stock resulting from such 4.444 for 5
reverse stock split to be received by the shareholders of the Founding
Companies shall be further decreased proportionately to the number of shares
that would have been issued to the shareholders of the Founding Companies had
the reverse stock split recommended by the Representatives of the Underwriters
been implemented. If the number of shares of Group 1 Common Stock received by
a Stockholder pursuant to this Agreement includes a fractional share as a
result of a reverse stock split affecting the Group 1 Common Stock, such
fractional share shall be rounded up to the nearest whole share of Group 1
Common Stock.
(2) The shares of Group 1 Common Stock to be issued to each of the
Stockholders as set forth on this Schedule II shall be increased proportionately
as a result of the release from escrow of 592,303 shares of Group 1 Common Stock
issued to Robert E. Howard II that shall be distributed to the Stockholders as
result of the failure of Howard Pontiac-GMC, Inc. and Group 1 to acquire the
Chevrolet dealership in Tulsa, Oklahoma, all in accordance with the provisions
of the Stock Purchase Agreement among Group 1, Howard Pontiac-GMC, Inc. and the
stockholders of Howard Pontiac-GMC, Inc. dated as of June 14, 1997.
35
<PAGE> 41
EXHIBIT A
[FOUNDERS EMPLOYMENT AGREEMENT]
36
<PAGE> 42
EXHIBIT B
[GM EMPLOYMENT AGREEMENT]
37
<PAGE> 43
EXHIBIT C
[STOCKHOLDERS AGREEMENT]
38
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
STERLING AUTOMOTIVE GROUP, INC.
FIRST: The name of the Corporation is Group 1 Automotive, Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of the registered agent of the Corporation at such address
is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted by the Corporation is to engage in any lawful business, act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is 51,000,000 shares, consisting of
1,000,000 shares of Preferred Stock of the par value of $.01 per share and
50,000,000 shares of Common Stock of the par value of $.01 per share.
The following is a statement fixing certain of the designations and
powers, voting powers, preferences, and relative, participating, optional or
other rights of the Preferred Stock and the Common Stock of the Corporation,
and the qualifications, limitations or restrictions thereof, and the authority
with respect thereto expressly granted to the Board of Directors of the
Corporation to fix any such provisions not fixed by this Certificate of
Incorporation:
I. Preferred Stock
The Board of Directors is hereby expressly vested with the authority
to adopt a resolution or resolutions providing for the issuance of authorized
but unissued shares of Preferred Stock, which shares may be issued from time to
time in one or more series and in such amounts as may be determined by the
Board of Directors in such resolution or resolutions. The powers, voting
powers, designations, preferences, and relative, participating, optional or
other rights, if any, of each series of Preferred Stock and the qualifications,
limitations or restrictions, if any, of such preferences and/or rights
(collectively the "Series Terms"), shall be such as are stated and expressed in
a resolution or resolutions providing for the creation or revision of such
Series Terms (a "Preferred Stock Series Resolution") adopted by the Board of
Directors (or a committee of the Board of Directors to which such
responsibility is specifically and lawfully delegated). The powers of the
Board with respect to the Series Terms of a particular series shall include,
but not be limited to, determination of the following:
<PAGE> 2
(a) The number of shares constituting that series and the
distinctive designation of that series, or any increase or decrease
(but not below the number of shares thereof then outstanding) in such
number;
(b) The dividend rate or method of determining dividends on
the shares of that series, any conditions upon which such dividends
shall be payable, and the date or dates or the method for determining
the date or dates upon which such dividends shall be payable, whether
such dividends, if any, shall be cumulative, and, if so, the date or
dates from which dividends payable on such shares shall accumulate,
and the relative rights of priority, if any, of payment of dividends
on shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion or exchange
privileges with respect to shares of any other class or classes of
stock or of any other series of any class of stock, and, if so, the
terms and conditions of such conversion or exchange, including
provision for adjustment of the conversion or exchange rate upon
occurrence of such events as the Board of Directors shall determine;
(e) Whether the shares of that series shall be redeemable,
and, if so, the price or prices and the terms and conditions of such
redemption, including their relative rights of priority, if any, of
redemption, the date or dates upon or after which they shall be
redeemable, provisions regarding redemption notices, and the amount
per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the
terms, conditions and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Corporation, and the relative rights of priority, if any, of
payment of shares of that series;
(h) The conditions or restrictions upon the creation of
indebtedness of the Corporation or upon the issuance of additional
Preferred Stock or other capital stock ranking on a parity therewith,
or prior thereto, with respect to dividends or distribution of assets
upon liquidation;
(i) The conditions or restrictions with respect to the
issuance of, payment of dividends upon, or the making of other
distributions to, or the acquisition or redemption of, shares ranking
junior to the Preferred Stock or to any series thereof with respect to
dividends or distribution of assets upon liquidation; and
-2-
<PAGE> 3
(j) Any other designations, powers, preferences, and rights,
including, without limitation, any qualifications, limitations, or
restrictions thereof.
Any of the Series Terms, including voting rights, of any series may be
made dependent upon facts ascertainable outside the Certificate of
Incorporation, as it may be amended and/or restated from time to time (herein
referred to as the "Certificate of Incorporation") and the Preferred Stock
Series Resolution, provided that the manner in which such facts shall operate
upon such Series Terms is clearly and expressly set forth in the Certificate of
Incorporation or in the Preferred Stock Series Resolution.
Subject to the provisions of this Article Fourth, shares of one or
more series of Preferred Stock may be authorized or issued from time to time as
shall be determined by and for such consideration as shall be fixed by the
Board of Directors (or a designated committee thereof), in an aggregate amount
not exceeding the total number of shares of Preferred Stock authorized by this
Certificate of Incorporation. The number of authorized shares of Preferred
Stock may be increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holder is
required pursuant to any Preferred Stock Series Resolution. Except in respect
of series particulars fixed by the Board of Directors as permitted hereby, all
shares of Preferred Stock shall be of equal rank and shall be identical. All
shares of any one series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that shares of any one
series issued at different times may differ as to the dates from which
dividends thereon shall be cumulative.
II. Common Stock
(a) Subject to the provisions of any Preferred Stock Series
Resolution, the Board of Directors may, in its discretion, out of
funds legally available for the payment of dividends and at such times
and in such manner as determined by the Board of Directors, declare
and pay dividends on the Common Stock of the Corporation. No dividend
shall be declared or paid on any share or shares of any class of stock
or series thereof ranking on a parity with the Common Stock in respect
of payment of dividends for any dividend period unless there shall
have been declared, for the same dividend period, like proportionate
dividends on all shares of Common Stock then outstanding.
(b) In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, after payment
or provision for payment of the debts and other liabilities of the
Corporation and payment or setting aside for payment of any
preferential amount due to the holders of any other class or series of
stock, the holders of the Common Stock shall be entitled to receive
ratably any or all assets remaining to be paid or distributed.
(c) Subject to any special voting rights set forth in any
Preferred Stock Series Resolution, the holders of the Common Stock of
the Corporation shall be entitled at all meetings of stockholders to
one vote for each share of such stock held by them. Except as may be
provided in a Preferred Stock Series Resolution, the Common Stock
shall have the
-3-
<PAGE> 4
exclusive right to vote for the election of directors and for all
other purposes, and holders of Preferred Stock shall not be entitled
to receive notice of any meeting of stockholders at which they are not
entitled to vote.
III. Prior, Parity or Junior Stock
Whenever reference is made in this Article Fourth to shares "ranking
prior to" another class of stock or "on a parity with" another class of stock,
such reference shall mean and include all other shares of the Corporation in
respect of which the rights of the holders thereof as to the payment of
dividends or as to distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation are
given preference over, or rank on an equality with, respectively, the rights of
the holders of such other class of stock. Whenever reference is made to shares
"ranking junior to" another class of stock, such reference shall mean and
include all shares of the Corporation in respect of which the rights of the
holders thereof as to the payment of dividends and as to distributions in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation are junior and subordinate to the rights of the
holders of such other class of stock.
Except as otherwise provided herein or in any Preferred Stock Series
Resolution, each series of Preferred Stock ranks on a parity with each other
and each ranks prior to Common Stock.
Common Stock ranks junior to Preferred Stock.
IV. Liquidation Notices
Written notice of any voluntary or involuntary dissolution,
liquidation or winding up of the affairs of the Corporation, stating payment
date and the place where the distributable amounts shall be payable, shall be
given by mail, postage prepaid, not less than thirty (30) days prior to the
payment date stated therein, to the holders of record of the Preferred Stock,
if any, at their respective addresses as the same shall appear on the books of
the Corporation.
V. Reservation and Retirement of Shares
The Corporation shall at all times reserve and keep available, out of
its authorized but unissued shares of Common Stock or out of shares of Common
Stock held in its treasury, the full number of shares of Common Stock into
which any series of Preferred Stock having conversion privileges from time to
time outstanding are convertible.
Unless otherwise provided in a Preferred Stock Series Resolution with
respect to a particular series of Preferred Stock, all shares of Preferred
Stock redeemed or acquired by the Corporation (as a result of conversion or
otherwise) shall be retired and restored to the status of authorized but
unissued shares.
-4-
<PAGE> 5
VI. No Preemptive Rights
No holder of shares of stock of the Corporation shall have any
preemptive or other rights, except as such rights are expressly provided by
contract, to purchase or subscribe for or receive any shares of any class, or
series thereof, of stock of the Corporation, whether now or hereafter
authorized, or any warrants, options, bonds, debentures or other securities
convertible into, exchangeable for or carrying any right to purchase any shares
of any class, or series thereof, of stock; but such additional shares of stock
and such warrants, options, bonds, debentures or other securities convertible
into, exchangeable for or carrying any right to purchase any shares of any
class, or series thereof, of stock may be issued or disposed of by the Board of
Directors to such persons, and on such terms and for such lawful consideration,
as in its discretion it shall deem advisable or as to which the Corporation
shall have by binding contract agreed.
VII. Registered Owner
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable law.
FIFTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
I. Directors
The directors of the Corporation shall initially be divided into three
classes. The classes, names and mailing addresses of the persons who are to
serve as directors of the Corporation until their successors are elected and
qualified are as follows:
<TABLE>
<CAPTION>
Class Name Mailing Address
----- ---- ---------------
<S> <C> <C>
Class I James M. Kline 1350 Connecticut Ave. NW, Suite 1225
Washington, D.C. 20036
Class II Sterling B. McCall, Jr. 9400 Southwest Freeway
Houston, Texas 77024
Class III Charles M. Smith 10455 Southwest Freeway
Houston, Texas 77074
Class I B. B. Hollingsworth, Jr. 950 Echo Lane, Suite 350
Houston, Texas 77024
</TABLE>
Subject to the rights of the holders of any series of Preferred Stock
or any other series or class of stock, as provided herein or in any Preferred
Stock Series Resolution, to elect additional directors
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<PAGE> 6
under specific circumstances, the number of directors of the Corporation
shall be fixed from time to time exclusively by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of directors
then serving on the Board of Directors (including for this purpose in such
total any vacancies), but in no event shall the number of directors be fixed
at less than three. Election of directors need not be by written ballot unless
the By-laws so provide.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock, as
provided herein or in any Preferred Stock Series Resolution, shall be divided
into three classes, as nearly equal in number as possible. One class of
directors (which shall be designated Class I) shall be initially elected for a
term expiring at the annual meeting of stockholders to be held in 1997, another
class (which shall be designated Class II) shall be initially elected for a
term expiring at the annual meeting of stockholders to be held in 1998, and
another class (which shall be designated Class III) shall be initially elected
for a term expiring at the annual meeting of stockholders to be held in 1999.
Members of each class shall hold office until their successors are elected and
qualified. At each succeeding annual meeting of the stockholders of the
Corporation, the successor or successors of the class of directors whose term
expires at that meeting shall be elected by a plurality vote of all votes cast
of each class or series of stock entitled to vote in the election of directors,
if any such class or series is entitled to vote separately as a class, at such
meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Subject to the rights of the holders of any series of Preferred Stock
or any other series or class of stock, as provided herein or in any Preferred
Stock Series Resolution, to elect directors under specific circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least 80% of the voting power of the
then outstanding capital stock of the Corporation entitled to vote generally in
the election of directors (the "Voting Stock"), voting together as a single
class.
II. Power to Amend By-laws
The By-laws may be altered or repealed and any new By-laws may be
adopted (a) at any annual or special meeting of stockholders if notice of the
proposed alteration, repeal or adoption of the new By-law or By-laws be
contained in the notice of such annual or special meeting by the affirmative
vote of a majority of the stock issued and outstanding and entitled to vote
thereat, voting together as a single class, provided, however, that any
proposed alteration or repeal of, or the adoption of any By-law inconsistent
with, Section 1, 3 or 4 of Article III of the By-laws by the stockholders shall
require the affirmative vote of at least 80% of the stock issued and
outstanding and entitled to vote thereat, voting together as a single class, or
(b) by the affirmative vote of a majority of the members present at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, without any action on the part of the stockholders, if notice of the
proposed alteration, repeal or adoption of the new By-law or By-laws be
contained in the notice of such regular or special meeting.
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<PAGE> 7
III. Stockholders' Action -- Only by Meeting; Special Meetings
Any action required or permitted to be taken by the stockholders of
the Corporation after the date of the closing of the first public offering of
Common Stock of the Corporation registered under the Securities Act of 1933, as
amended must be taken at an annual or special meeting of such stockholders and
may not be taken by any consent in writing of such stockholders. Special
meetings of the stockholders after the date set forth in the immediately
preceding sentence for any purpose or purposes shall be called only upon a
request in writing therefor, stating the purpose or purposes thereof, delivered
to the Chairman of the Board, the President, or the Secretary, signed by a
majority of the directors, or by resolution of the Board of Directors.
SIXTH: Elimination of Certain Liability of Directors and
Indemnification.
I. Elimination of Certain Liability of Directors
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty by such director
as a director, except for liability (a) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law, (c) under Section 174 of the General Corporation Law of the
State of Delaware, or (d) for any transaction from which the director derived
an improper personal benefit. Any amendment or repeal of this Section I of this
Article Sixth shall be prospective only, and neither the amendment nor repeal
of this Section I of this Article Sixth shall eliminate or reduce the effect of
this Section I of this Article Sixth in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Section I of this Article
Sixth would accrue or arise, prior to such amendment or repeal. If the Delaware
General Corporation Law hereafter is amended to authorize corporate action
further eliminating or limiting the liability of directors, then the liability
of a director of the Corporation, in addition to the limitation on personal
liability provided herein, shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended from time to
time.
II. Indemnification and Insurance
(a) Right to Indemnification. Each person who was or is made
a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative,
is or was or has agreed to become a director or officer of the
Corporation or is or was serving or has agreed to serve at the request
of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer, or in any other capacity while
serving or having agreed to serve as a director or officer, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said Law permitted the
Corporation to provide prior to such
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<PAGE> 8
amendment), against all expense, liability and loss (including,
without limitation, attorneys' fees, judgments, fines, excise taxes
pursuant to the Employee Retirement Income Security Act of 1974 or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to serve
in the capacity which initially entitled such person to indemnity
hereunder and shall inure to the benefit of his or her heirs,
executors and administrators. The right to indemnification conferred
in this Section II of this Article Sixth shall be a contract right and
shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a
current, former or proposed director or officer in his or her capacity
as a director or officer or proposed director or officer (and not in
any other capacity in which service was or is or has been agreed to be
rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in advance of
the final disposition of a proceeding shall be made only upon delivery
to the Corporation of an undertaking, by or on behalf of such
indemnified person, to repay all amounts so advanced if it shall
ultimately be determined that such indemnified person is not entitled
to be indemnified under this Section II or otherwise. The Corporation
may, by action of its Board of Directors, provide indemnification to
employees and agents of the Corporation, individually or as a group,
with the same scope and effect as the foregoing indemnification of
directors and officers.
(b) Right of Claimant to Bring Suit. If a written claim from
or on behalf of an indemnified party under paragraph (a) of this
Section II is not paid in full by the Corporation within thirty days
after such written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation
to recover the unpaid amount of the claim and, if successful in whole
or in part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred
in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct
which makes it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because
he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal
counsel or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the advancement and payment of expenses conferred in this Section
II shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this
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<PAGE> 9
Certificate of Incorporation, by-law, agreement, vote of stockholders
or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any person who is or was serving as 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, including service with respect to employee
benefit plans, against any expense, liability or loss, whether or not
the Corporation would have the power to indemnify such person against
such expense, liability or loss under the Delaware General Corporation
Law.
(e) Savings Clause. If this Section II or any portion hereof
shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify and
hold harmless each director and officer of the Corporation, as to
costs, charges and expenses (including attorneys' fees), judgments,
fines, and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or
investigative to the full extent permitted by any applicable portion
of this Section II that shall not have been invalidated and to the
fullest extent permitted by applicable law.
(f) Definitions. For purposes of this Section II, references
to the "Corporation" shall include, in addition to the Corporation,
any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger prior to (or, in
the case of an entity specifically designated in a resolution of the
Board of Directors, after) the adoption hereof and which, if its
separate existence had continued, would have had the power and
authority to indemnify its directors, officers and employees or
agents, so that any person who is or was a director, officer, employee
or agent of such 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 Section II with respect to the resulting or
surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
SEVENTH: The Corporation reserves the right to amend, change, or
repeal any provision contained in the Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors, and officers are subject to this reserved
power. Notwithstanding anything contained in this Certificate of Incorporation
to the contrary, the affirmative vote of the holders of at least 80% of the
voting power of the then outstanding Voting Stock, voting together as a single
class, shall be required to amend or repeal Article Fifth or adopt any
provision inconsistent therewith or to amend or repeal this Article Seventh or
adopt any provision inconsistent herewith.
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<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
GROUP 1 AUTOMOTIVE, INC.
------------------
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. - The principal office shall be
established and maintained at the office of The Corporation Trust Company, in
the City of Wilmington, in the County of New Castle, in the State of Delaware,
and said corporation shall be the resident agent of this Corporation in charge
thereof.
SECTION 2. OTHER OFFICES. - The Corporation may have other
offices, either within or outside of the State of Delaware, at such place or
places as the Board of Directors may from time to time designate or the
business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. PLACE OF MEETINGS. - The annual meeting and all other
meetings of the stockholders shall be held at such place within or without the
State of Delaware as shall be fixed by resolution of the Board of Directors and
stated in the notice of such meeting or waiver thereof.
SECTION 2. ANNUAL ELECTION OF DIRECTORS. - The annual meeting of
stockholders for the election of directors and the transaction of other
business shall be held in each year commencing after December 31, 1996, on such
date and at such time as may be fixed by resolution of the Board of Directors.
SECTION 3. VOTING. - All elections of directors shall be decided
by plurality votes. All other questions submitted to the stockholders shall be
decided by the affirmative vote of a majority of the votes cast with respect
thereto, except as otherwise provided by the Certificate of Incorporation,
these By-laws or the General Corporation Law of the State of Delaware (the
"DGCL").
SECTION 4. QUORUM. - Except as otherwise required by law, by the
Certificate of Incorporation or by these By-laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the Corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite
<PAGE> 2
amount of stock entitled to vote shall be present. At any such adjourned
meeting at which the requisite amount of stock entitled to vote shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed, but only those stockholders entitled to vote
at the meeting as originally noticed shall be entitled to vote at any
adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. - Special meetings of the
stockholders for any purpose or purposes shall be called only upon a request in
writing therefor, stating the purpose or purposes thereof, delivered to the
Chairman of the Board, the President, or the Secretary, signed by a majority of
the directors, or by resolution of the Board of Directors. No business other
than that stated in the notice shall be transacted at any special meeting.
SECTION 6. NOTICE OF MEETINGS. - Written or printed notice,
stating the place and time of any meeting of the stockholders of the
Corporation and the general nature of the business to be considered, shall be
given by the Secretary to each stockholder entitled to vote thereat, at such
stockholder's address as it appears on the stock transfer books of the
Corporation, at least ten days but not more than 60 days before the meeting.
SECTION 7. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders (a) pursuant to the Corporation's notice of meeting, (b) by or
at the direction of the Board of Directors or (c) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of notice
provided for in this By-law, who is entitled to vote at such meeting and who
complies with the notice procedures set forth in this By-law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A)(1) of Section 7 of this By-law, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder action. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 70th day, nor earlier than the close of business on the 90th
day, prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event that the date of the annual meeting is
more than 20 days before or more than 70 days after such anniversary date,
notice by the stockholder to be timely must be so delivered not earlier than
the close of business on the 90th day prior to such annual meeting and not
later than the close of business on the later of the 70th day prior to such
annual meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made by the Corporation. In no event
shall the public announcement of an adjournment of an annual meeting commence a
new time period for the giving of a stockholder's notice as described above.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or
is otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as
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<PAGE> 3
amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name and
address of such stockholder, as they appear on the Corporation's books, and of
such beneficial owner and (ii) the class or series and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph
(A)(2) of Section 7 of this By-law to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the Corporation
is increased and there is no public announcement by the Corporation naming all
of the nominees for director or specifying the size of the increased Board of
Directors at least 80 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this By-law shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary
at the principal executive offices of the Corporation not later than the close
of business on the 10th day following the day on which such public announcement
of the increased Board is first made by the Corporation.
(B) Special Meetings of Stockholders. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons for election to the Board of Directors may be made at a
special meeting of stockholders at which directors are to be elected pursuant
to the Corporation's notice of meeting (a) by or at the direction of the Board
of Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this By-law, who shall be entitled to vote at the meeting and
who complies with the notice procedures set forth in this By-law. In the event
the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by paragraph (A)(2) of this By-law shall be
delivered to the Secretary at the principal executive offices of the
Corporation not earlier than the close of business on the 90th day prior to
such special meeting and not later than the close of business on the later of
the 70th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board of Directors to be elected at such
meeting. In no event shall the public announcement of an adjournment of a
special meeting commence a new time period for the giving of a stockholder's
notice as described above.
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this By-law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this By-law. Except as otherwise provided by law,
the Certificate of Incorporation or these By-laws, the chairman of the meeting
shall have the power and
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<PAGE> 4
duty to determine whether a nomination or any business proposed to be brought
before the meeting was made or proposed, as the case may be, in accordance with
the procedures set forth in this By-law and, if any proposed nomination or
business is not in compliance with this By-law, to declare that such defective
proposal or nomination shall be disregarded.
(2) For purposes of this By-law, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this By-law. Nothing in this By-law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 8. NO STOCKHOLDER ACTION BY WRITTEN CONSENT. - Any
action required or permitted to be taken by the stockholders of the Corporation
after the date of the closing of the first public offering of Common Stock of
the Corporation registered under the Securities Act of 1933, as amended must be
taken at an annual or special meeting of such stockholders and may not be taken
by any consent in writing of such stockholders.
SECTION 9. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE
POLLS. - The Board of Directors by resolution shall appoint, or authorize an
officer of the Corporation to appoint, one or more inspectors, which inspector
or inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents, or
representatives of the Corporation, to act at any meeting of the stockholders
and make a written report thereof. One or more persons may be designated as
alternate inspector(s) to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act, or if all inspectors or
alternates who have been appointed are unable to act, at a meeting of
stockholders, the chairman of the meeting shall appoint one or more inspectors
to act at the meeting. Each inspector, before discharging his or her duties,
shall taken and sign an oath faithfully to execute the duties of inspector with
strict impartiality and according to the best of his or her ability. The
inspector(s) shall have the duties prescribed by the DGCL.
The chairman or the secretary of the meeting shall fix and announce at
the meeting the date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at the meeting.
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<PAGE> 5
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - Subject to the rights of the
holders of any series of Preferred Stock or any other series or class of stock
to elect additional directors under specific circumstances, the number of
directors of the Corporation shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
total number of directors then serving on the Board of Directors (including for
this purpose in such total any vacancies), but in no event shall the number of
directors be fixed at less than three.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock, shall be
divided into three classes, as nearly equal in number as possible. One class
of directors (which shall be designated Class I) shall be initially elected for
a term expiring at the annual meeting of stockholders to be held in 1997,
another class (which shall be designated Class II) shall be initially elected
for a term expiring at the annual meeting of stockholders to be held in 1998,
and another class (which shall be designated Class III) shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1999. Members of each class shall hold office until their successors are
elected and qualified. At each succeeding annual meeting of the stockholders
of the Corporation, the successor or successors of the class of directors whose
term expires at that meeting shall be elected by a plurality vote of all votes
cast of each class or series of stock entitled to vote in the election of
directors, if any such class or series is entitled to vote separately as a
class, at such meeting to hold office for a term expiring at the annual meeting
of stockholders held in the third year following the year of their election.
SECTION 2. RESIGNATION. - Any member of the Board of Directors
or of any committee thereof may resign at any time. Such resignation shall be
made in writing and shall take effect at the time specified therein, and if no
time be specified, at the time of its receipt by the Chairman of the Board or
the Secretary. The acceptance of a resignation shall not be necessary to make
it effective.
SECTION 3. VACANCIES. - Subject to the rights of the holders of
any series of Preferred Stock or any other series or class of stock to elect
directors under specified circumstances, and unless the Board of Directors
otherwise determines, vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created
directorships resulting from any increase in the authorized number of
directors, may be filled only by the affirmative vote of a majority of the
remaining directors, even if less than a quorum of the Board of Directors.
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have
been elected expires and until such directors' successors shall have been duly
elected and qualified. No decrease in the number of authorized directors shall
shorten the term of any incumbent director.
SECTION 4. REMOVAL. - Subject to the rights of the holders of
any series of Preferred Stock or any other series or class of stock to elect
directors under specific circumstances, any director may be removed from office
at any time, but only for cause and only by the affirmative vote of the holders
of at least 80 percent of the voting power of the then outstanding capital
stock of the
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<PAGE> 6
Corporation entitled to vote generally in the election of directors (the
"Voting Stock"), voting together as a single class.
SECTION 5. POWERS. - The Board of Directors shall exercise all
of the powers of the Corporation except such as are by law, by the Certificate
of Incorporation of the Corporation, or by these By-laws conferred upon or
reserved to the stockholders.
SECTION 6. COMMITTEES. - The Board of Directors may by
resolution or resolutions, passed by a majority of the whole Board, designate
one or more committees, each committee to consist of two or more of the
directors of the Corporation which, to the extent provided in said resolution
or resolutions or in these By-laws, shall have and may exercise the powers of
the Board of Directors in the management of the business and affairs of the
Corporation and may have power to authorize the seal of the Corporation to be
affixed to all papers which may require it. In addition to the regular members
of each committee, the Board may designate one or more alternate members who
may replace any absent or disqualified member at any meeting of the committee.
In the event of the absence or disqualification of any member of such
committee, or committees, at a time when the Board is not in session, the
members of the committee present at any meeting and not disqualified from
voting, whether or not he, she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. Such committee or committees
shall have such name or names as may be stated in these By-laws or as may be
determined from time to time by resolution adopted by the Board of Directors.
The chairman of each such committee, unless otherwise provided by the Board of
Directors in such resolution or resolutions designating such committee, shall
be elected by a majority of the members of each such committee and whenever any
change shall be made in the membership of any such committee, a new chairman
shall be elected in the same manner. The committees shall keep regular minutes
of their proceedings and report the same to the Board when required.
SECTION 7. MEETINGS. - After each annual meeting of
stockholders, the newly elected directors may hold their first meeting for the
purpose of organization and the transaction of business, if a quorum be
present, immediately after such annual meeting of the stockholders, or the time
and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by the Board of
Directors.
Special meetings of the Board may be called (i) by the Chairman of the
Board, (ii) by the President, or (iii) by the Secretary on the written request
of the Chairman of the Board or directors constituting a majority of the Board
upon notice to each director and shall be held at such places and time as shall
be determined by the directors, or as shall be stated in the call of the
meeting.
Members of the Board of Directors or any committee designated by such
Board may, with the consent of the Chairman of the Board or the President,
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
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Any action required or permitted to be taken at any meeting of the
Board of Directors or any committee thereof may be taken without a meeting if
all the members of the Board or committee, as the case may be, consent thereto
in writing, and the writings are filed with the minutes of proceedings of the
Board or committee.
SECTION 8. QUORUM. - A majority of the whole Board of Directors
shall constitute a quorum for the transaction of business. If at any meeting
of the Board there shall be less than a quorum present, a majority of those
present may adjourn the meeting from time to time until a quorum is obtained,
and no further notice thereof need be given other than by announcement at the
meeting which shall be so adjourned.
SECTION 9. COMPENSATION. - Directors shall not receive any
stated salary for their services as directors or as members of committees, but
by resolution of the Board a fixed annual fee and a fixed fee for attendance at
each meeting of the Board or any committee thereof shall be established. In
addition, a fixed annual or other fee may be paid for specified services to the
Board, including service as chairman of a committee of the Board. Expenses of
attendance at any such meeting may be reimbursed. Nothing herein contained
shall be construed to preclude any director from serving the Corporation in any
other capacity, whether as an officer, agent or otherwise, and receiving
compensation therefor.
SECTION 10. ADVISORY DIRECTORS. - The Board of Directors may
elect one or more advisory directors who shall have such powers and shall
perform such duties as the directors shall assign to them. Advisory directors
shall, upon election, serve until the next annual meeting of stockholders.
Advisory directors shall receive notices of all meetings of the Board
of Directors in the same manner and at the same time as the directors. They
shall attend said meetings referred to in said notices in an advisory capacity,
but will not cast a vote or be counted to determine a quorum. Any advisory
directors may be removed either with or without cause, by a majority of the
directors at the time in office, at any regular or special meeting of the Board
of Directors.
Advisory directors shall not receive any stated salary for their
services as advisory directors, but by resolution of the Board of Directors a
fixed annual fee and a fixed fee for attendance at each meeting of the Board or
any committee thereof shall be established. Expenses of attendance at any such
meeting may be reimbursed. Nothing herein contained shall be construed to
preclude any advisory director from serving the Corporation in any other
capacity, whether as an officer, agent or otherwise, and receiving compensation
therefor.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the Corporation shall
consist of a Chairman of the Board, a Chief Executive Officer, a Secretary, a
Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a President, one or more Chief Operating Officers, one or more Vice
Presidents (one or more of whom may be designated Executive or Senior Vice
President), one or more Assistant Secretaries, and one or more Assistant
Treasurers. Except as may
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otherwise be provided in the resolution of the Board of Directors choosing him
or her, no officer other than the Chairman of the Board need be a director.
Except as may be limited by law, any number of offices may be held by the same
person, as the directors may determine.
Unless otherwise provided for in the resolution choosing him or her,
each officer shall be chosen for a term that shall continue until the meeting
of the Board of Directors following the next annual meeting of stockholders and
until his or her successor shall have been chosen and qualified.
All officers of the Corporation shall have authority and perform such
duties as shall be prescribed in the By-laws or in the resolutions of the Board
of Directors designating and choosing such officers and shall have such
additional authority and duties as are incident to their office except to the
extent that the By-laws or such resolutions may be inconsistent therewith. Any
officer may be removed, with or without cause, by the Board of Directors. Any
vacancy in any office may be filled by the Board of Directors.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors
may appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
The Chief Executive Officer may appoint key executives to the position of staff
vice president. Such staff vice presidents shall not be corporate officers and
shall exercise such powers and perform such duties as are assigned to them by
the Chief Executive Officer or the President, if any, or by any other officer
of the Corporation designated for such purpose by the Chief Executive Officer
or President.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - Certificates of stock,
numbered and with the seal of the Corporation affixed, signed by the Chairman
of the Board of Directors, the President or any Vice President, and the
Treasurer or any Assistant Treasurer, or Secretary or an Assistant Secretary,
shall be issued to each stockholder certifying the number of shares owned by
such stockholder in the Corporation. When such certificates are signed by
either (1) a transfer agent other than the Corporation or its employee or (2) a
registrar other than the Corporation or its employee, the signatures of such
officers of the Corporation may be facsimiles.
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may
be issued in the place of any certificate theretofore issued by the
Corporation, alleged to have been lost or destroyed, and the directors may, in
their discretion, require the owner of the lost or destroyed certificate, or
such owner's legal representative, to give the Corporation a bond, in such sum
as they may direct to indemnify the Corporation against any claim that may be
made against it on account of the alleged loss of any such certificate or the
issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. - Upon surrender to the
Corporation of a certificate for shares, properly endorsed, the Corporation
shall, subject to applicable law, issue a new certificate to the transferee,
cancel the old certificate, and record the transaction on its books. The
person in whose name shares of stock stand on the books of the Corporation
shall be deemed by the
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Corporation to be the owner thereof for all purposes, and the Corporation shall
not be bound to recognize any equitable or other claim thereto on the part of
any other person.
SECTION 4. REGULATIONS. - The Board of Directors may make such
rules and regulations as it may deem expedient concerning the issue, transfer,
and registration of certificates of stock of the Corporation.
SECTION 5. RECORD DATE. - The Board of Directors may fix in
advance a date, not more than 60 days nor less than 10 preceding any action,
including, without limitation, the date of the payment of any dividend or the
date of the allotment of rights or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of, or to vote at, any
meeting of stockholders with respect thereto, or entitled to receive payment of
any such dividend or to any such allotment of rights or to exercise the rights
in respect of any such change, conversion or exchange of capital stock, or for
the purpose of any lawful action, and in such case such stockholders only as
shall be stockholders of record on the date so fixed shall be entitled to such
notice of, or to vote at, such meeting, or to receive payment of such dividend
or to receive such allotment of rights or to exercise such rights as the case
may be, notwithstanding any transfer of any stock on the books of the
Corporation after any such record date fixed as aforesaid.
SECTION 6. DIVIDENDS. - Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, in its discretion,
out of funds legally available for the payment of dividends and at such times
and in such manner as determined by the Board of Directors, declare and pay
dividends upon the capital stock of the Corporation. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund for meeting
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the Corporation.
SECTION 7. SEAL. - The corporation seal shall be circular in
form and shall contain the name of the Corporation, the year of its creation
and the words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it
or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 8. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is
required by these By-laws to be given, personal notice is not required unless
expressly so stated, and unless so stated such notice so required shall be
deemed to be sufficient if given by depositing the same in a post office box in
a sealed post-paid wrapper or by transmittal by telex or facsimile, addressed
to the person entitled thereto at his or her last known post office address or
telex or facsimile number, and such notice shall be deemed to have been given
on the day and at the time of such mailing or transmission. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by law.
Whenever any notice is required to be given under the provisions of
any law, or under the provisions of the Certificate of Incorporation of the
Corporation or these By-laws, waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
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therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a 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.
ARTICLE VI
AMENDMENTS
These By-laws may be altered or repealed and new By-laws may be
adopted (1) at any annual or special meeting of stockholders if notice of the
proposed alteration, repeal or adoption of the new By-law or By-laws be
contained in the notice of such annual or special meeting by the affirmative
vote of a majority of the stock issued and outstanding and entitled to vote
thereat, voting together as a single class, provided, however, that any
proposed alteration or repeal of, or the adoption of any By-law inconsistent
with, Section 1, 3 or 4 of Article III hereof by the stockholders shall require
the affirmative vote of at least 80% of the stock issued and outstanding and
entitled to vote thereat, voting together as a single class, or (2) by the
affirmative vote of a majority of the members present at any regular meeting of
the Board of Directors, or at any special meeting of the Board of Directors,
without any action on the part of the stockholders, if notice of the proposed
alteration, repeal or adoption of the new By-law or By-laws be contained in the
notice of such regular or special meeting.
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EXHIBIT 10.7
STERLING AUTOMOTIVE GROUP, INC.
1996 STOCK INCENTIVE PLAN
I. PURPOSE
The purpose of the STERLING AUTOMOTIVE GROUP, INC. 1996 STOCK
INCENTIVE PLAN (the "Plan") is to provide a means through which STERLING
AUTOMOTIVE GROUP, INC., a Delaware corporation (the "Company"), and its
subsidiaries may attract able persons to serve as directors, consultants, or
advisors or to enter the employ of the Company and to provide a means whereby
those individuals upon whom the responsibilities of the successful
administration and management of the Company rest, and whose present and
potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company. A further purpose of the Plan is to provide such
individuals with additional incentive and reward opportunities designed to
enhance the profitable growth of the Company. Accordingly, the Plan provides
for granting Incentive Stock Options, options that do not constitute Incentive
Stock Options, Restricted Stock Awards, or any combination of the foregoing, as
is best suited to the circumstances of the particular employee, consultant,
advisor, or director as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "AWARD" means, individually or collectively, any Option or
Restricted Stock Award.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
(d) "COMMITTEE" means the Board of Directors or a committee of the
Board that is selected by the Board as provided in Paragraph IV(a).
(e) "COMMON STOCK" means the common stock, par value $0.01 per
share, of the Company.
(f) "COMPANY" means Sterling Automotive Group, Inc., a Delaware
corporation.
(g) "CONSULTANT" means any person who is not an employee and who
is providing advisory or consulting services to the Company or any parent or
subsidiary corporation (as defined in section 424 of the Code).
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(h) "DIRECTOR" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(i) An "EMPLOYEE" means any person (including a Director) in an
employment relationship with the Company or any parent or subsidiary
corporation (as defined in section 424 of the Code).
(j) "FAIR MARKET VALUE" means, as of any specified date, the mean
of the high and low sales prices of the Common Stock (i) reported by the
National Market System of NASDAQ on that date or (ii) if the Common Stock is
listed on a national stock exchange, reported on the stock exchange composite
tape on that date; or, in either case, if no prices are reported on that date,
on the last preceding date on which such prices of the Common Stock are so
reported. If the Common Stock is traded over the counter at the time a
determination of its fair market value is required to be made hereunder, its
fair market value shall be deemed to be equal to the average between the
reported high and low or closing bid and asked prices of Common Stock on the
most recent date on which Common Stock was publicly traded. In the event
Common Stock is not publicly traded at the time a determination of its value is
required to be made hereunder, the determination of its fair market value shall
be made by the Committee in such manner as it deems appropriate.
Notwithstanding the foregoing, the Fair Market Value of a share of Common Stock
on the date of an initial public offering of Common Stock shall be the offering
price under such initial public offering.
(k) "HOLDER" means an employee, Consultant, or Director who has
been granted an Award.
(l) "INCENTIVE STOCK OPTION" means an incentive stock option
within the meaning of section 422 of the Code.
(m) "1934 ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "OPTION" means an Award granted under Paragraph VII of the
Plan and includes both Incentive Stock Options to purchase Common Stock and
Options that do not constitute Incentive Stock Options to purchase Common
Stock.
(o) "OPTION AGREEMENT" means a written agreement between the
Company and a Holder with respect to an Option.
(p) "PLAN" means the Sterling Automotive Group, Inc. 1996 Stock
Incentive Plan, as amended from time to time.
(q) "RESTRICTED STOCK AGREEMENT" means a written agreement between
the Company and a Holder with respect to a Restricted Stock Award.
(r) "RESTRICTED STOCK AWARD" means an Award granted under
Paragraph VIII of the Plan.
(s) "RULE 16b-3" means SEC Rule 16b-3 promulgated under the 1934
Act, as such may be amended from time to time, and any successor rule,
regulation or statute fulfilling the same or a similar function.
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(t) "STOCK APPRECIATION RIGHT" shall have the meaning assigned to
such term in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company within
twelve months thereafter. Notwithstanding any provision in the Plan, in any
Option Agreement or in any Restricted Stock Agreement, no Option shall be
exercisable and no Restricted Stock Award shall vest prior to such stockholder
approval. No further Awards may be granted under the Plan after ten years from
the date the Plan is adopted by the Board. The Plan shall remain in effect
until all Awards granted under the Plan have been satisfied or expired.
IV. ADMINISTRATION
(a) COMPOSITION OF COMMITTEE. The Plan shall be administered by
the Board of Directors or a committee of, and appointed by, the Board, which
shall be comprised solely of two or more outside Directors (within the meaning
of section 162(m) of the Code and applicable interpretive authority
thereunder).
(b) POWERS. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine which
employees, Consultants, or Directors shall receive an Award, the time or times
when such Award shall be made, whether an Incentive Stock Option or
nonqualified Option shall be granted, and the number of shares to be subject to
each Option or Restricted Stock Award. In making such determinations, the
Committee shall take into account the nature of the services rendered by the
respective employees, Consultants, or Directors, their present and potential
contribution to the Company's success and such other factors as the Committee
in its discretion shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional
powers as are delegated to it by the other provisions of the Plan. Subject to
the express provisions of the Plan, this shall include the power to construe
the Plan and the respective agreements executed hereunder, to prescribe rules
and regulations relating to the Plan, and to determine the terms, restrictions
and provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options,
and to make all other determinations necessary or advisable for administering
the Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating to an
Award in the manner and to the extent it shall deem expedient to carry it into
effect. The determinations of the Committee on the matters referred to in this
Paragraph IV shall be conclusive.
V. GRANT OF OPTIONS AND RESTRICTED STOCK AWARDS;
SHARES SUBJECT TO THE PLAN
(a) STOCK GRANT AND AWARD LIMITS. The Committee may from time to
time grant Awards to one or more employees, Consultants, or Directors
determined by it to be eligible for
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participation in the Plan in accordance with the provisions of Paragraph VI.
Subject to adjustment in the same manner as provided in Paragraph IX with
respect to shares of Common Stock subject to Options then outstanding, the
aggregate number of shares of Common Stock that may be issued under the Plan
shall not exceed 1,500,000 shares. Shares shall be deemed to have been issued
under the Plan only (i) to the extent actually issued and delivered pursuant to
an Award or (ii) to the extent an Award is settled in cash. To the extent that
an Award lapses or the rights of its Holder terminate, any shares of Common
Stock subject to such Award shall again be available for the grant of an Award
to the extent permitted under Rule 16b-3. Notwithstanding any provision in the
Plan to the contrary, the maximum number of shares of Common Stock that may be
subject to Awards granted to any one individual during any calendar year may
not exceed 500,000 shares of Common Stock (subject to adjustment in the same
manner as provided in paragraph IX with respect to shares of Common Stock
subject to Options then outstanding). The limitation set forth in the
preceding sentence shall be applied in a manner which will permit compensation
generated under the Plan to constitute "performance-based" compensation for
purposes of section 162(m) of the Code, including, without limitation, counting
against such maximum number of shares, to the extent required under section
162(m) of the Code and applicable interpretive authority thereunder, any shares
subject to Options that are canceled or repriced.
(b) STOCK OFFERED. The stock to be offered pursuant to the grant
of an Award may be authorized but unissued Common Stock or Common Stock
previously issued and outstanding and reacquired by the Company.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not
an Incentive Stock Option, a Restricted Stock Award, or any combination
thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified
by the Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be
exercisable in whole or in such installments and at such times as determined by
the Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. An Incentive
Stock Option may be granted only to an individual who is an employee at the
time the Option is granted. To the extent that the aggregate Fair Market Value
(determined at the time the respective Incentive Stock Option is granted) of
Common Stock with respect to which Incentive Stock Options granted after 1986
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the
Code, Treasury Regulations and other administrative pronouncements, which of a
Holder's Incentive Stock Options
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will not constitute Incentive Stock Options because of such limitation and
shall notify the Holder of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an individual if,
at the time the Option is granted, such individual owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the
Company or of its parent or subsidiary corporation, within the meaning of
section 422(b)(6) of the Code, unless (i) at the time such Option is granted
the option price is at least 110% of the Fair Market Value of the Common Stock
subject to the Option and (ii) such Option by its terms is not exercisable
after the expiration of five years from the date of grant. An Incentive Stock
Option shall not be transferable otherwise than by will or the laws of descent
and distribution, and shall be exercisable during the Holder's lifetime only by
such Holder or the Holder's guardian or legal representative.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect
of termination of (i) employment, (ii) the consulting or advisory relationship,
or (iii) membership on the Board, as applicable, on the exercisability of the
Option. An Option Agreement may provide for the payment of the option price,
in whole or in part, by the delivery of a number of shares of Common Stock
(plus cash if necessary) having a Fair Market Value equal to such option price.
Moreover, an Option Agreement may provide for a "cashless exercise" of the
Option by establishing procedures whereby the Holder, by a properly executed
written notice, directs (i) an immediate market sale or margin loan respecting
all or a part of the shares of Common Stock to which he is entitled upon
exercise pursuant to an extension of credit by the Company to the Holder of the
option price, (ii) the delivery of the shares of Common Stock from the Company
directly to a brokerage firm, and (iii) the delivery of the option price from
sale or margin loan proceeds from the brokerage firm directly to the Company.
Further, an Option Agreement may provide for the surrender of the right to
purchase shares under the Option in return for a payment in cash or shares of
Common Stock or a combination of cash and shares of Common Stock equal in value
to the excess of the Fair Market Value of the shares with respect to which the
right to purchase is surrendered over the option price therefor ("Stock
Appreciation Rights"), on such terms and conditions as the Committee in its
sole discretion may prescribe; provided, that with respect to Stock
Appreciation Rights granted to employees who are subject to Section 16 of the
1934 Act, except as provided in Subparagraph IX(c) hereof, the Committee shall
retain final authority (i) to determine whether a Holder shall be permitted, or
(ii) to approve an election by a Holder, to receive cash in full or partial
settlement of Stock Appreciation Rights. In the case of any such Stock
Appreciation Right that is granted in connection with an Incentive Stock
Option, such right shall be exercisable only when the Fair Market Value of the
Common Stock exceeds the price specified therefor in the Option or the portion
thereof to be surrendered. The terms and conditions of the respective Option
Agreements need not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of
Common Stock may be purchased upon exercise of an Option shall be determined by
the Committee but, subject to adjustment as provided in Paragraph IX, (i) in
the case of an Incentive Stock Option, such purchase price shall not be less
than the Fair Market Value of a share of Common Stock on the date such Option
is granted, and (ii) in the case of an Option that does not constitute an
Incentive Stock Option, such purchase price shall not be less than 80% of the
Fair Market Value of a share of Common Stock on the date such Option is
granted. The Option or portion thereof may be exercised by delivery of an
irrevocable notice
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of exercise to the Company. The purchase price of the Option or portion
thereof shall be paid in full in the manner prescribed by the Committee.
Separate stock certificates shall be issued by the Company for those shares
acquired pursuant to the exercise of an Incentive Stock Option and for those
shares acquired pursuant to the exercise of any Option that does not constitute
an Incentive Stock Option.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be
entitled to all the privileges and rights of a stockholder only with respect to
such shares of Common Stock as have been purchased under the Option and for
which certificates of stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED
BY OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted
under the Plan from time to time in substitution for stock options held by
individuals employed by corporations who become employees as a result of a
merger or consolidation of the employing corporation with the Company or any
subsidiary, or the acquisition by the Company or a subsidiary of the assets of
the employing corporation, or the acquisition by the Company or a subsidiary of
stock of the employing corporation with the result that such employing
corporation becomes a subsidiary.
VIII. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE.
Shares of Common Stock that are the subject of a Restricted Stock Award shall
be subject to restrictions on disposition by the Holder and an obligation of
the Holder to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions
shall be determined by the Committee in its sole discretion, and the Committee
may provide that the Forfeiture Restrictions shall lapse upon (i) the
attainment of one or more performance targets established by the Committee that
are based on (1) the price of a share of Common Stock, (2) the Company's
earnings per share, (3) the Company's market share, (4) the market share of a
business unit of the Company designated by the Committee, (5) the Company's
sales, (6) the sales of a business unit of the Company designated by the
Committee, or (7) the return on stockholders' equity achieved by the Company,
(ii) the Holder's continued employment with the Company or continued service as
a Consultant or Director for a specified period of time, (iii) the occurrence
of any event or the satisfaction of any other condition specified by the
Committee in its sole discretion, or (iv) a combination of any of the
foregoing. Each Restricted Stock Award may have different Forfeiture
Restrictions, in the discretion of the Committee. The Forfeiture Restrictions
applicable to a particular Restricted Stock Award shall not be changed except
as permitted by Paragraph VIII(b) or Paragraph IX.
(b) OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to
a Restricted Stock Award shall be represented by a stock certificate registered
in the name of the Holder of such Restricted Stock Award. The Holder shall
have the right to receive dividends with respect to Common Stock subject to a
Restricted Stock Award, to vote Common Stock subject thereto and to enjoy all
other stockholder rights, except that (i) the Holder shall not be entitled to
delivery of the stock certificate until the Forfeiture Restrictions have
expired, (ii) the Company shall retain custody of the stock until the
Forfeiture Restrictions have expired, (iii) the Holder may not sell, transfer,
pledge, exchange, hypothecate or otherwise dispose of the stock until the
Forfeiture Restrictions have expired, and (iv) a breach of the terms and
conditions established by the Committee pursuant to the Restricted Stock
Agreement, shall cause a forfeiture of the Restricted Stock Award. At the time
of such Award,
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the Committee may, in its sole discretion, prescribe additional terms,
conditions or restrictions relating to Restricted Stock Awards, including, but
not limited to, rules pertaining to the termination of employment or service as
a Consultant or Director (by retirement, disability, death or otherwise) of a
Holder prior to expiration of the Forfeitures Restrictions. Such additional
terms, conditions or restrictions shall be set forth in a Restricted Stock
Agreement made in conjunction with the Award.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine
the amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Holder shall not be required to make any payment for Common Stock received
pursuant to a Restricted Stock Award, except to the extent otherwise required
by law.
(d) AGREEMENTS. At the time any Award is made under this
Paragraph VIII, the Company and the Holder shall enter into a Restricted Stock
Agreement setting forth each of the matters contemplated hereby and such other
matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. RECAPITALIZATION OR REORGANIZATION
(a) The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the stockholders
of the Company to make or authorize any adjustment, recapitalization,
reorganization or other change in the Company's capital structure or its
business, any merger or consolidation of the Company, any issue of debt or
equity securities ahead of or affecting Common Stock or the rights thereof, the
dissolution or liquidation of the Company or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) The shares with respect to which Options may be granted are
shares of Common Stock as presently constituted, but if, and whenever, prior to
the expiration of an Option theretofore granted, the Company shall effect a
subdivision or consolidation of shares of Common Stock or the payment of a
stock dividend on Common Stock without receipt of consideration by the Company,
the number of shares of Common Stock with respect to which such Option may
thereafter be exercised (i) in the event of an increase in the number of
outstanding shares shall be proportionately increased, and the purchase price
per share shall be proportionately reduced, and (ii) in the event of a
reduction in the number of outstanding shares shall be proportionately reduced,
and the purchase price per share shall be proportionately increased. Any
fractional share resulting from such adjustment shall be rounded up to the next
whole share.
(c) If the Company recapitalizes, reclassifies its capital stock, or
otherwise changes its capital structure (a "recapitalization"), the number and
class of shares of Common Stock covered by an Option theretofore granted shall
be adjusted so that such Option shall thereafter cover the number and class of
shares of stock and securities to which the Holder would have been entitled
pursuant to the terms of the recapitalization if, immediately prior to the
recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Option. If (i) the Company shall
not be the surviving entity in any merger or consolidation (or survives only as
a subsidiary of an entity), (ii) the Company sells, leases or exchanges or
agrees to sell, lease or exchange all or substantially all of its assets to any
other person or entity, (iii) the Company is to be dissolved and
-7-
<PAGE> 8
liquidated, (iv) any person or entity, including a "group" as contemplated by
Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of Directors, the
persons who were Directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a
"Corporate Change"), no later than (x) ten days after the approval by the
stockholders of the Company of such merger, consolidation, reorganization,
sale, lease or exchange of assets or dissolution or such election of Directors
or (y) thirty days after a Corporate Change of the type described in clause
(iv), the Committee, acting in its sole discretion without the consent or
approval of any Holder, shall effect one or more of the following alternatives,
which alternatives may vary among individual Holders and which may vary among
Options held by any individual Holder: (1) accelerate the time at which
Options then outstanding may be exercised so that such Options may be exercised
in full for a limited period of time on or before a specified date (before or
after such Corporate Change) fixed by the Committee, after which specified date
all unexercised Options and all rights of Holders thereunder shall terminate,
(2) require the mandatory surrender to the Company by selected Holders of some
or all of the outstanding Options held by such Holders (irrespective of whether
such Options are then exercisable under the provisions of the Plan) as of a
date, before or after such Corporate Change, specified by the Committee, in
which event the Committee shall thereupon cancel such Options and pay to each
Holder an amount of cash per share equal to the excess, if any, of the amount
calculated in Subparagraph (d) below (the "Change of Control Value") of the
shares subject to such Option over the exercise price(s) under such Options for
such shares, (3) make such adjustments to Options then outstanding as the
Committee deems appropriate to reflect such Corporate Change (provided,
however, that the Committee may determine in its sole discretion that no
adjustment is necessary to Options then outstanding), or (4) provide that the
number and class of shares of Common Stock covered by an Option theretofore
granted shall be adjusted so that such Option shall thereafter cover the number
and class of shares of stock or other securities or property (including,
without limitation, cash) to which the Holder would have been entitled pursuant
to the terms of the agreement of merger, consolidation or sale of assets and
dissolution if, immediately prior to such merger, consolidation or sale of
assets and dissolution, the Holder had been the holder of record of the number
of shares of Common Stock then covered by such Option.
(d) For the purposes of clause (2) in Subparagraph (c) above, the
"Change of Control Value" shall equal the amount determined in clause (i), (ii)
or (iii), whichever is applicable, as follows: (i) the per share price offered
to stockholders of the Company in any such merger, consolidation, sale of
assets or dissolution transaction, (ii) the price per share offered to
stockholders of the Company in any tender offer or exchange offer whereby a
Corporate Change takes place, or (iii) if such Corporate Change occurs other
than pursuant to a tender or exchange offer, the fair market value per share of
the shares into which such Options being surrendered are exercisable, as
determined by the Committee as of the date determined by the Committee to be
the date of cancellation and surrender of such Options. In the event that the
consideration offered to stockholders of the Company in any transaction
described in this Subparagraph (d) or Subparagraph (c) above consists of
anything other than cash, the Committee shall determine the fair cash
equivalent of the portion of the consideration offered which is other than
cash.
(e) In the event of changes in the outstanding Common Stock by
reason of recapitalization, reorganizations, mergers, consolidations,
combinations, exchanges or other relevant changes in
-8-
<PAGE> 9
capitalization occurring after the date of the grant of any Award and not
otherwise provided for by this Paragraph IX, any outstanding Awards and any
agreements evidencing such Awards shall be subject to adjustment by the
Committee at its discretion as to the number and price of shares of Common
Stock or other consideration subject to such Awards. In the event of any such
change in the outstanding Common Stock, the aggregate number of shares
available under the Plan may be appropriately adjusted by the Committee, whose
determination shall be conclusive.
(f) Any adjustment provided for in the above Subparagraphs shall
be subject to any required stockholder action.
(g) Except as hereinbefore expressly provided, the issuance by the
Company of shares of stock of any class or securities convertible into shares
of stock of any class, for cash, property, labor or services, upon direct sale,
upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, and in any case whether or not for fair value, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
number of shares of Common Stock subject to Awards theretofore granted or the
purchase price per share, if applicable.
(h) Plan provisions to the contrary notwithstanding, with respect
to any Restricted Stock Awards outstanding at the time a Corporate Change as
described in Subparagraph (c) above occurs, the Committee may, in its
discretion and as of a date determined by the Committee, fully vest any or all
Common Stock awarded to the Holder pursuant to such Restricted Stock Award and
then outstanding and, upon such vesting, all restrictions applicable to such
Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Subparagraph may vary among individual Holders and
may vary among the Restricted Stock Awards held by any individual Holder.
X. AMENDMENT AND TERMINATION OF THE PLAN
The Board in its discretion may terminate the Plan at any time with
respect to any shares of Common Stock for which Awards have not theretofore
been granted. The Board shall have the right to alter or amend the Plan or any
part thereof from time to time; provided that no change in any Award
theretofore granted may be made which would impair the rights of the Holder
without the consent of the Holder, and provided, further, that the Board may
not, without approval of the stockholders, amend the Plan to (a) increase the
maximum aggregate number of shares that may be issued under the Plan or (b)
change the class of individuals eligible to receive Awards under the Plan.
XI. MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan nor
any action of the Board or of the Committee shall be deemed to give an
employee, Consultant, or Director any right to be granted an Option, a right to
a Restricted Stock Award, or any other rights hereunder except as may be
evidenced by an Option Agreement or a Restricted Stock Agreement duly executed
on behalf of the Company, and then only to the extent and on the terms and
conditions expressly set forth therein. The Plan shall be unfunded. The
Company shall not be required to establish any special or separate fund or to
make any other segregation of funds or assets to assure the payment of any
Award.
-9-
<PAGE> 10
(b) NO EMPLOYMENT/MEMBERSHIP RIGHTS CONFERRED. Nothing contained
in the Plan shall (i) confer upon any employee or Consultant any right with
respect to continuation of employment or of a consulting or advisory
relationship with the Company or any subsidiary or (ii) interfere in any way
with the right of the Company or any subsidiary to terminate his or her
employment or consulting or advisory relationship at any time. Nothing
contained in the Plan shall confer upon any Director any right with respect to
continuation of membership on the Board.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated
to issue any Common Stock pursuant to any Award granted under the Plan at any
time when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules or regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock shall
be delivered, nor shall any cash in lieu of fractional shares be paid. The
Company shall have the right to deduct in connection with all Awards any taxes
required by law to be withheld and to require any payments required to enable
it to satisfy its withholding obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the
Plan shall be construed to prevent the Company or any subsidiary from taking
any corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No employee,
Consultant, Director, beneficiary or other person shall have any claim against
the Company or any subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award (other than an Incentive
Stock Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, or (iii) with
the consent of the Committee.
(f) RULE 16B-3. It is intended that the Plan and any grant of an
Award made to a person subject to Section 16 of the 1934 Act meet all of the
requirements of Rule 16b-3. If any provision of the Plan or any such Award
would disqualify the Plan or such Award under, or would otherwise not comply
with, Rule 16b-3, such provision or Award shall be construed or deemed amended
to conform to Rule 16b-3.
(g) GOVERNING LAW. THE PLAN SHALL BE CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE.
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<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT TO
STERLING AUTOMOTIVE GROUP, INC.
1996 STOCK INCENTIVE PLAN
WHEREAS, GROUP 1 AUTOMOTIVE, INC. (the "Company"), as successor to
Sterling Automotive Group, Inc., has heretofore adopted the GROUP 1 AUTOMOTIVE,
INC. 1996 STOCK INCENTIVE PLAN (the "Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows:
1. The term "Company" as used in the Plan shall mean Group 1
Automotive, Inc., a Delaware corporation, and the name of the Plan shall be
changed to the "Group 1 Automotive, Inc. 1996 Stock Incentive Plan."
2. The second sentence of Paragraph V(a) of the Plan shall be deleted
and replaced with the following:
"Subject to adjustment in the same manner as provided in Paragraph
IX with respect to shares of Common Stock subject to Options then
outstanding, the aggregate number of shares of Common Stock that may
be issued under the Plan shall not exceed 2,000,000 shares."
3. The amendments to the Plan set forth in paragraphs 1 and 2 hereof
shall be effective as of March 25, 1997, pursuant to the Consent of
Stockholders and the resolutions of the Board of Directors of the Company, each
dated as of March 25, 1997.
4. As amended hereby, the Plan is specifically ratified and reaffirmed.
<PAGE> 1
EXHIBIT 10.9
EXHIBIT C
LEASE AGREEMENT
BETWEEN
--------------------
(LANDLORD)
AND
--------------------
(TENANT)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page No.
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<S> <C> <C>
ARTICLE 1
LEASE OF PROPERTY
Section 1.1 Premises Leased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Premises Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Habendum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.4 Termination of Prior Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2
TERM OF LEASE
ARTICLE 3
RENT
Section 3.1 Base Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 3.2 Additional Rent and Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 3.3 Payment of Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 4
IMPOSITIONS, UTILITIES, NET LEASE
Section 4.1 Impositions Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 4.2 Tenant's Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.3 Tax Contest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 4.4 Evidence Concerning Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.5 Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4.6 Net Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 5
IMPROVEMENTS
Section 5.1 Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5.2 Mechanic's and Materialmen's Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.3 Ownership of Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5.4 Condition of Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 6
USE, MAINTENANCE, AND REPAIRS
Section 6.1 Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6.2 Maintenance and Repairs by Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6.3 Maintenance and Repairs by Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 7
INSURANCE AND INDEMNITY
Section 7.1 Building Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.2 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.3 Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.4 Tenant's Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.5 Landlord's Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.6 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 8
CASUALTY; CONDEMNATION
Section 8.1 Tenant's Obligation to Restore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.2 Restoration and Deposit of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.3 Notice of Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.4 Total Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.5 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.7 Mortgagee's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 8.8 Notice of Taking, Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 9
ASSIGNMENT AND SUBLETTING
Section 9.1 Tenant's Right to Assign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE 10
TENANT'S FINANCING
Section 10.1 Tenant's Right to Encumber . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 10.2 Mortgagee Protective Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 11
WARRANTY OF TITLE AND PEACEFUL POSSESSION
ARTICLE 12
DEFAULT AND REMEDIES
Section 12.1 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 12.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 13
MISCELLANEOUS
Section 13.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 13.2 Performance of Other Party's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 13.3 Modification and Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 13.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 13.5 Number and Gender; Captions; References . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 13.6 Estoppel Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 13.7 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.8 Attorney Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.9 Surrender of Premises; Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.10 Relation of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.11 Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.12 Non-Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.13 Entireties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 13.14 Recordation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.15 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.16 Landlord's Joinder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.17 No Third Parties Benefitted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.18 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.19 Perpetuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.20 Transfer of Landlord's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 13.21 Landlord's Separate Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 13.22 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 13.23 Past Due Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 14
OPTION TO PURCHASE PREMISES
Section 14.1 Right of First Refusal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 14.2 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE 15
ARBITRATION
Section 15.1 Arbitration Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>
Exhibit A - Land
Exhibit B - Exceptions to Title
Exhibit C - Schedule of Base Rent by Property
Exhibit D - Representations of Landlord
Exhibit E - Guaranty
iii
<PAGE> 5
LIST OF DEFINED TERMS
<TABLE>
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Page No.
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<S> <C>
Ad Valorem Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Additional Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Adjustment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Alterations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Approved Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Commencement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Completion Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Construction Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
CPI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Default Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Depositary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Early Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Emergency Repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Force Majeure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Full insurable value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Governmental Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Impositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Indemnified Landlord Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Indemnified Tenant Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Landlord's Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Landlord's Financing Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Lease Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Permitted Mortgagees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Permitted Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Possible Early Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Premises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Prior Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Structural Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Substitute Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Tenant New Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
iv
<PAGE> 6
LEASE AGREEMENT
This Lease Agreement ("LEASE") is entered into as of ______________,
19____, between ___________________________ _______________, a
__________________________ ("LANDLORD"), and ______________________ , a
________ ("TENANT").
ARTICLE 1
LEASE OF PROPERTY
Section 1.1 PREMISES LEASED. Landlord leases to Tenant,
and Tenant leases from Landlord the real property described on Exhibit A (the
"LAND"), together with all of Landlord's rights, interests, estates, and
appurtenances thereto, all improvements thereon, and all other rights, titles,
interests, and estates, if any, of the Landlord in adjacent streets and roads.
Section 1.2 PREMISES DEFINED. All of the Land and the
properties, rights, and interests leased to Tenant pursuant to Section 1.1,
together with all improvements now or hereafter constructed thereon, are
hereinafter collectively referred to as the "PREMISES."
Section 1.3 HABENDUM. To have and to hold the Premises,
together with all and singular the rights, privileges, and appurtenances
thereunto attaching or in anywise belonging, exclusively unto Tenant, its
successors and assigns, upon the terms and conditions set forth herein and
subject to the matters set forth on Exhibit B.
Section 1.4 TERMINATION OF PRIOR LEASE. The Premises was
previously subject to a lease agreement by and between Landlord and Tenant
("PRIOR LEASE"). Immediately upon the execution (and delivery to each other)
by Landlord and Tenant of this Lease, the Prior Lease shall automatically
terminate and be of no further force and effect; provided, however, Landlord
and Tenant shall, upon the request of any party hereto, execute and deliver to
each other a written instrument evidencing such termination. Upon the
termination of the Prior Lease in accordance with the foregoing provisions,
this Lease shall supersede and replace the Prior Lease in its entirety.
ARTICLE 2
TERM OF LEASE
Unless sooner terminated as herein provided, this Lease shall continue
in effect for a term ("TERM") commencing on the date hereof and ending at 11:59
p.m.,__________________ (City) ,_________________ (State) time, on the first
date to occur of ____________________, 20_____ [30 years from the date hereof]
or the Early Termination Date. The EARLY TERMINATION DATE shall be December
31, 20____ [10 years from the date hereof], December 31, 20_____ [15 years from
the date hereof], December 31, 20______ [20 years from the date hereof], or
December 31, 20_____ [25 years from the date hereof]; whichever of such dates
(each of which dates is herein referred to as a "POSSIBLE EARLY TERMINATION
DATE") is designated by Tenant, in its sole discretion, in a written notice
delivered to Landlord no less than six months prior to the Early Termination
Date.
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ARTICLE 3
RENT
Section 3.1 BASE RENT.
(a) Subject to the terms and provisions contained in this
Section 3.1, Tenant shall pay Landlord monthly Base Rent of
________________________________________ Dollars ($ _________) [The amount of
Base Rent for the applicable property that will be subject to this Lease is
contained on the attached Exhibit C and the foregoing blanks relating to Base
Rent will be completed prior to execution of this Lease based on the applicable
amount shown thereon.], in advance on or before the first day of each calendar
month during the Term, subject to adjustment as hereafter provided. If the
Term commences on a day other than the first day of a calendar month, or ends
on a day other than the last day of a calendar month, then the Base Rent for
such month shall be prorated on the basis of 1/30th of the monthly Base Rent
for each day of such month. If the CPI on any Adjustment Date shall be greater
than the CPI for the Commencement Date, monthly Base Rent commencing on the
Adjustment Date shall be adjusted to be the original monthly Base Rent
specified in this Section 3.1(a) plus an amount equal to one-half (1/2) of the
product obtained by multiplying: (i) the original monthly Base Rent specified
in this Section 3.1 (a) by (ii) the percentage increase in the CPI from the
Commencement Date through the Adjustment Date. "ADJUSTMENT DATE" shall be
January 1 of each of the following years: 20____ [5 years from the date
hereof]; 20___ [10 years from the date hereof]; 20___ [15 years from the date
hereof]; 20___ [20 years from the date hereof]; and 20___ [25 years from the
date hereof], and the term "CPI" shall have the meaning specified therefor in
Section 13.5.
During the Term, none of Landlord's Financing, as hereinafter defined,
may be modified or refinanced except in accordance with the following:
(i) Landlord may refinance or modify Landlord's Financing
if the effect of any such modification does not result in an
increase in principal and interest payable by Landlord during
any Lease Year which exceeds Base Rent required to be paid by
Tenant during such Lease Year. As an example and not by way
of limitation, Landlord may refinance Landlord's Financing by
(x) increasing the principal amount thereof while maintaining
the amount of the current principal and interest payments (or
payments which are less than the current payments) with
respect to Landlord's Financing but providing for a balloon
payment which is required to be paid after the end of the
Term, or (y) maintaining the amount of the current principal
and interest payments on Landlord's Financing (or payments
which are less than the current payments) but providing for an
increased rate of interest thereunder with an accrual feature
permitting Landlord to defer accrued but unpaid interest by
adding the same to the principal balance of Landlord's
Financing so long as the payment of such accrued but unpaid
interest is required to be paid after the end of the Term. In
connection with any refinancing or modification permitted
under this clause (i), Landlord agrees to use its best efforts
to obtain for Landlord and Tenant from the applicable
refinancing lender a mutual recognition and attornment
agreement complying with all of the terms and provisions of
Article 11.
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<PAGE> 8
(ii) If Landlord desires to refinance or modify Landlord's
Financing in any manner which does not comply with the
requirements of the immediately preceding clause (i), then
prior to the date of such refinancing, Landlord must deliver
to Tenant from the refinancing lender a mutual recognition and
attornment agreement complying with all of the terms and
provisions of Article 11.
(b) As used herein, "COMMENCEMENT DATE" means the date
hereof and the term "LEASE YEAR" means the 12-month period commencing on the
date hereof and each subsequent 12-month period during the Term.
Section 3.2 ADDITIONAL RENT AND RENT. All amounts
required to be paid by Tenant under the terms of this Lease, other than Base
Rent, are herein from time to time collectively referred to as "ADDITIONAL
RENT." Base Rent and Additional Rent are herein collectively referred to as
"RENT."
Section 3.3 PAYMENT OF RENT. Base Rent shall be payable
to Landlord at the original or changed address of Landlord as set forth in
Section 13.1 or to such other persons or at such other addresses in the United
States of America as Landlord may designate from time to time in writing to
Tenant; however, if Tenant receives notice of a default under the Landlord's
Financing (defined below), then Tenant shall have the right, but not the
obligation, to pay to Landlord's Financing Lender (defined below) any sums due
and owing on such Landlord's Financing and all such payments by Tenant shall
reduce the amount of Rent owing to Landlord. Additional Rent shall be paid as
herein set forth. Base Rent shall be paid by Tenant in lawful money of United
States of America without notice, demand, or offset except as provided in this
Lease.
ARTICLE 4
IMPOSITIONS, UTILITIES, NET LEASE
Section 4.1 IMPOSITIONS DEFINED. "IMPOSITIONS" means all
taxes, assessments, use and occupancy taxes, water, storm water and sewer
charges, rates and rents, charges for public utilities, excises, levies,
license and permit fees, and other charges by any public authority, general and
special, ordinary and extraordinary, foreseen and unforeseen, of any kind and
nature whatsoever, including penalties levied for failure by Tenant to pay any
of same in a timely manner, which shall or may during the Term be assessed,
levied, charged, confirmed or imposed by any Governmental Authority (defined
below) upon (a) the Premises or any part thereof, (b) the buildings or
improvements now or hereafter comprising a part thereof, (c) the appurtenances
thereto or the sidewalks, streets, or vaults adjacent thereto, (d) the rent and
income received by or for the account of Tenant from any sublessees or for any
use or occupation of the Premises, (e) such franchises, licenses, and permits
as may be pertinent to the use of the Premises, or (f) any documents to which
the Tenant is a party creating or transferring an interest or estate in the
Premises; in each case, only to the extent the same are attributable to the
Premises. Impositions shall not include any income tax, capital levy, estate,
succession, inheritance or transfer taxes, or similar tax of Landlord; any
franchise tax imposed upon any owner of the fee of the Premises; or any income,
profits, or revenue tax, assessment, or charge imposed upon the rent or other
benefit received by Landlord under this Lease by any municipality, county,
state, the United States ofAmerica, or any other governmental body,
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<PAGE> 9
subdivision, agency, or authority (all of such foregoing governmental bodies
are collectively referred to herein as "GOVERNMENTAL AUTHORITIES"). If at any
time during the Term the present method of taxation shall be so changed that
the whole or any part of the taxes, assessments, levies, impositions or charges
now levied, assessed or imposed on real estate and improvements thereon (herein
collectively called "AD VALOREM TAXES") shall be discontinued and in whole or
partial substitution therefor, taxes, assessments, levies, impositions, or
charges shall be levied, assessed, and/or imposed wholly or partially as a
capital levy or otherwise on the rents received from real estate or the Rents
reserved herein or any part thereof, then such substitute taxes, assessments,
levies, impositions, or charges (herein collectively called "SUBSTITUTE
TAXES"), to the extent so levied, assessed, or imposed, shall be deemed to be
included within the term "Impositions". Notwithstanding the foregoing, if a
discontinuance occurs as to only a portion of Ad Valorem Taxes and the
substitution therefor provided in the immediately preceding sentence has
occurred, then if the remaining Ad Valorem Taxes are subsequently reduced, then
the amounts that Tenant is required to pay with respect to Substitute Taxes
shall be reduced by an amount equal to the fraction, the numerator of which is
the amount of the reduction in the remaining portion of Ad Valorem Taxes over
the amount of Ad Valorem Taxes immediately prior to such reduction.
Section 4.2 TENANT'S OBLIGATION. During the Term, Tenant
will pay all Impositions before they become delinquent. Impositions that are
payable by Tenant for the tax year in which this Lease commences as well as
during the year in which the Term ends shall be apportioned so that Tenant
shall pay its share of the Impositions payable by Tenant for the portion of
such Taxes allocable to the portion of such year occurring during the Term.
Where any Imposition that Tenant is obligated to pay may be paid pursuant to
law in installments and shall only be obligated to pay such installments that
become due during the Term, Tenant may pay such Imposition in installments as
and when such installments become due. Tenant shall, if so requested, deliver
to Landlord evidence of due payment of all Impositions Tenant is obligated to
pay hereunder, concurrently with the making of such payment. If Landlord's
Financing Lender requires Landlord to prepay Ad Valorem Taxes to Lender or its
designee, then upon notification from Landlord to Tenant, Tenant shall pay to
Landlord with each payment of Basic Rent due hereunder an amount equal to
one-twelfth (1/12th) of the estimated Ad Valorem Taxes for the then applicable
calendar year. Such estimate shall be based on the actual Ad Valorem Taxes
paid for the Premises for the immediately preceding calendar year.
Notwithstanding anything to the contrary contained in this Lease including,
without limitation, this Section 4.2, Tenant's obligation to pay Ad Valorem
Taxes as part of Impositions shall be reduced by the amount of any payments
made to Landlord in accordance with the foregoing. In the event that such
payments by Tenant exceed the amounts actually paid in connection with such Ad
Valorem Taxes, Landlord shall promptly return the excess to Tenant. Landlord
agrees that to the extent that Landlord has collected any portion of such Ad
Valorem Taxes from Tenant, Landlord shall pay or cause to be paid all such sums
to the applicable taxing authorities on or before the applicable due date
thereof to satisfy all applicable Ad Valorem Taxes, and the remainder shall be
returned to Tenant in accordance with the foregoing terms.
Section 4.3 TAX CONTEST. Tenant may, at its expense,
contest the validity or amount of any Imposition for which it is responsible,
in which event the payment thereof may be deferred, as permitted by law, during
the pendency of such contest, if diligently prosecuted. Landlord shall
cooperate with Tenant in connection with any such contest but Landlord shall
not be required to spend any sums or incur any liability in cooperating with
Tenant. Nothing herein
4
<PAGE> 10
contained, however, shall be construed to allow any Imposition to remain unpaid
for such length of time as would permit the Premises, or any part thereof, to
be sold or seized by any Governmental Authority for the nonpayment thereof.
Section 4.4 EVIDENCE CONCERNING IMPOSITIONS. The
certificate, advice, bill, or statement issued or given by the appropriate
officials authorized by law to issue the same or to receive payment of any
Imposition of the existence, nonpayment, or amount of such Imposition shall be
prima facie evidence for all purposes of the existence, nonpayment, or amount
of such Imposition.
Section 4.5 UTILITIES. Tenant shall pay all charges for
gas, electricity, light, heat, air conditioning, power, telephone and other
communication services, and all other utilities and similar services rendered
or supplied to the Premises, and all water rents, sewer service charges, or
other similar charges levied or charged against, or in connection with, the
Premises.
Section 4.6 NET LEASE. Except as expressly provided
herein (including, without limitation, Section 6.3), Landlord shall not be
required to make any expenditure, incur any obligation, or incur any liability
of any kind whatsoever in connection with the Premises or the financing,
construction, maintenance, operation, or repair of the Premises. It is
expressly understood and agreed that this is a completely net lease intended to
assure Landlord the rentals herein reserved on an absolute net basis.
ARTICLE 5
IMPROVEMENTS
Section 5.1 ALTERATIONS. At any time and from time to
time during the Term, Tenant may perform such alteration, renovation, repair,
refurbishment, and other work (herein such matters being collectively called
the "ALTERATIONS") with regard to any Improvements as Tenant may elect. All
buildings, structures, and other improvements located at any time on the Land
are herein called the "IMPROVEMENTS". Any and all alteration, renovation,
repair, refurbishment, or other work with regard thereto shall be performed, in
accordance with the following "CONSTRUCTION STANDARDS" (herein so referenced):
(i) All such construction or work shall be performed in a
good and workmanlike manner in accordance with good industry practice
for the type of work in question;
(ii) All such construction or work shall be done in
compliance with all applicable building codes, ordinances, and other
laws or regulations of Governmental Authorities having jurisdiction;
(iii) No such construction or work shall be commenced until
there shall have been first obtained all licenses, permits, and
authorizations required of all Governmental Authorities having
jurisdiction;
(iv) Tenant shall have obtained and shall maintain in
force and effect the insurance coverage required in Article 7 with
respect to the type of construction or work in question;
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<PAGE> 11
(v) After commencement, such construction or work shall
be prosecuted with due diligence to its completion;
(vi) Without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed and shall be deemed
given if a request is not approved or denied within thirty (30) days
after receipt, no Alteration shall be made which (x) involves any
material repairs or modifications to the structural portions of the
Premises, or (y) would impair the market value, structural integrity
or usefulness of the Premises for the purposes for which the same are
presently being used; and
(vii) Tenant shall furnish Landlord with a copy of all
plans and specifications relating to each Alteration to the extent
that such plans and specifications have been furnished to Tenant.
Section 5.2 MECHANIC'S AND MATERIALMEN'S LIENS. Tenant
shall have no right, authority, or power to bind Landlord or any interest of
Landlord in the Premises for any claim for labor or for material or for any
other charge or expense incurred in construction of any Improvements or
performing any alteration, renovation, repair, refurbishment, or other work
with regard thereto, nor to render Landlord's interest in the Premises liable
for any lien or right of lien for any labor, materials, or other charge or
expense incurred in connection therewith, and Tenant shall in no way be
considered as the agent of Landlord in the construction, erection, or operation
of any such Improvements. If any liens or claims for labor or materials
supplied or claimed to have been supplied to the Premises shall be filed,
Tenant shall promptly pay or bond such liens to Landlord's reasonable
satisfaction or otherwise obtain the release or discharge thereof.
Section 5.3 OWNERSHIP OF IMPROVEMENTS. During the Term
all currently existing Improvements shall be solely the property of Landlord.
All other Improvements which may be added by Tenant (which do not constitute
replacements of existing Improvements) shall be the property of Tenant, but at
the end of the Term, all then-existing Improvements shall be the property of
Landlord. However, upon expiration or earlier termination of this Lease,
Tenant shall have the right to remove all movable equipment, furniture,
furnishings and other personal property located in the Premises and other items
not permanently attached to the Premises provided that Tenant repairs any
damages caused by the removal of such items.
Section 5.4 CONDITION OF IMPROVEMENTS. Except as to any
asbestos which may be present, whether friable or unfriable, Tenant
acknowledges that it accepts the Improvements "as-is" and that except for the
representations and warranties expressly set forth in this Lease and in Exhibit
D hereto, Landlord makes no representations or warranties as to the condition
of the Improvements. Landlord shall remain fully liable and responsible for
the presence of asbestos on any portion of the Premises prior to the date of
this Lease even if such asbestos is in an unfriable state on the date of this
Lease and Tenant thereafter disturbs such asbestos in any manner including,
without limitation, in connection with any alterations performed by Tenant on
the Premises. If Tenant intentionally disturbs or causes to be disturbed by
any contractor or other party any asbestos presently located on the Premises of
which Tenant has actual knowledge, then any such disturbance of such asbestos
shall only be done in accordance with all laws, regulations, ordinances, or
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<PAGE> 12
requirements of any Governmental Authority having jurisdiction in the Premises
including, without limitation, those which govern the disposition of Hazardous
Materials.
ARTICLE 6
USE, MAINTENANCE, AND REPAIRS
Section 6.1 USE.
(a) Subject to the terms and provisions hereof, Tenant
may use and enjoy the Premises only for the sale, lease, trade or repair of
motor or other vehicles and other uses in the course of prudent business
practices normally associated therewith including, without limitation, the sale
of parts and services. Without limiting the generality of the foregoing, the
provisions relating to use of the Premises shall be broadly construed to
encompass all uses normally associated with premises occupied by automobile,
boat and recreational vehicle dealerships. Tenant shall not use or occupy,
permit the Premises to be used or occupied, nor do or permit anything to be
done in or on the Premises in a manner which would constitute a public or
private nuisance, or which would violate (i) any laws, regulations, ordinances,
or requirements of any Governmental Authority having jurisdiction in the
Premises including, without limitation, those which relate to Hazardous
Materials, or (ii) any recorded restrictive covenants covering the Premises
provided that such restrictive covenants do not impair Tenant's use of the
Premises for the purposes set forth herein.
(b) Tenant covenants and agrees that Tenant shall not at
any time maintain on, dispose of or generate on or discharge or release to or
from the Premises, or permit any party in possession through or under Tenant to
maintain on, dispose of, discharge from or generate or release on the Premises,
any "HAZARDOUS MATERIALS" (hereinafter defined), except for (i) any Hazardous
Materials that may be used, generated or maintained in the ordinary course of
Tenant's operations at the Premises for the use permitted under Section 6.1(a),
and (ii) any asbestos in any form existing on the Premises as of the date of
this Lease. Subject to the foregoing, Tenant or any party in possession
through or under Tenant or any persons occupying or present on the Premises
with the consent of Tenant shall not at any time discharge from, spill or
release to the Premises any Hazardous Materials. Except for any asbestos in
any form existing on the Premises as of the date of this Lease (the proper
disposition of which shall always be the responsibility of Landlord), Tenant
agrees to comply, and to cause all its employees, agents, contractors,
invitees, customers and any other persons occupying or present on the Premises
with the consent of Tenant to comply, with all applicable building codes and
other federal, state and municipal laws, directives, orders, ordinances and
regulations (collectively "LAWS") relating to Hazardous Materials with respect
to any use by Tenant of such Hazardous Materials and with all Laws relating to
the environment. The term "Hazardous Materials" as used herein shall include
any hazardous waste, hazardous substances or any pollutant or contaminant as
defined by 42 U.S.C. Section 9601, and any toxic substances, petroleum, oil,
asbestos or other hazardous materials, chemical or substances now or hereafter
regulated by any Laws relating to hazardous or toxic materials, wastes or
substances and/or the environment. The foregoing covenants and agreements of
Tenant shall survive the term and expiration or termination of this Lease, and
Tenant shall immediately notify Landlord of its receipt of any report,
citation, notice or other writing by, to or from any governmental or
quasi-government authority and power
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<PAGE> 13
to regulate or oversee any of the foregoing activities or in any way related to
or connected with Hazardous Materials.
Section 6.2 MAINTENANCE AND REPAIRS BY TENANT. Subject
to Tenant's rights under this Lease including, without limitation, Article 5
and Article 8, and Landlord's obligations under this Lease including, without
limitation, the provisions of Section 6.3, Tenant shall maintain the Premises
including, without limitation, the roof (but excluding the structural support
components thereof) and the sidewalks and curbs around the Premises in good
order, repair, and condition at all times. In connection with Tenant's
maintenance of the roof of the Premises, if Tenant replaces any portion of the
roof then such replaced portion shall be deemed by the parties hereto to have a
useful life equal to ten years from the date of completion of such replacement
("COMPLETION DATE"). Except as to any Tenant New Improvements (as defined in
Section 6.3), in the event Tenant has replaced any portion of the roof of the
Premises and prior to the end of the ten-year useful life of such replaced
portion Tenant has exercised its right to terminate this Lease in accordance
with the provisions contained herein, then Landlord shall pay to Tenant on the
date that this Lease is terminated an amount equal to the cost of such replaced
portion of the roof times a fraction, the numerator of which is 120 minus the
number of months from the Completion Date to the date this Lease is terminated,
and the denominator of which is 120.
Section 6.3 MAINTENANCE AND REPAIRS BY LANDLORD. Landlord
shall maintain and repair all structural portions of the Premises including,
without limitation, the foundation, all structural supports relating to the
roof of the Premises and all other structural support components of the
Premises (herein collectively called "STRUCTURAL COMPONENTS"). Subject to the
immediately following sentence, Landlord shall not be liable for any failure to
make such repairs or to perform any maintenance unless Landlord fails to
commence such repairs within thirty (30) days after its receipt of written
notice of a need for such repairs or maintenance from Tenant and diligently and
continuously prosecutes the completion of such repairs or maintenance on or
before one-hundred eighty (180) days after its receipt of such notice. In
connection with any maintenance or repair obligation of Landlord set forth
herein which Landlord fails to perform promptly upon receipt of notice from
Tenant and which is an imminent threat to the health, safety or welfare of any
persons on the Premises ("EMERGENCY REPAIRS") and in addition to all other
remedies Tenant may have under this Lease and at law and in equity, Tenant may
perform such Emergency Repairs and shall be entitled to offset the amounts
necessary for such maintenance against any Rent due under this Lease in the
regular order of payment. If Landlord fails to maintain and repair the
Premises in accordance with the forgoing provisions, then Tenant shall have the
option of either (i) performing such maintenance or repairs and Tenant shall be
entitled to credit against the next accruing monthly rental payments all
amounts relating to such maintenance and repairs, (ii) terminating this Lease
by giving written notice thereof to Landlord, except in the case of Emergency
Repairs, which are governed by the foregoing provisions, or (iii) pursuing any
and all other remedies available to Tenant under this Lease, at law or in
equity. Notwithstanding anything to the contrary contained in this Section
6.3, in the event Tenant constructs or causes to be constructed any new
improvements ("TENANT NEW IMPROVEMENTS") or causes any of the existing
Structural Components to be modified in any manner, then Landlord shall have no
maintenance or repair obligations with respect to such new improvements or the
modified existing Structural Components to extent so modified by Tenant.
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ARTICLE 7
INSURANCE AND INDEMNITY
Section 7.1 BUILDING INSURANCE. Tenant will, at its cost
and expense, keep and maintain in force the following policies of insurance:
(1) Insurance on the Improvements against loss or damage by fire
and against loss or damage by any other risk now and from time to time insured
against by "extended coverage" provisions of policies generally in force on
improvements of like type in the city in which the Premises are located, and in
builder's risk completed value form during construction, in amounts sufficient
to provide coverage for the full insurable value of the Improvements; the
policy for such insurance shall have a replacement cost endorsement or similar
provision. "FULL INSURABLE VALUE" shall mean actual replacement value
(exclusive of cost of excavation, foundations, and footings below the surface
of the ground or below the lowest basement level), and such full insurable
value shall be confirmed from time to time at the request of Landlord by one of
the insurers.
(2) Boiler and pressure apparatus insurance to the limit of not
less than $____________________ with respect to any one accident, such limit to
be increased if requested by Landlord by an amount which may be reasonable at
the time. If the Improvements shall be without a boiler plant, no such boiler
insurance will be required.
(3) Workman's Compensation Insurance as to Tenant's employees
involved in the construction, operation, or maintenance of the Premises in
compliance with applicable law.
(4) Such other insurance against other insurable hazards which at
the time are commonly insured against in the case of improvements similarly
situated, due regard being given to the height and type of the Improvements,
their construction, location, use, and occupancy.
Section 7.2 LIABILITY INSURANCE. Tenant shall secure and
maintain in force comprehensive general liability insurance, including
contractual liability specifically applying to the provisions of this Lease and
completed operations liability, with limits of not less than $_______________
with respect to bodily injury or death to any number of persons in any one
accident or occurrence and with respect to property damage in any one accident
or occurrence, such limits to be increased in the event of request by Landlord
by an amount which may be reasonable at the time.
Section 7.3 POLICIES. All insurance maintained in
accordance with the provisions of this Article 7 shall be issued by companies
reasonably satisfactory to Landlord, the Landlord's Financing Lender and all
Permitted Mortgagees (hereafter defined), and shall be carried in the name of
both Landlord and Tenant, as their respective interests may appear, and shall
contain a mortgagee clause acceptable to the Landlord's Financing Lender and
the Permitted Mortgagees. All property policies shall (i) be subject to prior
written approval of Landlord, which shall not be unreasonably withheld or
delayed, and (ii) expressly provide that any loss thereunder may be adjusted
with Tenant, Landlord's Financing Lender and Permitted Mortgagees, but, unless
required otherwise under Landlord's Financing, shall be payable to Tenant and
disbursed as set forth in Section 8.2. All property and liability insurance
policies shall name Landlord as an additional named insured and
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shall include contractual liability endorsements. Tenant shall furnish
Landlord, Landlord's Financing Lender, as hereinafter defined, and each
Permitted Mortgagee, as hereinafter defined, with duplicate originals or
copies certified as being true and correct of all insurance policies required
under this Article 7, and shall furnish and maintain with each of such parties,
at all times, a certificate of the insurance carrier certifying that such
insurance shall not be canceled without at least fifteen (l5) days advance
written notice to each of such parties.
Section 7.4 TENANT'S INDEMNITY. Subject to Section 7.6,
Tenant shall indemnify and hold harmless Landlord, its shareholders, partners,
trustees, members, directors, officers, employees and its successors and
assigns (the "INDEMNIFIED LANDLORD PARTIES"), from all claims, suits, actions,
and proceedings whatsoever ("CLAIMS") which may be brought or instituted on
account of or growing out of any Default and any and all injuries or damages,
including death, to persons or property on the Premises and all losses,
liabilities, judgments, settlements, costs, penalties, damages, and expenses
relating thereto, including but not limited to attorneys' fees and other costs
of defending against, investigating, and settling the Claims, to the extent,
but only to the extent, such Claims are not attributable to (i) events or
conditions that occurred or existed, in whole or in part, prior to the date
when Tenant first occupied the Premises or (ii) any Structural Components that
Landlord is required to maintain under the terms of Section 6.3. Tenant shall
assume on behalf of the Indemnified Landlord Parties and conduct with due
diligence and in good faith the defense of all such Claims against any of the
Indemnified Landlord Parties. Tenant may contest the validity of any such
Claims, in the name of Landlord or Tenant, as Tenant may deem appropriate,
provided that the expenses thereof shall be paid by Tenant. The foregoing
covenants and agreements of Tenant shall survive the Term and expiration or
termination of this Lease.
Section 7.5 LANDLORD'S INDEMNITY. Subject to Section
7.6, Landlord shall indemnify and hold harmless Tenant, its shareholders,
partners, trustees, members, directors, officers, employees and its successors
and assigns (the "INDEMNIFIED TENANT PARTIES"), from all Claims which may be
brought or instituted on account of or growing out of any default by Landlord
of its obligations under this Lease and all injuries or damages, including
death, to persons or property on the Premises and all losses, liabilities,
judgments, settlements, costs, penalties, damages, and expenses relating
thereto, including but not limited to attorneys' fees and other costs of
defending against, investigating, and settling the Claims, to the extent, but
only to the extent, any such Claims are attributable to or arise out of events
or conditions that (i) existed or occurred, in whole or in part, prior to the
date when Tenant first occupied the Premises, (ii) arise out of the failure of
any of Landlord's representations or warranties made in this Lease or in
Exhibit D to be true and correct or (iii) relate to asbestos in any form which
is present on the Premises prior to the date of this Lease. Landlord shall
assume on behalf of the Indemnified Tenant Parties and conduct with due
diligence and in good faith the defense of all Claims against any of the
Indemnified Tenant Parties. Landlord may contest the validity of any Claims,
in the name of Landlord or Tenant, as Landlord may deem appropriate, provided
that the expenses thereof shall be paid by Landlord. The foregoing covenants
and agreements of Landlord shall survive the Term and expiration or termination
of this Lease.
Section 7.6 SUBROGATION. Anything in this Lease to the
contrary notwithstanding, Landlord and Tenant each hereby waives any and all
rights of recovery, claims, actions, or causes of action against the other, its
agents, officers, and employees for any loss or damage that may occur
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to any improvements located on the Premises, or any part thereof, or any
personal property of such party therein, by reason of fire, the elements, or
any other cause which is insured under standard "all risk of direct loss"
insurance policies available in the state in which the Premises are located,
REGARDLESS OF CAUSE OR ORIGIN, INCLUDING NEGLIGENCE OF EITHER PARTY HERETO, ITS
AGENTS, OFFICERS, OR EMPLOYEES. No insurer of one party shall hold any right
of subrogation against the other party as to any such loss or damage.
ARTICLE 8
CASUALTY; CONDEMNATION
Section 8.1 TENANT'S OBLIGATION TO RESTORE. In the event
of damage to, or destruction of, any Improvements by fire or other casualty,
Tenant shall, to the extent of the insurance proceeds actually received by
Tenant or a Permitted Mortgagee for such purpose, promptly repair, replace,
restore, and reconstruct the same, all in compliance with the provisions of
Section 8.2. If insurance proceeds are unavailable due solely to Tenant's
failure to pay the premiums applicable to the insurance coverage referred to in
Section 7.1, then Tenant shall be obligated to promptly repair, replace,
restore, and reconstruct the Improvements, all in compliance with the
provisions of Section 8.2, notwithstanding the unavailability of insurance
proceeds for such purpose. Notwithstanding the foregoing, in the event of
destruction or damage involving more than seventy-five percent (75%) of the
interior floor area of the Improvements which occurs at any time within the
last twelve months of the Term, then Landlord, at its election exercisable by
written notice to Tenant within thirty days following such destruction or
damage, shall have the right to cancel this Lease effective as of the date of
such fire or other casualty. In the event of a casualty loss where the
Improvements will not be restored or replaced, the insurance proceeds shall be
applied, (1) first, to pay the cost of razing the Improvements and leveling,
cleaning and otherwise putting the Premises in good order, (2) second,to
Landlord's Financing Lender, (3) third, to the payment to Tenant for any of its
improvements, and (4) fourth, to Landlord, to the extent of any remaining
proceeds.
Section 8.2 RESTORATION AND DEPOSIT OF FUNDS.
(a) Prior to Tenant commencing any repair, restoration or
rebuilding pursuant to Section 8.1, involving an estimated cost of more than
One Hundred Thousand Dollars ($100,000), Tenant shall submit to Landlord for
its approval, which will not be unreasonably withheld or delayed: (i) plans
and specifications therefor, prepared by a licensed architect reasonably
satisfactory to Landlord; (ii) copies of appropriate governmental permits;
(iii) an estimate of the cost of the proposed work, certified to by said
architect; (iv) a fixed price construction contract in an amount not in excess
of such architect's estimated cost from a reputable and experienced general
contractor; and (v) satisfactory evidence of sufficient contractor's
comprehensive general liability insurance covering Landlord, builder's risk
insurance, and workman's compensation insurance. Upon completion of any such
work by or on behalf of Tenant, Tenant shall provide Landlord with written
evidence, in form and substance reasonably satisfactory to Landlord, showing
that (i) Tenant has paid all contractors for all costs incurred in connection
with such repair, restoration or rebuilding, and (ii) that the Premises is not
encumbered by any mechanic's or materialmen's liens relating to such repair,
restoration or rebuilding. Regarding Tenant's obligations with respect to
mechanic's or
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materialmen's liens, reference is made herein to all of the terms and
provisions of Section 5.2 in connection with such repair, restoration or
rebuilding.
(b) Provided that: (i) Landlord does not exercise its
right to cancel this Lease as provided in Section 8.1, (ii) the insurer does
not deny liability as to the insureds, and (iii) a Default does not then exist,
then all sums arising by reason of such loss under insurance policies
maintained by Tenant, shall be deposited with the Depositary (as hereinafter
defined) to be available to Tenant for the repair, restoration and rebuilding
of the Premises. Tenant shall diligently pursue the repair, restoration and
rebuilding of the improvements in a good and workmanlike manner using only
materials which are of a quality comparable to the quality of the materials
used in the Improvements prior to their destruction or damage. The insurance
proceeds will be disbursed to Tenant by the Depositary after delivery of
evidence reasonably satisfactory to the Depositary that (A) such repairs,
restoration, or rebuilding have been completed and effected in compliance with
the plans and specifications for the restoration or rebuilding, (B) no
mechanic's and materialman's liens against the Premises have been filed, or
that all such liens have been paid or bonded around, and (C) all payments for
work performed and materials purchased as of the date of such disbursement for
which mechanic's and materialman's liens might arise have been paid or will be
paid from such disbursement or that all such potential liens have been paid or
bonded around. At the option of Tenant, such proceeds shall be advanced in
reasonable installments. Each such installment (except the final installment)
shall be advanced in an amount equal to the cost of the construction work
completed since the last prior advance (or since commencement of work as to the
first advance) less statutorily required retainage in respect of mechanic's and
materialman's liens or retainage which may be required by Landlord's Financing
Lender in an amount not to exceed ten percent (10%) of such cost. The amount
of each installment requested shall be certified as being due and owing by
Tenant's architect in charge, and each request shall include all bills for
labor and materials for which reimbursement is requested and reasonably
satisfactory evidence that no lien affidavit has been placed against the
Premises for any labor or material furnished for such work. The final
disbursement, which shall be an amount equal to the balance of the insurance
proceeds, shall be made upon receipt of (C) an architect's certificate of
substantial completion as to the work from Tenant's architect, and (D)
reasonably satisfactory evidence that all bills incurred in connection with the
work have been paid. The term "DEPOSITARY", as used herein, shall mean either:
(i) Landlord's Financing Lender, or its designee (provided that Landlord's
Financing Lender is an institutional lender and its designee is not an
Affiliate of Landlord, as defined in Section 14.1, or related in any other
manner to Landlord), or (ii) such other party that is acceptable to Landlord
and Tenant, if there is no such Landlord's Financing Lender or if such
Landlord's Financing Lender has refused to act as Depositary.
(c) If no Default then exists, any excess of money
received from insurance policies remaining with the Depositary after the repair
or rebuilding of the Improvements shall, to the extent required by any
Permitted Mortgagee, be applied to payment of Tenant's Permitted Mortgage,
otherwise any such proceeds shall be paid to Tenant.
(d) If Tenant shall not commence the repair or rebuilding
of the Improvements within a period of sixty (60) days after damage or
destruction by fire or other casualty and prosecute the same thereafter with
such dispatch as may be necessary to complete the same within a reasonable
period after said damage or destruction occurs, not to exceed two hundred
seventy (270) days from the date of commencement of such repair or rebuilding;
then, in addition to all other remedies
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Landlord may have either under this Lease, at law or in equity, the money
received by and then remaining in the hands of the Depositary shall be paid to
and retained by Landlord as security for the continued performance and
observance by Tenant of Tenant's covenants and agreements hereunder.
(e) This Lease shall not terminate or be forfeited or be
affected in any manner by reason of damage to, or total, substantial or partial
destruction of, the Premises or any part thereof or by reason of the
untenantability of the same or any part thereof, for or due to any reason or
cause whatsoever, and Tenant, notwithstanding any law or statute, present or
future, waives any and all rights to quit or surrender the Premises or any part
thereof. Tenant expressly agrees that its obligations hereunder, including the
payment of Rent, shall continue as if the Premises, or any part thereof, had
not been damaged or destroyed, and without abatement, offset, suspension,
diminution or reduction of any kind (except that if Impositions are reduced on
account of such damage or destruction, Tenant shall be obligated to pay only
such reduced amount).
Section 8.3 NOTICE OF DAMAGE. Tenant shall immediately
notify Landlord and each Permitted Mortgagee of any destruction or damage to
the Premises.
Section 8.4 TOTAL TAKING. Should the entire Premises be
taken (which term, as used in this Article 8, shall include any conveyance in
avoidance or settlement of eminent domain, condemnation, or other similar
proceedings) by any Governmental Authority, corporation, or other entity under
the right of eminent domain, condemnation, or similar right, then Tenant's
right of possession under this Lease shall terminate as of the date of taking
possession by the condemning authority, and the award therefor will be
distributed as follows: (1) first, to the payment of all reasonable fees and
expenses incurred in collecting the award, (2) second, to Landlord's Financing
Lender, and (3) third, to Landlord and Tenant, to the extent of their interests
in the Premises, as the applicable condemning authority shall determine taking
into account certain factors including, without limitation, the term of the
leasehold estate of the Tenant and the ownership interest of Landlord. After
the determination and distribution of the condemnation award as herein
provided, the Lease shall terminate.
Section 8.5 PARTIAL TAKING. Should a portion of the
Premises be taken by any Governmental Authority, corporation, or other entity
under the right of eminent domain, condemnation, or similar right, this Lease
shall nevertheless continue in effect as to the remainder of the Premises
unless, in Tenant's reasonable judgment, so much of the Premises shall be so
taken as to make it economically unsound to use the remainder for the uses and
purposes contemplated hereby, whereupon this Lease shall terminate as of the
date of taking of possession by the condemning authority in the same manner as
if the whole of the Premises had thus been taken, and the award therefor shall
be distributed as provided in Section 8.4. In the event of a partial taking
where this Lease is not terminated, all awards payable in respect thereof shall
be payable to Landlord and Tenant, to the extent of their interests in the
Premises, as the applicable condemning authority shall determine taking into
account certain factors including, without limitation, the term of the
leasehold estate of the Tenant and the ownership interest of Landlord. Tenant
shall restore and repair the Premises to the extent of the award actually
received by Tenant and there shall be no abatement or reduction in any rental
because of such taking or condemnation. Subject to the foregoing, Tenant
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shall promptly and diligently proceed to make a complete architectural unit of
the remainder of the Improvements, complying with the procedure set forth in
Section 8.2 (a). For such purpose, and provided that a Default does not then
exist, the amount of the awards to Tenant and Landlord relating to the
Improvements, shall be deposited with the Depositary which shall disburse the
awards towards the cost of said repairing or restoration in accordance with the
procedure set forth in Section 8.2. If Tenant does not make a complete
architectural unit of the remainder of the Improvements within a reasonable
period after such taking or condemnation, not to exceed two hundred seventy
days after Tenant is required to vacate the Premises and the applicable awards
have been made and deposited with the Depositary, then, in addition to whatever
other remedies Landlord may have either under this Lease, at law or in equity,
the money received by and then remaining in the custody of the Depositary
shall, at Landlord's election, be paid to Landlord, and the remaining portion
which was deposited by Tenant with the Depositary shall be held by Landlord as
security for the continued performance and observance by Tenant of Tenant's
covenants and agreements hereunder; provided, that Landlord shall be obligated
to disburse the amounts received by Landlord from the Depositary in accordance
with the foregoing provisions as if Landlord were the Depositary.
Section 8.6 TEMPORARY TAKING. If the whole or any
portion of the Premises shall be taken for temporary use or occupancy, the Term
shall not be reduced or affected and Tenant shall continue to pay the Rent in
full. Except to the extent Tenant is prevented from so doing pursuant to the
terms of the order of the condemning authority, Tenant shall continue to
perform and observe all of the other covenants, agreements, terms, and
provisions of this Lease. In the event of any temporary taking, Tenant shall
be entitled to receive the entire amount of any award therefor unless the
period of temporary use or occupancy shall extend beyond the expiration of the
Term, in which case such award shall be apportioned between Landlord and Tenant
as of the day of expiration of the Term in the same ratio that the part of the
entire period for such compensation is made falling before and that part
falling after the day of expiration, bear to such entire period.
Section 8.7 MORTGAGEE'S RIGHTS. Any Permitted Mortgagee
shall, if it so desires, be made a party to any condemnation proceeding.
Section 8.8 NOTICE OF TAKING, COOPERATION. Tenant shall
immediately notify Landlord and each Permitted Mortgagee of the commencement of
any eminent domain, condemnation, or other similar proceedings with regard to
Premises. Landlord and Tenant covenant and agree to fully cooperate in any
condemnation, eminent domain, or similar proceeding in order to maximize the
total award receivable in respect thereof.
ARTICLE 9
ASSIGNMENT AND SUBLETTING
Section 9.1 TENANT'S RIGHT TO ASSIGN. Tenant may assign
its rights hereunder or sublease all or a portion of the Premises without
Landlord's prior written approval provided that Tenant shall remain liable for
all liabilities and obligations arising under this Lease. Notwithstanding the
foregoing, if Tenant has assigned or subleased its rights under this Lease to
any party other than an affiliate or subsidiary of Tenant, then, to the extent
that the rent paid by any such
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other party exceeds the Rent and other amounts, if any, required to be paid by
Tenant under the terms of this Lease, fifty percent (50%) of such excess
amounts shall be paid to Landlord upon the receipt of same by Tenant.
ARTICLE 10
TENANT'S FINANCING
Section 10.1 TENANT'S RIGHT TO ENCUMBER. Tenant shall
have the right, from time to time and at any time, without Landlord's consent
or joinder, to encumber its interest in this Lease and the leasehold estate
hereby created with one or more deeds of trust, mortgages, or other lien
instruments to secure any borrowings or obligations of Tenant. Any such
mortgages, deeds of trust, and/or other lien instruments, and the indebtedness
secured thereby, provided that Landlord has been given notice thereof as set
forth in Section 10.2, are herein referred to as "PERMITTED MORTGAGES," and the
holder or other beneficiary thereof are herein referred to as "PERMITTED
MORTGAGEES."
Section 10.2 MORTGAGEE PROTECTIVE PROVISIONS. If Tenant
encumbers its interest in this Lease and the leasehold estate hereby created
with liens as above provided, then Tenant shall notify Landlord thereof,
providing with such notice the name and mailing address of the Permitted
Mortgagee in question, Landlord shall, upon request, acknowledge receipt of
such notice, and for so long as the Permitted Mortgage in question remains in
effect the following shall apply:
(a) Landlord shall give to the Permitted Mortgagee a
duplicate copy of any and all notices which Landlord gives to Tenant pursuant
to the terms hereof, including notices of default, and no such notice shall be
effective until such duplicate copy is actually received by such Permitted
Mortgagee, in the manner provided in Section 13.1.
(b) There shall be no cancellation, surrender, or
modification of this Lease by joint action of Landlord and Tenant without the
prior written consent of the Permitted Mortgagee.
(c) If a Default should occur hereunder, then Landlord
specifically agrees that:
(1) Landlord shall not enforce or seek to enforce
any of its rights, recourses, or remedies, until a notice specifying
the event giving rise to such Default has been received by the
Permitted Mortgagee, in the manner provided in Section 13.1, and if
the Permitted Mortgagee proceeds to cure the Default within a period
of 30 days after receipt of such notice or, as to events of Default
which by their very nature cannot be cured within such time period,
the Permitted Mortgagee, to the extent it is able to do so, commences
curing such Default within such time period and thereafter diligently
pursues such cure to completion within 60 days thereafter, then any
payments made and all things done by the Permitted Mortgagee to effect
such cure shall be as fully effective to prevent the exercise of any
rights, recourses, or remedies by Landlord as if done by Tenant;
(2) if the Default is a non-monetary default, the
Permitted Mortgagee shall have a period of time in which to cure such
Default equal to the greater of (i) the time period for such curing
that is applicable to Tenant under the terms of this Lease, or (ii) 60
days after
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the date that the Permitted Mortgagee has been notified of such
Default, provided that the Permitted Mortgagee cures all defaults
relating to the payment of Base Rent and neither Landlord nor the
Premises is or would be liable or subject to any lien, tax, penalty,
expense, liability, or damages because of such Default. If Landlord
or the Premises is or will be liable or subject to any such lien, tax,
penalty, expense, liability or damages because of the Default, then
for so long as the Permitted Mortgagee is diligently and with
continuity attempting to secure possession of the Premises (whether by
foreclosure or other procedures), Landlord shall allow the Permitted
Mortgagee such time as may be reasonably necessary under the
circumstances to obtain possession of the Premises in order to cure
such Default, which shall not exceed 180 days, and during such time
Landlord shall not enforce or seek to enforce any of its rights,
remedies or recourses hereunder; and
(3) if the Default is a non-monetary default of
such a nature that it is not reasonably susceptible of being cured by
the Permitted Mortgagee (as, for example, a non-permitted assignment
by Tenant), then Landlord shall not enforce or seek to enforce any of
its rights, remedies, or recourses hereunder so long as Permitted
Mortgagee pays all Rent then due and thereafter keeps the monetary
obligations of Tenant hereunder current and complies with those other
provisions of this Lease which, by their nature, Permitted Mortgagee
may then reasonably comply with.
(d) No Permitted Mortgagee shall be or become liable to
Landlord as an assignee of this Lease until such time as such Permitted
Mortgagee, by foreclosure or other procedures, shall either acquire the rights
and interests of Tenant under this Lease or shall actually take possession of
the Premises, and upon such Permitted Mortgagee's assigning such rights and
interests to another party or upon relinquishment of such possession, as the
case may be, such Permitted Mortgagee shall have no further such liability.
ARTICLE 11
WARRANTY OF TITLE AND PEACEFUL POSSESSION
Landlord represents, warrants and covenants that (i) the
representations and warranties set forth in Exhibit D are true and correct,
(ii) it owns title to the Land and the Premises free and clear of all liens,
claims and encumbrances except the liens described in Exhibit B hereto securing
the financing described therein ("LANDLORD'S FINANCING") and the other
encumbrances specifically described in such Exhibit B, (iii) subject to the
terms and provisions of Section 3.1 (a), except as otherwise set forth in this
Lease, Landlord's Financing shall not be modified in any manner without the
prior written consent of Tenant and (iv) the lender providing such Landlord's
Financing ("LANDLORD'S FINANCING LENDER") has executed, caused to be
acknowledged (notarized in accordance with applicable law) and delivered to
Landlord and Tenant a mutual recognition and attornment agreement, in form and
substance reasonably satisfactory to Tenant, suitable for recording in the
appropriate records to notify third parties of the existence of such agreement
and that the Land and the Premises are subject thereto. Such agreement shall
provide, among other provisions, that the Tenant's interest under this Lease
shall be subordinate to the Landlord's Financing and that the Landlord's
Financing Lender shall (i) give to Tenant a duplicate copy of any and all
notices which Landlord's Financing Lender gives to Landlord, including notices
of default, and no such notice shall
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be effective until such duplicate copy is actually received by Tenant in the
manner provided in Section 13.1, (ii) give Tenant the right and opportunity to
cure any defaults under the Landlord's Financing, and (iii) recognize Tenant's
rights under this Lease in the event of a foreclosure or deed in lieu thereof
so long as Tenant continues to perform its obligations under this Lease. As
used herein, the term (A) "Landlord's Financing Lender" shall also include any
lender that refinances Landlord's Financing, and (B) "Landlord's Financing"
shall include all financings secured by liens covering all or any portion of
the Premises which are permitted under the terms of this Lease.
Moreover, Landlord covenants that Tenant shall and may peaceably and
quietly have, hold, occupy, use, and enjoy the Premises during the Term, and
may exercise all of its rights hereunder, subject only to the provisions of
this Lease and applicable governmental laws, rules, and regulations; and
Landlord agrees to warrant and forever defend Tenant's right to such occupancy,
use, and enjoyment and the title to the Premises against the claims of any and
all persons whomsoever lawfully claim the same, or any part thereof, by,
through or under Landlord, but not otherwise, subject only to provisions of
this Lease and all applicable governmental laws, rules, and regulations.
Landlord's Financing Lender shall not be or become liable to Tenant as
an assignee of Landlord's interest in this Lease until such time as such
Landlord's Financing Lender, by foreclosure or other procedures, shall either
acquire the rights and interests of Landlord under this Lease, and upon
Landlord's Financing Lender's assigning such rights and interests to another
party, Landlord's Financing Lender shall have no further such liability.
ARTICLE 12
DEFAULT AND REMEDIES
Section 12.1 DEFAULT. Each of the following shall be
deemed a "DEFAULT" by Tenant hereunder and a material breach of this Lease:
(1) Whenever Tenant shall fail to pay any installment of Rent or
any other sum payable by Tenant to Landlord or any third party under this Lease
on the date upon which the same is due to be paid, and such default shall
continue for ten (10) days after Tenant shall have been given a written notice
specifying such default;
(2) Whenever Tenant shall fail to keep, perform, or observe any of
the covenants, agreements, terms, or provisions contained in this Lease that
are to be kept or performed by Tenant other than with respect to payment of
Rent or other liquidated sums of money, and Tenant shall fail to commence and
take such steps as are necessary to remedy the same within thirty (30) days
after Tenant shall have been given a written notice specifying the same, or
having so commenced, shall thereafter fail to proceed diligently and with
continuity to remedy the same within one hundred eighty (180) days after such
failure;
(3) Whenever an involuntary petition shall be filed against Tenant
under any bankruptcy or insolvency law or under the reorganization provisions
of any law of like import or whenever a receiver of Tenant, or of all or
substantially all of the property of Tenant, shall be appointed without
17
<PAGE> 23
acquiescence, and such petition or appointment is not discharged or stayed
within sixty (60) days after the happening of such event; or
(4) Whenever Tenant shall make an assignment of its property for
the benefit of creditors or shall file a voluntary petition under any
bankruptcy or insolvency law, or seek relief under any other law for the
benefit of debtors.
Section 12.2 REMEDIES. If a Default occurs, then subject
to the rights of any Permitted Mortgagee as provided in Section 11.2, Landlord
may at any time thereafter prior to the curing thereof and without waiving any
other rights hereunder or available to Landlord at law or in equity (Landlord's
rights being cumulative), do any one or more of the following:
(1) Landlord may terminate this Lease by giving Tenant written
notice thereof, in which event this Lease and the leasehold estate hereby
created and all interest of Tenant and all parties claiming by, through, or
under Tenant (except for sublessees as provided in Section 10.2) shall
automatically terminate upon the effective date of such notice with the same
force and effect and to the same extent as if the effective date of such notice
were the day originally fixed in Article 2 hereof for the expiration of the
Term; and Landlord, its agents or representatives, shall have the right,
without further demand or notice, to reenter and take possession of the
Premises and remove all persons and property therefrom with or without process
of law, without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent or existing breaches hereof. In
the event of such termination, Tenant shall be liable to Landlord for damages
in an amount equal to (A) the discounted present value of the amount by which
the Rent reserved hereunder for the remainder of the stated Term(assuming that
the Term would expire upon the next Possible Early Termination Date) exceeds
the then net fair market rental value of the Premises for such period of time,
plus (B) all expenses incurred by Landlord enforcing its rights hereunder.
(2) Landlord may terminate Tenant's right to possession of the
Premises and enjoyment of the rents, issues, and profits therefrom without
terminating this Lease or the leasehold estate created hereby, reenter and take
possession of the Premises and remove all persons and property therefrom
(except for sublessees as provided in Section 10.2) with or without process of
law, without being deemed guilty of any manner of trespass and without
prejudice to any remedies for arrears of Rent (assuming the Term would expire
upon the next Possible Early Termination Date) or existing breaches hereof, and
lease, manage, and operate the Premises and collect the rents, issues, and
profits therefrom all for the account of Tenant, and credit to the satisfaction
of Tenant's obligations hereunder the net rental thus received (after deducting
therefrom all reasonable costs and expenses of repossessing, leasing, managing,
and operating the Premises). If the net rental so received by Landlord exceeds
the amounts necessary to satisfy all of Tenant's obligations under this Lease,
nevertheless Landlord shall retain such excess. In no event shall Landlord be
liable for failure to so lease, manage, or operate the Premises or collect the
rentals due under any subleases and any such failure shall not reduce Tenant's
liability hereunder. If Landlord elects to proceed under this Section 12.2(2),
it may at any time thereafter elect to terminate this Lease as provided in
Section 12.2(1).
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<PAGE> 24
ARTICLE 13
MISCELLANEOUS
Section 13.1 NOTICES. Any notice provided for or
permitted to be given hereunder must be in writing and may be given by (a)
depositing same in the United States Mail, postage prepaid, registered or
certified, with return receipt requested, addressed as set forth in this
Section 13.1; (b) delivering the same to the party to be notified; or (c)
sending a prepaid telex or telegram, so addressed. Notice given in accordance
herewith shall be effective upon receipt at the address of the addressee, as
evidenced by the executed postal receipt or other receipt for delivery. For
purposes of notice the addresses of the parties hereto shall, until changed, be
as follows:
Landlord:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
Tenant:
---------------------------------------------------
---------------------------------------------------
---------------------------------------------------
The parties hereto shall have the right from time to time to change their
respective addresses for purposes of notice hereunder to any other location
within the United States by giving a notice to such effect in accordance with
the provisions of this Section 13.1.
Section 13.2 PERFORMANCE OF OTHER PARTY'S OBLIGATIONS. If
either party hereto fails to perform or observe any of its covenants,
agreements, or obligations hereunder for a period of 30 days after notice of
such failure is given by the other party, then the other party shall have the
right, but not the obligation, at its sole election (but not as its exclusive
remedy), to perform or observe the covenants, agreements, or obligations which
are asserted to have not been performed or observed at the expense of the
failing party and to recover all costs or expenses incurred in connection
therewith, together with interest thereon from the date expended until repaid
at an annual rate ("DEFAULT RATE") equal to the lesser of: (A) three (3)
percentage points above the prime rate of interest established from time to
time by NationsBank (or a comparable rate of interest if such rate of interest
is not in effect); or (B) the maximum rate of interest permitted by applicable
law. Any performance or observance by a party pursuant to this Section 13.2
shall not constitute a waiver of the other party's failure to perform or
observe.
Section 13.3 MODIFICATION AND NON-WAIVER. No variations,
modifications, or changes herein or hereof shall be binding upon any party
hereto unless set forth in a writing executed by it or by a duly authorized
officer or agent. No waiver by either party of any breach or default of any
term, condition, or provision hereof, including without limitation the
acceptance by Landlord of any Rent at any time or in any manner other than as
herein provided, shall be deemed a waiver of any other or subsequent breaches
or defaults of any kind, character, or description under any circumstance. No
waiver of any breach or default of any term, condition, or provision hereof
shall be implied from any action of any party, and any such waiver, to be
effective, shall be set out in a written instrument signed by the waiving
party.
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<PAGE> 25
Section 13.4 GOVERNING LAW. This Lease shall be construed
and enforced in accordance with the laws of the state in which the Premises are
located.
Section 13.5 NUMBER AND GENDER; CAPTIONS; REFERENCES.
Pronouns, wherever used herein, and of whatever gender, shall include natural
persons and corporations and associations of every kind and character, and the
singular shall include the plural wherever and as often as may be appropriate.
Article and Section headings in this Lease are for convenience of reference and
shall not affect the construction or interpretation of this Lease. Whenever
the terms "hereof," "hereby," "herein," or words of similar import are used in
this Lease they shall be construed as referring to this Lease in its entirety
rather than to a particular Section or provision, unless the context
specifically indicates to the contrary. Any reference to a particular
"Article" or "Section" shall be construed as referring to the indicated Article
or Section of this Lease.
As used herein, "CPI" shall mean the Consumer Price Index for All
Urban Consumers, All Items (Base Year 19___ =100) published by the United
States Department of Labor, Bureau of Labor Statistics (or if a separate index
is published by the Bureau of Labor Statistics for a metropolitan area within
100 miles of the Premises, then such metropolitan index). If the Bureau of
Labor Statistics substantially revises the manner in which the CPI is
determined, an adjustment shall be made in the revised index which would
produce results equivalent, as nearly as possible to those which would be
obtained hereunder if the CPI were not so revised. If the 19____ average
shall no longer be used as an index of 100, such change shall constitute a
substantial revision. If the CPI becomes unavailable to the public because
publication is discontinued, or otherwise, Tenant shall substitute therefor a
comparable index based upon changes in the cost of living or purchasing power
of the consumer dollar published by a governmental agency, major bank, other
financial institution, university or recognized financial publisher. If the
CPI is available on a monthly (or alternating monthly) basis, the CPI for the
months in which (or immediately preceding, as the case may be) the Commencement
Date and Adjustment Date respectively occur shall be used.
Section 13.6 ESTOPPEL CERTIFICATE. Landlord and Tenant
shall execute and deliver to each other, promptly upon any request therefor by
the other party, a certificate addressed as indicated by the requesting party
and stating:
(a) whether or not this Lease is in full force and
effect;
(b) whether or not this Lease has been modified or
amended in any respect, and submitting copies of such modifications or
amendments;
(c) whether or not there are any existing defaults
hereunder known to the party executing the certificate, and specifying the
nature thereof;
(d) whether or not any particular Article, Section, or
provision of this Lease has been complied with; and
(e) such other matters as may be reasonably requested.
20
<PAGE> 26
Section 13.7 SEVERABILITY. If any provision of this Lease
or the application thereof to any person or circumstance shall, at any time or
to any extent, be invalid or unenforceable, and the basis of the bargain
between the parties hereto is not destroyed or rendered ineffective thereby,
the remainder of this Lease, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby.
Section 13.8 ATTORNEY FEES. If litigation is ever
instituted by either party hereto to enforce, or to seek damages for the breach
of, any provision hereof, the prevailing party therein shall be promptly
reimbursed by the other party for all attorneys' fees reasonably incurred by
the prevailing party in connection with such litigation.
Section 13.9 SURRENDER OF PREMISES; HOLDING OVER. Upon
termination or the expiration of this Lease, Tenant shall peaceably quit,
deliver up, and surrender the Premises. If Tenant does not surrender
possession of the Premises at the end of the Term, such action shall not extend
the Term, Tenant shall be a tenant at sufferance, and during such time of
occupancy Tenant shall pay to Landlord, as damages, an amount equal to twice
the amount of Rent that was being paid immediately prior to the end of the
Term. Landlord shall not be deemed to have accepted a surrender of the
Premises by Tenant, or to have extended the Term, other than by execution of a
written agreement specifically so stating.
Section 13.10 RELATION OF PARTIES. It is the intention of
Landlord and Tenant to hereby create the relationship of landlord and tenant,
and no other relationship whatsoever is hereby created. Nothing in this Lease
shall be construed to make Landlord and Tenant partners or joint venturers or
to render either party hereto liable for any obligation of the other.
Section 13.11 FORCE MAJEURE. As used herein "FORCE
MAJEURE" means the occurrence of any event whereby Landlord or Tenant shall be
delayed or prevented from the performance of any act required hereunder by
reason of acts of God, strikes, lockouts, labor troubles, failure or refusal of
governmental authorities or agencies to timely issue permits or approvals or
conduct reviews or inspections, civil disorder, inability to procure materials,
restrictive governmental laws or regulations or other cause without fault and
beyond the control of the party obligated (financial inability excepted). If
Tenant or Landlord shall be delayed, hindered, or prevented from performance of
any of its obligations by reason of Force Majeure, the time for performance of
such obligation shall be extended for the period of such delay.
Section 13.12 NON-MERGER. Notwithstanding the fact that
fee title to the land and to the leasehold estate hereby created may, at any
time, be held by the same party, there shall be no merger of the leasehold
estate hereby created unless the owner thereof executes and files for record in
the appropriate real property records a document expressly providing for the
merger of such estates.
Section 13.13 ENTIRETIES. This Lease constitutes the
entire agreement of the parties hereto with respect to its subject matter, and
all prior agreements with respect thereto are merged herein. Any agreements
entered into between Landlord and Tenant of even date herewith are not,
however, merged herein.
21
<PAGE> 27
Section 13.14 RECORDATION. Landlord and Tenant will, at
the request of the other, promptly execute an instrument in recordable form
constituting a short form of this Lease, which shall be filed for record in the
appropriate real property records, or at the request of either party this Lease
shall be so filed for record. In the event that Tenant has requested such
filing and the Premises are located in a jurisdiction where a tax or assessment
will be due and owing based on the amounts payable by Tenant under this Lease,
then Tenant, at its option, may require this Lease to be amended to provide
that the Term shall be an initial term of 10 years from the date hereof with
four options to renew the Term for a period of five years each upon notice to
Landlord given at anytime on or before 180 days before the expiration of the
Term, as the same may be extended. All of the terms and provisions of such
modification shall be subject to the written consent of Landlord and Tenant
which shall not be unreasonably withheld or delayed.
Section 13.15 SUCCESSORS AND ASSIGNS. This Lease shall
constitute a real right and covenant running with the Premises, and shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns. Whenever a reference is made herein to
either party, such reference shall include the party's successors and assigns.
Section 13.16 LANDLORD'S JOINDER. Landlord agrees to join
with Tenant in the execution of such applications for permits and licenses from
any Governmental Authority as may be reasonably necessary or appropriate to
effectuate the intents and purposes of this Lease, provided that Landlord shall
not incur or become liable for any obligation as a result thereof.
Section 13.17 NO THIRD PARTIES BENEFITTED. Except as
herein specifically and expressly otherwise provided with regard to notices and
opportunities to cure defaults and certain enumerated rights granted to
Permitted Mortgagees, the terms and provisions of this Lease are for the sole
benefit of Landlord and Tenant, and no third party whatsoever, is intended to
benefit herefrom.
Section 13.18 SURVIVAL. Any terms and provisions of this
Lease pertaining to rights, duties, or liabilities extending beyond the
expiration or termination of this Lease shall survive the end of the Term.
Section 13.19 PERPETUITIES. To the extent that the rule
against perpetuities is applicable thereto, but not otherwise, the rights
granted to Tenant in Article 14 hereof shall expire upon the earlier to occur
of (a) the date set forth for expiration of such rights in said Article 14, or
(b) the date which is 21 years after the date of death of the last to die of
the following parties: the last grandchild to survive of the presently living
grandchildren of George Bush, former President of the United States of America.
Section 13.20 TRANSFER OF LANDLORD'S INTEREST. Subject to
the terms of the Landlord's Financing, Landlord may freely transfer and/or
mortgage its interest in the Premises and under this Lease from time to time
and at any time, provided that any such transfer or mortgage is expressly made
subject to the terms, provisions, and conditions of this Lease, including
specifically but without limitation Tenant's rights under Article 14, and the
transferee or mortgagee agrees to be bound by the provisions hereof (in the
case of a mortgagee, such agreement being contingent upon
22
<PAGE> 28
the mortgagee actually succeeding to the Landlord's interest in the Premises
and hereunder by virtue of a foreclosure or conveyance in lieu thereof).
Section 13.21 LANDLORD'S SEPARATE PROPERTY. If the state
in which the Premises are located is a community property state, Landlord
hereby warrants that the Premises are his sole or her sole and separate
property, and Tenant hereby agrees to make all payments of Rent accordingly.
Section 13.22 GUARANTY. Group 1 Automotive, Inc. has
executed that certain Guaranty, a copy of which is attached hereto as Exhibit
E.
Section 13.23 PAST DUE AMOUNTS. All amounts required to be
paid by Tenant or Landlord under the terms and provisions of this Lease shall
bear interest at the Default Rate from the date due until paid.
ARTICLE 14
OPTION TO PURCHASE PREMISES
Section 14.1 RIGHT OF FIRST REFUSAL.
(a) If Landlord shall receive a bona fide offer to purchase the
Premises during the Lease term or any renewal thereof from a party other than
(i) any person who is the Landlord or is a present shareholder, partner, or
member of Landlord, to the extent Landlord is an entity, and any such person's
or entity's shareholder's, partner's, or member's immediate family or any
entity in which such individuals, individually or collectively, own an interest
and such entity is subject to the control, as hereinafter defined, of such
individuals, or (ii) an Affiliate, as hereinafter defined (herein such
purchasing party other than an Affiliate and any such person described in
clause (i) is herein called an "APPROVED PURCHASER"), then any contract which
may be entered into between Landlord and a third party purchaser shall provide
that the sale shall be subject to Tenant's right of refusal set forth in this
Section 14.1. If Landlord shall receive such offer or execute such contract,
Landlord shall send to Tenant a true and complete copy of the executed contract
and the complete terms of the offer with Landlord's certification that it
proposes to accept the offer, and Tenant shall have the option, to be exercised
within 30 days after receipt thereof, to make a contract with Landlord on the
same terms and conditions set forth in such third party contract or offer. If
Tenant, after receipt of the third party contract or the terms of the offer
acceptable to Landlord, shall fail to exercise its option within the 30-day
period, Landlord shall have the right to conclude the proposed sale on the same
terms as in the offer or contract originally forwarded to Tenant, provided the
sale shall close within 180 days after the period within which Tenant is
required hereby to exercise its option. If the sale shall not close within
said 180 days, Landlord shall repeat the procedure specified in this Paragraph
14.1 before it can conclude any sale of the Premises. Notwithstanding Tenant's
failure to exercise its option, any sale of the Premises shall be subject to
this Lease. Tenant's option shall remain in force and be binding on any party
other than an Approved Purchaser to the same extent as if said subsequent owner
were Landlord herein, and said subsequent owner shall be required to do all of
the things required of Landlord in this Lease prior to any such sale of the
Premises. "AFFILIATE" shall mean and refer to any person or entity
controlling, controlled by, or under common control with
23
<PAGE> 29
another such person or entity. "CONTROL" shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such controlled person or entity; the ownership, directly or
indirectly, of at least fifty-one percent (51%) of the voting securities of, or
possession of the right to vote, in the ordinary direction of its affairs, at
least fifty-one percent (51%) of the voting interest in, any person or entity
shall be presumed to constitute such control.
(b) If any third party contract or offer for the Premises shall
include property other than the Premises, Tenant's right of first refusal
shall, at its election, be either applicable to the entire property covered by
such contract or offer, or applicable to the Premises only at a purchase price
which shall be that part of the price offered by the third party, which the
value of the Premises shall bear to the value of all the property included in
such third party contract or offer.
(c) Tenant's right to purchase shall not be extinguished, canceled
or called into operation by any offer, contract or conveyance which is between
a nominee and his principal, or a sole shareholder and his corporation, or a
corporation and its subsidiary or affiliate.
(d) The price to be paid by Tenant if it exercises its right of
first refusal shall include the amount of any brokerage commission which is
actually paid by Landlord at the closing of the sale to Tenant to the extent,
and only to the extent, that such commission is paid to a bona fide third party
agent or broker pursuant to a written listing or brokerage agreement.
(e) Tenant may not exercise the option to purchase set forth in
Section 14.1(a) above so long as any Default shall exist or during any period
following Tenant's notice to Landlord of its intention to terminate this Lease
in accordance with Article 2.
Section 14.2 SPECIFIC PERFORMANCE. It is expressly agreed
that the remedy at law for breach of any of the obligations set forth in this
Article 14 is inadequate in view of the complexities and uncertainties in
measuring the actual damages that would be sustained by reason of the failure
of Landlord or Tenant to comply fully with each of such obligations.
Accordingly, each of the aforesaid obligations shall be, and is hereby
expressly made, enforceable by specific performance.
ARTICLE 15
ARBITRATION
Section 15.1 ARBITRATION PROVISIONS. EXCEPT FOR ANY
MATTER RELATING TO TENANT'S REASONABLE JUDGMENT AS SET FORTH IN SECTION 8.5,
ANY CONTROVERSY OR CLAIM BETWEEN THE PARTIES HERETO RELATING TO THIS LEASE,
INCLUDING, WITHOUT LIMITATION, ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED
TORT, SHALL, TO THE EXTENT PERMITTED BY APPLICABLE LAW, BE DETERMINED BY
BINDING ARBITRATION IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION. SUCH ARBITRATION SHALL TAKE PLACE IN THE CITY
IN WHICH THE PREMISES ARE LOCATED. JUDGMENT UPON ANY ARBITRATION AWARD MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. EXCEPT FOR ANY MATTER RELATING TO
TENANT'S
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<PAGE> 30
REASONABLE JUDGMENT AS SET FORTH IN SECTION 8.5, ANY PARTY TO THIS LEASE MAY
BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL
ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS LEASE APPLIES IN ANY
COURT HAVING JURISDICTION OVER SUCH ACTION. ALL ARBITRATION HEARINGS WILL BE
COMMENCED WITHIN NINETY (90) DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL SIXTY (60) DAYS. ALL
STATUTES OF LIMITATIONS THAT WOULD OTHERWISE BE APPLICABLE SHALL APPLY TO ANY
DISPUTES ASSERTED IN ANY ARBITRATION PROCEEDING HEREOF.
EXECUTED as of the date and year first above written.
LANDLORD:
-------------------------------------
Name:
--------------------------------
TENANT:
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
25
<PAGE> 31
EXHIBIT A
[Description of the Land]
A-1
<PAGE> 32
EXHIBIT B
[Exceptions to title to Land]
B-1
<PAGE> 33
EXHIBIT C
RELATED PARTY BASE RENTALS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
CURRENT CURRENT PROPERTY SECTION 3.1 BASE
LESSOR/SUBLESSOR LESSEE/SUBLESSEE RENTAL (monthly)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SKLR Round Rock, L.C. Round Rock Nissan 3050 N. IH35 $32,000
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
SBM-L F.L.P. SMC Luxury Cars 10422 Southwest Freeway $44,000
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
SBM-T F.L.P. Southwest Toyota 9400 Southwest Freeway $24,500
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
SBM-T I&E F.L.P. Southwest Toyota 9400 Southwest Freeway $45,500
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
SBM-L I&E F.L.P. SMC Luxury Cars 10422 Southwest Freeway $26,000
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
SBM-L F.L.P. SMC Luxury Cars 10610 Wilcrest $6,500
(sublessor) (sublessee)
- ----------------------------------------------------------------------------------------------------------------
SMC Investment, Inc. Southwest Toyota 6015 Skyline $7,000
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
Dodge Financial F.L.P. Southwest Toyota adjacent to 9400 $7,000
(lessor) (lessee) Southwest Freeway
- ----------------------------------------------------------------------------------------------------------------
Robert E. Howard II Howard Pontiac GMC 13300 N. Broadway $85,862
(lessor) (lessee) Extension & 13220 N. Broadway Extension
- ----------------------------------------------------------------------------------------------------------------
Robert E. Howard II Bob Howard Motors 13200 N. Broadway $33,500
(lessor) (lessee) Extension
- ----------------------------------------------------------------------------------------------------------------
Robert E. Howard II Bob Howard Chevrolet 13130 N. Broadway $48,500
(lessor) (lessee) Extension
- ----------------------------------------------------------------------------------------------------------------
North Broadway Real Estate, Bob Howard Automotive-H 3700 S. Broadway $9,000
L.L.C. (lessee)
(lessor)
- ----------------------------------------------------------------------------------------------------------------
Olds-Honda Realty Mike Smith Autoplaza 1515 I-10 South $46,500
(lessor) (lessee)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 34
EXHIBIT D
REPRESENTATIONS OF LANDLORD
Landlord represents and warrants to Tenant as of the date of this
Lease that:
(a) The Premises are not subject to any prior lease, easement,
adverse claim, or claims of parties in possession, whether or not shown by the
public records, except as set forth on Exhibit B.
(b) There is no pending or threatened condemnation action or
agreement in lieu thereof which will or may affect the Premises or any part
thereof in any respect whatsoever.
(c) There is no action, suit or proceeding, including
environmental, pending or threatened against or affecting the Premises or any
part thereof.
(d) The execution, delivery and performance of this Lease by
Landlord has been duly authorized and this Lease is valid and enforceable
against Landlord in accordance with its terms.
(e) Landlord has no knowledge of any fact, action or proceeding,
including environmental, whether actual, pending or threatened, which could
result in the modification or termination of the present zoning classification
of the Premises, or the termination of full free and adequate access to and
from the Premises from all adjoining public highways and roads.
(f) Landlord has not agreed to lease or convey or granted any
rights with respect to or any part of the Premises or any interest therein to
any other person or entity except as shown on Exhibit B.
(g) The Premises are not subject to any restrictions (recorded or
unrecorded), building and zoning laws or ordinances, or other laws, ordinances,
rules, regulations and requirements of any Governmental Authority having
jurisdiction which do or could prohibit the use of the premises as an
automobile dealership.
(h) Landlord has not received any notice from any Governmental
Authority having jurisdiction over the Premises requiring or specifying any
work to be done to the Premises.
(i) Landlord has no knowledge of any existing, threatened or
contemplated action, circumstances or conditions (including but not limited to
subsurface conditions) which would materially interfere with the development or
use of the Premises for an automobile dealership.
(j) The Premises are in compliance in all material respects with
all restrictive covenants and other restrictions applicable to the Premises and
all applicable statutes, ordinances, rules and regulations (federal, state,
county and municipal), including without limitation all zoning, environmental
(with respect to asbestos), building, health, subdivision and "lot split"
regulations. Except as to matters relating to the presence of asbestos
contained in the Premises, if any, the representation and warranty set forth in
this clause (j) shall not be applicable to the matters covered under clause (m)
hereinbelow.
D-1
<PAGE> 35
(k) The Premises have public access to and from abutting roadways
dedicated to an accepted by the State, City or County where the Premises are
located.
(l) To the extent zoning regulations are applicable to the
Premises, the Premises are zoned "_______" under the __________ Zoning
Ordinance, and there are no special or unusual zoning conditions or
stipulations applicable to the Premises beyond the face of the Zoning Ordinance
except as set forth in written instruments delivered to Tenant by Landlord
prior to the date of this Lease.
(m) To the best of Landlord's actual knowledge and except as may
otherwise be disclosed to Tenant in any written environmental audit report
delivered to Tenant prior to the date of this Lease, no hazardous wastes,
pollutants or toxic substances have been dumped, deposited or buried upon, in
or under the Premises, there have been no leaks of petroleum, toxic or
hazardous materials from any of the underground storage tank facilities and
there is no contaminated soil, as defined by federal, state and/or local laws
or regulations, in, upon or under the Premises by reason of any such wastes,
pollutants, toxins, substances, or facilities.
(n) The Premises have an assured water supply sufficient to permit
the operations now being conducted thereon to be conducted in accordance with
all governmental requirements.
(o) All dimensions in the description to the Premises are net of
existing and proposed rights-of-way, easements and dedications except as set
forth on Exhibit B.
(p) The Premises are not located in a flood plain or a flood
hazard area for which flood insurance would be required or for which flood
insurance is available.
D-2
<PAGE> 36
EXHIBIT E
GUARANTY
The undersigned, GROUP 1 AUTOMOTIVE, INC., a ________________
corporation, hereby requests ____________________ _ ("LANDLORD") to enter into
that certain Lease dated __________________between Landlord and
____________________, a __________________ corporation ("TENANT") (the
"LEASE"), and as an inducement to Landlord to do so, and as an additional
consideration therefor, the undersigned hereby (a) guarantees unconditionally
to Landlord the full, faithful and punctual performance, fulfillment and
observance of all of the obligations and liabilities of Tenant under said Lease
(the "TENANT OBLIGATIONS") throughout the Term, as defined therein, including
the payment of all amounts that may be or become payable by Tenant to or for
the benefit of Landlord under the Lease; (b) subject to the other terms and
provisions of this Guaranty, waives notice of and consents to any and all
amendments, extensions and renewals of said Lease, any and all assignments,
subleases and other action that may be permitted thereunder by Tenant or
Landlord, any and all other amendments, extensions, and renewals, any and all
other advances, extensions, settlements, compromises, favors and indulgences,
any and all other receipts, substitutions, additions and releases of persons
primarily or secondarily liable, any and all acceptances by Landlord of
negotiable instruments, commercial paper and other property, and agrees that
none of the foregoing, should there be any, shall discharge or affect in any
way the liability of the undersigned hereunder; (c) agrees that all rights and
remedies of Landlord under said Lease and hereunder shall survive and not be
affected by any such discharge, moratorium or other relief granted any person
primarily or secondarily liable in any proceeding under federal or state law
relating to bankruptcy, insolvency or the relief or rehabilitation of debtors,
or any disaffirmance or rejection of the Lease in such proceedings, and any
consent by Landlord to, or participation by Landlord in the proceeds of, any
assignment, trust or mortgage for the benefit of creditors, or any composition
or arrangement of debts, may be made without the undersigned being discharged
or affected in any way thereby; (d) waives any right to require marshaling or
exhaustion of any right or remedy against any person, collateral or other
property; (e) subject to the other terms and provisions of this Guaranty,
waives presentment, demand, protest and notice of default, nonpayment and
protest and all demands, notices and suretyship defenses generally; and (f)
agrees that upon the existence and continuance of a Default under the Lease,
Landlord may have and maintain an action upon this Guaranty against the
undersigned and in like manner may have and maintain successive actions upon
this Guaranty for each and every other such continuing Default; the undersigned
expressly agreeing hereby that its obligation hereunder shall not be exhausted
by any such action or by any number of such successive actions until and unless
each of the Tenant Obligations shall have been fully performed.
This Guaranty shall be absolute and continuing. Landlord shall not be
required to pursue any remedies that it may have against Tenant or pursue any
security or other parties as a condition to the enforcement of this Guaranty.
It is understood and agreed that Guarantor may be joined in any action against
Tenant and that recovery may be had against Guarantor in such action, or in any
independent action against Guarantor. This Guaranty shall not in any way be
affected or impaired by reason of Landlord asserting against Tenant any rights
or remedies reserved to the Landlord pursuant to the Lease, or available at law
or in equity, including any termination of the Lease or re-entry into the
Premises. If at any time payment of any of the Tenant Obligations under the
Lease is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of the
E-1
<PAGE> 37
Tenant, the obligations of the Guarantor with respect to such payment shall be
reinstated at such time as though such payment had not been made.
Until all Tenant Obligations under the Lease are fully paid and
satisfied, Guarantor (a) shall have no right of subrogation against Tenant by
reason of Guarantor's performance under this Guaranty or monies or obligations
owed by Tenant to Guarantor; (b) waives any right to enforce any remedy which
Guarantor now has or may hereafter have against Tenant by reason of Guarantor's
performance under this Guaranty and (c) subordinates any liability or
indebtedness of Tenant now or hereafter held by or owed to Guarantor to the
Tenant Obligations.
This Guaranty and the obligations of the Guarantor under this Guaranty
shall not be modified, discharged, waived or terminated except by an agreement
in writing signed by Guarantor and Landlord.
This Guaranty shall bind Guarantor and the successors and assigns of
Guarantor. This Guaranty may be freely assigned, transferred or hypothecated
by Landlord and shall run in favor and inure to the benefit of Landlord, its
successors and assigns, and each subsequent holder of Landlord's interest under
the Lease. References to the term "Tenant" shall be deemed to include Tenant's
successors and assigns.
This Guaranty shall be governed by and construed in accordance with
___________________ law. Guarantor agrees to be subject to the jurisdiction of
the courts of _______________________________. If this Guaranty is enforced by
suit or otherwise, Guarantor shall reimburse Landlord, upon demand, for all
reasonable expenses incurred in connection therewith, including reasonable
attorney's fees.
Notices to the Guarantor shall be sent by certified or registered mail
to the address of ___________________________________________________________,
and shall be effective upon being deposited in the United States mail, postage
prepaid. Alternatively, notices may be sent by Federal Express or other
recognized delivery service and shall be effective upon delivery to Guarantor
at _______________________________________. Guarantor may change its address
by giving written notice to Landlord in accordance with this provision.
Guarantor shall have the right to give written notice to Landlord in
accordance with the Lease if at any time subsequent to the execution of this
Guaranty, the then current Tenant under the Lease is not a subsidiary or
affiliate of Guarantor. By its acceptance of this Guaranty, Landlord
thereafter agrees to give written notice to Guarantor of any event, which, with
the giving of notice or the passage of time, or both, would constitute a
Default under the Lease, and Guarantor shall have the same grace period
afforded to the Tenant under the Lease in which to cure the default in
question.
Guarantor represents and warrants that it has the legal right and
capacity to execute this Guaranty, and each person executing this Guaranty on
behalf of Guarantor covenants and warrants that he is duly authorized by the
board of directors of Guarantor to execute and deliver this Guaranty on behalf
of the Guarantor.
E-2
<PAGE> 38
WITNESS the execution hereof under seal as of the________ day
of___________________________,___________.
GROUP 1 AUTOMOTIVE, INC.
By: (SEAL)
----------------------------------
Its:
------------------------------
E-3
<PAGE> 1
EXHIBIT 23.1
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN
June 24, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 MAR-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 MAR-31-1997
<CASH> 8 96
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 8 96
<PP&E> 2 50
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 784 1,830
<CURRENT-LIABILITIES> 874 2,289
<BONDS> 0 0
0 0
0 0
<COMMON> 5 5
<OTHER-SE> (95) (464)
<TOTAL-LIABILITY-AND-EQUITY> 784 1,830
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 95 360
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 9
<INCOME-PRETAX> (95) (369)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (95) (369)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (95) (369)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
