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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 29, 1997
REGISTRATION NO. 333-33295
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 5511 56-2010790
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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5401 EAST INDEPENDENCE BOULEVARD
P.O. BOX 18747
CHARLOTTE, NORTH CAROLINA 28218
TELEPHONE (704) 532-3301
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
MR. O. BRUTON SMITH
CHIEF EXECUTIVE OFFICER
SONIC AUTOMOTIVE, INC.
5401 EAST INDEPENDENCE BOULEVARD
P.O. BOX 18747
CHARLOTTE, NORTH CAROLINA 28218
TELEPHONE (704) 532-3301
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
COPIES TO:
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GARY C. IVEY, ESQ. STUART H. GELFOND, ESQ.
PARKER, POE, ADAMS & BERNSTEIN L.L.P. FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
2500 CHARLOTTE PLAZA ONE NEW YORK PLAZA
CHARLOTTE, NORTH CAROLINA 28244 NEW YORK, NEW YORK 10004
TELEPHONE (704) 372-9000 TELEPHONE (212) 859-8000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. []
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [] .
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [] .
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. []
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT 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.
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SONIC AUTOMOTIVE, INC.
CROSS-REFERENCE SHEET
PURSUANT TO SECTION 501(B)(4) OF REGULATION S-K SHOWING LOCATION
IN THE PROSPECTUS OF INFORMATION REQUIRED BY
ITEMS OF PART I OF FORM S-1
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REGISTRATION STATEMENT ITEM AND CAPTION PROSPECTUS HEADING OR LOCATION
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Facing Page; Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front and Outside Back Cover Pages; Additional Information
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Risk Factors
4. Use of Proceeds................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................. Outside Front Cover Page; Underwriting
6. Dilution........................................ Dilution
7. Selling Security Holders........................ Not Applicable
8. Plan of Distribution............................ Outside Front Cover Page; Underwriting
9. Description of Capital Stock to be Registered... Outside Front Cover Page; Dividend Policy; Description of Capital
Stock
10. Interests of Named Experts and Counsel.......... Not Applicable
11. Information with Respect to the Registrant...... Outside Front Cover Page; Prospectus Summary; Risk Factors; The
Reorganization; The Acquisitions; Use of Proceeds; Dividend Policy;
Capitalization; Selected Combined and Consolidated Financial Data;
Pro Forma Combined and Consolidated Financial Data; Management's
Discussion and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain Transactions; Principal
Stockholders; Description of Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.. Not Applicable
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<PAGE>
(A redherring appears on the left-hand side of this page, rotated 90 degrees.
Text follows.)
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
PRELIMINARY PROSPECTUS DATED , 1997
PROSPECTUS
SHARES
[LOGO TO COME] SONIC AUTOMOTIVE, INC.
CLASS A COMMON STOCK
All of the shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), offered hereby are being sold by Sonic Automotive,
Inc. ("Sonic" or the "Company").
Each share of Class A Common Stock entitles its holder to one vote per
share. Each share of Class B Common Stock, par value $.01 per share (the "Class
B Common Stock," and together with the Class A Common Stock, the "Common
Stock"), entitles the holder to ten votes per share, except in certain limited
circumstances. All of the shares of Class B Common Stock are held by the members
of the Smith Group (as defined herein), who are all of the stockholders of the
Company prior to the consummation of the Offering. After consummation of the
Offering, the Smith Group will beneficially own shares representing
approximately % of the combined voting power of the Company's Common Stock
(approximately % if the underwriters' over-allotment option is exercised in
full). See "Description of Capital Stock -- Common Stock."
Prior to the Offering, there has been no public market for the Class A
Common Stock. It is currently estimated that the initial public offering price
will be between $ and $ per share. For a discussion of factors to be
considered in determining the initial public offering price, see "Underwriting."
The Company intends to apply for listing of the Class A Common Stock on the
New York Stock Exchange under the symbol "DLR."
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
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.
[CAPTION]
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total (3)........................................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an aggregate of additional
shares of Class A Common Stock solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares of Class A Common Stock are being offered by the several
Underwriters, subject to prior sale, when, as and if issued to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right to
withdraw, cancel or modify such offer and to reject orders in whole or in part.
It is expected that delivery of the shares of Class A Common Stock will be made
in New York, New York on or about , 1997.
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1997.
<PAGE>
[Photographs of various of the Company's dealerships and a map of the United
States showing locations of the Company's operations]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and will make available copies of its quarterly reports for the first three
quarters of each year.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF COMMON STOCK
TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
This Prospectus includes statistical data regarding the retail automotive
industry. Unless otherwise indicated herein, such data is taken or derived from
information published by a division of Intertec Publishing Corp. in its "Ward's
Dealer Business", Crain's Communications, Inc. in its "Automotive News" and
"1997 Market Data Book" and by the Industry Analysis Division of the National
Automobile Dealers Association ("NADA") in its "Industry Analysis and Outlook"
and "Automotive Executive Magazine" publications.
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. Although, as described in this Prospectus, Manufacturers will have
granted consents for various of the Acquisitions (as defined herein) and for
this Offering, no Manufacturer has made any statements or representations for
the purpose of such statements or representations being included in this
Prospectus, and no Manufacturer has any responsibility for the accuracy or
completeness of this Prospectus.
2
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. REFERENCES
IN THIS PROSPECTUS TO "SONIC" OR THE "COMPANY" (I) ARE TO SONIC AUTOMOTIVE, INC.
AND, UNLESS THE CONTEXT INDICATES OTHERWISE, ITS CONSOLIDATED SUBSIDIARIES AND
THEIR RESPECTIVE PREDECESSORS, (II) GIVE EFFECT TO A RECENTLY COMPLETED
REORGANIZATION (AS DEFINED BELOW) OF THE COMPANY AND (III) ASSUME THAT THE
COMPANY HAS CONSUMMATED THE ACQUISITION OF THE ASSETS OR ALL THE CAPITAL STOCK
OF SIX ADDITIONAL DEALERSHIPS OR DEALERSHIP GROUPS, AS DESCRIBED HEREIN, IN
NORTH CAROLINA, TENNESSEE, FLORIDA, GEORGIA AND SOUTH CAROLINA (THE
"ACQUISITIONS"). SEE "THE ACQUISITIONS." REFERENCES TO THE "OFFERING" ARE TO THE
OFFERING OF CLASS A COMMON STOCK MADE HEREBY. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS GIVES RETROACTIVE EFFECT TO A -FOR-1 STOCK
SPLIT TO BE CONSUMMATED IMMEDIATELY PRIOR TO THE CONSUMMATION OF THE OFFERING
(THE "STOCK SPLIT") AND ASSUMES THAT THE UNDERWRITERS'OVER-ALLOTMENT OPTION IS
NOT EXERCISED. THE ACQUISITIONS WILL BE CONSUMMATED ON OR BEFORE THE CLOSING OF
THE OFFERING.
THE COMPANY
Sonic Automotive, Inc. is one of the leading automotive retailers in the
United States, operating 20 dealerships, four standalone used vehicle facilities
and eight collision repair centers in the southeastern and southwestern United
States. Sonic sells new and used cars and light trucks, sells replacement parts,
provides vehicle maintenance, warranty, paint and repair services and arranges
related financing and insurance ("F&I") for its automotive customers. The
Company's business is geographically diverse, with dealership operations in the
Charlotte, Chattanooga, Nashville, Tampa-Clearwater, Houston and Atlanta
markets, each of which the Company believes are experiencing favorable
demographic trends. Sonic sells 17 domestic and foreign brands, which consist of
BMW, Cadillac, Chrysler, Dodge, Eagle, Ford, Honda, Infiniti, Jaguar, Jeep, KIA,
Oldsmobile, Plymouth, Saturn, Toyota, Volkswagen and Volvo. In several of its
markets, the Company has a significant market share for new cars and light
trucks, including 13.7% in Charlotte and 12.6% in Chattanooga in 1996. Pro forma
for the Acquisitions, the Company had revenues of $917.1 million and retail unit
sales of 24,114 new and 13,453 used vehicles in 1996. The Company believes that
in 1996, based on pro forma retail unit sales it would have been one of the ten
largest dealer groups out of a total of more than 15,000 dealer groups in the
United States and, based on pro forma revenues, it would have had three of the
top 100 single-point dealerships in the United States.
The Company's founder and Chief Executive Officer, O. Bruton Smith, has
over 30 years of automotive retailing experience. In addition, the Company's
other executive officers, regional vice presidents and executive managers have
on average 18 years of automotive retailing experience. The Company's
dealerships have won the highest attainable awards from various manufacturers
measuring quality and customer satisfaction. These awards include the Five Star
Award from Chrysler, the Chairman's Award from Ford, the President's Award from
BMW and the President's Circle Award from Infiniti. In addition, the Company was
named to Ford's Top 100 Club, which consists of Ford's top 100 retailers based
on retail volume and consumer satisfaction. Also, various members of the
management team have served on several manufacturer dealer councils which act as
liaisons between the manufacturers and dealer groups. As an example of the
industry's recognition of the Company's executives, Nelson E. Bowers, II, the
Company's Executive Vice President, participated in the development of the
Saturn brand and was awarded in 1990 the first Saturn dealership in the United
States.
The Company intends to pursue an acquisition growth strategy led by a
management team that has experience in the consolidation of both automotive
retailing as well as motor sports businesses. Bruton Smith, who is also the
Chief Executive Officer of Speedway Motorsports, Inc., the owner and operator of
several motor sports facilities, first entered the automotive retailing business
in the mid-1960's. Mr. Smith will devote approximately 50% of his business time
to the Company. Since 1990, Mr. Smith has successfully acquired three
dealerships and increased revenues from his dealerships from $199.4 million in
1992 to $376.6 million in 1996, without giving effect to the Acquisitions. In
the Tennessee market, Mr. Bowers has acquired or opened eight dealerships since
1992 and increased revenues of his dealerships from $36.0 million in 1992 to
$127.1 million in 1996.
The Company believes the competitive advantages which differentiate it from
its local competitors include the reputation of the Company's management in the
automotive retailing industry, regional and national economies of scale, brand
and geographic diversity, and the established customer base and local name
recognition of the Company's dealerships. The Company has developed and
implemented several growth strategies to capitalize on these competitive
advantages. One of these is to continue to expand its operations in the
Southeast and Southwest by acquiring additional dealerships both within its
current markets and in new markets. The Company also is seeking additional
growth from the increased sale of higher margin products and services such as
wholesale parts, after-market products, collision repair services and F&I.
3
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The Company believes that an opportunity exists for dealership groups with
significant equity capital and experience in identifying, acquiring and
professionally managing dealerships, to acquire additional dealerships and
capitalize on changes in the automotive retailing industry. With approximately
$640 billion in 1996 sales, automotive retailing is the largest consumer retail
market in the United States. The industry today is highly fragmented, with the
largest 100 dealer groups generating less than 10% of total sales revenues and
controlling less than 5% of all new vehicle dealerships. The Company believes
that these factors, together with increasing capital costs of operating
automobile dealerships, the lack of alternative exit strategies (especially for
larger dealerships) and the aging of many dealership owners provide attractive
consolidation opportunities.
GROWTH STRATEGY
(Bullet) ACQUIRE DEALERSHIPS. The Company plans to implement a "hub and spoke"
acquisition program primarily by pursuing (i) well-managed dealerships
in new metropolitan and growing suburban geographic markets, and (ii)
dealerships that will allow the Company to capitalize on regional
economies of scale, offer a greater breadth of products and services in
any of its markets or increase brand diversity.
NEW MARKETS. The Company looks to acquire well-managed dealerships in
geographic markets it does not currently serve, principally in the
Southeast and Southwest regions of the United States. The Company will
target dealers having superior operational and financial management.
Generally, the Company will seek to retain the acquired dealerships'
operational and financial management, and thereby benefit from their market
knowledge, name recognition and local reputation.
EXISTING MARKETS. The Company seeks growth in its operations within
existing markets by acquiring dealerships that increase the brands,
products and services offered in those markets. These acquisitions should
produce opportunities for additional operating efficiencies, promote
increased name recognition and provide the Company with better
opportunities for repeat and referral business.
(Bullet) PURSUE OPPORTUNITIES IN ANCILLARY PRODUCTS AND SERVICES. The Company
intends to pursue opportunities to increase its sales of higher-margin
products and services by expanding its collision repair centers and its
wholesale parts and after-market products businesses, which, other than
after market products, are not directly related to the new vehicle
cycle.
COLLISION REPAIR CENTERS. The Company's collision repair business
provides favorable margins and is not significantly affected by economic
cycles or consumer spending habits. The Company believes that, because of
the high capital investment required for collision repair shops, and the
cost of complying with environmental and worker safety regulations, large
volume body shops will be more successful in the future than smaller volume
shops. The Company believes that this industry will consolidate and that it
will be able to expand its collision repair business. The Company believes
that opportunities exist for those automotive retailers that can establish
relationships with major insurance carriers. The Company currently
participates in 35 direct repair programs with major insurance companies
and its relationships with these carriers provide a source of collision
repair customers. The Company currently has eight collision repair centers
accounting for approximately $8.9 million in pro forma revenue for the year
ended 1996.
WHOLESALE PARTS. Over time, the Company plans to capitalize on its
growing representation of numerous manufacturers in order to increase its
sales of factory authorized parts to wholesale buyers such as independent
mechanical and body repair garages and rental and commercial fleet
operators.
AFTER-MARKET PRODUCTS. The Company intends to expand its offerings of
after-market products in many of its dealership locations. After-market
products, such as custom wheels, performance parts, telephones and other
accessories, enable the dealership to capture incremental revenue on new
and used vehicle sales.
(Bullet) ENHANCE PROFIT OPPORTUNITIES IN FINANCE AND INSURANCE. The Company
offers its customers a wide range of financing and leasing alternatives
for the purchase of vehicles, as well as credit life, accident and
health and disability insurance and extended service contracts. As a
result of its size and scale, the Company believes it will be able to
negotiate with the lending institutions that purchase its financing
contracts to increase the Company's revenues. Likewise, the Company
expects to negotiate to increase the commissions it earns on extended
service and insurance products.
(Bullet) INCREASE USED VEHICLE SALES. The Company believes that there will be
opportunities to improve the used vehicle departments at several of its
dealerships. The Company currently operates four standalone used
vehicle facilities. In 1998, the Company intends to convert part of an
existing facility in Nashville to a used vehicle facility. It also
intends to develop facilities in other markets where management
believes an opportunity exists.
4
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OPERATING STRATEGY
(Bullet) OPERATE MULTIPLE DEALERSHIPS IN GEOGRAPHICALLY DIVERSE MARKETS. The
Company operates dealerships in Charlotte, Chattanooga, Nashville,
Tampa-Clearwater, Houston and Atlanta. By operating in several
locations throughout the United States, the Company believes it will be
better able to insulate its earnings from local economic downturns. In
addition, the Company believes that by establishing a significant
market presence in its operating regions, it will be able to provide
superior customer service through a market-specific sales, service,
marketing and inventory strategy. The Company's market share in its
Charlotte and Chattanooga markets was 13.7% and 12.6%, respectively in
1996.
(Bullet) ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION. Customer satisfaction has
been and will continue to be a focus of the Company. The Company's
personalized sales process is intended to satisfy customers by
providing high-quality vehicles in a positive, "consumer friendly"
buying environment. Manufacturers generally measure customer
satisfaction with an index ("CSI"), which is a result of a survey given
to new vehicle buyers. Some Manufacturers offer specific performance
incentives, on a per vehicle basis, if certain CSI levels (which vary
by Manufacturer) are achieved by a dealer. Manufacturers can withhold
approval of acquisitions if a dealer fails to maintain a minimum CSI
score. Historically, the Company has not been denied Manufacturer
approval of acquisitions based on CSI scores or other reasons. To keep
management focused on customer satisfaction, the Company includes CSI
results as a component of its incentive compensation program.
(Bullet) TRAIN AND DEVELOP QUALIFIED MANAGEMENT. Sonic requires all of its
employees, from service technicians to regional vice presidents, to
participate in in-house training programs. The Company leverages the
experience of senior management, along with third party trainers from
manufacturers, industry affiliates and vendors, to formally train all
employees. This training has also become a convenient and effective way
to share best practices among the Company's employees at all levels of
the various dealerships. The Company is developing an off-site
education center (the "Education Center") to be equipped with
classrooms specifically designed on a departmental basis. The Company
believes that its comprehensive training of all employees at every
level of their career path offers the Company a competitive advantage
over other dealership groups in the development and retention of its
workforce.
(Bullet) OFFER A DIVERSE RANGE OF AUTOMOTIVE PRODUCTS AND SERVICES. Sonic offers
a broad range of automotive products and services, including a wide
selection of new and used vehicles, vehicle financing and insurance
programs, replacement parts and maintenance and repair programs.
Offering numerous new vehicle brands enables the Company to satisfy a
variety of customers, reduces dependence on any one Manufacturer and
reduces exposure to supply problems and product cycles.
(Bullet) CAPITALIZE ON EFFICIENCIES IN OPERATIONS. Because management
compensation is based primarily on dealership performance, expense
reduction and operating efficiencies are a significant management
focus. As the Company pursues its acquisition strategy, the Company's
size and market presence should provide it with an opportunity to
negotiate favorable contracts on such expense items as advertising,
purchasing, bank financings, employee benefit plans and other vendor
contracts.
(Bullet) UTILIZE PROFESSIONAL MANAGEMENT PRACTICES AND INCENTIVE BASED
COMPENSATION PROGRAMS. As a result of Sonic's size and geographic
dispersion, the Company's senior management has instituted a
multi-tiered management structure to supervise effectively its
dealership operations. In an effort to align management's interest with
that of stockholders, a portion of the incentive compensation program
for each officer, vice president and executive manager is provided in
the form of Company stock options, with additional incentives based on
the performance of individual profit centers. Sonic believes that this
organizational structure, with room for advancement and the opportunity
for equity participation, serves as a strong motivation for its
employees.
(Bullet) APPLY TECHNOLOGY THROUGHOUT OPERATIONS. The Company believes that, with
the customized technology it has introduced in certain markets, it has
been able to improve its operations over time by integrating its
systems into all aspects of its business. In these markets the Company
uses computer-based technology to monitor its dealerships' operating
performance and quickly adjust to market changes, and to integrate
computer systems into its sales, F&I and parts and service operations.
The Company intends to expand this computer system into more of its
dealerships and markets as the existing contracts for computer systems
expire.
THE REORGANIZATION
The Company was recently incorporated and capitalized with the stock of the
existing automobile dealerships that have been under the control of Bruton Smith
comprised of Town & Country Ford, Town & Country Toyota, Lone Star Ford, Fort
5
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Mill Ford and Frontier Oldsmobile-Cadillac (the "Sonic Dealerships"). As of June
30, 1997, the Company effected a reorganization (the "Reorganization") pursuant
to which: (i) the Company acquired all of the capital stock or limited liability
company interests of the Sonic Dealerships (the "Dealership Securities"); and
(ii) the Company issued Class B Common Stock in exchange for the Dealership
Securities. In connection with the Reorganization and the Offering, the Company
intends to convert from the last-in-first-out method (the "LIFO Method") of
inventory accounting to the first-in-first-out method (the "FIFO Method") of
inventory accounting (the "FIFO Conversion"), conditioned upon the closing of
the Offering. The FIFO Conversion will increase retained earnings by
approximately $7.5 million and will result in a tax liability of approximately
$5.5 million as of June 30, 1997 in connection with a restatement of the
Company's financial statements. See "The Reorganization."
THE ACQUISITIONS
In the past four months, the Company has consummated or signed definitive
agreements to purchase six dealerships or dealership groups for an aggregate
purchase price of approximately $100.7 million. These acquisitions consist of
Ken Marks Ford located in Clearwater, Florida (the "Ken Marks Acquisition"), the
Bowers Transportation Group, which consists of eight dealerships in Chattanooga,
Tennessee and one dealership in Nashville, Tennessee (the "Bowers Acquisition"),
Lake Norman Dodge and Lake Norman Chrysler-Plymouth-Jeep Eagle located in
Cornelius, North Carolina (the "Lake Norman Acquisition"), Dyer & Dyer Volvo
located in Atlanta, Georgia (the "Dyer Acquisition"), Jeff Boyd
Chrysler-Plymouth-Dodge, located in Fort Mill, South Carolina (the "Fort Mill
Acquisition"), and Williams Motors located in Rock Hill, South Carolina (the
"Williams Acquisition") (collectively, the "Acquisitions"). The dealerships
underlying the Acquisitions had aggregate total revenues of approximately $515.7
million in 1996 and enhance the Company's market presence in the Southeast. See
"The Acquisitions."
The Company's principal executive office is located at 5401 East
Independence Boulevard, Charlotte, North Carolina. Its mailing address is P.O.
Box 18747, Charlotte, North Carolina 28218, and its telephone number is (704)
532-3301.
THE OFFERING
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Class A Common Stock Offered by the Company........... shares (1)
Common Stock to be outstanding after the Offering:
Class A Common Stock................................ shares (2)
Class B Common Stock................................ shares
Total.......................................... shares
Voting Rights......................................... The Class A Common Stock and Class B Common Stock vote as a single
class on all matters, except as otherwise required by law, with each
share of Class A Common Stock entitling its holders to one vote and
each share of Class B Common Stock entitling its holder to ten votes
except with respect to certain limited matters. See "Description of
Capital Stock."
Use of proceeds....................................... The net proceeds of the Offering will be used to fund the
Acquisitions, including repaying indebtedness incurred by the Company
in connection with the Acquisitions. See "The Acquisitions" and "Use
of Proceeds."
Listing............................................... The Company intends to apply for listing of the Class A Common Stock
on the New York Stock Exchange (the "NYSE"), under the symbol "DLR."
</TABLE>
(1) Does not include up to an aggregate of shares of Class A Common Stock
that may be sold by the Company upon exercise of the over-allotment option
granted to the Underwriters. See "Underwriting."
(2) Excludes shares of Class A Common Stock reserved for future issuance
to Company employees under the Company's stock option plan (including up to
shares of Class A Common Stock reserved for issuance upon exercise of
options to be granted on or before the consummation of the Offering pursuant
to the Company's Stock Option Plan (as defined herein)) and excludes
shares of Class A Common Stock ( shares if the Underwriters'
over-allotment option is exercised) reserved for issuance under the Dyer
Warrant (defined herein). See "The Acquisitions -- The Dyer Acquisition" and
"Management -- Stock Option Plan."
6
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SUMMARY HISTORICAL AND PRO FORMA COMBINED AND CONSOLIDATED FINANCIAL DATA
The following summary historical and pro forma combined and consolidated
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Combined and
Consolidated Financial Statements of the Company and the related notes and "Pro
Forma Combined and Consolidated Financial Data" included elsewhere in this
Prospectus. The Company acquired Fort Mill Ford, Inc. and Fort Mill
Chrysler-Plymouth-Dodge in February 1996 and in June 1997, respectively. Both of
these acquisitions were accounted for using the purchase method of accounting.
As a result the Summary Historical Combined and Consolidated Financial Data
below does not include the results of operations of these dealerships prior to
the date they were acquired by the Company. Accordingly, the actual historical
data for the periods after the acquisition may not be comparable to data
presented for periods prior to the acquisitions of Fort Mill Ford and Fort Mill
Chrysler-Plymouth-Dodge. Additionally, the Summary Historical and Pro Forma
Combined and Consolidated Financial Data below is not necessarily indicative of
the results of operations or financial position which would have resulted had
the Reorganization, the FIFO Conversion, the Acquisitions and the Offering
occurred during the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
PRO
ACTUAL FORMA ACTUAL
1992 1993 1994 1995 1996(2) 1996(1) 1996(2) 1997(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AND VEHICLES UNIT DATA)
COMBINED AND CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Vehicle sales...................... $171,065 $203,630 $227,960 $267,308 $326,842 $803,495 $164,333 $185,077
Parts, service and collision
repair........................... 24,543 30,337 33,984 35,860 42,644 96,098 21,005 22,907
Finance and insurance.............. 3,743 3,711 5,181 7,813 7,118 17,482 4,277 4,763
Total revenues................... 199,351 237,678 267,125 310,981 376,604 917,075 189,615 212,747
Cost of sales........................ 174,503 210,046 234,461 272,179 332,407 800,583 167,191 188,368
Gross profit (4)..................... 24,848 27,632 32,664 38,802 44,197 116,492 22,424 24,379
Selling, general and administrative
expenses........................... 20,251 22,738 24,632 29,343 33,677 88,086 16,590 18,413
Depreciation and amortization........ 682 788 838 832 1,076 3,696 360 396
Operating income..................... 3,915 4,106 7,194 8,627 9,444 24,710 5,474 5,570
Interest expense floor plan.......... 2,215 2,743 3,001 4,505 5,968 11,492 2,801 3,018
Interest expense, other.............. 290 263 443 436 433 974 184 269
Other income......................... 1,360 613 609 449 618 2,167 369 274
Income before income taxes and
minority interest (4).............. 2,770 1,713 4,359 4,135 3,661 14,411 2,858 2,557
Provision for income taxes........... 108 107 1,560 1,675 1,400 5,870 1,093 937
Income before minority interest...... 2,662 1,606 2,799 2,460 2,261 8,541 1,765 1,620
Minority interest in earnings (loss)
of subsidiary...................... (31) (22) 15 22 114 -- 41 47
Net income........................... $ 2,693 $ 1,628 $ 2,784 $ 2,438 $ 2,147 $ 8,541 $ 1,724 $ 1,573
Net income per share (5)............. $ --
<CAPTION>
PRO
FORMA
1997(1)
<S> <C>
COMBINED AND CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues:
Vehicle sales...................... $427,279
Parts, service and collision
repair........................... 51,125
Finance and insurance.............. 9,781
Total revenues................... 488,185
Cost of sales........................ 427,901
Gross profit (4)..................... 60,284
Selling, general and administrative
expenses........................... 43,718
Depreciation and amortization........ 1,766
Operating income..................... 14,800
Interest expense floor plan.......... 6,373
Interest expense, other.............. 583
Other income......................... 1,277
Income before income taxes and
minority interest (4).............. 9,121
Provision for income taxes........... 3,571
Income before minority interest...... 5,550
Minority interest in earnings (loss)
of subsidiary...................... --
Net income........................... $ 5,550
Net income per share (5)............. $ --
</TABLE>
OTHER COMBINED AND
CONSOLIDATED OPERATING DATA:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New vehicle units sold............... 8,060 9,429 9,686 10,273 11,693 24,114 6,027 6,553
Used vehicle units sold -- retail
(6)................................ 3,892 4,104 4,374 5,172 5,488 13,453 2,836 2,638
New vehicle sales revenues........... $126,230 $152,525 $164,361 $186,517 $233,146 $549,867 $115,721 $137,069
Used vehicle sales revenues -- retail
(6)................................ 33,636 37,742 47,537 60,766 68,054 187,213 35,200 32,666
Parts, service and collision repair
sales revenues..................... 24,543 30,337 33,984 35,860 42,644 96,098 21,005 22,907
Gross profit margin (FIFO) (7)....... 12.4% 12.3% 12.8% 12.9% 12.1% 12.6% 11.8% 11.5%
New vehicle gross margin (FIFO)
(7)................................ 6.7% 6.9% 7.0% 7.3% 7.4% 7.4% 6.6% 6.5%
Used vehicle gross margin (retail)
(FIFO) (7)(6)...................... 10.7% 10.5% 10.9% 9.5% 8.4% 9.3% 8.4% 8.5%
Parts, service and collision repair
gross margin (FIFO) (7)(6)......... 36.3% 36.4% 35.9% 36.1% 36.5% 42.4% 35.8% 35.4%
<CAPTION>
New vehicle units sold............... 12,816
<S> <C>
Used vehicle units sold -- retail
(6)................................ 7,222
New vehicle sales revenues........... $290,178
Used vehicle sales revenues -- retail
(6)................................ 99,182
Parts, service and collision repair
sales revenues..................... 51,125
Gross profit margin (FIFO) (7)....... 12.3%
New vehicle gross margin (FIFO)
(7)................................ 7.3%
Used vehicle gross margin (retail)
(FIFO) (7)(6)...................... 9.1%
Parts, service and collision repair
gross margin (FIFO) (7)(6)......... 42.5%
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JUNE 30, 1997
1996 ACTUAL PRO FORMA
<S> <C> <C> <C>
COMBINED AND CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................................................. $ 6,201 $ 4,287 $ 51,162
Total assets................................................................. 94,930 106,859 317,372
Long-term debt............................................................... 5,286 5,137 10,422
Total liabilities............................................................ 78,867 86,499 188,931
Minority interest............................................................ 314 -- --
Stockholders' equity (4)..................................................... 15,749 20,360 128,441
</TABLE>
7
<PAGE>
(FOOTNOTES ON FOLLOWING PAGE)
(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, which give effect to the Reorganization, the FIFO
Conversion, the Acquisitions, and the Offering, see "Pro Forma Combined and
Consolidated Financial Data."
(2) The actual statement of operations data for the year ended December 31, 1996
includes the results of Fort Mill Ford, Inc. from the date of acquisition,
February 1, 1996.
(3) The actual statement of operations data for the six months ended June 30,
1997 include the results of Fort Mill Chrysler-Plymouth-Dodge, Inc. from the
date of acquisition June 6, 1997.
(4) The Company currently utilizes the LIFO Method of inventory accounting. See
Note 3 to the Company's Combined and Consolidated Financial Statements. The
Company intends to file an election with the Internal Revenue Service to
convert, upon the closing of the Offering, to the FIFO Method of inventory
accounting and report its earnings for tax purposes and in its financial
statements on the FIFO Method. If the Company had previously utilized the
FIFO Method, gross profit and income before income taxes and minority
interest for the periods shown in the table, and stockholders' equity as of
December 31, 1996 and June 30, 1997, would have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Gross profit............................ $24,638 $29,233 $34,114 $40,103 $45,557 $22,424 $24,379
Income before income taxes and minority
interest.............................. 2,560 3,314 5,809 5,436 5,021 2,858 2,557
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 JUNE 30, 1997
<S> <C> <C>
(IN THOUSANDS)
Stockholders' equity..................................................................... $23,829 $28,440
</TABLE>
(5) Historical net income per share is not presented, as the historical capital
structure of the Company prior to the Offering is not comparable with the
capital structure that will exist after the Offering.
(6) The term "retail" describes sales to consumers as compared to sales to
wholesalers.
(7) Data is presented on the FIFO Method of inventory accounting. The Company
has historically used the LIFO Method of inventory accounting and intends to
convert to the FIFO Method conditioned and effective upon the closing of the
Offering. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
8
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE ALL OF
THE INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING THE RISK FACTORS SET
FORTH BELOW.
DEPENDENCE ON AUTOMOBILE MANUFACTURERS
Each of the Company's dealerships operates pursuant to a franchise
agreement between the applicable automobile manufacturer (or authorized
distributor thereof) (the "Manufacturer") and the subsidiary of the Company that
operates such dealership. The Company is dependent to a significant extent on
its relationship with such Manufacturers.
After giving effect to the Reorganization and the Acquisitions, vehicles
manufactured by Ford Motor Company ("Ford"), Chrysler Corporation ("Chrysler"),
Toyota Motor Sales (U.S.A.) ("Toyota") and Volvo Motors ("Volvo"), accounted for
approximately 62.3%, 16.9%, 5.8% and 5.7%, respectively, of the Company's 1996
pro forma unit sales of new vehicles. No other Manufacturer accounted for more
than 5% of the new vehicle sales of the Company during 1996. See
"Business -- New Vehicle Sales," and " -- Relationships with Manufacturers."
Accordingly, a significant decline in the sale of Ford, Chrysler, Toyota, or
Volvo new cars could have a material adverse effect on the Company.
Manufacturers exercise a great degree of control over dealerships, and the
franchise agreement provides for termination or non-renewal for a variety of
causes. The Company believes that it is in compliance in all material respects
with all its franchise agreements except that Lake Norman Dodge (one of the
dealerships whose assets are being purchased in the Lake Norman Acquisition) is
in violation of its franchise agreement with Chrysler. The Company does not have
any reason to believe that this will have an effect on its ability to consummate
the Lake Norman Acquisition. The Company's franchise agreements generally expire
at various times between 1997 and 2000, although some franchise agreements have
no specific expiration date and continue in effect unless terminated pursuant to
certain limited circumstances. The Company has no reason to believe that it will
not be able to renew all of its franchise agreements upon expiration, but there
can be no assurance that any of such agreements will be renewed or that the
terms and conditions of such renewals will be favorable to the Company. If a
Manufacturer terminates or declines to renew one or more of the Company's
significant franchise agreements, such action could have a material adverse
effect on the Company and its business. Actions taken by Manufacturers to
exploit their superior bargaining position in negotiating the terms of such
renewals or otherwise could also have a material adverse effect on the Company.
See "Business -- Relationships with Manufacturers."
The Company also depends on the Manufacturers to provide it with a
desirable mix of popular new vehicles that produce the highest profit margins
and which may be the most difficult to obtain from the Manufacturers. If the
Company is unable to obtain a sufficient allocation of the most popular
vehicles, its profitability may be materially adversely affected. In some
instances, in order to obtain additional allocations of these vehicles, the
Company purchases a larger number of less desirable models than it would
otherwise purchase and its profitability may be materially adversely affected
thereby. The Company's dealerships depend on the Manufacturers for certain sales
incentives and other programs that are intended to promote dealership sales or
support dealership profitability. Manufacturers have historically made many
changes to their incentive programs during each year. A reduction or
discontinuation of a Manufacturer's incentive programs may materially adversely
affect the profitability of the Company.
The success of each of the Company's dealerships depends to a great extent
on the financial condition, marketing, vehicle design, production capabilities
and management of the Manufacturers which the Company represents. Events such as
strikes and other labor actions by unions, or negative publicity concerning a
particular Manufacturer or vehicle model, may materially and adversely affect
the Company. Although, the Company has attempted to lessen its dependence on any
one Manufacturer by establishing dealer relationships with a number of different
domestic and foreign automobile Manufacturers, adverse conditions affecting
Ford, Chrysler, Toyota and Volvo in particular, could have a material adverse
affect on the Company. See "Business -- New Vehicle Sales" and " -- Relationship
with Manufacturers."
Many Manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through systems, which vary from
Manufacturer to Manufacturer but which are generally known as CSI. These
Manufacturers may use a dealership's CSI scores as a factor in evaluating
applications for additional dealership acquisitions and other matters such as
vehicle inventory allocations. The components of CSI 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. To date,
the Company has not been adversely affected by these standards and has not been
denied approval of any acquisition. However, there can be no assurance that the
Company will be able to comply with such standards in the future. Failure of the
9
<PAGE>
Company's dealerships to comply with the standards imposed by Manufacturers at
any given time may have a material adverse effect on the Company.
The Company must also obtain approvals by the applicable Manufacturer for
any of its acquisitions. See " -- Risks Associated with Acquisitions."
COMPETITION
Automobile retailing is a highly competitive business with over 22,000
franchised automobile dealerships in the United States at the beginning of 1996.
The Company's competition includes franchised automobile dealerships selling the
same or similar makes of new and used vehicles offered by the Company in the
same markets as the Company and sometimes at lower prices than those of the
Company. These dealer competitors may be larger and have greater financial and
marketing resources than the Company. Other competitors include other franchised
dealers, private market buyers and sellers of used vehicles, used vehicle
dealers, service center chains and independent service and repair shops. Gross
profit margins on sales of new vehicles have been declining since 1986. The
Company has also had margin pressure on its used vehicle sales over the last 18
months. The used car market faces increasing competition from non-traditional
outlets such as used-car "superstores," which use sales techniques such as one
price shopping and the Internet. Several groups have begun to establish
nationwide networks of used vehicle superstores. In Charlotte and Atlanta, where
the Company has significant operations, CarMax Superstores operate in
competition with the Company. In addition, car superstores operate in many of
the Company's other markets. "No negotiation" sales methods are also being tried
for new cars by at least one of these superstores and by dealers for Saturn and
other dealerships. Some recent market entrants may be capable of operating on
smaller gross margins compared to the Company. In addition, certain
Manufacturers have publicly announced that they may directly enter the retail
market in the future which could have a material adverse effect on the Company.
The increased popularity of short-term vehicle leasing also has resulted, as
these leases expire, in a large increase in the number of late model vehicles
available in the market, which puts added pressure on margins. As the Company
seeks to acquire dealerships in new markets, it may face increasingly
significant competition (including from other large dealer groups and dealer
groups that have publicly-traded equity) as it strives to gain market share
through acquisitions or otherwise.
The Company's franchise agreements (other than with Saturn) do not give the
Company the exclusive right to sell a Manufacturer's product within a given
geographic area. The Company could be materially adversely affected if any of
its Manufacturers award franchises to others in the same markets where the
Company is operating. A similar adverse affect could occur if existing competing
franchised dealers increase their market share in the Company's markets. The
Company's gross margins may decline over time as it expands into markets where
it does not have a leading position. These and other competitive pressures could
materially adversely affect the Company's results of operations. See
"Business -- Competition."
OPERATING CONDITION OF ACQUIRED BUSINESSES
Although the Company has conducted what it believes to be a prudent level
of investigation regarding the operating condition of the assets to be purchased
in the Acquisitions in light of the circumstances of each transaction, certain
unavoidable levels of risk remain regarding the actual operating condition of
these assets. Until the Company actually assumes operating control of such
assets, it will not be able to ascertain their actual value and, therefore, will
be unable to ascertain whether the price paid for the Acquisitions represented a
fair valuation. The same risk regarding the actual operating condition of
businesses to be acquired will also apply to future acquisitions by the Company.
RISKS OF CONSOLIDATING OPERATIONS AS A RESULT OF THE ACQUISITIONS
In connection with the Acquisitions, Sonic acquired six dealerships or
dealership groups. Each of these dealerships or groups has been operated and
managed as a separate independent entity to date, and the Company's future
operating results will depend on its ability to integrate the operations of
these businesses and manage the combined enterprise. The Company's management
group has been expanded in connection with these Acquisitions. There can be no
assurance that the management group will be able effectively and profitably
integrate in a timely manner each of the dealerships included in the
Acquisitions or any future acquisitions, or to 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.
RISKS ASSOCIATED WITH ACQUISITIONS
The retail automobile industry is considered a mature industry in which
minimal growth is expected in unit sales of new vehicles. Accordingly, the
Company's future growth will depend in large part on its ability to acquire
additional dealerships
10
<PAGE>
as well as on its ability to manage expansion, control costs in its operations
and consolidate dealership acquisitions, including the Acquisitions, into
existing operations. In pursuing a strategy of acquiring other dealerships,
including the Acquisitions, the Company faces risks commonly encountered with
growth through acquisitions. These risks include, but are not limited to,
incurring significantly higher capital expenditures and operating expenses,
failing to assimilate the operations and personnel of the acquired dealerships,
disrupting the Company's ongoing business, dissipating the Company's limited
management resources, failing to maintain uniform standards, controls and
policies, impairing relationships with employees and customers as a result of
changes in management and causing increased expenses for accounting and computer
systems, as well as integration difficulties. Installing new computer systems
has in the past disrupted existing operations as management and salespersons
adjust to new technologies. In addition, as contracts with existing suppliers of
the Company's computer systems expire, the Company's strategy may be to install
new systems at its existing dealerships. The Company expects that it will take
one to two years to fully integrate an acquired dealership into the Company's
operations and realize the full benefit of the Company's strategies and systems.
There can be no assurance that the Company will be successful in overcoming
these risks or any other problems encountered with such acquisitions, including
in connection with the Acquisitions. Acquisitions may also result in significant
goodwill and other intangible assets that are amortized in future years and
reduce future stated earnings. See "The Acquisitions," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
"Business -- Growth Strategy."
Although there are many potential acquisition candidates that fit the
Company's acquisition criteria, there can be no assurance that the Company will
be able to consummate any such transactions in the future or identify those
candidates that would result in the most successful combinations or that future
acquisitions will be able to be consummated at acceptable prices and terms. The
magnitude, timing and nature of future acquisitions will depend upon various
factors, including the availability of suitable acquisition candidates,
competition with other dealer groups for suitable acquisitions, the negotiation
of acceptable terms, the Company's financial capabilities, the availability of
skilled employees to manage the acquired companies and general economic and
business conditions.
In addition, the Company's future growth as a result of its acquisition of
automobile dealerships will depend on its ability to obtain the requisite
Manufacturer approvals. There can be no assurance that Manufacturers will grant
such approvals. It is also possible that one or more Manufacturers might object
to ownership by one company of many of its franchises. For example, it is
currently the policy of Toyota to restrict any company from holding more than
seven Toyota or more than three Lexus franchises and to impose restrictions
based on the number of franchises held within certain geographic areas. Although
the Company has been to date able to obtain Manufacturer approvals for its
acquisitions on acceptable terms, there can be no assurance that it will be able
to do so in the future.
In certain cases, the Company may be required to file applications and
obtain clearances, under applicable federal antitrust laws before consummation
of an acquisition. These regulatory requirements may restrict or delay the
Company's acquisitions, and may increase the cost of completing such
transactions.
FINANCIAL RESOURCES AVAILABLE FOR ACQUISITIONS
The Company intends to finance acquisitions with cash on hand, through
issuances of equity or debt securities and through borrowings under credit
arrangements. The Company is currently negotiating new credit arrangements,
although none has been consummated and no assurance can be given that any
lending or credit arrangement will be consummated or that such arrangements will
adequately meet the Company's financing needs on acceptable terms. Similarly,
there is no assurance that the Company will be able to obtain additional debt or
equity securities financing. Using cash to complete acquisitions could
substantially limit the Company's operating or financial flexibility. Using
stock to consummate acquisitions may result in significant dilution of
stockholders' percentage interest in the Company, which dilution may be
prohibited by the Company's franchise agreements with Manufacturers. See
" -- Stock Ownership/Issuance Limits." If the Company is unable to obtain
financing on acceptable terms, the Company may be required to reduce
significantly the scope of its presently anticipated expansion, which could
materially adversely affect the Company's business. See "The Acquisitions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources" and "Business -- Growth Strategy."
In addition, the Company is dependent to a significant extent on its
ability to finance the purchase of inventory, which in the automotive retail
industry involves significant sums of money in the form of floor plan financing.
As of June 30, 1997 on a pro forma basis for the Acquisitions, the Company had
approximately $144.5 million of floor plan indebtedness. Substantially all the
assets of the Company's dealerships are pledged to secure such indebtedness,
which may impede the Company's ability to borrow from other sources. Many floor
plan lenders are associated with Manufacturers with whom the Company
11
<PAGE>
has franchise agreements. Consequently, deterioration of the Company's
relationship with a Manufacturer could adversely affect its relationship with
the affiliated floor plan lender and vice-versa. In addition, the Company must
obtain new floor plan financing or obtain consents to assume such financing in
connection with its acquisition of dealerships. See " -- Dependence on
Automobile Manufacturers."
STOCK OWNERSHIP/ISSUANCE LIMITS
Standard automobile franchise agreements prohibit transfers of any
ownership interests of a dealership and its parent, such as Sonic, and,
therefore, often do not by their terms accommodate public trading of the capital
stock of a dealership or its parent. While, prior to the Offering and as a
condition thereto, all of the Manufacturers of which Company subsidiaries are
franchisees will have agreed to permit the Offering and trading in the Class A
Common Stock, a number of Manufacturers will continue to impose restrictions
upon the transferability of the Common Stock. Any transfer of shares of the
Company's Common Stock, including a transfer by members of the Smith Group, will
be outside the control of the Company and, if such transfer results in a change
in control of the Company, could result in the termination or non-renewal of one
or more of its franchise agreements. Moreover, these issuance limitations may
impede the Company's ability to raise capital through additional equity
offerings or to issue Common Stock as consideration for, and therefore, to
consummate, future acquisitions. Such restrictions also may prevent or deter
prospective acquirors from acquiring control of the Company and, therefore, may
adversely impact the Company's equity value. See " -- Financial Resources
Available for Acquisitions."
Upon consummation of the Offering, % of the Common Stock (on a fully
diluted basis) will be publicly owned (assuming full exercise of the
Underwriters' over-allotment option). The Company has contractual obligations to
provide "piggyback" registration rights to holders of Class B Common Stock to
register their shares under the Securities Act under certain circumstances.
Additionally, such shares will become in the future, eligible for sale pursuant
to the terms of Rule 144 under the Securities Act ("Rule 144"). See "Certain
Transactions -- Registration Rights Agreement" and "Shares Eligible for Future
Sale."
POTENTIAL CONFLICTS OF INTEREST
Bruton Smith, the Chairman and Chief Executive Officer of the Company, will
continue to serve as the Chairman and Chief Executive Officer of Speedway
Motorsports. Accordingly, the Company will compete with Speedway Motorsports for
the management time of Mr. Smith. Under his employment agreement with the
Company, Mr. Smith is required to devote approximately 50% of his business time
to the affairs of the Company. The remainder of his business time may be devoted
to other entities including Speedway Motorsports.
The Company has in the past and will likely in the future enter into
transactions with entities controlled by either Mr. Smith, Nelson Bowers or Ken
Marks or other affiliates of the Company. The Company believes that all of these
arrangements are favorable to the Company and were entered into on terms that,
taken as a whole, reflect arms'-length negotiations, although certain lease
provisions included in such transactions may be at below-market rates. Since no
independent appraisals evaluating these business transactions were obtained,
there can be no assurance that such transactions are on terms no less favorable
than could have been obtained from unaffiliated third parties. Certain of the
existing arrangements will continue after the Offering. Potential conflicts of
interest could also arise in the future between the Company and these affiliated
parties in connection with the enforcement, amendment or termination of these
arrangements. See "Certain Transactions." The Company anticipates renegotiating
its leases with all related parties at lease expiration at fair market rentals,
which may be higher than current rents. For further discussion of these related
party leases, see "Certain Transactions -- Certain Dealership Leases."
In addition to his interest and responsibilities with the Company, Nelson
Bowers has ownership interests in several non-Company entities, including a
Toyota dealership in Cleveland, Tennessee, an auto body shop in Chattanooga,
Tennessee and a used-car auction house. These enterprises are involved in
businesses that are related to, and that compete with, the businesses of the
Company. Pursuant to his employment agreement, Mr. Bowers is not permitted to
participate actively in the operation of those businesses and is only permitted
to maintain a passive investment in these enterprises.
Under the General Corporation Law of Delaware ("Delaware Law") generally, a
corporate insider is precluded from acting on a business opportunity in his
individual capacity if that opportunity is one which the corporation is
financially able to undertake, is in the line of the corporation's business, is
of practical advantage to the corporation and is one in which the corporation
has an interest or reasonable expectancy. Accordingly, corporate insiders are
generally required to engage in new business opportunities of the Company only
through the Company unless a majority of the Company's disinterested directors
decide under the standards discussed above that it is not in the best interest
of the Company to pursue such opportunities.
12
<PAGE>
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") contains provisions providing that transactions between the
Company and its affiliates must be no less favorable to the Company than would
be available in corporate transactions in arms'-length dealing with an unrelated
third party. Moreover, any such transactions involving aggregate payments in
excess of $500,000 must be approved by a majority of the Company's directors and
a majority of the Company's independent directors. Otherwise, the Company must
obtain an opinion as to the financial fairness of the transaction to be issued
by an investment banking or appraisal firm of national standing.
LACK OF INDEPENDENT DIRECTORS
As of the date hereof, all of the members of the Company's Board of
Directors are employees and/or majority shareholders of the Company or
affiliates thereof. Although the Company intends to appoint at least two
independent directors following completion of the Offering, such directors will
not constitute a majority of the Board, and the Company's Board may not have a
majority of independent directors in the future. In the absence of a majority of
independent directors, the Company's executive officers, who also are principal
stockholders and directors, could establish policies and enter into transactions
without independent review and approval thereof, subject to certain restrictions
under the Certificate. In addition, although the Company intends to establish
audit and compensation committees which will consist entirely of outside
directors, until those committees are established, audit and compensation
policies could be approved without independent review. These and other
transactions could present the potential for a conflict of interest between the
Company and its stockholders generally and the controlling officers,
stockholders or directors. See "Management."
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES
The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
service and sales personnel. The loss of the services of one or more of these
key employees could have a material adverse effect on the Company. Although the
Company has employment agreements with Bruton Smith, Bryan Scott Smith, Nelson
Bowers, Theodore M. Wright, O. Ken Marks, Jr. and Jeffrey C. Rachor, the Company
will not have employment agreements in place with other key personnel. In
addition, as the Company expands it may need to hire additional managers. The
market for qualified employees in the industry and in the regions in which the
Company operates, particularly for general managers and sales and service
personnel, is highly competitive and may subject the Company to increased labor
costs in periods of low unemployment. The loss of the services of key employees
or the inability to attract additional qualified managers could have a material
adverse effect on the Company. In addition, the lack of qualified management or
employees employed by the Company's potential acquisition candidates may limit
the Company's ability to consummate future acquisitions. See "Business -- Growth
Strategy," "Business -- Competition" and "Management."
MATURE INDUSTRY; CYCLICAL AND LOCAL NATURE OF AUTOMOBILE SALES
The United States automobile dealership industry generally is considered a
mature industry in which minimal growth is expected in unit sales of new
vehicles. As a consequence, growth in the Company's revenues and earnings are
likely to be significantly affected by the Company's success in acquiring and
integrating dealerships and the pace and size of such acquisitions. See
" -- Risks Associated with Acquisitions" and "Business -- Growth Strategy."
The automobile industry is cyclical and historically has experienced
periodic downturns, characterized by oversupply and weak demand. Many factors
affect the industry, including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
credit availability. For the six months ended June 30, 1997, industry retail
sales were down 2% as a result of retail car sales declines of 5.3% and retail
truck sales gains of 2.4% from the same period in 1996. Future recessions may
have a material adverse effect on the Company's business.
Local economic, competitive and other conditions also affect the
performance of dealerships. The Sonic Dealerships are located in the Charlotte
and Houston markets. Pursuant to the Acquisitions, the Company is acquiring
dealerships in the metropolitan areas of Charlotte, Chattanooga, Nashville,
Tampa-Clearwater and Atlanta. While the Company intends to pursue acquisitions
outside of these markets, the Company expects that the majority of its
operations will continue to be concentrated in these areas for the foreseeable
future. As a result, the Company's results of operations will depend
substantially on general economic conditions and consumer spending habits in the
Southeast and, to a lesser extent, in the Houston market, as well as various
other factors, such as tax rates and state and local regulations, specific to
North Carolina, Tennessee, Florida, Texas, Georgia and South Carolina. There can
be no assurance that the Company will be able to expand geographically, or that
any such expansion will adequately insulate it from the adverse effects of local
or regional economic conditions. See "Business -- Growth Strategy."
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<PAGE>
SEASONALITY
The Company's business is seasonal, with a disproportionate amount of
revenues occurring in the second, third and fourth fiscal quarters. See
"Managements's Discussion and Analysis of Financial Condition and Results of
Operations."
IMPORTED PRODUCTS
Certain motor vehicles retailed by the Company, as well as certain major
components of vehicles retailed by the Company, are of foreign origin.
Accordingly, the Company is subject to the import and export restrictions of
various jurisdictions and is dependent to some extent upon general economic
conditions in and political relations with a number of foreign countries,
particularly Japan. Additionally, fluctuations in currency exchange rates may
adversely affect the Company's sales of vehicles produced by foreign
manufacturers. Imports into the United States may also be adversely affected by
increased transportation costs.
GOVERNMENTAL REGULATIONS; 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
regulations relating to gasoline storage, waste treatment and other
environmental matters. Future acquisitions by the Company may also be subject to
regulation, including antitrust reviews. The Company believes that it complies
in all material respects with all laws and regulations applicable to its
business, but future regulations may be more stringent and require the Company
to incur significant additional costs.
The Company's facilities and operations are subject to federal, state and
local laws and regulations relating to environmental protection and human health
and safety, including those governing wastewater discharges, air emissions, the
operation and removal of underground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials and the remediation
of contamination associated with such disposal. Certain of these laws and
regulations may impose joint and several liability on certain statutory classes
of persons for the costs of investigation or remediation of contaminated
properties, regardless of fault or the legality of the original disposal. These
persons include the present or former owner or operator of a contaminated
property and companies that generated, disposed of or arranged for the disposal
of hazardous substances found at the property.
Past and present business operations of the Company subject to such laws
and regulations include the use, storage handling and contracting for recycling
or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner,
batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels.
The Company is subject to other laws and regulations as a result of the past or
present existence of underground storage tanks at many of the Company's
properties. The Company, like many of its competitors, has incurred, and will
continue to incur, capital and operating expenditures and other costs in
complying with such laws and regulations. In addition, soil and groundwater
contamination exist at certain of the Company's properties, and there can be no
assurance that other properties have not been contaminated by any leakage from
underground storage tanks or by any spillage or other releases of hazardous or
toxic substances or wastes.
Certain laws and regulations, including those governing air emissions and
underground storage tanks, have been amended so as to require compliance with
new or more stringent standards as of future dates. The Company cannot predict
what other environmental legislation or regulations will be enacted in the
future, how existing or future laws or regulations will be administered or
interpreted or what environmental conditions may be found to exist in the
future. Compliance with new or more stringent laws or regulations, stricter
interpretation of existing laws or the future discovery of environmental
conditions may require additional expenditures by the Company, some of which may
be material. See "Business -- Governmental Regulations and Environmental
Matters."
CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS
The Common Stock is divided into two classes with different voting rights,
which allows for the maintenance of control of the Company by the holders of the
Class B Common Stock. Holders of Class A Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders of the Company.
Holders of Class B Common Stock are entitled to ten votes per share on all
matters, except that the Class B Common Stock is entitled to only one vote per
share with respect to any transaction proposed or approved by the Company's
Board of Directors, proposed by or on behalf of the holders of the Class B
Common Stock or their affiliates or as to which any members of the Smith Group
or any affiliate thereof has a material financial interest (other than as a then
existing stockholder of the Company) constituting a (a) "going private"
transaction (as defined herein), (b) disposition of substantially all of the
Company's assets, (c) transfer resulting in a change
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<PAGE>
in the nature of the Company's business, or (d) merger or consolidation in which
current holders of Common Stock would own less than 50% of the Common Stock
following such transaction. The two classes vote together as a single class on
all matters, except where class voting is required by Delaware Law, which
exception would apply, among other situations, to a vote on any proposal to
modify the voting rights of the Class B Common Stock. See "Description of
Capital Stock." Upon completion of this Offering (assuming the Underwriters'
over-allotment option is not exercised), the existing holders of Class B Common
Stock will have approximately % of the combined voting power of the Common
Stock (in those circumstances in which the Class B Common Stock has ten votes
per share) and % of the outstanding Common Stock. Accordingly such holders of
Class B Common Stock will effectively have the ability to elect all of the
directors of the Company and to control all other matters requiring the approval
of the Company's stockholders. In addition, the Company may issue additional
shares of Class B Common Stock to members of the Smith Group in the future for
fair market value. See "Principal Stockholders."
The disproportionate voting rights of the Class B Common Stock under the
above-mentioned circumstances could have a material adverse effect on the market
price of the Class A Common Stock. Such disproportionate voting rights may make
the Company a less attractive target for a takeover than it otherwise might be,
or render more difficult or discourage a merger proposal, a tender offer or a
proxy contest, even if such actions were favored by a majority of the holders of
the Class A Common Stock.
Certain provisions of the Certificate and the Company's Bylaws make it more
difficult for stockholders of the Company to effect certain corporate actions.
See "Description of Capital Stock -- Delaware Law, Certain Charter and Bylaw
Provisions and Certain Franchise Agreement Provisions." Under the Company's
Stock Option Plan, options outstanding thereunder become immediately exercisable
upon a change in control of the Company. See "Management -- Employment
Agreements" and " -- Stock Option Plan." The agreements, corporate documents and
laws described above, as well as provisions of the Company's franchise
agreements described in " -- Dependence on Automobile Manufacturers" above
permitting Manufacturers to terminate such agreements upon a change of control,
may have the effect of delaying or preventing a change in control of the Company
or preventing stockholders from realizing a premium on the sale of their shares
of Class A Common Stock upon an acquisition of the Company.
The Certificate authorizes the Board of Directors of the Company to issue
three million shares of "blank check" preferred stock with such designations,
rights and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights or preferences that could adversely affect the voting
power or other rights of the holders of the Class A Common Stock. In the event
of issuance, the preferred stock could be utilized, under certain circumstances,
as a method of discouraging, delaying, or preventing a change in control of the
Company. The issuance of preferred stock could also prevent stockholders from
realizing a premium upon the sale of their shares of Class A Common Stock upon
an acquisition of the Company. Although the Company has no present intention to
issue any shares of its preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Capital Stock."
Additionally, the Company's Bylaws provide: (i) for a Board of Directors
divided into three classes serving staggered terms; (ii) that special meetings
of stockholders may be called only by the Chairman or by the Company's Secretary
or Assistant Secretary at the request in writing of a majority of the Board of
Directors; (iii) that no stockholder action may be taken by written consent; and
(iv) that stockholders seeking to bring business before an annual meeting of
stockholders, or to nominate candidates for election as directors at an annual
or a special meeting of stockholders must provide timely notice thereof in
writing. These provisions will impair the stockholders' ability to influence or
control the Company or to effect a change in control of the Company, and may
prevent stockholders from realizing a premium on the sale of their shares of
Class A Common Stock upon an acquisition of the Company. See "Description of
Capital Stock."
NO PRIOR PUBLIC MARKET FOR CLASS A COMMON STOCK AND POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offering, there has been no public market for the Class A
Common Stock. The Company intends to apply for a listing of the Class A Common
Stock on the NYSE. The initial public offering price of the Class A Common Stock
will be determined by negotiations among the Company and representatives of the
Underwriters. See "Underwriting." There can be no assurance that the market
price of the Class A Common Stock prevailing at any time after this Offering
will equal or exceed the initial public offering price. Quarterly and annual
operating results of the Company, variations between such results and the
results expected by investors and analysts, changes in local or general economic
conditions or developments affecting the automobile industry, the Company or its
competitors could cause the market price of the Class A Common Stock to
fluctuate substantially. As a result of these factors, as well as other factors
common to initial public offerings, the
15
<PAGE>
market price could fluctuate substantially from the initial offering price. In
addition, the stock market has, from time to time, experienced extreme price and
volume fluctuations, which could adversely effect the market price for the Class
A Common Stock without regard to the financial performance of the Company.
DILUTION
Purchasers of Class A Common Stock in the Offering will experience
immediate and substantial dilution in the amount of $ per share in net
tangible book value per share from the initial offering price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
The shares of Class B Common Stock owned beneficially by existing
stockholders of the Company and the shares of Class A Common Stock underlying
options to be granted by the Company under the Stock Option Plan and underlying
the Dyer Warrant (as defined herein), are "restricted securities" as defined in
Rule 144 under the Securities Act, and may in the future be resold in compliance
with Rule 144. See "Management -- Stock Option Plan" and "The Acquisitions --
The Dyer Acquisition." In addition, shares of Common Stock constituting
restricted securities are subject to certain piggyback registration rights. See
"Certain Transactions -- Registration Rights Agreements." No prediction can be
made as to the effect that resale of shares of Common Stock, or the availability
of shares of Common Stock for resale, will have on the market price of the Class
A Common Stock prevailing from time to time. The resale of substantial amounts
of Common Stock, or the perception that such resales may occur, could materially
and adversely affect prevailing market prices for the Common Stock and the
ability of the Company to raise equity capital in the future. The Company has
agreed not to issue, and all executive officers of the Company and all owners of
the Class B Common Stock have agreed not to resell, any shares of Common Stock
or other equity securities of the Company for 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. See "Management -- Stock Option Plan," "Shares Eligible for Future
Sale" and "Underwriting."
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<PAGE>
THE REORGANIZATION
The Company was recently incorporated and capitalized with the stock of the
Sonic Dealerships, which have been under the control of Bruton Smith and which
are comprised of Town & Country Ford, Town & Country Toyota, Lone Star Ford,
Fort Mill Ford and Frontier Oldsmobile-Cadillac. As of June 30, 1997, the
Company effected the Reorganization pursuant to which: (i) the Company acquired
all of the Dealership Securities; and (ii) the Company issued Class B Common
Stock in exchange for the Dealership Securities. See "Certain
Transactions -- Other Transactions." Subsequent to the Reorganization, the
Company intends to convert from the LIFO Method of inventory accounting to the
industry standard FIFO Method of inventory accounting, conditioned upon the
closing of the Offering. As a result of the Reorganization and the FIFO
Conversion, the historical combined financial information included in this
Prospectus is not necessarily indicative of the results of operations, financial
position and cash flows of the Company in the future or of those which would
have resulted had the Reorganization and FIFO Conversion been in effect during
the periods presented in the Company's Combined and Consolidated Financial
Statements included elsewhere in this Prospectus. Upon election of the FIFO
Method, the Company will be required under generally accepted accounting
principles to restate its historical financial statements. The FIFO Conversion
will increase retained earnings by $7.5 million and will result in a tax
liability of approximately $5.5 million as of June 30, 1997. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
THE ACQUISITIONS
In the last four months, the Company consummated or signed definitive
agreements to purchase six additional dealerships or dealership groups for an
aggregate purchase price of approximately $100.7 million. These acquisitions
consist of the Ken Marks Acquisition, the Bowers Acquisition, the Lake Norman
Acquisition, the Dyer Acquisition, the Fort Mill Acquisition and the Williams
Acquisition.
The closing of the Offering is contingent upon the Company consummating the
Acquisitions. The Company intends to use the proceeds from the Offering to pay
the purchase prices of the Acquisitions and to repay indebtedness, if any,
incurred in connection with the Acquisitions. See "Use of Proceeds." In
addition, the Company intends to refinance all of the floor plan indebtedness of
the dealerships constituting the Acquisitions.
THE KEN MARKS ACQUISITION. Ken Marks Ford is located in Clearwater,
Florida. Ken Marks, Jr., together with the other stockholders of Ken Marks Ford,
and the Company entered into a definitive stock purchase agreement in July 1997,
providing for the acquisition by the Company of all of the outstanding stock of
Ken Marks Ford. Ken Marks Ford had retail sales of approximately 4,369 new and
1,764 used vehicles, had aggregate revenues of approximately $148.4 million in
1996, and, based on revenues, is one of the 20 largest Ford dealerships in the
United States. This acquisition further implements the Company's growth strategy
by adding a well-managed dealership with significant presence in a new market.
Ken Marks, Jr., with over 13 years of automotive retailing experience in central
Florida, will continue to serve as the Executive Manager of Ken Marks Ford and
will join the senior management team of the Company as the Regional Vice
President for Florida.
In the Ken Marks Acquisition, the Company has agreed to purchase all of the
outstanding capital stock of Ken Marks Ford for a total of approximately $25.0
million. At closing, the Company will pay the stockholders of Ken Marks Ford the
sum of approximately $25.0 million, less $0.5 million which will be deposited
into escrow for certain contingencies. The $25.0 million sum will be adjusted
downward to the extent that the net book value of Ken Marks Ford as of the
closing is less than approximately $5.1 million. At the closing, Ken Marks Ford
will lease its facilities from an affiliate of the original stockholders of Ken
Marks Ford. See "Business -- Facilities" and "Certain Transactions -- Certain
Dealership Leases." If the Company fails to perform its obligation to close the
Ken Marks Acquisition by October 15, 1997, it has agreed to pay a termination
fee.
THE BOWERS ACQUISITION. European Motors of Nashville (a BMW and Volkswagen
dealership), European Motors (a BMW and Volvo dealership), Jaguar of Chattanooga
(a Jaguar and Infiniti dealership), Cleveland Chrysler-Plymouth-Jeep-Eagle,
Nelson Bowers Dodge, Cleveland Village Imports (a Honda dealership), Saturn of
Chattanooga, Nelson Bowers Ford, L.P. and KIA of Chattanooga (a KIA and
Volkswagen dealership), (collectively, the "Bowers Dealerships") and the
Company, as well as the persons and entities controlling the Bowers Dealerships,
have entered into a definitive asset purchase agreement dated as of June 24,
1997. The Bowers Dealerships are located in the Chattanooga, Tennessee
metropolitan area, with the exception of European Motors of Nashville, which is
located in Nashville, Tennessee. The Bowers Dealerships had retail sales of
approximately 3,196 new and 2,388 used vehicles, and had aggregate revenues of
approximately $127.1 million in 1996. The Bowers Dealerships estimate that their
combined market share of total new vehicle unit sales in the Chattanooga
metropolitan market was approximately 12.6% for 1996. This acquisition serves
the Company's growth strategy by
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<PAGE>
adding a group of well-managed dealerships with a substantial portion of its
sales in luxury vehicles. Nelson Bowers, the Bowers Dealerships' chief
executive, and Jeffrey Rachor, their chief operating officer, have over 20 and
10 years of experience in the automotive industry, respectively. Mr. Bowers will
join the Company's senior management team as Executive Vice President. Mr.
Rachor will be the Company's Regional Vice President for Tennessee, Georgia,
Kentucky and Alabama.
The Company will acquire substantially all the Bowers Dealerships' assets,
excluding real property, and assume substantially all the liabilities associated
with the purchased assets. For the Bowers Acquisition, the Company agreed to pay
up to $33.5 million. At closing, the Company will pay $27.5 million in cash to
the sellers and will deposit $1.0 million into an escrow account, all subject to
certain potential downward adjustments based on the net book value of the
purchased assets and assumed liabilities as of the closing. The balance (up to
$5.0 million) of the purchase price will be evidenced by the Company's
promissory notes that will be payable in 28 equal quarterly installments and
will bear interest at NationsBank's prime rate less 0.5%. The sellers or their
affiliates will retain ownership of certain real property underlying some of the
dealerships and will lease such property to the Company. See
"Business -- Facilities" and "Certain Transactions -- Certain Dealership
Leases." In the event the Company fails to close the Bowers Acquisition by
October 31, 1997, it has agreed to pay a termination fee.
THE LAKE NORMAN ACQUISITION. Lake Norman Chrysler-Plymouth-Jeep-Eagle and
Lake Norman Dodge (collectively, the "Lake Norman Dealerships") are both located
in Cornelius, North Carolina approximately 20 miles north of Charlotte. The Lake
Norman Dealerships had retail sales of approximately 3,572 new and 2,320 used
vehicles, and had aggregate revenues of approximately $137.7 million in 1996.
The existing management of the Lake Norman Dealerships will continue with the
Company.
The Company will acquire substantially all the Lake Norman Dealerships'
assets, excluding real property, and assume substantially all of the sellers'
liabilities. For the Lake Norman Acquisition, the Company agreed in May 1997 to
pay up to $18.2 million. At closing, the Company will pay $17.7 million in cash
to the sellers and deposit $0.5 million into an escrow account. At the sellers'
option, the payment of the total purchase price may be made in two installments:
one at closing and one on January 1, 1998, the second being evidenced by a
Company promissory note. The purchase price will be adjusted downward based on
the net book value of the purchased assets and assumed liabilities as of the
closing date, to be determined after the closing. The sellers of the assets will
retain ownership of the three tracts of real property underlying the dealerships
and will lease such property to the Company. See "Business -- Facilities." In
the event the Company fails to close the Lake Norman Acquisition by September
30, 1997, it has agreed to pay a termination fee secured by a letter of credit.
THE DYER ACQUISITION. Dyer & Dyer, Inc. ("Dyer Volvo"), which is located in
Atlanta, Georgia, is the largest Volvo dealership in the United States in terms
of retail unit sales. For 1996, Dyer Volvo had retail sales of approximately
1,284 new and 1,493 used vehicles, and had aggregate revenues of approximately
$72.6 million. This acquisition is a significant step in the Company's growth
strategy in that it adds a large, well-managed dealership in a new geographic
market and increases the Company's presence in the luxury car market. Richard
Dyer, who has over 25 years in the automotive retailing industry, will continue
as the Company's Executive Manager of Dyer Volvo.
The Company will acquire all of the operating assets of Dyer Volvo for
$18.0 million plus assumption of substantially all of Dyer Volvo's existing
recorded liabilities and obligations. The $18.0 million purchase price is
subject to adjustment in the event that net book value of the purchased assets,
less assumed liabilities, is more or less than $10.5 million as of the date of
the closing. At the closing, the Company will pay $17.0 million in cash to the
seller and deposit $1.0 million into an escrow account. In addition, the Company
will issue a warrant to Richard Dyer to purchase .375% of the Company's
outstanding shares of Common Stock (in the form of Class A Common Stock) after
consummation of the Offering ( shares if the Underwriters' over-allotment
option is exercised in full) pursuant to his employment agreement with the
Company at a per share exercise price equal to the initial public offering per
share price (the "Dyer Warrant"). The Dyer Warrant is exercisable immediately
and will expire five years after the consummation of the Dyer Acquisition. The
Dyer Warrant is in addition to stock options that are to be granted to Richard
Dyer pursuant to the Company's Stock Option Plan. Dyer Volvo leases its
dealership premises and the Company will assume Dyer Volvo's obligations under
the leases at the closing. See "Business -- Facilities." The closing of the Dyer
acquisition will occur no later than November 1, 1997. If the Company fails to
perform its obligation to close by that date, it has agreed to pay a termination
fee.
THE FORT MILL ACQUISITION. Fort Mill Chrysler-Plymouth-Dodge is located in
Fort Mill, South Carolina, which is a part of the Charlotte market. In 1996,
Jeff Boyd Chrysler-Plymouth-Dodge (the predecessor to Fort Mill
Chrysler-Plymouth-Dodge) had retail sales of approximately 632 new and 842 used
vehicles, and had total revenues of $20.3 million.
The Company purchased in June 1997 certain dealership assets, excluding
real property, of Jeff Boyd Chrysler-
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Plymouth-Dodge for a total purchase price of approximately $3.7 million in cash
and assumed the floor plan liabilities of the sellers. Of the $3.7 million
purchase price paid, $3.5 million was advanced to the Company by Bruton Smith
and is to be repaid with proceeds from the Offering. See "Certain
Transactions -- The Smith Advance." An affiliate of Jeff Boyd
Chrysler-Plymouth-Dodge retained ownership of the real property underlying the
dealership and leased the property to the Company. See "Business -- Facilities."
THE WILLIAMS ACQUISITION. Williams Motors, Inc.
(Chrysler-Plymouth-Jeep-Eagle dealerships) is located in Rock Hill, South
Carolina, approximately 35 miles south of Charlotte. In 1996, Williams Motors
had retail sales of approximately 248 new and 280 used vehicles, and had total
revenues of $9.6 million.
The Company has entered into a definitive asset purchase agreement to
acquire substantially all of the operating assets of Williams Motors (excluding
primarily used car inventory and real estate) for up to $1.8 million plus
assumption of floor plan indebtedness to Chrysler Credit Corporation. The exact
price will depend upon the net book value of the purchased assets, less assumed
liabilities, as of the closing. The Company will also lease the dealership
premises from the sellers for one to five years, at the Company's option. See
"Business -- Facilities."
FUTURE ACQUISITIONS. The Company intends to pursue acquisitions in the
future that will be financed with cash or debt or equity financing or a
combination thereof. 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 other than
the Acquisitions. There is no assurance that the Company will consummate any
future acquisition, that they will be on favorable terms to the Company or that
financing for such acquisitions will be available. All future acquisitions by
the Company will be contingent upon the consent of the applicable manufacturer.
Although no assurance can be given that any such consents will be obtained, the
Company historically has not been denied manufacturer approval of acquisitions.
The Company is currently negotiating with several lending institutions for
credit arrangements to finance acquisitions and general corporate purposes,
although there can be no assurance that the Company will obtain any such
financing. See "Risk Factors -- Risks Associated with Acquisitions" and
" -- Financial Resources Available for Acquisitions," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class A Common
Stock offered hereby are estimated to be approximately $ 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. The net proceeds will be used to pay the purchase
price for the Acquisitions or repay short-term borrowings incurred to finance
any of the Acquisitions that close before the consummation of the Offering,
including approximately $3.5 million to repay a loan advanced by Bruton Smith in
connection with the Acquisitions, which bears interest at 3.83% per annum. See
"The Acquisitions" and "Certain Transactions -- The Smith Advance."
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, any lending arrangement negotiated by the Company is
expected to include limitations 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" and "Description of Capital Stock."
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CAPITALIZATION
The following table sets forth, as of June 30, 1997, the capitalization of
the Company (a) on an actual basis, including the Reorganization which is
effective as of June 30, 1997, (b) on a pro forma basis, as adjusted to reflect
the FIFO Conversion and the Acquisitions, and (c) on a pro forma basis,
additionally adjusted to reflect the Offering and the application of the
estimated net proceeds to be received by the Company. 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 Combined and Consolidated Financial Statements of the Company and the
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
PRO FORMA
FOR THE
FIFO CONVERSION PRO FORMA
AND THE FOR THE
ACTUAL ACQUISITIONS(1) OFFERING(2)
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Short-term debt:
Notes payable -- floor plan.................................................... $67,856 $144,491 $ 144,491
Current maturities of long-term debt........................................... 487 1,473 1,473
Total short-term debt....................................................... 68,343 145,964 145,964
Long-term debt................................................................... 5,137 10,422 10,422
Stockholders' equity:
Preferred Stock, $.10 par value, 3,000,000 shares authorized; no shares issued
and outstanding............................................................. -- -- --
Class A Common Stock, $.01 par value, 50,000,000 shares authorized; no shares
issued and outstanding, actual; shares issued and outstanding, as
adjusted (3)(4)............................................................. -- --
Class B Common Stock, $.01 par value, 15,000,000 shares authorized; 10,000
shares issued and outstanding, actual; shares issued and outstanding,
as adjusted (5)............................................................. -- --
Additional paid-in capital..................................................... 16,604 16,604 116,604
Retained earnings and members' and partners' equity............................ 6,486 14,567 14,567
Due from Affiliates............................................................ (2,633) (2,633) (2,633)
Unrealized loss on marketable equity securities............................. (97) (97) (97)
Total stockholders' equity.................................................. 20,360 28,441 128,441
Total capitalization...................................................... $25,497 $ 38,863 $ 138,863
</TABLE>
(1) Adjusted to give pro forma effect to the FIFO Conversion and the
Acquisitions. See "Pro Forma Combined and Consolidated Financial Data."
(2) Adjusted to give pro forma effect to the FIFO Conversion, the Acquisitions
and the Offering.
(3) shares if the Underwriters' overallotment option is exercised in
full. Excludes shares of Class A Common Stock reserved for future issuance
under the Company's Stock Option Plan (including up to shares of
Class A Common Stock reserved for issuance upon exercise of options to be
granted on or before the consummation of the Offering pursuant to the Stock
Option Plan) and excludes shares of Class A Common Stock (
shares if the Underwriters' over-allotment option is exercised in full)
reserved for issuance under the Dyer Warrant. See "The Acquisitions -- The
Dyer Acquisition" and "Management -- Stock Option Plan."
(4) The number of shares of Class A Common Stock offered hereby, may be reduced
to the extent the Company elects to finance a portion of the purchase price
of the Acquisitions through borrowings under a revolving credit facility or
other form of indebtedness. In such event, pro forma debt will increase by
the amount of such borrowings.
(5) Actual shares of Class B Common Stock do not include the effect of the Stock
Split (which will be effected in the form of a stock dividend).
21
<PAGE>
DILUTION
The pro forma net tangible book value of the Company (after giving effect
to the FIFO Conversion and the Acquisitions) as of June 30, 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 total
assets less goodwill less pro forma total liabilities) by the total number of
outstanding shares of Common Stock. After giving effect to the sale of the
shares of Class A Common Stock 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 June 30, 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 Class A Common Stock in the Offering. The following table
illustrates the per share dilution:
<TABLE>
<S> <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 June 30, 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>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
<S> <C> <C> <C> <C> <C>
Existing stockholders (1)............................................... % $ % $
New investors (2).......................................................
Total.............................................................. 100.0% $ 100.0%
</TABLE>
(1) Does not reflect the possible exercise of options to purchase
shares of Class A Common Stock reserved for issuance under the Company's
Stock Option Plan including options to purchase shares of Class A
Common Stock that will be granted immediately before the completion of the
Offering with an exercise price equal to the initial public offering price
and the possible exercise of the Dyer Warrant to purchase shares of
Class A Common Stock. See "Management -- Stock Option Plan" and "Certain
Transactions."
(2) Assumes that the Underwriters' over-allotment option is not exercised. Sales
pursuant to the exercise by the Underwriters of the over-allotment option
will cause the total number of shares purchased by new investors, total
consideration paid by new investors, percent of total consideration paid by
new investors and average price per share for all investors to increase to
, $ , % and $ , respectively.
22
<PAGE>
SELECTED COMBINED AND CONSOLIDATED FINANCIAL DATA
The selected combined and consolidated statement of operations data for the
years ended December 31, 1994, 1995 and 1996 and the selected combined balance
sheet data as of December 31, 1995 and 1996 are derived from the Company's
audited financial statements, which are included elsewhere in this Prospectus.
The selected combined and consolidated statement of operations data for the
years ended December 31, 1992 and 1993 and the selected combined and
consolidated balance sheet data as of December 31, 1992, 1993 and 1994 are
derived from the Company's unaudited financial statements, which are not
included in this Prospectus. The selected combined and consolidated results of
operations data for the six months ended June 30, 1996 and 1997, and the
selected combined and consolidated balance sheet data at June 30, 1997, are
derived from the unaudited financial statements of the Company, which are
included elsewhere in this Prospectus. In the opinion of management, these
unaudited financial statements reflect all adjustments necessary for a fair
presentation of its results of operations and financial condition. All such
adjustments are of a normal recurring nature. The results of operations for an
interim period are not necessarily indicative of results that may be expected
for a full year or any other interim period. This selected combined and
consolidated financial data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Combined and Consolidated Financial Statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996(1)(5) 1996(1)(5) 1997(2)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
COMBINED AND CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Vehicle sales......................... $171,065 $203,630 $227,960 $267,308 $326,842 $164,333 $185,077
Parts, service and collision repair... 24,543 30,337 33,984 35,860 42,644 21,005 22,907
Finance and insurance................. 3,743 3,711 5,181 7,813 7,118 4,277 4,763
Total revenues..................... 199,351 237,678 267,125 310,981 376,604 189,615 212,747
Cost of sales........................... 174,503 210,046 234,461 272,179 332,407 167,191 188,368
Gross profit(3)......................... 24,848 27,632 32,664 38,802 44,197 22,424 24,379
Selling, general and administrative
expenses.............................. 20,251 22,738 24,632 29,343 33,677 16,590 18,413
Depreciation and amortization........... 682 788 838 832 1,076 360 396
Operating income........................ 3,915 4,106 7,194 8,627 9,444 5,474 5,570
Interest expense, floor plan............ 2,215 2,743 3,001 4,505 5,968 2,801 3,018
Interest expense, other................. 290 263 443 436 433 184 269
Other income............................ 1,360 613 609 449 618 369 274
Income before income taxes and minority
interest(3)........................... 2,770 1,713 4,359 4,135 3,661 2,858 2,557
Provision for income taxes.............. 108 107 1,560 1,675 1,400 1,093 937
Income before minority interest......... 2,662 1,606 2,799 2,460 2,261 1,765 1,620
Minority interest in earnings (loss) of
subsidiary............................ (31) (22) 15 22 114 41 47
Net income(4)........................... $ 2,693 $ 1,628 $ 2,784 $ 2,438 $ 2,147 $ 1,724 $ 1,573
COMBINED AND CONSOLIDATED BALANCE SHEET
DATA:
Working capital (deficit)............... $ (1,985) $ 160 $ 2,327 $ 5,920 $ 6,201 $ 8,405 $ 4,287
Total assets............................ 40,656 45,448 58,142 67,242 94,930 87,236 106,859
Long-term debt.......................... 3,904 4,142 3,773 3,561 5,286 4,825 5,137
Total liabilities....................... 40,035 42,905 52,602 57,980 78,867 68,719 86,499
Minority interest....................... 139 161 177 200 314 240 --
Stockholders' equity(3)................. 482 2,382 5,166 9,062 15,749 18,517 20,360
</TABLE>
(1) The statement of operations data includes the results of Fort Mill Ford,
Inc. from the date of acquisition, February 1, 1996.
(2) The statement of operations data for the six months ended June 30, 1997
includes the results of Fort Mill Chrysler-Plymouth-Dodge, Inc. from the
date of acquisition, June 3, 1997.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
23
<PAGE>
(3) The Company currently utilizes the LIFO Method of inventory accounting.
See Note 3 to the Company's Combined and Consolidated Financial
Statements. The Company intends to file an election with the IRS to
convert, effective January 1, 1997, to the FIFO Method of inventory
accounting and report its earnings for tax purposes and in its
financial statements on the FIFO Method. If the Company had previously
utilized the FIFO Method, gross profit and income before income taxes
and minority interest for the periods shown in the table, and
stockholders' equity as of December 31, 1996 and June 30, 1997, would
have been as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Gross profit............................ $24,638 $29,233 $34,114 $40,103 $45,557 $22,424 $24,379
Income before income taxes and minority
interest.............................. 2,560 3,314 5,809 5,436 5,021 2,858 2,557
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1996 JUNE 30, 1997
<S> <C> <C>
(IN THOUSANDS)
Stockholders' equity............................................................... $23,829 $28,440
</TABLE>
(4) Historical net income per share is not presented, as the historical
capital structure of the Company prior to the Offering is not
comparable with the capital structure that will exist after the
Offering.
(5) The Company acquired Fort Mill Ford, Inc. and Fort Mill
Chrysler-Plymouth-Dodge in February 1996 and in June 1997,
respectively. Both of these acquisitions were accounted for using the
purchase method of accounting. As a result, the Selected Combined and
Consolidated Financial Data below does not include the results of
operations of these dealerships prior to the date they were acquired by
the Company. Accordingly, the actual historical data for periods after
the acquisition may not be comparable to data presented for periods
prior to the acquisition of Fort Mill Ford and Fort Mill
Chrysler-Plymouth-Dodge.
24
<PAGE>
PRO FORMA COMBINED AND CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma combined and consolidated statements of
operations for the year ended December 31, 1996 and for the six months ended
June 30, 1997 reflect the historical accounts of the Company for those periods,
adjusted to give pro forma effect to the Reorganization, the FIFO Conversion,
the Acquisitions and the Offering, as if these events had occurred at January 1,
1996. The following unaudited pro forma consolidated balance sheet as of June
30, 1997 reflects the historical accounts of the Company as of that date
adjusted to give pro forma effect to the FIFO Conversion, the Acquisitions and
the Offering as if these events had occurred on June 30, 1997. The Acquisitions
will be consummated on or before the closing of the Offering and are conditions
precedent to the closing of the Offering. The Company intends to convert to the
FIFO Method of inventory accounting conditioned and effective upon the closing
of the Offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
The pro forma combined and consolidated financial data and accompanying
notes should be read in conjunction with the Combined and Consolidated Financial
Statements and related notes of the Company as well as the financial statements
and related notes of the Bowers Dealerships, the Lake Norman Dealerships, Ken
Marks Ford and Dyer Volvo, all of which are included elsewhere in this
Prospectus. The Company believes that the assumptions used in the following
statements provide a reasonable basis on which to present the pro forma
financial data. The pro forma combined financial data is provided for
informational purposes only and should not be construed to be indicative of the
Company's financial condition or results of operations had the transactions and
events described above been consummated on the dates assumed, and are not
intended to project the Company's financial condition on any future date or its
results of operation for any future period.
25
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMPANY
PRO FORMA
ADJUSTMENTS THE ACQUISITIONS
FOR THE PRO FORMA
REORGANI- ADJUSTMENTS FOR
ZATION AND BOWERS THE
THE FIFO DEALERSHIPS LAKE NORMAN KEN MARKS DYER ACQUISITIONS
ACTUAL (1) CONVERSION PRO FORMA (2) DEALERSHIPS FORD (3) VOLVO (4)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Vehicle sales............... $ 326,842 $ $ 159,417 $ 124,539 $ 131,826 $60,871 $
Parts, service and collision
repair.................... 42,644 18,579 9,543 14,224 11,163 (55)(11)
Finance and insurance....... 7,118 3,888 3,617 2,317 542
Total revenues............ 376,604 181,884 137,699 148,367 72,576 (55)
Cost of sales................. 332,407 (1,360)(8) 156,910 121,806 128,850 62,547 (545)(12)
(32)(11)
Gross profit.................. 44,197 1,360 24,974 15,893 19,517 10,029 522
Selling, general and
administrative expenses..... 33,677 20,931 14,215 16,190 6,997 (1,349)(13)
(3,355)(14)
(127)(11)
527(15)
Depreciation and
amortization................ 1,076 75(9) 846 89 94 126 (8)(11)
(193)(16)
1,654(17)
(63)(15)
Operating income.............. 9,444 1,285 3,197 1,589 3,233 2,906 3,436
Interest expense, floor
plan(6)..................... 5,968 1,545 1,552 2,054 373
Interest expense, other....... 433 383 50 400(18)
(292)(15)
Other income.................. 618 742 258 97 452
Income before income taxes and
minority interest........... 3,661 1,285 2,011 245 1,276 2,985 3,328
Provision for income taxes.... 1,400 513(10) 61 546 955 1,408(19)
2,033(20)
61(21)
(955)(22)
Income before minority
interest.................... 2,261 772 1,950 245 730 2,030 781
Minority interest in earnings
of subsidiary............... 114 (114)(9)
Net income.................... $ 2,147 $ 886 $ 1,950 $ 245 $ 730 $ 2,030 $ 781
Net income per share (7)......
Weighted average shares
outstanding.................
<CAPTION>
PRO FORMA
FOR THE
REORGANI-
ZATION, FIFO
CONVERSION,
PRO FORMA THE
ADJUSTMENTS ACQUISITIONS
FOR THE AND THE
OFFERING OFFERING
<S> <C> <C>
Revenues:
Vehicle sales............... $ $803,495
Parts, service and collision
repair.................... 96,098
Finance and insurance....... 17,482
Total revenues............ 917,075
Cost of sales................. 800,583
Gross profit.................. 116,492
Selling, general and
administrative expenses..... 380(23) 88,086
Depreciation and
amortization................ 3,696
Operating income.............. (380) 24,710
Interest expense, floor
plan(6)..................... 11,492
Interest expense, other....... 974
Other income.................. 2,167
Income before income taxes and
minority interest........... (380) 14,411
Provision for income taxes.... (152)(24) 5,870
Income before minority
interest.................... (228) 8,541
Minority interest in earnings
of subsidiary...............
Net income.................... $ (228) $ 8,541
Net income per share (7)...... $
Weighted average shares
outstanding.................
</TABLE>
26
<PAGE>
PRO FORMA COMBINED AND CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
COMPANY
PRO FORMA
ADJUSTMENTS THE ACQUISITIONS
FOR THE PRO FORMA
REORGANI- ADJUSTMENTS
ZATION AND BOWERS FOR THE
THE FIFO DEALERSHIPS LAKE NORMAN KEN MARKS ACQUISITIONS
ACTUAL(1) CONVERSION PRO FORMA (2) DEALERSHIPS FORD (3) DYER VOLVO (4)(5)
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues:
Vehicle sales.............. $ 185,077 $ $75,874 $69,798 $ 65,157 $31,373 $
Parts, service and
collision repair......... 22,907 12,184 5,321 5,999 5,960 (1,246)(11)
Finance and insurance...... 4,763 1,910 1,950 1,029 129
Total revenues........... 212,747 89,968 77,069 72,185 37,462 (1,246)
Cost of sales................ 188,368 55(8) 76,541 68,272 63,402 32,377 (371)(12)
(743)(11)
Gross profit................. 24,379 (55) 13,427 8,797 8,783 5,085 (132)
Selling, general and
administrative expenses.... 18,413 10,358 6,937 7,547 3,498 (1,421)(13)
(1,743)(14)
(324)(11)
263(15)
Depreciation and
amortization............... 396 36(9) 445 47 47 151 (45)(11)
(100)(16)
827(17)
(38)(15)
Operating income............. 5,570 (91) 2,624 1,813 1,189 1,436 2,449
Interest expense, floor plan
(6)........................ 3,018 969 1,185 925 276
Interest expense, other...... 269 211 68 200(18)
(165)(15)
Other income................. 274 489 176 91 247
Income before income taxes
and minority interest...... 2,557 (91) 1,933 736 355 1,407 2,414
Provision for income taxes... 937 (36)(10) 31 147 894(19)
1,591(20)
83(21)
Income before minority
interest................... 1,620 (55) 1,902 736 208 1,407 (154)
Minority interest in earnings
of subsidiary.............. 47 (47)(9)
Net income................... $ 1,573 $ (8) $1,902 $ 736 $ 208 $1,407 $ (154)
Net income per share (7).....
Weighted average shares
outstanding................
<CAPTION>
PRO FORMA FOR THE
REORGANI-
PRO FORMA ZATION, FIFO
ADJUSTMENTS CONVERSION, THE
FOR THE ACQUISITIONS AND THE
OFFERING OFFERING
<S> <C> <C>
Revenues:
Vehicle sales.............. $ $427,279
Parts, service and
collision repair......... 51,125
Finance and insurance...... 9,781
Total revenues........... 488,185
Cost of sales................ 427,901
Gross profit................. 60,284
Selling, general and
administrative expenses.... 43,718
190(23)
Depreciation and
amortization............... 1,766
Operating income............. (190) 14,800
Interest expense, floor plan
(6)........................ 6,373
Interest expense, other...... 583
Other income................. 1,277
Income before income taxes
and minority interest...... (190) 9,121
Provision for income taxes... (76) (24) 3,571
Income before minority
interest................... (114) 5,550
Minority interest in earnings
of subsidiary..............
Net income................... $ (114) $ 5,550
Net income per share (7)..... $
Weighted average shares
outstanding................
</TABLE>
(1) The actual combined statement of operations data for the Company includes
the results of Fort Mill Ford from February 1, 1996, the effective date of
its acquisition. Pro forma adjustments have not been presented to include
the results of operations for Fort Mill Ford for the one month period ended
February 1, 1996 because management believes such results are not material.
The actual consolidated statement of operations data for the six months
ended June 30, 1997 include the results of Fort Mill
Chrysler-Plymouth-Dodge from June 3, 1997, the date of its acquisition.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
27
<PAGE>
(2) During 1996 and 1997, Nelson Bowers acquired three automobile
dealerships whose operating results, from their respective dates of
acquistion, are included in the historical combined and consolidated
statement of operations in the table below. The results of operations
of one of the acquisitions, European Motors of Chattanooga, for the
period from January 1, 1996 to May 1, 1996 (the date of its
acquisition), have been excluded because the former owner of this
dealership would not provide the Company with this information. The
Company believes the exclusion of such results is not material to the
Bowers Dealerships pro forma combined statements of operations. The
following table adjusts the historical combined and consolidated
statements of operations to include two of the acquirees as if two of
the acquisitions, European Motors of Nashville and Nelson Bowers
Dodge, had occurred on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
BOWERS EUROPEAN NELSON BOWERS
DEALERSHIPS(A) MOTORS OF BOWERS PRO FORMA DEALERSHIPS
(HISTORICAL) NASHVILLE(B) DODGE(B) ADJUSTMENTS (PRO FORMA)
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Vehicle sales............................................. $113,363 $ 21,827 $24,227 $ $159,417
Parts, service and collision repair....................... 10,405 4,740 3,434 18,579
Finance and insurance..................................... 3,348 199 341 3,888
Total revenues.......................................... 127,116 26,766 28,002 181,884
Cost of sales............................................... 109,373 23,054 24,483 156,910
Gross profit................................................ 17,743 3,712 3,519 24,974
Selling, general and administrative expenses................ 14,687 3,401 2,843 20,931
Depreciation and amortization............................... 515 86 106 139(d) 846
Operating income............................................ 2,541 225 570 (139) 3,197
Interest expense, floor plan................................ 1,288 208 49 1,545
Interest expense, other..................................... 380 3 383
Other income................................................ 158 166 418 742
Income before income taxes.................................. 1,031 183 936 (139) 2,011
Provision for income taxes.................................. 61 61
Net Income.................................................. $ 970 $ 183 $ 936 $ (139) $ 1,950
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
BOWERS NELSON BOWERS
DEALERSHIPS(A) BOWERS PRO FORMA DEALERSHIPS
(HISTORICAL) DODGE(C) ADJUSTMENTS (PRO FORMA)
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Revenues:
Vehicle sales.......................................................... $ 72,605 $ 3,269 $ $ 75,874
Parts, service and collision repair.................................... 11,597 587 12,184
Finance and insurance.................................................. 1,868 42 1,910
Total revenues....................................................... 86,070 3,898 89,968
Cost of sales............................................................ 73,096 3,445 76,541
Gross profit............................................................. 12,974 453 13,427
Selling, general and administrative expenses............................. 9,908 450 10,358
Depreciation and amortization............................................ 416 14 15(d) 445
Operating income......................................................... 2,650 (11 ) (15) 2,624
Interest expense, floor plan............................................. 965 4 969
Interest expense, other.................................................. 211 211
Other income............................................................. 452 37 489
Income before income taxes............................................... 1,926 22 (15) 1,933
Provision for income taxes............................................... 31 31
Net Income............................................................... $ 1,895 $ 22 $ (15) $ 1,902
</TABLE>
(a) The historical statement of operations data for the Bowers
Dealerships includes the results of Nelson Bowers Dodge from
March 1, 1997, the date of its acquisition by the owners of the
Bowers Dealerships. Such statement also includes the results of
European Motors of Nashville and European Motors of Chattanooga
from October 1, 1996 and May 1, 1996, respectively, which were
acquired by the owners of the Bowers Dealerships on those dates.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
28
<PAGE>
(b) Reflects the results of operations of (i) Nelson Bowers Dodge for
the year ended December 31, 1996; and (ii) European Motors of
Nashville for the period from January 1, 1996 to October 1, 1996,
the date of its acquisition by the owners of the Bowers
Dealerships. Such data was obtained from monthly financial
statements prepared by the dealership as required by the
manufacturers.
(c) Reflects the results of operations of (i) Nelson Bowers Dodge for
the period from January 1, 1997 to March 1, 1997, the date of its
acquisition by the owners of the Bowers Dealerships. Such data
was obtained from monthly financial statements prepared by the
dealership as required by the manufacturers.
(d) Reflects the amortization of goodwill resulting from the
acquisition of Nelson Bowers Dodge, European Motors of Nashville
and European Motors of Chattanooga over an assumed amortization
period of 40 years for the period not included in the historical
financial statements, assuming that such acquisitions were
consummated on January 1, 1996.
(3) Ken Marks Ford's fiscal year ends on April 30 of each year.
Accordingly, the Statement of Operations data for Ken Marks Ford for
the year ended December 31, 1996 was derived by adjusting the data for
the year ended April 30, 1997 to include results from January 1, 1996
through April 30, 1996, and exclude results from January 1, 1997
through April 30, 1997. The Statement of Operations data for the six
months ended June 30, 1997 was similarly derived by adjusting the
historical financial statements for the year ended April 30, 1997 to
include results from May 1, 1997 through June 30, 1997, and excludes
results from May 1, 1996 through December 31, 1996.
(4) The Company has excluded (i) the results of operations of Fort Mill
Chrysler-Plymouth-Dodge for the year ended December 31, 1996 and the
period ended June 3, 1997 and (ii) the historical results of
operations and related pro forma adjustments related to the Williams
Acquisition because management believes such results and adjustments
are not material to the Pro Forma Combined and Consolidated Statement
of Operations.
(5) Prior to the Company's acquisition of the Lake Norman Dealerships, its
former owners directed $550,000 and $150,000 in contributions to
charitable organizations during the year ended December 31, 1996 and
the six months ended June 30, 1997, respectively. It is the Company's
intention not to maintain the level of charitable contributions
already reflected in the Company's historical combined financial
statements. Although no pro forma adjustment to eliminate this expense
has been included in the accompanying Pro Forma Combined and
Consolidated Statements of Operations, the Company believes disclosure
and consideration of the Lake Norman Dealerships contributions is
appropriate to understand the continuing impact on the Company's
results of operations of the acquisition of the Lake Norman
Dealerships.
(6) The Company intends to raise sufficient funds in the Offering to fund
the Acquisitions. In the event that the Company determines not to
raise sufficient funds in the Offering to acquire the dealerships
being acquired in the Acquisitions, the Company would incur additional
indebtedness and the related interest expense. The Pro Forma Combined
and Consolidated Statements of Operations do not give effect to any
additional interest expense that would be incurred.
(7) Pro forma net income per share is based upon the assumption that
shares of Class A Common Stock are outstanding after the
Offering. This amount represents shares of Class A Common
Stock to be issued in the Offering, and shares of Common
Stock owned by the Company's stockholders immediately following the
Reorganization and the Acquisitions. See "Principal Stockholders" and
Note 1 to the Company's Combined and Consolidated Financial Statements
included elsewhere in this Prospectus.
(8) Reflects the conversion from the LIFO Method of inventory accounting
to the FIFO Method of inventory accounting. The Company intends to
convert to the FIFO Method conditioned and effective upon the closing
of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
(9) Reflects the elimination of minority interest in earnings as a result
of the acquisition of the 31% minority ownership interest in Town &
Country Toyota, Inc. for $3.2 million of Class B Common Stock in
connection with the Reorganization, and the amortization of
approximately $2.8 million in related goodwill over 40 years arising
from such acquisition.
(10) Reflects the net increase in the provision for income taxes due to the
conversion to the FIFO Method and the amortization of goodwill related
to the acquisition of the minority interest pursuant to the
Reorganization, calculated at the effective rate of 39.9%.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
29
<PAGE>
(11) Reflects the elimination of the operations of one of the Bowers
Dealerships' collision repair businesses that will not be acquired by
the Company.
(12) Adjustment reflects the conversion from the LIFO Method of inventory
accounting to the FIFO Method of inventory accounting at the Lake
Norman Dealerships, Ken Marks Ford and Dyer Volvo in the amount of
$169,000, $260,000 and $116,000, respectively for the year ended
December 31, 1996 and $324,000 at the Lake Norman Dealerships and
$47,000 at Ken Marks Ford for period ended June 30, 1997 (no
significant amount for Dyer Volvo during this period). The Company
intends to convert to the FIFO Method conditioned upon the closing of
the Offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
(13) Reflects the net decrease in selling, general and administrative
expenses related to the net reduction in salaries and fringe benefits
of owners and officers of the acquired dealerships who will become
employees of the Company after the Offering, consistent with reduced
salaries pursuant to employment agreements with the Company, effective
upon consummation of the Offering.
(14) The decrease in selling, general and administrative expenses reflects
the elimination of salaries paid to owners of certain dealerships
acquired in the Acquisitions whose positions and salaries will be
eliminated in conjunction with the Offering.
(15) Reflects the Company's estimate of the increase in rent expense
related to lease agreements entered into with the sellers of the
Bowers Dealerships for the dealerships' real property that will not be
acquired by the Company, and decreases in depreciation expense and
interest expense related to mortgage indebtedness encumbering such
property.
(16) Reflects the elimination of amortization expense related to goodwill
that arose in previous acquisitions in the Bowers Dealerships,
assuming that each of the acquisitions giving rise to goodwill was
consummated on January 1, 1996. See Note 2.
(17) Reflects the amortization over an assumed amortization period of 40
years of approximately $66.2 million in intangible assets, which
consist primarily of goodwill, resulting from the Acquisitions which
were assumed to occur on January 1, 1996. See "Acquisitions" and "Pro
Forma Combined and Consolidated Balance Sheet."
(18) In connection with the Bowers Acquisition, the Company will issue a
promissory note of up to $5.0 million that will bear interest at
NationsBank's prime rate less 0.5%. This adjustment reflects an
increase in interest expense related to the promissory note assuming a
prime rate of 8.5%.
(19) Reflects the net increase in provision for income taxes resulting from
adjustments 11 through 18 above, computed using effective income tax
rates ranging from 38.5% to 42.8%.
(20) Certain of the Bowers Dealerships, the Lake Norman Dealerships, and
Dyer Volvo were not subject to federal and state income taxes because
they were either S corporations, partnerships, or limited liability
companies during the period indicated. This adjustment reflects an
increase in the federal and state income tax provision as if these
entities had been taxable at the combined statutory income tax rate of
39%. Upon completion of the Acquisitions, these businesses that have
historically not been subject to corporate income tax will thereafter
be subject to federal and state income tax as C corporations.
(21) Reflects an increase from the Company's historical effective tax rate
resulting from a higher statutory tax rate used due to an increase in
taxable income to above $10.0 million for the pro forma combined
entity and from an additional pro forma permanent difference for
non-taxable goodwill amortization.
(22) Reflects the elimination of federal and state tax expense which were
assessed on the recapture of the LIFO inventory reserve which was
required by tax law pursuant to the conversion of Dyer Volvo from a C
corporation to an S corporation during 1997.
(23) Reflects the increase in salaries of existing and new officers who
have entered into employment agreements with the Company, effective
upon consummation of the Offering.
(24) Reflects the net increase in provision for income taxes resulting from
adjustment 23 above, computed using an effective income tax rate of
40.6%.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
30
<PAGE>
PRO FORMA COMBINED AND CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
<TABLE>
<CAPTION>
PRO-FORMA THE ACQUISITIONS
ADJUSTMENTS FOR PRO-FORMA
ACTUAL FIFO BOWERS LAKE NORMAN KEN MARKS ADJUSTMENTS FOR
ASSETS (1) CONVERSION DEALERSHIPS DEALERSHIPS FORD DYER VOLVO THE ACQUISITIONS
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Current Assets:
Cash and cash equivalents... $ 9,238 $ $ 5,797 $ 3,467 $ 2,491 $ 173 $ (90,828)(3)
Marketable equity
securities................ 769
Receivables................. 12,897 3,398 2,535 2,347 2,535 (76)(4)
Inventories................. 59,885 13,580(2) 34,071 22,778 14,802 11,129 6,719(5)
(88)(4)
Deferred income taxes....... 256 96
Other current assets........ 818 2,453 244 679 32
Total current assets.... 83,863 13,580 45,719 29,024 20,415 13,869 (84,273)
Property and equipment, net... 13,270 8,746 567 489 1,156 (4,052)(6)
(1,887)(4)
Goodwill, net................. 9,463 8,285 66,150(3)
(8,285)(7)
Other assets.................. 263 257 462 14 297 (20)(4)
Total assets............ $106,859 $13,580 $63,007 $30,053 $20,918 $ 15,322 $ (32,367)
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Notes payable-floor plan.... $ 67,856 $ $29,071 $25,865 $16,165 $ 5,534 $
Notes payable-other......... 4,590 28
Trade accounts payable...... 3,848 1,425 1,352 622 (89)(4)
Accrued interest............ 491 178
Other accrued liabilities... 3,394 1,739 472 1,648 512 (32)(4)
Taxes payable............... 917(2) 67 239 170(8)
Payable to Company's
Chairman.................. 3,500
Current maturities of
long-term debt............ 487 558 71 357(3)
Total current
liabilities........... 79,576 917 37,561 27,788 18,502 6,285 406
Long-term debt................ 5,137 4,365 786 (3,158)(6)
4,643(3)
(1,351)(4)
Payable to affiliated
companies.................... 855
Deferred income taxes......... 931 4,583(2) 17 850(8)
Other long-term liabilities... 238
Stockholders' Equity:
Common Stock of combined
companies................. 1,000 75 1 153 (1,229)(3)
Class A Common Stock........
Class B Common Stock........
Warrant (3)
Paid-in capital............. 16,604 600 424 28 (1,052)(3)
Treasury stock.............. (4,976) 4,976(3)
Retained earnings and
members' and partners'
equity.................... 6,486 8,080(2) 20,941 804 1,974 13,594 6,719(5)
(1,020)(8)
(894)(6)
(33,233)(3)
(599)(4)
(8,285)(7)
Due from affiliates......... (2,633) (860) 860(3)
Unrealized loss on
marketable equity
securities................ (97)
Total stockholders'
equity................ 20,360 8,080 21,081 1,479 2,399 8,799 (33,757)
Total liabilities and
stockholders' equity......... $106,859 $13,580 $63,007 $30,053 $20,918 $ 15,322 $ (32,367)
<CAPTION>
PRO-FORMA
ADJUSTMENTS FOR
ASSETS THE OFFERING TOTAL
<S> <C> <C>
Current Assets:
Cash and cash equivalents... $ 100,000(9) $ 30,338
Marketable equity
securities................ 769
Receivables................. 23,636
Inventories................. 162,876
Deferred income taxes....... 352
Other current assets........ 4,226
Total current assets.... 100,000 222,197
Property and equipment, net... 18,289
Goodwill, net................. 75,613
Other assets.................. 1,273
Total assets............ $ 100,000 $317,372
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities:
Notes payable-floor plan.... $ $144,491
Notes payable-other......... 4,618
Trade accounts payable...... 7,158
Accrued interest............ 669
Other accrued liabilities... 7,733
Taxes payable............... 1,393
Payable to Company's
Chairman.................. 3,500
Current maturities of
long-term debt............ 1,473
Total current
liabilities........... 171,035
Long-term debt................ 10,422
Payable to affiliated
companies.................... 855
Deferred income taxes......... 6,381
Other long-term liabilities... 238
Stockholders' Equity:
Common Stock of combined
companies.................
Class A Common Stock........
Class B Common Stock........
Warrant (3)
Paid-in capital............. 100,000(9) 116,604
Treasury stock..............
Retained earnings and
members' and partners'
equity.................... 14,567
Due from affiliates......... (2,633)
Unrealized loss on
marketable equity
securities................ (97)
Total stockholders'
equity................ 100,000 128,441
Total liabilities and
stockholders' equity......... $ 100,000 $317,372
</TABLE>
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
31
<PAGE>
(1) The Reorganization, including the acquisition of the 31% minority interest
in Town & Country Toyota for $3.2 million in Class B Common Stock in
exchange therefor, was effective as of June 30, 1997 and is therefore
reflected in the actual balance sheet as of that date. The acquisition of
the minority interest resulted in the recognition of $2.8 million of
additional goodwill.
(2) Reflects the conversion from the LIFO Method of inventory accounting to the
FIFO Method of inventory accounting and the amount of taxes payable that
will result from this conversion. The Company intends to convert to the FIFO
Method conditioned upon the closing of the Offering. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
(3) Reflects the preliminary allocation of the aggregate purchase price of the
Acquisitions based on the estimated fair value of the net assets acquired.
Because the carrying amount of the net assets acquired, which primarily
consist of accounts receivable, inventory, equipment, and floor plan
indebtedness, approximates their fair value, management believes the
application of purchase accounting will not result in an adjustment to the
carrying amount of those net assets. Under the acquisition agreement, the
negotiated purchase prices for the Acquisitions will be adjusted downward to
the extent that the fair value of the tangible net assets as of the closing
is less than an agreed upon amount. The Company expects that the sellers of
these dealerships will withdraw cash or other assets from these dealerships
to the extent that the carrying amount of the tangible net assets sold
exceeds the negotiated minimum value. Under the provisions of purchase
accounting, the Company has one year from the date of acquisition to
finalize the allocation of the purchase price to the assets and liabilities
acquired. Thus, the amount of goodwill and the corresponding amortization
may ultimately be different from the amounts estimated here. The estimated
purchase price allocation consists of the following:
<TABLE>
<CAPTION>
BOWERS DEALERSHIPS KEN MARKS FORD LAKE NORMAN DEALERSHIPS DYER VOLVO TOTAL
<S> <C> <C> <C> <C> <C>
Estimated total consideration:
Cash.............................. $ 28,500 $ 25,500 $18,200 $ 18,000 $90,200
Promissory note issued............ 5,000 5,000
Warrant issued....................
Total......................... 33,500 25,500 18,200 18,000 95,200
Less negotiated minimum fair value
of tangible net assets acquired... 10,500 5,050 3,000 10,500 29,050
Excess of purchase price over fair
value of net tangible assets
acquired.......................... $ 23,000 $ 20,450 $15,200 $ 7,500 $66,150
</TABLE>
In connection with the acquisition of Dyer Volvo, the Company will issue a
warrant that will entitle the holder to acquire Class A shares representing a
0.375% ownership interest in the Company at an exercise price per share equal
to the price offered in the Offering. Because the number of underlying shares
and the exercise price of the underlying shares is not determinable at this
time, the Company is currently not able to value this warrant. Accordingly,
the Pro Forma Combined and Consolidated Balance Sheet does not give effect to
the issuance of this warrant, however, management believes the effect on the
Company's financial position and results of operations would not be
materially different from that which is presented. The difference between the
purchase price and the fair market value of the net tangible assets acquired
will be allocated to intangible assets, primarily goodwill and amortized over
40 years.
(4) Reflects the elimination of the assets and liabilities of one of the Bowers
Dealerships' collision repair businesses that will not be acquired by the
Company.
(5) Reflects the conversion from the LIFO Method of inventory accounting to the
FIFO Method of inventory accounting at the Lake Norman Dealerships, Ken
Marks Ford and Dyer Volvo in the amounts of $1,564,000, $2,652,000 and
$2,503,000, respectively. The Company intends to convert to the FIFO Method
conditioned upon the closing of the Offering. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."
(6) Reflects the distribution of real property of the Bowers Dealerships with a
net depreciated cost of approximately $4.1 million, which are not being
acquired in the Acquisitions, and the related mortgage indebtedness in the
amount of approximately $3.2 million. See "Certain Transactions."
(7) Reflects the elimination of goodwill that arose in previous acquisitions of
the Bowers Dealerships.
(8) Reflects the amount of taxes payable that will result from the FIFO
conversion at Ken Marks Ford in the amount of $1,020,000.
(9) Reflects the issuance of Class A Common Stock in the Offering. See "Use of
Proceeds."
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Sonic Automotive, Inc. and
Affiliated Companies Combined and Consolidated Financial Statements and the
related notes thereto included elsewhere in this Prospectus.
OVERVIEW
Sonic Automotive, Inc. is one of the leading automotive retailers in the
United States, operating 20 dealerships, four standalone used vehicle facilities
and eight collision repair centers in the southeastern and southwestern United
States. Sonic sells new and used cars and light trucks, sells replacement parts,
provides vehicle maintenance, warranty, paint and repair services and arranges
related F&I for its automotive customers. The Company's business is
geographically diverse, with dealership operations in the Charlotte,
Chattanooga, Nashville, Tampa-Clearwater, Houston and Atlanta markets, each of
which the Company believes are experiencing favorable demographic trends. Sonic
sells 17 domestic and foreign brands, which consist of BMW, Cadillac, Chrysler,
Dodge, Eagle, Ford, Honda, Infiniti, Jaguar, Jeep, KIA, Oldsmobile, Plymouth,
Saturn, Toyota, Volkswagen and Volvo. In several of its markets, the Company has
a significant market share for new cars and light trucks, including 13.7% in
Charlotte and 12.6% in Chattanooga in 1996. Pro forma for the Acquisitions, the
Company had revenues of $917.1 million and retail unit sales of 24,114 new and
13,453 used vehicles in 1996. The Company believes that in 1996, based on pro
forma retail unit sales it would have been one of the ten largest dealer groups
out of a total of more than 15,000 dealer groups in the United States and, based
on pro forma revenues, it would have had three of the top 100 single-point
dealerships in the United States.
The Company intends to pursue an acquisition growth strategy led by a
management team that has experience in the consolidation of both automotive
retailing as well as motor sports businesses. Bruton Smith, who is also the
Chief Executive Officer of Speedway Motorsports, Inc., the owner and operator of
several motor sports facilities, first entered the automotive retailing business
in the mid-1960's. Mr. Smith will devote approximately 50% of his business time
to the Company. Since 1990, Mr. Smith has successfully acquired three
dealerships and increased revenues from his dealerships from $199.4 million in
1992 to $376.6 million in 1996, without giving effect to the Acquisitions. In
the Tennessee market, Mr. Bowers has acquired or opened eight dealerships since
1992 and increased revenues of the Bowers Dealerships from $36.0 million in 1992
to $127.1 million in 1996.
New vehicle revenues include the sale and lease of new vehicles. Used
vehicle revenues include amounts received for used vehicles sold to retail
customers, other dealers and wholesalers. Other operating revenues include parts
and services revenues, fees and commissions for arranging F&I and sales of third
party extended warranties for vehicles (collectively, "F&I transactions"). In
connection with vehicle financing contracts, the Company receives a fee (a
"finance fee") from the lender for originating the loan. If within 90 days of
origination the customer pays off the loans through refinancing or
selling/trading in the vehicle, or defaults on the loan the finance company will
assess a charge (a "chargeback") for a portion of the original commission. The
amount of the chargeback depends on how long the related loan was outstanding.
As a result, the Company has established reserves based on its historical
chargeback experience. The Company also sells warranties provided by third party
vendors, and recognizes a commission at the time of sale.
While the automotive retailing business is cyclical, Sonic sells several
products and services that are not closely tied to the sale of new and used
vehicles. Such products and services include the Company's parts and service and
collision repair businesses, both of which are not dependent upon near-term new
vehicle sales volume. One measure of cyclical exposure in the automotive
retailing business is based on the dealerships' ability to cover fixed costs
with gross profit from revenues independent of vehicle sales. According to this
measurement of "fixed coverage," a higher percentage of non-vehicle sales
revenue to fixed costs indicates a lower exposure to economic cycles. Each
manufacturer requires its dealerships to report fixed coverage according to a
specific method, and the methods used vary widely among the manufacturers and
are not comparable. However, on an aggregate basis, the Company believes its
exposure to cyclicality may be measured by dividing the sum of the gross profit
for parts, service and collision repair by the sum of all operating expenses
with the exception of advertising expenses and variable payroll ("Fixed
Coverage"). Under this definition, the Company's Fixed Coverage was 89.3% in
1996. For the first half of 1997, the Sonic Dealership's Fixed Coverage was
84.2% compared to 89.7% in the first half of 1996.
The Company's cost of sales and profitability are also affected by the
allocations of new vehicles which its dealerships receive from Manufacturers.
When the Company does not receive allocations of new vehicle models adequate to
meet customer demand, it purchases additional vehicles from other dealers at a
premium to the manufacturer's invoice, reducing the
33
<PAGE>
gross margin realized on the sales of such vehicles. In addition, the Company
follows a disciplined approach in selling vehicles to other dealers and
wholesalers when the vehicles have been in the Company's inventory longer than
the guidelines set by the Company. Such sales are frequently at or below cost
and, therefore, affect the Company's overall gross margin on vehicle sales. The
Company's salary expense, employee benefits costs and advertising expenses
comprise the majority of its selling, general and administrative ("SG&A")
expenses. The Company's interest expense fluctuates based primarily on the level
of the inventory of new vehicles held at its dealerships, substantially all of
which is financed (such financing being called "floor plan financing").
The Company has historically accounted for all of its dealership
acquisitions using the purchase method of accounting and, as a result, does not
include in its financial statements the results of operations of these
dealerships prior to the date they were acquired by the Company. The combined
and consolidated financial statements of the Company discussed below reflect the
results of operations, financial position and cash flows of each of the
Company's dealerships acquired prior to June 30, 1997. As a result of the
foregoing effects of the Reorganization, as well as the effects of the
Acquisitions and the Offering, the historical combined and consolidated
financial information described in the Management's Discussion and Analysis of
Financial Condition and Results of Operations is not necessarily indicative of
the results of operations, financial position and cash flows of the Company in
the future or the results of operations, financial position and cash flows which
would have resulted had the Reorganization and Acquisitions occurred at the
beginning of the periods presented in the Combined and Consolidated Financial
Statements.
The Company's total revenues have increased from $199.4 million in 1992 to
$376.6 million in 1996, for a compound annual growth rate of 17.2%. Operating
income during this period experienced faster growth, with operating income
increasing from $3.9 million in 1992 to $9.4 million in 1996, for a 24.6%
compound annual growth rate. Income before income taxes and minority interest,
however, has only increased at a compound annual growth rate of 7.2% primarily
because interest expense on floor plan obligations has increased from 1.1% of
total revenues in 1992 to 1.6% of total revenues in 1996. Inventory and floor
plan balances increased during 1995 and 1996 to support the Company's strategy
of increasing market share. In early 1997, the Company instituted additional
inventory controls in order to reduce interest costs to levels typical of the
industry. Interest expense on floor plan obligations as a percentage of total
revenues has improved from 1.5% for the six months ended June 30, 1996 to 1.4%
for the six months ended June 30, 1997.
As of June 30, 1997, the Company effected the Reorganization pursuant to
which the Company (i) acquired all of the capital stock of the Sonic Dealerships
and (ii) issued Class B Common Stock in exchange for the Dealer Securities. The
Company will acquire these minority interests in purchase transactions at a
price in excess of their book value by approximately $2.5 million. This excess
will be capitalized as goodwill and amortized over forty years. In May, June and
July 1997, the Company consummated or signed definitive agreements to purchase
six additional dealerships or dealership groups for an aggregate purchase price
of $100.7 million. The Company intends to use the proceeds from the Offering to
pay the purchase price of the Acquisitions. In connection with the Acquisitions,
the Company will book approximately $66.2 million of goodwill which will be
amortized over forty years.
The Company currently utilizes the LIFO Method of accounting for inventory
but intends to convert to the FIFO Method of accounting, upon the closing of the
Offering, effective January 1, 1997. If the FIFO Method of inventory accounting
had been used by the Company in prior periods, income before taxes and minority
interest would have been higher by $1.5 million, $1.3 million and $1.4 million
for the years ended December 31, 1994, 1995 and 1996, respectively, and
immaterially changed for the six months ended June 30, 1996 and 1997,
respectively, from the reported results under the LIFO Method. Upon election of
the FIFO Method, the Company will be required under generally accepted
accounting principles to restate its historical financial statements. The
Company estimates that it will incur a tax liability of approximately $5.5
million in connection with this conversion to the FIFO Method.
The automobile industry is cyclical and historically has experienced
periodic downturns, characterized by oversupply and weak demand. Many factors
affect the industry including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
available credit. During the five years ended December 31, 1996, the automobile
industry was generally in a growth period with new vehicles sales growing at a
compound rate of 10.5% as a result of price increases of 6.2% and unit sales
increases of 4.0%. During the first six months of 1997, however, industry sales
of new cars declined by 2.0%, although the Company's new car and light truck
unit sales increased by 7.0% during the period. During these periods, interest
rates were relatively stable.
34
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes, for the periods presented, the percentages
of total revenues represented by certain items reflected in the Company's
statement of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES FOR
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales........................................................ 61.5 % 60.0 % 61.9 % 61.0 % 64.4 %
Used vehicle sales....................................................... 23.9 % 26.0 % 24.9 % 25.6 % 22.6 %
Parts, service and collision repair...................................... 12.7 % 11.5 % 11.3 % 11.1 % 10.8 %
Finance and insurance.................................................... 1.9 % 2.5 % 1.9 % 2.3 % 2.2 %
Total revenues........................................................... 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales............................................................ 87.8 % 87.5 % 88.3 % 88.2 % 88.5 %
Gross profit............................................................. 12.2 % 12.5 % 11.7 % 11.8 % 11.5 %
Selling, general and administrative...................................... 9.2 % 9.4 % 8.9 % 8.8 % 8.7 %
Operating income......................................................... 2.7 % 2.8 % 2.5 % 2.9 % 2.6 %
Interest expense......................................................... 1.3 % 1.6 % 1.7 % 1.6 % 1.6 %
Income before income taxes............................................... 1.6 % 1.3 % 1.0 % 1.5 % 1.2 %
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues grew in each of the Company's primary revenue areas,
except for used vehicles, for the first half of 1997 as compared with the first
half of 1996, causing total revenues to increase 12.2% to $212.7 million. New
vehicle sales revenue increased 16.3% to $136.8 million, compared with $117.6
million. New vehicle unit sales increased from 6,027 to 6,553, accounting for
51.5% of the increase in vehicle sales revenues. The remainder of the increase
was primarily due to a 8.9% increase in the average selling price resulting from
changes in vehicle prices, particularly a shift in customer preference to higher
cost light trucks and sport utility vehicles.
Used vehicle revenues from retail sales declined 7.2% from $35.2 million in
the first half of 1996 to $32.7 million in the first half of 1997. The decline
in used vehicle revenues was due principally to declines in used vehicle unit
sales at the Company's Town & Country Ford and Lone Star Ford locations, which
related to weak consumer demand.
The Company's parts, service and collision repair revenue increased 9.0% to
$22.9 million from $21.0 million, and declined as a percentage of revenue to
10.8% from 11.1%. The increase in service and parts revenue was due principally
to increased parts revenue, including wholesale parts, from the Company's Lone
Star Ford and Fort Mill Ford locations. F&I revenue increased $0.5 million, due
principally to increased new vehicle sales and related financings.
GROSS PROFIT. Gross profit increased 8.7% in the 1997 period to $24.4
million from $22.4 million in the 1996 period due to increases in revenues of
new vehicles principally at the Company's Lone Star Ford and Fort Mill Ford
locations. Parts and service revenue increases also contributed to the increase
in gross profit. Gross profit as a percentage of sales declined from 11.8% to
11.5% due principally to reductions in higher margin used vehicle sales from the
prior period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses increased 10.8%
from $16.6 million to $18.4 million. These expenses increased due to increases
in sales volume as well as expenses associated with the Acquisitions and the
Offering.
INTEREST EXPENSE. The Company's interest expense increased 10.1% from $3.0
million to $3.3 million. The increase in interest expense was due to the
acquisition of Fort Mill Chrysler Plymouth Dodge dealership in June of 1997,
increases in interest rates on floor plan debt and increased new vehicle
inventory levels at existing dealerships.
NET INCOME. As a result of the factors noted above, the Company's net
income decreased by $0.2 million in the first half of 1997 compared to the first
half of 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. The Company's total revenue increased 21.1% to $376.6 million in
1996 from $311.0 million in 1995. New vehicle sales increased 25.0% to $233.1
million in 1996 from $186.5 million in 1995, primarily because of the
acquisition in
35
<PAGE>
February 1996 of the Company's Fort Mill Ford dealership. The inclusion of the
results of the Fort Mill Ford dealership accounted for 65.3% of the Company's
overall increase in new vehicle sales in 1996. Of the increase in sales, 60.7%
was attributable to increases in unit sales from 1995 to 1996. The remainder of
the increase in new vehicle sales in 1996 was largely attributable to an
increase in average unit selling costs of 9.8% which the Company believes was
primarily due to changes in inventory mix (particularly shifting customer
preferences to light trucks and sport utility vehicles) and general increases in
new vehicle sales prices.
Used vehicle revenues from retail sales increased 12.0% to $68.0 million in
1996 from $60.8 million in 1995. The inclusion of the results of the Company's
Fort Mill Ford dealership accounted for substantially all of this increase in
used vehicle sales. The Company attributes the remainder of the increase in its
used vehicle sales in 1996 to increases of approximately 5.6% in the average
retail selling price per vehicle sold. Increases in average retail selling
prices were due to changes in product mix and general price increases.
The Company's parts, service and collision repair revenue increased 19.0%
to $42.6 million for 1996, compared to $35.9 million in 1995. Of this increase,
$4.4 million or 64.5% was due to the inclusion of the Company's Fort Mill Ford
dealership in the 1996 results of operations. The remainder of the increase was
principally the result of improved service operations and wholesale parts
distribution at the Company's Town and Country Ford dealership. F&I revenues
declined $0.7 million, or 8.9%, due principally to reductions in sales of
finance and insurance products at Town and Country Ford.
GROSS PROFIT. Gross profit increased 13.9% in 1996 to $44.2 million from
$38.8 million in 1995 primarily due to the addition of the Fort Mill Ford
dealership. Gross profit decreased from 12.5% to 11.7% as a percentage of sales
due principally to declines in F&I income and declines in gross profit margins
on the sale of used vehicles. Gross margins on new vehicles increased primarily
due to increases in the average selling price per unit due to a change in mix of
new vehicles sold, particularly higher margin light trucks and sport utility
vehicles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's SG&A expenses
increased $4.3 million, or 14.8%, from $29.3 million in 1995 to $33.7 million in
1996. However, as a percentage of revenue, SG&A expenses decreased from 9.4% to
8.9%. Expenses associated with the Fort Mill Ford dealership acquired by the
Company in 1996 accounted for approximately 91.4% of this increase. The Company
attributes the remainder of the increase in selling, general and administrative
expenses primarily to higher compensation levels in 1996 and to an increase in
advertising expenses.
INTEREST EXPENSE. The Company's interest expense in 1996 increased 29.6% to
$6.4 million from $4.9 million in 1995. Of this increase $1.0 million or 70.4%
was attributable to floor plan financing at the Company's Fort Mill Ford
dealership acquired in February 1996. The remainder of the increase primarily
reflects interest expense on the debt assumed in the acquisition of Fort Mill
Ford and an increase in floor plan interest rates during 1996.
NET INCOME. The Company's net income in 1996 decreased 11.9% to $2.1
million from $2.4 million in 1995. This decrease was principally caused by
increased interest costs related to floor plan financing and debt assumed in the
acquisition of Fort Mill Ford.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. The Company's total revenue increased 16.4% to $311.0 million in
1995 from $267.1 million in 1994. New vehicle sales increased 13.5% to $186.5
million in 1995 from $164.4 million in 1994. The Company attributes the increase
in new vehicle sales to unit sales increases of 6.1% primarily from the Town &
Country Ford and Lone Star Ford dealerships which increased 9.3% and 7.1%,
respectively. The remainder of the increase was due to increased sales of higher
priced light trucks and sport utility vehicles and general price increases.
Used vehicle revenues from retail sales increased by 27.9% to $60.8 million
in 1995, compared with $47.5 million in 1994. The increase in used vehicle unit
sales was due principally to increases at the Company's Lone Star Ford, Town &
Country Ford and Frontier Cadillac-Oldsmobile locations. Unit sales volume
increased 18.2%, or 798 units, accounting for 70.9% of the increase in used
vehicle revenues. The remainder of the increase was due to improvements in
product mix and general increases in used vehicle selling prices.
The Company's parts, service and collision repair revenue increased 5.5% or
$1.9 million, from $34.0 million in 1994 to $35.9 million in 1995. Wholesale
parts sale increases at the Company's Lone Star Ford dealership and improved
service operations at the Company's Town and Country Toyota dealership account
for the majority of the increase. F&I revenue increased $2.6 million due
principally to additional sales of F&I products at the Company's Town and
Country Ford and Lone Star Ford dealerships.
36
<PAGE>
GROSS PROFIT. Gross profit increased 18.8% in 1995 to $38.8 million from
$32.6 million in 1994. Gross profit as a percentage of sales increased from
12.2% to 12.5% due principally to a 50.8% increase in high margin finance and
insurance product sales. Gross margins on used vehicles improved due to the
Company's strategy of improved inventory management and the purchase of quality
used vehicles.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's SG&A expenses
increased $4.7 million to $29.3 million or 19.1% and represented 9.4% in total
revenues in 1995 from $24.6 million or 9.2% of total revenues in 1994.
INTEREST EXPENSE. The Company's interest expense in 1995 increased 43.5% to
$4.9 million from $3.4 million in 1994. Increased interest expense was due to
increases in inventory levels and related floor plan borrowings.
NET INCOME. The Company's net income in 1995 decreased 12.4% to $2.4
million from $2.8 million in 1994. This decrease was caused by the increase in
floor plan financing due to an increase in vehicle inventory levels.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for capital resources are to finance
acquisitions, debt service and working capital requirements. Historically, the
Company has relied primarily upon internally generated cash flows from
operations, borrowing under its various credit facilities and borrowings and
capital contributions from its stockholders to finance its operations and
expansion. After the Offering, the Company does not expect to receive any
additional financing from its existing stockholders.
The Company has historically maintained a separate revolving floor plan
credit facility for each dealership which has been used to finance vehicle
inventory. The Company currently has floor plan credit facilities with Ford
Motor Credit, Chrysler Financial Corporation and World Omni Financial
Corporation. As of June 30, 1997 there was an aggregate of $67.9 million
outstanding under the floor plan credit facilities. These floor plan facilities
bear interest at variable rates ranging from LIBOR plus 2.75% to prime plus
1.0%. The Company makes monthly interest payments on the amount financed under
the floor plan lines but is not required to make loan principal repayments prior
to the sale of the vehicles. The underlying notes are due when the related
vehicles are sold and are collateralized by vehicle inventories and other assets
of the Company. The floor plan financing agreements contain a number of
covenants, including among others, covenants restricting the Company with
respect to limitations on liens and changes in ownership, officers and key
management personnel.
Prior to consummation of the Offering, the Company intends to consolidate
its new vehicle floor plan lines and obtain an additional revolving line of
credit. The Company is currently negotiating with credit sources for more
favorable terms. Based on current discussions with these lenders, the Company
expects the interest rate on its floor plan debt to decrease compared to the
interest rates currently being charged. The additional credit facility will be
used principally for acquisitions.
The Company leases various facilities and equipment under operating lease
agreements including leases with related parties. See "Certain
Transaction -- Leases."
During the first six months of 1997, the Company generated net cash of $4.0
million from operating activities. Net cash provided by operating activities was
$2.1 million in 1996 and was primarily attributable to net income of $2.1
million. Increased inventory levels and accounts receivable were primarily
offset by increased floor plan indebtedness and accounts payable. The increase
in inventory levels in 1996 reflects an increase in the volume of sales and the
timing of shipments from the Manufacturers. Increased receivables reflect
increased sales primarily attributable to Fort Mill Ford and Fort Mill
Chrysler-Plymouth-Dodge acquired in 1996 and 1997, respectively. The Company
generated net cash from operations of $3.0 million in 1995 and 1994.
Cash used for investing activities was approximately $1.2 million for the
first six months of 1997 and related primarily to acquisitions of property and
equipment. Cash provided by (used in) investing activities was ($11.5) million,
$0.3 million and ($1.7) million in 1996, 1995 and 1994, respectively, including
$1.9 million, $1.5 million and $1.4 million of capital expenditures during such
periods.
In 1996, cash provided by financing activities of $7.1 million reflected
the purchase of capital stock by a stockholder of the Company, the proceeds of
which were used to fund the acquisition of Fort Mill Ford and the purchase of
stock by a stockholder of Town & Country Ford. Cash used in financing activities
for the six months ended June 30, 1997 was $0.2 million principally due to
scheduled payments on long-term debt.
37
<PAGE>
Capital expenditures, excluding amounts paid in acquisitions, were $0.9
million, $1.9 million, $1.5 million and $1.4 million in the first six months of
1997 and in 1996, 1995 and 1994, respectively. The Company's principal capital
expenditures typically include building improvements and equipment for use in
the Company's dealerships. Capital expenditures in 1996 and 1995 were primarily
attributable to expenditures for the addition of a used car lot in 1996 and
other capital improvements at the Lone Star Ford dealership. Excluding the
purchase price for the Acquisitions and future acquisitions, the Company is
anticipating total capital expenditures in the second half of 1997 to be
approximately $1.0 million. The Company expects to increase its capital
expenditures over the next few years as part of its acquisition and growth
strategy.
The Company believes that funds generated through future operations and
availability of borrowings under its floor plan financing (or any replacements
thereof) and its other credit arrangements will be sufficient to fund its debt
service and working capital requirements and any seasonal operating
requirements, including its currently anticipated internal growth for the
foreseeable future. The Company estimates that it will incur a tax liability of
approximately $5.5 million in connection with the change in its tax basis of
accounting for inventory from LIFO to FIFO. The Company believes that it will be
required to pay this liability in three to six equal annual installments,
beginning in March 1998, and believes that it will be able to pay such
obligation with cash provided by operations. The Company expects to fund any
future acquisitions from its future cash flow from operations, additional debt
financing, or Class A Common Stock issuances. The Company does not currently
have in place any credit facilities for acquisitions. There can be no assurance
that additional financing can be obtained on terms favorable to the Company, or
that the Company will be able to use its common stock to fund any future
acquisitions. See "Risk Factors -- Financial Resources Available for
Acquisitions."
SEASONALITY
The Company's operations are subject to seasonal variations. The first
quarter generally contributes less revenue and operating profits than the
second, third and fourth quarters. Seasonality is principally caused by weather
conditions and timing of manufacturer incentive programs and model changeovers.
Set forth below is revenue information with respect to the Company's
operations for the most recent six quarters.
<TABLE>
<CAPTION>
1996 1997
1ST 2ND 3RD 4TH 1ST 2ND
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $85,669 $103,946 $93,222 $93,767 $98,739 $114,008
</TABLE>
EFFECTS OF INFLATION
Due to the relatively low levels of inflation in 1994, 1995 and 1996 and
the first half of 1997, inflation did not have a significant effect on the
Company's results of operations for those periods.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." This Statement
specifies the computation, presentation and disclosure requirements for earnings
per share. The Company believes that the adoption of such Statement would not
result in earnings per share materially different than pro forma earnings per
share presented in the accompanying statements of income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending December 31,
1998, and the Company does not intend to adopt this statement prior to the
effective date. Had the Company adopted this Statement as of January 1, 1994, it
would have reported comprehensive income of $2.8 million, $2.4 million and $2.1
million for the years ended December 31, 1994, 1995 and 1996, respectively.
38
<PAGE>
BUSINESS
OVERVIEW
Sonic Automotive, Inc. is one of the leading automotive retailers in the
United States, operating 20 dealerships, four standalone used vehicle facilities
and eight collision repair centers in the southeastern and southwestern United
States. Sonic sells new and used cars and light trucks, sells replacement parts,
provides vehicle maintenance, warranty, paint and repair services and arranges
related F&I for its automotive customers. The Company's business is
geographically diverse, with dealership operations in the Charlotte,
Chattanooga, Nashville, Tampa-Clearwater, Houston and Atlanta markets, each of
which the Company believes are experiencing favorable demographic trends. Sonic
sells 17 domestic and foreign brands, which consist of BMW, Cadillac, Chrysler,
Dodge, Eagle, Ford, Honda, Infiniti, Jaguar, Jeep, KIA, Oldsmobile, Plymouth,
Saturn, Toyota, Volkswagen and Volvo. In several of its markets, the Company has
a significant market share for new cars and light trucks, including 13.7% in
Charlotte and 12.6% in Chattanooga in 1996. Pro forma for the Acquisitions, the
Company had revenues of $917.1 million and retail unit sales of 24,114 new and
13,453 used vehicles in 1996. The Company believes that in 1996, based on pro
forma retail unit sales it would have been one of the ten largest dealer groups
out of a total of more than 15,000 dealer groups in the United States and, based
on pro forma revenues, it would have had three of the top 100 single-point
dealerships in the United States.
The Company's founder and Chief Executive Officer, O. Bruton Smith, has
over 30 years of automotive retailing experience. In addition, the Company's
other executive officers, regional vice presidents and executive managers have
on average 18 years of automotive retailing experience. The Company's
dealerships have won the highest attainable awards from various manufacturers
measuring quality and customer satisfaction. These awards include the Five Star
Award from Chrysler, the Chairman's Award from Ford, the President's Award from
BMW and the President's Circle Award from Infiniti. In addition, the Company was
named to Ford's Top 100 Club, which consists of Ford's top 100 retailers based
on retail volume and consumer satisfaction. Also, various members of the
management team have served on several manufacturer dealer councils which act as
liaisons between the manufacturers and dealer groups. As an example of the
industry's recognition of the Company's executives, Nelson Bowers, the Company's
Executive Vice President, participated in the development of the Saturn brand
and was awarded in 1990 the first Saturn dealership in the United States.
The Company intends to pursue an acquisition growth strategy led by a
management team that has experience in the consolidation of both automotive
retailing as well as motor sports businesses. Bruton Smith, who is also the
Chief Executive Officer of Speedway Motorsports, Inc., the owner and operator of
several motor sports facilities, first entered the automotive retailing business
in the mid-1960's. Mr. Smith will devote approximately 50% of his business time
to the Company. Since 1990, Mr. Smith has successfully acquired three
dealerships and increased revenues from his dealerships from $199.4 million in
1992 to $376.6 million in 1996, without giving effect to the Acquisitions. In
the Tennessee market, Mr. Bowers has acquired or opened 8 dealerships since 1992
and increased revenues of the Bowers Dealerships from $36.0 million in 1992 to
$127.1 million in 1996.
The Company believes the competitive advantages which differentiate it from
its local competitors include the reputation of the Company's management in the
automotive retailing industry, regional and national economies of scale, brand
and geographic diversity, and the established customer base and local name
recognition of the Company's dealerships. The Company has developed and
implemented several growth strategies to capitalize on these competitive
advantages. One of these is to continue to expand its operations in the
Southeast and Southwest by acquiring additional dealerships both within its
current markets and in new markets. The Company also is seeking additional
growth from the increased sale of higher margin products and services such as
wholesale parts, after-market products, collision repair services and F&I.
GROWTH STRATEGY
The Company's objective is to capitalize on the consolidation of the
automotive retailing industry. Key elements of the Company's strategy to achieve
this objective include the acquisition of additional dealerships and the
leveraging of the Company's new vehicle franchises to increase sales of higher
margin products and services.
(Bullet) ACQUIRE DEALERSHIPS. The Company plans to implement a "hub and spoke"
acquisition program primarily by pursuing (i) well-managed dealerships
in new metropolitan and growing suburban geographic markets, and (ii)
dealerships that will allow the Company to capitalize on regional
economies of scale, offer a greater breadth of products and services in
any of its markets or increase brand diversity. The growth generated
through acquisitions creates opportunities for economies of scale,
including more favorable financing terms from lenders and cost savings
from the consolidation of administrative functions such as employee
benefits, risk management and employee training.
39
<PAGE>
NEW MARKETS. The Company looks to acquire well-managed dealerships in
geographic markets it does not currently serve, principally in the
Southeast and Southwest regions of the United States. The Company will
target dealers having superior operational and financial management.
Generally, the Company will seek to retain the acquired dealerships'
operational and financial management, and thereby benefit from their market
knowledge, name recognition and local reputation. The Company also
anticipates that management teams at the acquired dealerships will enable
the Company to identify more effectively additional acquisition
opportunities in these markets.
EXISTING MARKETS. The Company seeks growth in its operations within
existing markets by acquiring dealerships that increase the brands,
products and services offered in those markets. These acquisitions should
produce opportunities for additional operating efficiencies, promote
increased name recognition and provide the Company with better
opportunities for repeat and referral business. Such acquisitions should
also create opportunities for regional economies of scale in areas such as
vendor consolidation, facility and personnel utilization and advertising
spending. Additionally, cost savings may 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.
(Bullet) PURSUE OPPORTUNITIES IN ANCILLARY PRODUCTS AND SERVICES. The Company
intends to pursue opportunities to increase its sales of higher-margin
products and services by expanding its collision repair centers and its
wholesale parts and after-market products businesses, which, other than
after market products, are not directly related to the new vehicle
cycle.
COLLISION REPAIR CENTERS. The Company's collision repair business
provides favorable margins and is not significantly affected by economic
cycles or consumer spending habits. The Company believes that, because of
the high capital investment required for collision repair shops, and the
cost of complying with environmental and worker safety regulations, large
volume body shops will be more successful in the future than smaller volume
shops. The Company believes that this industry will consolidate and that it
will be able to capitalize on this trend by expanding its collision repair
business. The Company also believes that opportunities exist for those
automotive retailers that can establish relationships with major insurance
carriers. The Company currently participates in 35 direct repair programs
with major insurance companies and its relationships with these carriers
provide a source of collision repair customers. The Company currently has
eight collision repair centers accounting for approximately $8.9 million in
pro forma revenue for the year ended 1996. Sonic intends over the next
several years to establish collision repair centers at various of its other
facilities as market conditions warrant.
WHOLESALE PARTS. Over time, the Company plans to capitalize on its
growing representation of numerous manufacturers in order to increase its
sales of factory authorized parts to wholesale buyers such as independent
mechanical and body repair garages and rental and commercial fleet
operators.
AFTER-MARKET PRODUCTS. The Company intends to expand its offerings of
after-market products in many of its dealership locations. After-market
products, such as custom wheels, performance parts, telephones and other
accessories, enable the dealership to capture incremental revenue on new
and used vehicle sales.
(Bullet) ENHANCE PROFIT OPPORTUNITIES IN FINANCE AND INSURANCE. The Company
offers its customers a wide range of financing and leasing alternatives
for the purchase of vehicles, as well as credit life, accident and
health and disability insurance and extended service contracts. As a
result of its size and scale, the Company believes it will be able to
negotiate with the lending institutions that purchase its financing
contracts to increase the Company's revenues. Likewise, the Company
expects to negotiate to increase the commissions it earns on extended
service and insurance products. It also expects that the integration of
innovative computer technologies and in-depth sales training will serve
as an important tool in enhancing F&I profitability.
(Bullet) INCREASE USED VEHICLE SALES. The Company believes that there will be
opportunities to improve the used vehicle departments at several of its
dealerships. The Company currently operates four standalone used
vehicle facilities. In 1998, the Company intends to convert part of an
existing facility in Nashville to a used vehicle facility. It also
intends to develop facilities in other markets where management
believes an opportunity exists.
OPERATING STRATEGY
Sonic's operating objectives are to focus on customer satisfaction
throughout the organization in order to build long-term customer relationships
and to capitalize on operating efficiencies which will enhance its financial
performance. The Company seeks to achieve these objectives by implementing the
following operating strategies.
40
<PAGE>
(Bullet) OPERATE MULTIPLE DEALERSHIPS IN GEOGRAPHICALLY DIVERSE MARKETS. The
Company operates dealerships in Charlotte, Chattanooga, Nashville,
Tampa-Clearwater, Houston and Atlanta. By operating in several
locations throughout the United States, the Company believes it will be
better able to insulate its earnings from local economic downturns. In
addition, the Company believes that by establishing a significant
market presence in its operating regions, it will be able to provide
superior customer service through a market-specific sales, service,
marketing and inventory strategy. It is the Company's strategy, for
instance, that the savings in a market on reduced advertising costs
will be re-deployed into customer service and customer retention
programs. The Company's market share in its Charlotte and Chattanooga
markets was 13.7% and 12.6%, respectively in 1996.
(Bullet) ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION. Customer satisfaction has
been and will continue to be a focus of the Company. The Company's
personalized sales process is intended to satisfy customers by
providing high-quality, affordable vehicles in a positive, "consumer
friendly" buying environment. The Company's service department also
seeks to provide its customers with a professional and reliable service
experience of a consistently high standard. Beyond establishing strong
consumer loyalty, this focus on customer satisfaction engenders good
relations with Manufacturers. Manufacturers generally measure CSI,
which is a result of a survey given to new vehicle buyers. Some
Manufacturers offer specific performance incentives, on a per vehicle
basis, if certain CSI levels (which vary by Manufacturer) are achieved
by a dealer. Manufacturers can withhold approval of acquisitions if a
dealer fails to maintain a minimum CSI score. Historically, the Company
has not been denied Manufacturer approval of acquisitions based on CSI
scores or other reasons. To keep management focused on customer
satisfaction, the Company includes CSI results as a component of its
incentive compensation program.
(Bullet) TRAIN AND DEVELOP QUALIFIED MANAGEMENT. Sonic requires all of its
employees, from service technicians to regional vice presidents, to
participate in in-house training programs. The Company leverages the
experience of senior management, along with third party trainers from
manufacturers, industry affiliates and vendors, to formally train all
employees. This training regimen has resulted in many of the Company's
regional vice presidents, executive managers and salespeople being
certified by NADA, and has become a convenient and effective way to
share best practices among the Company's employees at all levels of the
various dealerships. The Company is developing the Education Center to
be equipped with classrooms specifically designed on a departmental
basis. The F&I classroom in the Education Center, for example, is to be
equipped with simulation software that replicates the dealers' systems
and allows the employee to handle all facets of an F&I transaction. The
Company believes that its comprehensive training of all employees at
every level of their career path offers the Company a competitive
advantage over other dealership groups in the development and retention
of its workforce.
(Bullet) OFFER A DIVERSE RANGE OF AUTOMOTIVE PRODUCTS AND SERVICES. Sonic offers
a broad range of automotive products and services, including a wide
selection of new and used vehicles, vehicle financing and insurance
programs, replacement parts and maintenance and repair programs. The
Company offers 17 product lines ranging from economy to luxury brands
consisting of BMW, Cadillac, Chrysler, Dodge, Eagle, Ford, Honda,
Infiniti, Jaguar, Jeep, KIA, Oldsmobile, Plymouth, Saturn, Toyota,
Volkswagen and Volvo. The Company also offers a variety of used
vehicles at a broad range of prices. Offering numerous new vehicle
brands enables the Company to satisfy a variety of customers, reduces
dependence on any one Manufacturer and reduces exposure to supply
problems and product cycles.
(Bullet) CAPITALIZE ON EFFICIENCIES IN OPERATIONS. Because management
compensation is based primarily on dealership performance, expense
reduction and operating efficiencies are a significant management
focus. As the Company pursues its acquisition strategy, the Company's
size and market presence should provide it with an opportunity to
negotiate favorable contracts on such expense items as advertising,
purchasing, bank financings, employee benefit plans and other vendor
contracts. In addition, the Company has instituted both regional and
national operations committees that meet on a regular basis to share
best practices to improve dealership performance.
(Bullet) UTILIZE PROFESSIONAL MANAGEMENT PRACTICES AND INCENTIVE BASED
COMPENSATION PROGRAMS. As a result of Sonic's size and geographic
dispersion, the Company's senior management has instituted a
multi-tiered management structure to supervise effectively its
dealership operations. In addition to the officers of the Company, this
structure includes executive managers who are responsible for
individual dealership operations, as well as regional vice presidents
responsible for various regions throughout the country. In an effort to
align management's interest with that of stockholders, a portion of the
incentive compensation program for each officer, vice president and
executive manager is provided in the form of Company stock options,
with additional incentives based on the performance of individual
profit centers. Sonic believes that this organizational structure, with
room for advancement and the opportunity for equity participation,
serves as a strong motivation for its employees.
41
<PAGE>
(Bullet) APPLY TECHNOLOGY THROUGHOUT OPERATIONS. The Company believes that, with
the customized technology it has introduced in certain markets, it has
been able to improve its operations over time by integrating its
systems into all aspects of its business. In these markets the Company
uses computer-based technology to monitor its dealerships' operating
performance and quickly adjust to market changes, and to integrate
computer systems into its sales, F&I and parts and service operations.
For example, sales managers use a database to identify and solicit
prospective customers, and to design appropriate financing packages for
prospective buyers. Service and parts managers utilize computer
technology to coordinate between the two departments and to service
customers more efficiently. In addition to these uses, the Company's
technology also plays a role in its inventory management. The Company
intends to expand this computer system into more of its dealerships and
markets as the existing contracts for computer systems expire.
INDUSTRY OVERVIEW
Automotive retailing, with approximately $640 billion in 1996 retail sales,
is the largest consumer retail market in the United States, representing
approximately 8% of the domestic gross product based on data collected by NADA
and the U.S. Department of Commerce. Retail sales of new vehicles, which are
sold exclusively through new vehicle dealers, were approximately $328 billion.
In addition, used vehicle retail sales in 1996 were estimated at $311 billion,
with approximately $260 billion in sales by franchised and independent dealers
and the balance in privately negotiated transactions. From 1992 to 1996, new
vehicles sales have grown at an annual compound rate of 10.5%, while used
vehicle sales have grown at a rate of 15.8% for retail used vehicle sales and
6.7% for wholesale used vehicle sales. This significant increase in sales
revenue is primarily because the average price of a new vehicle has risen at a
compound average rate of 6.2% from 1992 to 1996 and newer, high-quality used
vehicles now comprise a larger part of the used vehicle market. During this
period, unit sales grew at rates of only 4.0% for new vehicles, 6.4% for retail
used vehicles and 1.4% for wholesale used vehicles. For the six months ended
June 30, 1997, industry retail sales were down 2% as a result of retail car
sales declines of 5.3% and retail truck sales gains of 2.4% from the same period
in 1996.
The following table sets forth information regarding vehicle sales by new
vehicle dealerships for the periods indicated.
<TABLE>
<CAPTION>
UNITED STATES NEW VEHICLE DEALERS' VEHICLE SALES
(1)
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
(UNITS IN MILLIONS; DOLLARS IN BILLIONS)
New vehicle unit sales................................................. 12.9 13.9 15.1 14.7 15.1
New vehicle sales (2).................................................. $220.3 $253.3 $289.1 $301.2 $328.4
Used vehicle unit sales-retail......................................... 9.3 9.9 10.9 11.5 11.9
Used vehicle sales-retail (2).......................................... $ 77.1 $ 90.7 $110.6 $126.9 $137.9
Used vehicle unit sales-wholesale...................................... 6.9 6.4 6.9 7.0 7.3
Used vehicle sales -- wholesale (2).................................... $ 26.2(3) $ 24.3 $ 27.9 $ 30.4 $ 33.9
Total vehicle sales.................................................... $323.6 $368.3 $427.6 $458.5 $500.2
Annual growth in total vehicle sales................................... -- 13.8% 16.1% 7.2% 9.1%
</TABLE>
(1) Reflects new vehicle dealership sales at retail and wholesale. In addition,
sales by independent retail used vehicle dealers were approximately $81,
$100, $134, $130 and $122 billion, respectively, and casual used car sales
were estimated at approximately $36, $33, $40, $52 and $51 billion,
respectively, for each of the five years ended December 31, 1996.
(2) Sales figures are calculated by multiplying unit sales by the average sales
price for the year.
(3) The NADA did not report the averages sales price for wholesale transactions
prior to 1993. As a result, the 1992 wholesale used vehicle sales were
calculated using the 1993 average wholesale price for used vehicles.
In addition to new and used vehicles, dealerships offer a wide range of
other products and services, including repair and warranty work, replacement
parts, extended warranty coverage, financing and credit insurance. In 1996, the
average dealership's revenue consisted of 57.7% new vehicles sales, 30.4% used
vehicle sales, and 11.9% other products and services. As a result of intense
competition for new vehicle sales, the average dealership generates the majority
of its profits from the sale of used vehicles and other products and services,
including finance and insurance, mechanical and collision repair, and parts and
service. In 1996, for example, a used vehicle earned an average gross margin of
11.0% as compared to a new vehicle's average gross margin of 6.4%, in each case
for sales by new vehicle dealerships. As is typical in the retailing industry,
dealership profitability varies widely across different stores and, ultimately,
profitability depends on effective management of inventory, competition,
marketing, quality control and, most importantly, responsiveness to the
customer.
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<PAGE>
NEW VEHICLE SALES. Franchised dealerships were originally established by
automobile manufacturers for the distribution of their new vehicles. In return
for exclusive distribution rights within specified territories, manufacturers
exerted significant influence over their dealers by limiting the transferability
of ownership in dealerships, designating the dealerships location, and managing
the supply and composition of the dealership's inventory. These arrangements
resulted in the proliferation of small, single-owner operations that, at their
peak in the late 1940's, totaled almost 50,000. As a result of competitive,
economic and political pressures during the 1970's and 1980's, significant
changes and consolidation occurred in the automotive retail industry. One of the
most significant changes was the increased penetration by foreign manufacturers
and the resulting loss of market share by domestic car makers, which forced many
dealerships to close or sell to better-capitalized dealership groups. According
to industry data, the number of franchised dealerships has declined from
approximately 25,000 dealerships in 1990 to approximately 22,000 in 1996.
Although significant consolidation has taken place since the automotive
retailing industry's inception, the industry today remains highly fragmented,
with the largest 100 dealer groups generating less than 10% of total sales
revenues and controlling less than 5% of all franchised dealerships.
USED VEHICLE SALES. Sales of used vehicles have increased over the past
five years, primarily as a result of the substantial increase in new vehicle
prices and the greater availability of newer used vehicles due to the increased
popularity of short-term leases. Like the new vehicle market, the used vehicle
market is highly fragmented, with approximately 22,000 new vehicle dealers
accounting for approximately $172 billion in 1996 sales. In addition, an even
greater number of independent used car dealers accounted for approximately $122
billion in 1996 sales. Privately negotiated transactions accounted for the
remaining 1996 sales, estimated at $51 billion. In addition, an increasing
number of used vehicles are being sold by "superstore" outlets, which market
only used vehicles and offer a wide selection of low mileage, popular models. In
1996, the top 100 new vehicle dealer groups accounted for less than 2% of used
vehicle sales.
INDUSTRY CONSOLIDATION. The Company believes that further consolidation is
likely due to increased capital requirements of dealerships, the limited number
of viable alternative exit strategies for dealership owners, and the desire of
certain manufacturers to strengthen their brand identity by consolidating their
franchised dealerships. The Company also believes that an opportunity exists for
dealership groups with significant equity capital, and experience in
identifying, acquiring and professionally managing dealerships, to acquire
additional dealerships for cash, stock, debt or a combination thereof. Publicly
owned dealer groups, such as the Company, are able to offer prospective sellers
tax advantaged transactions through the use of publicly traded stock which may,
in certain circumstances, make them more attractive to prospective sellers.
DEALERSHIP OPERATIONS
Upon completion of the Reorganization and the Acquisitions, the Company
will own eight dealerships in the Charlotte market, eight dealerships in the
Chattanooga market, one dealership in the Nashville market, one dealership in
the Houston market, one dealership in the Clearwater market and one dealership
in the Atlanta market.
The following table sets forth, for each of those areas, information
relating to the Company's pro forma performance for the year ended December 31,
1996 and the six months ended June 30, 1997:
<TABLE>
<CAPTION>
NASHVILLE/ TAMPA/
CHARLOTTE CHATTANOOGA HOUSTON CLEARWATER ATLANTA
MARKET MARKET MARKET MARKET MARKET TOTAL
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996 SALES:
New vehicles........................................ $ 229,179 $ 108,141 $ 83,763 $ 88,844 $39,940 $549,867
Used vehicles....................................... 105,034 51,279 33,402 42,982 20,931 253,628
Parts, service and collision repair................. 33,260 18,524 18,927 14,224 11,163 96,098
Finance and insurance............................... 7,396 3,888 3,338 2,317 543 17,482
Total............................................. $ 374,869 $ 181,832 $139,430 $148,367 $72,577 $917,075
SIX MONTHS ENDED JUNE 30, 1997 SALES:
New vehicles........................................ $ 123,130 $ 45,972 $ 55,902 $ 45,577 $19,597 $290,178
Used vehicles....................................... 57,979 29,899 17,865 19,580 11,778 137,101
Parts, service and collision repair................. 17,865 10,938 10,363 5,999 5,960 51,125
Finance and insurance............................... 4,464 1,910 2,249 1,029 129 9,781
Total............................................. $ 203,438 $ 88,719 $ 86,379 $ 72,185 $37,464 $488,185
</TABLE>
43
<PAGE>
Since 1990 the Company has grown significantly, as a result of the
acquisition and integration of new vehicle dealerships and an increase in
revenues at its existing dealerships. The following table sets forth the name,
brands, year of acquisition and location of the dealerships acquired by or
awarded to the Company or one of the Bowers Dealerships since 1990:
<TABLE>
<CAPTION>
YEAR
ACQUIRED LOCATION
<S> <C> <C>
DEALERSHIP AND BRANDS CURRENTLY REPRESENTED
SONIC AUTOMOTIVE
Town & Country Toyota............................................................. 1990 Charlotte
Fort Mill Ford.................................................................... 1996 Charlotte
Fort Mill Chrysler-Plymouth-Dodge................................................. 1997 Charlotte
BOWERS DEALERSHIPS
Nelson Bowers Ford................................................................ 1993 Chattanooga
Cleveland Village Honda/Infiniti.................................................. 1994 Chattanooga
Cleveland Chrysler-Plymouth-Jeep-Eagle............................................ 1995 Chattanooga
Jaguar of Chattanooga (awarded franchise)......................................... 1995 Chattanooga
European Motors of Nashville
"BMW, Volkswagen"............................................................... 1996 Nashville
European Motors
"BMW, Volvo".................................................................... 1996 Chattanooga
Nelson Bowers Dodge............................................................... 1997 Chattanooga
KIA -- VW of Chattanooga (awarded franchise)...................................... 1997 Chattanooga
</TABLE>
DEALERSHIP MANAGEMENT
Operations of the dealerships are overseen by Regional Vice Presidents, who
report to the Company's Chief Operating Officer. Each of the Company's
dealerships is managed by an Executive Manager who is responsible for the
operations of the dealership and the dealership's financial and customer
satisfaction performance. The Executive Manager is responsible for selecting,
training and retaining dealership personnel. All Executive Managers report to
the Company's senior management on a regular basis and prepare a comprehensive
monthly financial and operating statement of their dealership. In addition, the
Company's senior management meets on a monthly basis with its Executive Managers
to address changing customer preferences, operational concerns and to share best
practices, such as maintaining a customer-friendly buying environment,
maximizing potential revenues per new vehicle sale through increased F&I
penetration, using customer calling and coupon programs to attract and retain
service customers, and continued training of dealership personnel.
Each Executive Manager is complemented by a team which includes two senior
managers that aid in the operation of the dealership. The General Sales Manager
is primarily responsible for the operations, personnel, financial performance
and customer satisfaction performance of the new vehicle sales, used vehicle
sales, and finance and insurance departments. The Parts and Service Director is
primarily responsible for the operations, personnel, financial and customer
satisfaction performance of the service, parts and collision repair departments
(if applicable). Each of the departments of the dealership typically has a
manager who reports to the General Sales Manager or Parts and Service Director.
Each Executive Manager is complemented by a team which includes two senior
managers that aid in the operation of the dealership. The General Sales Manager
is primarily responsible for the operations, personnel, financial performance
and customer satisfaction performance of the new vehicle sales, used vehicle
sales, and finance and insurance departments. The Parts and Service Director is
primarily responsible for the operations, personnel and financial and customer
satisfaction performance of the service, parts and collision repair departments
(if applicable). Each of the departments of the dealership typically has a
manager who reports to the General Sales Manager or Parts and Service Director.
After the Acquisitions, the Company's Regional Vice Presidents will be as
listed, with their region of responsibility and age, on the following table:
<TABLE>
<CAPTION>
NAME AGE REGION OF RESPONSIBILITY
<S> <C> <C>
Ken Marks, Jr. 35 Florida
Jeffrey C. Rachor 35 Tennessee, Georgia, Kentucky and Alabama
Ivan A. Tufty 57 Texas
William Sullivan 65 North Carolina and South Carolina
</TABLE>
NEW VEHICLE SALES
The Company sells 17 brands of cars, light trucks and sport utility
vehicles. The products have a broad range of prices from lower priced, or
economy vehicles, to luxury vehicles. The Company believes that its brand,
product and price diversity
44
<PAGE>
reduces the risk of changes in customer preferences, product supply shortages
and aging products. Sales of new vehicles in 1996 were approximately 43% cars
and 57% trucks. Approximately 14% of sales in 1996 were luxury brands (BMW,
Cadillac, Infiniti, Jaguar and Volvo). See "Risk Factors -- Dependence on
Automobile Manufacturers."
The following table sets forth, by vehicle brand, information relating to
the Company's and the Acquisitions' new vehicle sales for 1996 and the first six
months of 1997:
<TABLE>
<CAPTION>
NEW VEHICLE SALES
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 (1) JUNE 30,
PERCENTAGE OF 1997 (1)
NEW VEHICLE NEW VEHICLE NEW VEHICLE
REVENUES REVENUES REVENUES
<S> <C> <C> <C>
(REVENUE AMOUNTS IN THOUSANDS)
VEHICLE BRAND/MANUFACTURER
BMW................................................................... $ 10,838 2.1% $ 13,993
Cadillac.............................................................. 2,029 0.4% 770
Chrysler/Dodge/Plymouth/Jeep/Eagle.................................... 88,951 17.4% 50,935
Ford.................................................................. 297,751 58.4% 165,037
Honda................................................................. 11,599 2.3% 4,992
Infiniti.............................................................. 6,618 1.3% 3,247
Jaguar................................................................ 2,296 0.5% 1,405
KIA................................................................... -- -- 685
Oldsmobile............................................................ 2,212 0.4% 1,055
Saturn................................................................ 13,488 2.6% 4,984
Toyota................................................................ 30,520 6.0% 19,246
Volvo................................................................. 43,060 8.5% 21,478
Volkswagen............................................................ 732 0.1% 257
Total............................................................... $ 510,094 100.0% $ 288,084
<CAPTION>
PERCENTAGE OF
NEW VEHICLE
REVENUES
<S> <C>
VEHICLE BRAND/MANUFACTURER
BMW................................................................... 4.9%
Cadillac.............................................................. 0.3%
Chrysler/Dodge/Plymouth/Jeep/Eagle.................................... 17.7%
Ford.................................................................. 57.2%
Honda................................................................. 1.7%
Infiniti.............................................................. 1.1%
Jaguar................................................................ 0.5%
KIA................................................................... 0.2%
Oldsmobile............................................................ 0.4%
Saturn................................................................ 1.7%
Toyota................................................................ 6.7%
Volvo................................................................. 7.5%
Volkswagen............................................................ 0.1%
Total............................................................... 100.0%
</TABLE>
(1) Does not include Nelson Bowers Dodge as it was purchased on March 1, 1997
and KIA-VW of Chattanooga which was purchased April 1997. European Motors of
Nashville and European Motors were purchased in October 1996 and May 1996,
respectively, and information for such dealerships is included from their
purchase dates through December 1996.
The Company seeks to provide customer oriented service and build lasting
customer relationships that will result in repeat and referral business. Sales
techniques and processes vary depending on the product line and local market
conditions. All of the Company's dealerships use computer technology for
prospecting and customer follow-up and extensively train sales staff to meet the
needs of customers. Certain of the dealerships use computer kiosks to allow
customers to browse vehicle inventories at their leisure. Depending on brand and
local market, dealerships may use "greeters" rather than sales people to
initially assist customers entering a dealership.
Substantially all of the Company's new vehicles are acquired from
Manufacturers. Allocation of vehicle inventory from Manufacturers is based
primarily on sales volume and input from dealers. Vehicle purchases are financed
through revolving credit facilities known in the industry as floor plan lending.
The following table presents information with respect to the Company's new
vehicle sales:
<TABLE>
<CAPTION>
SONIC DEALERSHIPS
SONIC DEALERSHIPS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
PRO FORMA
FOR THE
ACTUAL ACQUISITIONS ACTUAL
1992 1993 1994 1995 1996 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT VEHICLE UNIT DATA)
Unit sales............ 8,060 9,429 9,686 10,273 11,693 24,114 6,027 6,553
Sales revenue......... $126,230 $152,525 $164,361 $186,517 $233,146 $549,867 $115,721 $137,069
Gross profit.......... $ 8,723 $ 8,872 $ 10,043 $ 12,283 $ 15,809 $ 40,959 $ 7,672 $ 8,892
Gross profit margin... 6.9% 5.8% 6.1% 6.6% 6.8% 7.4% 6.6% 6.5%
<CAPTION>
PRO FORMA
FOR THE
ACQUISITIONS
1997
<S> <C>
Unit sales............ 12,816
Sales revenue......... $290,178
Gross profit.......... $ 21,173
Gross profit margin... 7.3%
</TABLE>
New vehicle sales include retail lease transactions and lease-type
transactions, both of which are arranged by the Company. New vehicle leases
generally have short terms. Lease customers, therefore, return to the new
vehicle market more
45
<PAGE>
frequently. Leases also provide a source of late-model, generally low mileage,
vehicles for its used vehicle inventory. Generally, leased vehicles are under
warranty for the entire lease term, which allows the Company to provide repair
service to the lessee throughout the term of the lease.
USED VEHICLE SALES
The Company sells a broad variety of makes and models of used cars, vans,
trucks and sport utility vehicles. On a pro forma basis in 1996, the Company
sold 9,598 used car and 3,855 used truck (including sport utility vehicles)
units. Used vehicle retail sales for 1996 represented 35.8% of pro forma total
retail unit sales.
Used vehicles are obtained by the Company through customer trade-ins, at
"closed" auctions which may be attended only by new vehicle dealers and which
offer off-lease, rental and fleet vehicles, and at "open" auctions which offer
repossessed vehicles and vehicles sold by other dealers. The Company sells its
used vehicles to retail customers and, in the case of vehicles in poor condition
or vehicles which remain unsold for a specified period of time, to other dealers
or wholesalers. Sales to other dealers or wholesalers are frequently close to or
below cost and therefore negatively affect the Company's gross margin on used
vehicle sales.
The Company emphasizes retail sales of used vehicles in order to offer a
wider variety of vehicles and to benefit from the higher gross margins from used
vehicle sales. To improve the marketability of used vehicles the Company employs
both manufacturer supported and in-house used car certification programs and
sale of extended warranties on used vehicles. At certain locations, the Company
provides a five day money back guarantee on the sale of all used vehicles. The
Company intends to expand this guarantee program to all locations.
After the Acquisitions, the Company will operate four standalone used car
facilities. As the Company enters new markets and gains market share in existing
markets, the Company intends to expand its standalone used car facilities to
take advantage of the high quality sources of vehicles available to new vehicle
retailers.
The following table sets forth information on the Company's used vehicle
sales:
<TABLE>
<CAPTION>
SONIC DEALERSHIPS
SONIC DEALERSHIPS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
PRO FORMA
FOR THE
ACTUAL ACQUISITIONS ACTUAL
1992 1993 1994 1995 1996 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT VEHICLE UNIT DATA)
Retail unit sales.......... 3,892 4,104 4,374 5,172 5,488 13,453 2,836 2,638
Retail sales revenue....... $33,636 $37,742 $47,537 $60,766 $68,054 $187,213 $35,200 $32,666
Retail gross profit........ 3,610 3,964 5,182 5,792 5,748 17,415 2,968 2,772
Retail gross margin........ 10.7% 10.5% 10.9% 9.5% 8.4% 9.3% 8.4% 8.5%
Wholesale unit sales....... 3,756 4,189 4,656 5,009 5,344 12,469 2,751 2,750
Wholesale sales revenue.... $11,199 $13,363 $16,062 $20,025 $25,642 $ 66,415 $13,412 $15,342
Wholesale gross profit..... 16 27 43 (45) (23) (22) (12) (145)
Wholesale gross margin..... 0.1% 0.2% 0.3% (0.2)% (0.1)% (.03)% (0.1)% (0.9)%
Total unit sales........... 7,648 8,293 9,030 10,181 10,832 25,922 5,587 5,388
Total revenue.............. $44,835 $51,105 $63,599 $80,791 $93,696 $253,628 $48,612 $48,008
Total gross profit......... 3,626 3,991 5,225 5,747 5,725 17,393 2,956 2,627
Total gross margin......... 8.1% 7.8% 8.2% 7.1% 6.1% 6.8% 6.1% 5.5%
<CAPTION>
PRO FORMA
FOR THE
ACQUISITIONS
1997
<S> <C>
Retail unit sales.......... 7,222
Retail sales revenue....... $ 99,181
Retail gross profit........ 8,986
Retail gross margin........ 9.1%
Wholesale unit sales....... 6,639
Wholesale sales revenue.... $ 37,920
Wholesale gross profit..... (17)
Wholesale gross margin..... .04%
Total unit sales........... 13,861
Total revenue.............. $ 137,101
Total gross profit......... 8,969
Total gross margin......... 6.5%
</TABLE>
SERVICE AND PART SALES
The Company provides service and parts at each of its franchised
dealerships. The Company provides maintenance and repair services at its 20 new
vehicle dealerships and three used vehicle facilities. The Company utilizes
approximately 400 service bays in providing both warranty and non-warranty
services. Service and parts sales provide higher gross margins than vehicle
sales. On a pro forma basis in 1996, the Company's service and parts operations
generated $87.2 million in revenues and $35.8 million in gross profit,
representing 9.5% and 30.7% of total revenues and gross profit, respectively.
Historically, the automotive repair industry has been highly fragmented.
However, the Company believes the increased use of advanced technology in
vehicles has made it difficult for independent repair shops to perform major or
technical repairs. Additionally, manufacturers permit warranty work to be
performed only at franchised dealerships. Given the increasing technological
complexity of motor vehicles and the trend to long term warranties, the Company
believes an increasing percentage of repair work will be performed at franchised
dealerships.
The Company regards its service operations as an integral part of its
overall approach to customer service. Vehicle service provides additional
opportunities to build long-term customer relationships. The Company uses
customer calling,
46
<PAGE>
coupon programs and other techniques to attract and retain service customers.
Although individual dealerships vary based on markets and brands, many Company
dealerships use service "teams" and variable rate or "menu" pricing structures
to improve customer satisfaction with repair service.
Sales of factory authorized equipment and parts to wholesale customers are
an integral component of parts operations at certain of the Company's
dealerships. For example, the Company's Lone Star Ford dealership sold
approximately $9.3 million in wholesale parts in 1996. The Company plans to
capitalize on its representation of numerous manufacturers and its experience as
a wholesale parts distributor in order to increase sales of factory authorized
equipment and parts to wholesale customers.
The following table sets forth information regarding the Company's service
and parts sales:
<TABLE>
<CAPTION>
SONIC DEALERSHIPS
SONIC DEALERSHIPS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
PRO FORMA
FOR THE
ACTUAL ACQUISITIONS ACTUAL
1992 1993 1994 1995 1996 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Sales revenue.............. $21,778 $27,243 $30,298 $31,957 $37,702 $ 87,168 $18,607 $20,220
Gross profit............... 7,540 9,540 10,344 11,003 13,106 35,773 6,317 6,822
Gross profit margin........ 34.6% 35.0% 34.1% 34.4% 34.8% 41.0% 33.9% 33.7%
<CAPTION>
PRO FORMA
FOR THE
ACQUISITIONS
1997
<S> <C>
Sales revenue.............. $ 45,893
Gross profit............... 19,100
Gross profit margin........ 41.6%
</TABLE>
COLLISION REPAIR
The Company operates collision repair centers, or body shops, at eight of
its dealership locations. In 1996, collision repair accounted for $8.9 million,
or 1.0%, of the Company's pro forma revenues and 4.3% of the Company's gross
profit. The Company's collision repair business provides favorable margins and,
similar to service and parts, is not significantly affected by business cycles
or consumer preferences. In addition, because of the higher cost of used
vehicles, insurance adjusters are more hesitant to declare a vehicle a total
loss, resulting in more significant, and higher cost, repair jobs. The Company
believes that, because of the high capital investment required for collision
repair shops and the cost of complying with governmental regulations, large
volume body shops will be more successful in the future than smaller volume
shops. The Company believes the collision repair business will consolidate and
that it will be able to capitalize on this consolidation.
The following table sets forth information regarding the Company's
collision repair operations:
<TABLE>
<CAPTION>
SONIC
DEALERSHIPS
SONIC DEALERSHIPS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
PRO FORMA
FOR THE
ACTUAL ACQUISITIONS ACTUAL
1992 1993 1994 1995 1996 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Sales revenue...................... $2,765 $3,094 $3,686 $3,903 $4,942 $8,930 $2,398 $2,686
Gross profit....................... 1,378 1,516 1,870 1,956 2,452 4,975 1,201 1,284
Gross profit margin................ 49.8% 49.0% 50.7% 50.1% 49.6% 55.7% 50.1% 47.8%
<CAPTION>
PRO FORMA
FOR THE
ACQUISITIONS
1997
<S> <C>
Sales revenue...................... $5,232
Gross profit....................... 2,628
Gross profit margin................ 50.2%
</TABLE>
FINANCE AND INSURANCE
The Company offers its customers a wide range of financing and leasing
alternatives for the purchase of vehicles. In addition, as part of each sale,
the Company offers customers credit life, accident and health and disability
insurance to cover the financing cost of their vehicle, as well as warranty or
extended service contracts. The Sonic Dealerships' pro forma revenue from
financing, insurance and extended warranty transactions was $17.5 million in
1996 and $9.8 million for the six months ended June 30, 1997.
The Company believes that its customers' ability to obtain financing at its
dealerships significantly enhances the Company's ability to sell new and used
vehicles. The Company provides a variety of financing and leasing alternatives
in order to meet the specific needs of each potential customer. The Company
believes its ability to obtain customer-tailored financing on a "same day" basis
provides it with an advantage over many of its competitors, particularly smaller
competitors which do not generate sufficient volume to attract the diversity of
financing sources that are available to the Company. The dealership will then be
able to provide a customer with a broader array of lease payment alternatives
and, consequently, appeal to a term buyer who is trying to purchase a vehicle of
choice at or below a specific monthly payment. During 1996, the Company arranged
for financing for approximately 44.7% of its new vehicle sales and 53.6% of its
used vehicle sales.
47
<PAGE>
The Company assigns its vehicle financing contracts and leases to other
parties, instead of directly financing sales, which reduces the Company's
exposure to loss from financing activities. The Company receives a commission
from the lender for originating and assigning the loan or lease but is assessed
a chargeback fee by the lender if a loan is canceled, in most cases, within 120
days of making the loan. Early cancellation can result from early repayment
because of refinancing of the loan, the sale or trade-in of the vehicle, or
default on the loan. The Company establishes an allowance to absorb estimated
chargebacks and refunds. The Company believes that its high volume of business
makes the Company's retail contracts more attractive to lenders, which may
enable the Company to negotiate higher commission rates in contrast to lower
volume dealerships.
In addition to its financing activities, the Company offers extended
service contracts in connection with the sale of new and used vehicles. Extended
service contracts on new vehicles supplement the warranties offered by the
vehicle manufacturer, and on used vehicles, such contracts supplement any
remaining manufacturer warranty or serve as the primary service contract on the
vehicle. The extended service contracts sold by the Company are issued by
third-party insurers that pay the Company a commission upon sale of the
contract. In 1996, the Company sold extended service contracts on 24.0% and
36.1% respectively, of its new and used retail vehicle sales. The Company also
offers its customers credit life, health and accident insurance when they
finance an automobile purchase, and receives a commission on each policy sold.
SALES AND MARKETING
The Company's marketing and advertising activities vary among its
dealerships and among its markets. The Company advertises primarily through
television, newspapers, radio and direct mail and regularly conducts special
promotions designed to focus vehicle buyers on its product offerings. The
Company intends to continue tailoring its marketing efforts to the relevant
marketplace in order to reach the Company's targeted customer base. The Company
also has computer technology to aid sales people in prospecting for customers.
Under arrangements with manufacturers, the Company receives a subsidy for a
portion of its advertising expenses incurred in connection with a manufacturer's
vehicles. Because of the Company's leading market presence in certain markets,
the Company believes it has been able to realize cost savings on its advertising
expenses due to volume discounts and other concessions from media. The Company
also believes its consolidated marketing campaigns within particular markets
result in enhanced name recognition and sales volume when compared with smaller
competitors in the same market.
RELATIONSHIPS WITH MANUFACTURERS
Each of the Company's dealerships operates under a separate franchise or
dealer agreement (a "Dealer Agreement") which governs the relationship between
the dealership and the Manufacturer. In general, each Dealer Agreement specifies
the location of the dealership for the sale of vehicles and for the performance
of certain approved services in a specified market area. The designation of such
areas generally does not guarantee exclusivity within a specified territory. In
addition, most Manufacturers allocate vehicles on a "turn and earn" basis which
rewards high volume. A Dealer Agreement requires the dealer to meet specified
standards regarding showrooms, the facilities and equipment for servicing
vehicles, inventories, minimum net working capital, personnel training, and
other aspects of the business. The Dealer Agreement with each dealership also
gives each Manufacturer the right to approve the dealership's general manager
and any material change in management or ownership of the dealership. Each
Manufacturer may terminate a Dealer Agreement under certain circumstances, such
as a change in control of the dealership without Manufacturer approval, the
impairment of the reputation or financial condition of the dealership, the
death, removal or withdrawal of the dealership's general manager, the conviction
of the dealership or the dealership's owner or general manager of certain
crimes, a failure to adequately operate the dealership or maintain wholesale
financing arrangements, insolvency or bankruptcy of the dealership or a material
breach of other provisions of the Dealer Agreement. In connection with the
Offering, the Company is amending its Dealer Agreements to revise those
provisions which would have prohibited the Company from selling its Common Stock
to the public. See "Description of Capital Stock -- Delaware Law, Certain
Charter and Bylaw Provisions and Certain Franchise Agreement Provisions."
Many automobile manufacturers are still developing their policies regarding
public ownership of dealerships. The Company believes that these policies will
continue to change as more dealership groups sell their stock to the public, and
as the established, publicly-owned dealership groups acquire more franchises. To
the extent that new or amended manufacturer policies restrict the number of
dealerships which may be owned by a dealership group, or the transferability of
the Company's Common Stock, such policies could have a material adverse effect
on the Company. See "Risk Factors -- Dependence on Automobile Manufacturers" and
" -- Concentration of Voting Power and Anti-Takeover Provisions."
Certain state statutes in Florida and other states limit manufacturers'
control over dealerships. Under Florida law, notwithstanding any contrary terms
in a dealer agreement, manufacturers may not unreasonably withhold approval for
the sale of
48
<PAGE>
a dealership. Acceptable grounds for disapproval include material shortcomings
in the character, financial condition or business experience of the proposed
transferee. In addition, dealerships may challenge manufacturers' attempts to
establish new dealerships in the dealer's 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 area.
Manufacturers must have "good cause" for any termination or failure to renew a
dealer agreement, and an automaker's license to distribute vehicles in Florida
may be revoked if, among other things, the automaker has forced or attempted to
force an automobile dealer to accept delivery of motor vehicles not ordered by
that dealer.
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 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 law limits 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 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.
Georgia law provides that no manufacturer may arbitrarily reject a proposed
change of control or sale of an automobile dealership, and any manufacturer
challenging such a transfer of a dealership must provide written reasons for its
rejection to the dealer. Manufacturers bear the burden of proof to show that any
disapproval of a proposed transfer of a dealership is not arbitrary. If a
manufacturer terminates a franchise agreement due to a proposed transfer of the
dealership or for any other reason not considered to constitute good cause under
Georgia law, such termination will be ineffective. As an alternative to
rejecting or accepting a proposed transfer of a dealership or terminating the
franchise agreement, Georgia law provides that a manufacturer may offer to
purchase the dealership on the same terms and conditions offered to the
prospective transferee.
Under Tennessee law, a manufacturer may not modify, terminate or refuse to
renew a franchise agreement with a dealer except for good cause, as defined in
the governing Tennessee statutes. Further, a manufacturer may be denied a
Tennessee license, or have an existing license revoked or suspended if the
manufacturer modifies, terminates, or suspends a franchise agreement due to an
event not constituting good cause. Good cause includes material shortcomings in
the character, financial condition or business experience of the dealer. A
manufacturer's Tennessee license may also be revoked if the manufacturer
prevents or attempts to prevent the sale or transfer of the dealership by
unreasonably withholding consent to the transfer.
COMPETITION
The retail automotive industry is highly competitive. Depending on the
geographic market, the Company competes with both dealers offering the same
brands and product line as the Company and dealers offering other automakers'
vehicles. The Company also competes for vehicle sales with auto brokers and
leasing companies. The Company competes with small, local dealerships and with
large multi-franchise auto dealerships. Many of the Company's larger competitors
are larger and have greater financial and marketing resources and are more
widely known than the Company. Some of the Company's competitors also may
utilize marketing techniques, such as Internet visibility or "no negotiation"
sales methods, not currently used by the Company.
The Company also competes with regional and national car rental companies,
which sell their used rental cars, and used automobile "superstores," such as
AutoNation and CarMax. In the future, new competitors may enter the automotive
retailing market, including automobile manufacturers that may decide to open
additional retail outlets or acquire other dealerships. In addition, the used
vehicle superstores generally offer a greater and more varied selection of
vehicles than the Company's dealerships. As the Company seeks to acquire
dealerships in new markets, it may face significant competition (including
competition from other publicly-owned dealer groups) as it strives to gain
market share. See "Risk Factors -- Competition"
The Company believes that the principal competitive factors in vehicle
sales are the marketing campaigns conducted by automakers, 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 makes of automobiles, pricing (including
manufacturer rebates and other special offers) and warranties.
49
<PAGE>
In addition to competition for vehicle sales, the Company also competes
with other auto dealers, service stores, auto parts retailers and independent
mechanics in providing parts and service. 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 dealer's makes and
models and the quality of customer service. A number of regional and national
chains offer selected parts and service at prices that may be lower than the
Company's prices.
In arranging or providing financing for its customers' vehicle purchases,
the Company competes with a broad range of financial institutions. The Company
believes that the principal competitive factors in providing financing are
convenience, interest rates and contract terms.
The Company's success depends, in part, on national and regional
automobile-buying trends, local and regional economic factors and other regional
competitive pressures. The Company sells its vehicles in the Charlotte,
Chattanooga, Nashville, Tampa-Clearwater, Houston and Atlanta markets.
Conditions and competitive pressures affecting these markets, such as
price-cutting by dealers in these areas, or in any new markets the Company
enters, could adversely affect the Company, although the retail automobile
industry as a whole might not be affected. See "Risk Factors -- Competition."
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
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 North Carolina, South Carolina, Tennessee, Florida, Georgia and Texas
law as well as the laws of other states into which the Company may expand, the
Company must obtain a license in order to establish, operate or relocate a
dealership or operate an automotive repair service. 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 operations are also subject to laws governing consumer
protection. Automobile dealers and manufacturers are subject to so-called "Lemon
Laws" that require a manufacturer or the dealer to replace a new vehicle or
accept it for a full refund within one year after initial purchase if the
vehicle does not conform to the manufacturer's express warranties and the dealer
or manufacturer, after a reasonable number of attempts, is unable to correct or
repair the defect. Federal laws require certain written disclosures to be
provided on new vehicles, including mileage and pricing information.
The imported automobiles purchased by the Company are subject to United
States customs duties and, in the ordinary course of its business, the Company
may, from time to time, be subject to claims for duties, penalties, liquidated
damages, or other charges. Currently, United States customs duties are generally
assessed at 2.5% of the customs value of the automobiles imported, as classified
pursuant to the Harmonized Tariff Schedule of the United States. See "Risk
Factors -- Imported Products."
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, usury laws and other installment sales laws. Some states regulate
finance fees that may be paid as a result of vehicle sales. State and federal
environmental regulations, including regulations governing air and water quality
and the storage and disposal of gasoline, oil and other materials, also apply to
the Company.
The Company believes that it complies in all material respects with the
laws affecting its business. Possible penalties for violation of any of these
laws include revocation of the Company's licenses and fines. In addition, many
laws may give customers a private cause of action.
As with automobile dealerships generally, and service parts and body shop
operations in particular, the Company's business involves the use, storage,
handling and contracting for recycling or disposal of hazardous or toxic
substances or wastes, including environmentally sensitive materials such as
motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon,
waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing
agents, gasoline and diesel fuels. The Company's business also involves the past
and current operation and/or removal of aboveground and underground storage
tanks containing such substances or wastes. Accordingly, the Company is subject
to regulation by federal, state and local authorities establishing health and
environmental quality standards, and liability related thereto, and providing
penalties for violations of those standards. The Company is also subject to
laws, ordinances 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 Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws and regulations will
not, individually or in the aggregate, have a material adverse effect on the
Company's
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results of operations or financial condition. However, soil and groundwater
contamination is known to exist at certain properties used by the Company.
Furthermore, environmental laws and regulations are complex and subject to
frequent change. There can be no assurance that compliance with amended, new or
more stringent laws or regulations, stricter interpretations of existing laws or
the future discovery of environmental conditions will not require additional
expenditures by the Company, or that such expenditures will not be material. See
"Risk Factors -- Government Regulation; Environmental Matters."
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<PAGE>
FACILITIES
The Company's principal executive offices are located at 5401 East
Independence Boulevard, Charlotte, North Carolina 28218, and its telephone
number is (704) 532-3301. These executive offices are located on the premises
owned by Town & Country Ford. The following table identifies, for each of the
properties to be utilized by the Company's dealership operations the location,
the owner/lessor, and the term and rental rate of the Company's lease for such
property, if applicable:
<TABLE>
<CAPTION>
1997
OWNERSHIP MONTHLY EXPIRATION
DEALERSHIP STATUS OWNER/LESSOR RENT (2) DATE FACILITY
<S> <C> <C> <C> <C> <C>
Town & Country Ford.................. Lease STC Properties (1) $ 34,083 2000 Main Bldg.
Body Shop
5401 East Independence Blvd.,
Charlotte
Lone Star Ford....................... Lease Viking Investments (1) $ 30,000 2005 Main Bldg.
Used Car Bldg.
8477 North Freeway, Houston Body Shop
Fleet Bldg.
Fort Mill Ford....................... Own -- -- -- Main Bldg.
Body Shop
788 Gold Hill Rd., Fort Mill, SC
Fort Mill Chrysler-Plymouth-Dodge.... Lease Jeffrey Boyd $ 16,667 2002 Main Bldg.
Used Car Bldg.
3310 Hwy. 51, Fort Mill, SC
Town & Country Toyota................ Own -- -- -- Main Bldg.
Body Shop
9101 South Blvd., Charlotte
Frontier Olsmobile-Cadillac.......... Lease Landers Oldsmobile-Cadillac $ 17,000 1998(3 ) Main Bldg.
Body Shop
2501 Roosevelt Blvd., Monroe, NC Used Car Bldg.
Ken Marks Ford....................... Lease Marks Holding Company (1) $ 95,000 2007(3 ) Main Bldg.
24825 US Hwy. 19 North, Clearwater
&
3925 Tampa Rd., Oldsmar, FL
Dyer Volvo........................... Lease D&R Investments (1) $ 50,000 (4) 2009(3 ) Main Bldg.
5260 Peachtree Industrial Blvd.,
Atlanta
Lake Norman Lease Phil M. and Quinton M. Gandy $ 40,000 (4) 2007(3 ) Main Bldg.
Chrysler-Plymouth-Jeep-Eagle....... and affiliates
Chartwell Center Dr., Cornelius, NC
Lake Norman Dodge.................... Lease Phil M. and Quinton M. Gandy $ 40,000 (4) 2007(3 ) Main Bldg.
and affiliates Truck Center
I-77 & Torrence Chapel Rd.,
Cornelius, NC
KIA/VW of Chattanooga................ Lease KIA Land Development (1) $ (5) 2007(3 ) Main Bldg.
6015 International Dr., Chattanooga
European Motors of Nashville......... Lease Third National Bank, $ 21,070 1998(3 ) Main Bldg.(7)
David P'Pool,
630 Murfreeboro Pike, Nashville Stella P'Pool
European Motors...................... Lease Nelson Bowers (1) $ 16,846 (4) 2007(3 ) Main Bldg.
5949 Brainerd Rd., Chattanooga
Jaguar of Chattanooga................ Lease JAG Properties LLC, Thomas $ 22,010 2017(3 ) Main Bldg.
Green, Jr. and
5915 Brainerd Rd., Chattanooga Nelson Bowers (1)
Cleveland Lease Cleveland Properties LLC (1) $ 14,000 2011(3 ) Main Bldg.
Chrysler-Plymouth-Jeep-Eagle.......
2496 South Lee Hwy., Cleveland, TN
Nelson Bowers Dodge.................. Lease Edward & Barbara Wright $ 16,800 2001(3 ) Main Bldg.
402 West Martin Luther King Blvd.,
Chattanooga
Cleveland Village Imports............ Lease Thomas Green, Jr. and Nelson $ 11,000 1997(3 ) Main Bldg.(8)
Bowers (1)
2490 & 2492 South Lee Hwy.,
Cleveland, TN
Saturn of Chattanooga................ Lease Nelson Bowers (1) $ 27,054 (4) 2007(3 ) Main Bldg.
6025 International Dr., Chattanooga
Nelson Bowers Ford................... Lease Robert G. Card, Jr. $ 8,900 Month to ) Main Bldg.
Month(3
717 South Lee Hwy., Cleveland, TN
Williams Motors...................... Lease J.T. Williams $ 15,000 1998(6 ) Main Bldg.
803 North Anderson Rd., Rock Hill,
SC
<CAPTION>
DEALERSHIP SQ. FT. ACRES
<S> <C> <C>
Town & Country Ford.................. 85,013 12.48
24,768
5401 East Independence Blvd.,
Charlotte
Lone Star Ford....................... 79,725 24.76
2,125
8477 North Freeway, Houston 26,450
1,500
Fort Mill Ford....................... 34,162 10.00
11,275
788 Gold Hill Rd., Fort Mill, SC
Fort Mill Chrysler-Plymouth-Dodge.... 9,809 5.50
1,470
3310 Hwy. 51, Fort Mill, SC
Town & Country Toyota................ 50,800 5.70
17,840
9101 South Blvd., Charlotte
Frontier Olsmobile-Cadillac.......... 14,825 7.08
11,250
2501 Roosevelt Blvd., Monroe, NC 2,200
Ken Marks Ford....................... 79,100 22.00
24825 US Hwy. 19 North, Clearwater
&
3925 Tampa Rd., Oldsmar, FL
Dyer Volvo........................... 60,000 6.00
5260 Peachtree Industrial Blvd.,
Atlanta
Lake Norman 26,000 6.00
Chrysler-Plymouth-Jeep-Eagle.......
Chartwell Center Dr., Cornelius, NC
Lake Norman Dodge.................... 25,000 6.00
5,000
I-77 & Torrence Chapel Rd.,
Cornelius, NC
KIA/VW of Chattanooga................ 8,445 3.75
6015 International Dr., Chattanooga
European Motors of Nashville......... 49,385 4.00
630 Murfreeboro Pike, Nashville
European Motors...................... 40,295 12.24
5949 Brainerd Rd., Chattanooga
Jaguar of Chattanooga................ 34,850 3.57
5915 Brainerd Rd., Chattanooga
Cleveland 17,750 5.60
Chrysler-Plymouth-Jeep-Eagle.......
2496 South Lee Hwy., Cleveland, TN
Nelson Bowers Dodge.................. 30,000 4.88
402 West Martin Luther King Blvd.,
Chattanooga
Cleveland Village Imports............ 15,760 2.05
2490 & 2492 South Lee Hwy.,
Cleveland, TN
Saturn of Chattanooga................ 20,100 6.22
6025 International Dr., Chattanooga
Nelson Bowers Ford................... 19,725 1.40
717 South Lee Hwy., Cleveland, TN
Williams Motors...................... 15,000(9) 3.0(9)
803 North Anderson Rd., Rock Hill,
SC
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
52
<PAGE>
(1) These lessors are affiliates of the Company's stockholders and/or executive
officers. See "Risk Factors -- Potential Conflicts of Interest," "Certain
Transactions -- Certain Dealership Leases" and "Principal Stockholders."
(2) All of the Company's leases are "triple net" leases and require the Company
to pay all real estate taxes, maintenance and insurance costs for the
property.
(3) Each of these leases provides for two renewal terms of five years each, at
the option of the Company.
(4) Monthly rent expense based on estimate from the purchase agreement relating
to the Acquisition.
(5) Lease rent currently under negotiation.
(6) This lease provides for four renewal terms of one year each, at the option
of the Company.
(7) European Motors of Nashville has entered into a 20-year lease with H.G. Hill
Realty Company, an entity unaffiliated with the Company, regarding a new BMW
facility to be constructed at a site separate from its existing facility.
The monthly rent payments under this lease are not presently fixed and will
depend upon the final construction costs of the new facility. The lease term
will begin when the Company occupies these premises.
(8) Cleveland Village Imports also leases a used-car lot across the street from
its main facility from individuals not affiliated with the Company for a
term expiring in 2002 and providing for $3,000 in monthly rent.
(9) Estimated size.
All of the Company's dealerships are located along major U.S. or interstate
highways. One of the principal factors considered by the Company in evaluating
an acquisition candidate is its location. The Company prefers to acquire
dealerships located along major thoroughfares, primarily interstate highways
with ease of access, which can be easily visited by prospective customers.
The Company owns certain of the real estate associated with Town & Country
Toyota and Frontier Oldsmobile-Cadillac. The remainder of the properties
utilized by the Company's dealership operations are leased as set forth in the
foregoing table. The Company believes that its facilities are adequate for its
current needs. In connection with its acquisition strategy, the Company intends
to lease the real estate associated with a particular dealership whenever
practicable.
Under the terms of its franchise agreements, the Company must maintain an
appropriate appearance and design of its facilities and is restricted in its
ability to relocate its dealerships. See " -- Relationships with Manufacturers."
EMPLOYEES
As of June 30, 1997 the Company employed 1,574 people, of whom
approximately 210 were employed in managerial positions, 594 were employed in
non-managerial sales positions, 346 were employed in non-managerial parts and
service positions and 424 were employed in administrative support positions.
The Company believes that many dealerships in the retail automobile
industry have difficulty in attracting and retaining qualified personnel for a
number of reasons, including the historical inability of dealerships to provide
employees with an equity interest in the profitability of the dealerships. The
Company intends, upon completion of the Offering, to provide certain executive
officers, managers and other employees with stock options and all employees with
a stock purchase plan and believes this type of equity incentive will be
attractive to existing and prospective employees of the Company. See
"Management -- Stock Option Plan" and " -- Employee Stock Purchase Plan" and
"Risk Factors -- Dependence on Key Personal and Limited Management and Personnel
Resources."
The Company believes that its relationship with its employees is good. 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 Manufacturer's manufacturing
facilities. See "Risk Factors -- Dependence on Automobile Manufacturers."
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
reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of the Company.
53
<PAGE>
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.
54
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS; KEY PERSONNEL
The executive officers, directors and key personnel of the Company, and
their ages as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
<S> <C> <C>
O. Bruton Smith..................... 70 Chairman, Chief Executive Officer and Director*
Bryan Scott Smith................... 29 President, Chief Operating Officer and Director*
Nelson E. Bowers, II................ 53 Executive Vice President and Director Nominee*
Theodore M. Wright.................. 35 Chief Financial Officer, Vice President-Finance, Secretary and Director*
William R. Brooks................... 47 Director
Jeffrey C. Rachor................... 35 Regional Vice President-Mid South Region
O. Ken Marks, Jr.................... 35 Regional Vice President-Florida
Ivan A. Tufty....................... 57 Regional Vice President-Texas
William M. Sullivan................. 65 Regional Vice President-North and South Carolina
</TABLE>
* Executive Officer
O. BRUTON SMITH has been the Chairman, Chief Executive Officer and a
director of the Company since its organization in 1997 and presently is the
controlling shareholder of the Company through his direct and indirect ownership
of Class B Common Stock. Mr. Smith has been the president and controlling
shareholder of Sonic Financial since its formation, which prior to the
Reorganization owned a controlling interest in all of the Company's dealerships
except Town & Country Toyota and presently owns a controlling interest in the
Company's Common Stock. Mr. Smith, prior to the Reorganization, owned a
controlling interest in Town & Country Toyota. Mr. Smith currently is, and since
their acquisition by Sonic Financial has been, a director and the president of
each of the Company's dealerships. Mr. Smith has worked in the retail automobile
industry since 1966. Mr. Smith's initial term as a director of the Company will
expire at the annual meeting of stockholders of the Company to be held in 2000.
Mr. Smith is also the chairman and chief executive officer, a director and
controlling shareholder, either directly or through Sonic Financial, of Speedway
Motorsports, Inc. ("SMI"). SMI is a public company traded on the NYSE. Among
other things, it owns and operates the following NASCAR racetracks: Atlanta
Motor Speedway, Bristol Motor Speedway, Charlotte Motor Speedway, Sears Point
Raceway and Texas Motor Speedway. He is also the executive officer and a
director of each of SMI's operating subsidiaries. Under his employment agreement
with the Company, Mr. Smith is required to devote approximately 50% of his
business time to the Company's business.
BRYAN SCOTT SMITH has been the President and Chief Operating Officer of the
Company since April 1997, and a director of the Company since its organization
in 1997. Mr. Smith, who is the son of Bruton Smith, has been the Vice President
since 1993 and, prior to the Reorganization, the minority owner of Town &
Country Ford. Mr. Smith joined the Company's predecessor in January 1991 on a
full-time basis as an assistant used car manager. In August of 1991, Mr. Smith
became the used car manager at Town & Country Ford. Mr. Smith was promoted to
General Manager of Town & Country Ford in November 1992 where he remained until
his appointment to President and Chief Operating Officer of the Company in April
of 1997. Mr. Smith's initial term as a director of the Company will expire at
the annual meeting of stockholders of the Company to be held in 1998.
NELSON E. BOWERS, II will be appointed the Executive Vice President and a
director of the Company upon consummation of the Bowers Acquisition. Mr. Bowers
owns a controlling interest in the dealerships that are the subject of the
Bowers Acquisition and has worked in the retail automobile industry since 1974.
Mr. Bowers has served on national dealer councils for BMW and Volvo and has
owned and operated dealerships since 1979, including the first Saturn
dealership. Several of the dealerships owned by Mr. Bowers have been awarded the
highest awards available from manufacturers for customer satisfaction. Mr.
Bowers' initial term as a director of the Company will expire at the annual
meeting of stockholders to be held in 1999.
THEODORE M. WRIGHT has been the Chief Financial Officer, Vice
President-Finance, Treasurer and Secretary of the Company since April 1997, and
a director of the Company since June 1997. Before joining the Company, Mr.
Wright was a Senior Manager and in charge of the Columbia, South Carolina office
of Deloitte & Touche LLP. Prior to joining the Columbia office, Mr. Wright was a
Senior Manager in Deloitte & Touche LLP's National Office Accounting Research
and SEC Services Departments from 1994 to 1995. From 1992 to 1994 Mr. Wright was
an audit manager with Deloitte & Touche LLP. Mr. Wright's initial term as a
director of the Company will expire at the annual meeting of stockholders to be
held in 1999.
55
<PAGE>
WILLIAM R. BROOKS has been a director of the Company since its formation.
Mr. Brooks also served as the Company's Treasurer, Vice President and Secretary
from its organization in February 1997 to April 1997 when Mr. Wright was
appointed to those positions. Since December 1994, Mr. Brooks has been the Vice
President, Treasurer, Chief Financial Officer and a director of SMI. Mr. Brooks
also serves as an executive officer and a director for various operating
subsidiaries of SMI. Before the formation of SMI in December 1994, Mr. Brooks
was the Vice President of the Charlotte Motor Speedway and a Vice President and
a director of Atlanta Motor Speedway. Mr. Brooks joined Sonic Financial from
Price Waterhouse in 1983. At Sonic Financial, he was promoted from Manager to
Controller in 1985 and again to Chief Financial Officer in 1989. Mr. Brooks'
initial term as a director of the Company will expire at the annual meeting of
stockholders to be held in 2000.
JEFFREY C. RACHOR will be appointed Regional Vice President upon
consummation of the Bowers Acquisition. Mr. Rachor has over 13 years experience
in automobile retailing and has been the chief operating officer at the Bowers
Dealerships since 1989. During this period, Mr. Rachor has also served at
various times as the general manager of Toyota, Saturn and
Chrysler-Plymouth-Jeep-Eagle dealerships. Prior to joining the Bowers
organization, Mr. Rachor was an assistant regional manager with American Suzuki
Motor Corporation from 1987 to 1989 and a Metro Sales Manager and a District
Sales Manager with GM's Buick Motor Division from 1983 to 1987.
O. KEN MARKS, JR. owns a controlling interest in Ken Marks Ford and has
operated that dealership as its chief executive since prior to 1992. Mr. Marks
is a Chairman's award winner from Ford and has over 13 years experience in auto
retailing. Ken Marks Ford is one of the top 100 automobile dealerships in the
United States and one of the 30 largest Ford dealerships. Mr. Marks will be
appointed a Regional Vice President upon consummation of the Offering.
IVAN A. TUFTY has been Executive Manager of Lone Star Ford since 1990 and
will be appointed a Regional Vice President upon consummation of the Offering.
Under Mr. Tufty's leadership, Lone Star Ford has been recognized as one of the
30 largest Ford dealerships and one of the 100 largest dealerships in the United
States. Mr. Tufty has over 40 years of experience in auto retailing and was a
dealer principal and equity owner for 12 years.
WILLIAM M. SULLIVAN has been Vice-President of Town & Country Ford since
prior to 1992 and will be appointed a Regional Vice President upon consummation
of the Offering. Mr. Sullivan has over 25 years experience in auto retailing as
an Executive Manager, head of F&I and in other roles.
As soon as practicable after the Offering, the Company intends to name two
or three individuals not employed by or affiliated with the Company to the
Company's Board of Directors.
The Board of Directors of the Company is divided into three classes, each
of which, after a transitional period, will serve for three years, with one
class being elected each year. The executive officers are elected annually by,
and serve at the discretion of, the Company's Board of Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since the Company's organization in February 1997, all matters concerning
executive officer compensation have been addressed by the entire Board of
Directors. Bruton Smith, Scott Smith and Theodore Wright were executive officers
of the Company and, together with William R. Brooks, will constitute the entire
Board until the consummation of the Offering when Nelson Bowers, an executive
officer of the Company, is to be appointed. Bruton Smith serves as Chairman of
the Board of SMI. William R. Brooks, an executive officer of SMI, serves on the
Board of the Company. As soon as practicable after the Offering, the Company
intends to name at least two independent directors who will comprise the
Company's compensation committee. See "Management."
LIMITATIONS OF DIRECTORS LIABILITY
The Certificate includes a provision that effectively eliminates the
liability of directors to the Company or to the Company's stockholders for
monetary damages for breach of the fiduciary duties of a director, except for
breaches of the duty of loyalty, acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, certain actions
with respect to unlawful dividends, stock repurchases or redemptions and any
transaction from which the director derived an improper personal benefit. This
provision does not prevent stockholders from seeking nonmonetary remedies
covering any such action, nor does it affect liabilities under the federal
securities laws. The Company's Bylaws further provide that the Company shall
indemnify each of its directors and officers, to the fullest extent authorized
by Delaware Law, with respect to any threatened, pending or completed action,
suit or proceeding to which such person may be a party by reason of serving as a
director or officer. Delaware Law currently authorizes a corporation to
indemnify its directors and
56
<PAGE>
officers against expenses (including attorney's fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by a third party if such
officers or directors acted in good faith and in a manner they 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 reason to believe
their conduct was unlawful. Indemnification is permitted in more limited
circumstances with respect to derivative actions. The Company believes that
these provisions of the Certificate and the Bylaws are necessary to attract and
retain qualified persons to serve as directors and officers.
COMMITTEES OF THE BOARD
The Board of Directors will establish a Compensation Committee and an Audit
Committee consisting of independent directors upon the election of at least two
independent directors. The Compensation Committee will review and approve
compensation for the executive officers, and administer, and determine awards
under, the Stock Option Plan and any other incentive compensation plans for
employees of the Company. See " -- Stock Option Plan" and " -- Employee Stock
Purchase Plan." The Audit Committee will recommend the selection of auditors for
the Company and will review the results of the audit and other reports and
services provided by the Company's independent auditors. The Company has not
previously had either of these committees.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company will
be compensated for their services in amounts to be determined. The Company will
also reimburse all directors for their expenses incurred in connection with
their activities as directors of the Company. Directors who are also employees
of the Company receive no compensation for serving on the Board of Directors.
EXECUTIVE COMPENSATION
Sonic was incorporated on January 31, 1997 and did not conduct any
operations prior to that time. The Company anticipates that during 1997 its most
highly compensated executive officers with annual salaries exceeding $100,000,
and their annual base salaries for 1997, will be: Bruton Smith -- $350,000,
Scott Smith -- $300,000, Nelson Bowers, -- $400,000, and Theodore
Wright -- $180,000.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Bruton
Smith, Scott Smith, Bowers, Wright, Marks and Rachor (the "Employment
Agreements"), effective upon consummation of the Offering, which provide for an
annual base salary and certain other benefits. Pursuant to the Employment
Agreements, the 1997 base salaries of Messrs. Bruton Smith, Scott Smith, Bowers,
Wright, Marks and Rachor will be $350,000, $300,000, $400,000, $180,000,
$48,000, and $150,000, respectively. The executives will also receive such
additional increases as may be determined by the Compensation Committee. The
Employment Agreements, except those of Messrs. Rachor and Marks, provide for the
payment of annual performance-based bonuses equal to a percentage of the
executive's base salary, upon achievement by the Company (or relevant region) of
certain performance objectives, based on the Company's pre-tax income, to be
established by the Compensation Committee. The Employment Agreements of Messrs.
Rachor and Marks provide for the payment of annual performance-based bonuses,
paid in equal installments on a monthly basis, equal to a percentage of the
pre-tax earnings, of subsidiaries of the Company located within his regions of
responsibility, in the case of Mr. Rachor, and of Ken Marks Ford in the case of
Mr. Marks. See " -- Incentive Compensation Plan." Under the terms of the
Employment Agreements, the Company will employ Mr. Bruton Smith through
September 2000. Under the terms of their respective Employment Agreements, the
Company will employ Messrs. Scott, Smith, Bowers, Wright, Marks and Rachor for
five years or until their respective Employment Agreements are terminated by the
Company or the executive. Messrs. Scott Smith, Bowers, Wright, Marks and Rachor
also receive under their Employment Agreements, options pursuant to the
Company's Stock Option Plan, for shares, shares, shares, shares
and shares, of the Class A Common Stock, respectively, exercisable at the
initial public offering price, vesting in three equal annual installments
beginning October 1998 and expiring in October 2007.
Each of the Employment Agreements contain similar noncompetition
provisions. These provisions (i) prohibit the disclosure or use of confidential
Company information, and (ii) for a period of two years following the expiration
or termination of an Employment Agreement, prohibit competition with the Company
for the Company's employees and its customers, interference with the Company's
relationships with its vendors, and employment with any competitor of the
Company in specified territories. With respect to Messrs. Bruton Smith, Scott
Smith and Wright, the geographic restrictions apply in any Standard Metropolitan
Statistical Area ("SMSA") or county in which the Company has a place of business
at the time their
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employment ends. With respect to Messrs. Bowers and Rachor, the restrictions
apply only in the SMSA's for Houston, Charlotte, Chattanooga, and Nashville.
With respect to Mr. Marks, the territorial restrictions apply only in the SMSA's
or counties in which the Company has a place of business and about which Marks
had access to confidential information or for which he had operational or
managerial involvement.
Set forth below is information for the years ended December 31, 1996, 1995
and 1994 with respect to compensation for services to the Company's predecessors
of the Company's executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
OTHER NUMBER OF SHARES
ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY (1) BONUS (2) COMPENSATION OPTIONS (4) COMPENSATION (5)
<S> <C> <C> <C> <C> <C> <C>
O. Bruton Smith 1996 $ 164,750 $ 33,350(3) -- --
Chairman, Chief Executive Officer 1995 142,200 41,350(3) -- --
and Director 1994 142,200 41,000(3) -- --
Bryan Scott Smith 1996 $ 48,000 $ 230,714 (5) -- --
President, Chief 1995 48,000 168,670 (5) -- --
Operating Officer 1994 48,000 134,537 (5) -- --
and Director
</TABLE>
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned in the specified year and paid in
the first quarter of the following year.
(3) The Company provides Mr. Smith with the use of automobiles for personal use,
the annual cost of which is reflected as Other Annual Compensation.
(4) The Company's Stock Option Plan was adopted in August 1997. Therefore, no
options were granted to any of the Company's executive officers in 1996,
1995 or 1994.
(5) The aggregate amount of perquisites and other personal benefits received did
not exceed the lesser of $50,000 or 10% of the total annual salary and bonus
reported for such executive officer.
The Compensation Committee is expected to deliberate upon matters
concerning executive compensation, including possible changes in the components
and amounts of such compensation.
STOCK OPTION PLAN
In August 1997, the Board of Directors and stockholders of the Company
adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") in order
to attract and retain key personnel. The following discussion of the material
features of the Stock Option Plan is qualified by reference to the text of such
Plan filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Under the Stock Option Plan, options to purchase up to an aggregate of
shares of Class A Common Stock may be granted to key employees of the
Company and its subsidiaries and to officers, directors, consultants and other
individuals providing services to the Company. Members of the Board of Directors
who serve on the Compensation Committee must qualify as "non-employee
directors," as that term is defined in Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may not
participate in the Stock Option Plan.
The Compensation Committee of the Board of Directors of the Company will
administer the Stock Option Plan and will determine, among other things, the
persons who are to receive options, the number of shares to be subject to each
option and the vesting schedule of options. The Board of Directors of the
Company will determine the terms and conditions upon which the Company may make
loans to enable an optionee to pay the exercise price of an option. In selecting
individuals for options and determining the terms thereof, the Compensation
Committee may consider any factors it considers relevant, including present and
potential contributions to the success of the Company. Options granted under the
Stock Option Plan must be exercised within a period fixed by the Compensation
Committee, which period may not exceed ten years from the date of grant of the
option or, in the case of incentive stock options ("ISOs") granted to any holder
on the date of grant of more than ten percent of the total combined voting power
of all classes of stock of the Company, five years from the date of grant of the
option. Options may be made exercisable in whole or in installments, as
determined by the Compensation Committee.
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Options may not be transferred other than by will or the laws of descent
and distribution. During the lifetime of an optionee, options may be exercised
only by the optionee. The exercise price of options that are not ISOs will be
determined at the discretion of the Compensation Committee. The exercise price
of ISOs may not be less than the market value of the Class A Common Stock on the
date of grant of the option. In the case of ISOs granted to any holder on the
date of grant of more than ten percent of the total combined voting power of all
classes of stock of the Company and its subsidiaries, the exercise price may not
be less than 110% of the market value per share of the Class A Common Stock on
the date of grant. Unless designated as "incentive stock options" intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), options granted under the Stock Option Plan are intended to be
"nonstatutory stock options" ("NSOs"). The exercise price may be paid in cash,
in shares of Class A Common Stock owned by the optionee, in NSOs granted under
the Stock Option Plan (except that the exercise price of an ISO may not be paid
in NSOs) or in any combination of cash, shares and NSOs.
Options granted under the Stock Option Plan may include the right to
acquire a "reload" option. In such a case, if a participant pays all or part of
the exercise price of an option with shares of Class A Common Stock held by the
participant for at least six months, then, upon exercise of the option, the
participant is granted a second option to purchase, at the fair market value as
of the date of grant of the second option, the number of shares of Class A
Common Stock transferred to the Company by the participant in payment of the
exercise price of the original option. A reload option is not exercisable until
one year after the grant date of such reload option or the expiration date of
the original option. If the exercise price of a reload option is paid for with
shares of Class A Common Stock that have been held by the optionee for more than
six months, then another reload option will be issued. Shares of Class A Common
Stock covered by a reload option will not reduce the number of shares of Class A
Common Stock available under the Stock Option Plan.
The Stock Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the shares of the
Company, adjustments will automatically be made in the number and kind of shares
available for issuance and in the number and kind of shares covered by
outstanding options. It further provides that, in connection with any merger or
consolidation in which the Company is not the surviving corporation and which
results in the holders of the outstanding voting securities of the Company
owning less than a majority of the surviving corporation or any sale or transfer
by the Company of all or substantially all its assets or any tender offer or
exchange offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then-outstanding voting securities of the
Company, all outstanding options under the Stock Option Plan will become
exercisable in full on and after (i) the 15th day prior to the effective date of
such merger, consolidation, sale, transfer or acquisition or (ii) the date of
commencement of such tender offer or exchange offer, as the case may be.
The Board of Directors of the Company, on or before the consummation of the
Offering, intends to grant NSOs and ISOs to purchase an aggregate of
shares of Class A Common Stock under the Stock Option Plan to three executive
officers, five regional vice presidents and one dealer manager of the Company.
Messrs. Scott Smith, Bowers, and Wright are to be granted NSOs to purchase
shares, shares, and shares, respectively at an exercise
equal to the public offering price of the Class A Common Stock sold in the
Offering. Messrs. Scott Smith, Bowers and Wright are also to be granted ISOs to
purchase shares, shares and shares, respectively, at an
exercise price equal to the public offering price of the Class A Common Stock
sold in the Offering. All these options will become exerciseable in three equal
annual installments beginning in October 1998 with the last installment vesting
in October 2000, and all these options will expire in October 2007.
Consequently, all executive officers as a group are to be granted NSOs to
purchase an aggregate of shares and ISOs to purchase an aggregate of
shares. Non-executive officer employees are to be granted NSOs and ISOs
to purchase an aggregate of shares and shares, respectively. See
" -- Employment Agreements."
The issuance of the aforementioned NSO's under the Stock Option Plan will
be treated by the Company as a deferred tax asset, valued at $ as of
.
While the issuance and exercise of ISOs generally have no ordinary income
tax consequences to the holder, upon the exercise of an ISO, the holder will
treat the excess of the fair market value on the date of exercise over the
exercise price as an item of tax adjustment for alternative minimum tax
purposes. The issuance and exercise of ISOs have no federal income tax
consequences to the Company. The disposition of Class A Common Stock acquired
from the exercise of an ISO will ordinarily result in capital gains or loss to
the holder for federal income tax purposes equal to the difference between the
amount realized on disposition of the Class A Common Stock and the option
exercise price. If the holder of Class A Common Stock acquired upon the exercise
of an ISO disposes of such stock before the later of (i) two years following the
grant of the ISO and (ii) one year following the exercise of the ISO (a
"Disqualifying Disposition"), the holder will recognize ordinary income for
federal income tax purposes in an amount equal to the lesser of (i) the excess
of the Class A Common Stock's fair
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market value on the date of exercise over the option exercise price, and (ii)
the excess of the amount realized on disposition of the Class A Common Stock
over the option exercise price. Any additional gain upon the disposition will be
taxed as capital gains. The Company will be entitled to a compensation expense
deduction for the Company's taxable year in which the disposition occurs equal
to the amount of ordinary income recognized by the holder.
The issuance of NSOs has no federal income tax consequences to the Company
or the holder. Upon the exercise of an NSO, the Company generally will be
allowed a federal income tax deduction equal to the amount by which the fair
market value of the underlying shares on the date of exercise exceeds the
exercise price. NSO holders will recognize ordinary income for federal income
tax purposes at the time of option exercise in the same amount. Any gains or
losses upon the disposition of shares acquired by exercise of a NSO will be
taxed to the holder as capital gains or losses.
Registration of the shares underlying the Stock Option Plan is presently
not contemplated. Such shares may be issued upon option exercise in reliance
upon the private offering exemption codified in Section 4(2) of the Securities
Act. Resale of such shares may be permitted subject to the limitations of Rule
144.
EMPLOYEE STOCK PURCHASE PLAN
In August 1997, the Board of Directors and stockholders of the Company
adopted the Sonic Employee Stock Purchase Plan (the "ESPP"). The ESPP is
intended to promote the interests of the Company by providing employees of the
Company the opportunity to acquire a proprietary interest in the Company through
the purchase of Class A Common Stock. The following discussion of the material
features of the ESPP is qualified by reference to the text of such Plan filed in
an exhibit to the Registration Statement of which this Prospectus is a part.
The ESPP is intended to qualify as an "employee stock purchase plan" under
Section 423 of the Code. The ESPP is administered by the Compensation Committee,
which, subject to the terms of the ESPP, has plenary authority in its discretion
to interpret and construe the ESPP. The Compensation Committee will construe the
provisions of the ESPP so as to extend and limit participation in a manner
consistent with the requirements of that Code section. A total of shares
of Class A Common Stock have been reserved for purchase under the ESPP.
On January 1 of each year during the term of the ESPP (the "Grant Date"),
all eligible employees electing to participate in the ESPP ("Participating
Employees") will be granted an option to purchase shares of Class A Common
Stock. Prior to each Grant Date, the Compensation Committee will determine the
number of shares of Class A Common Stock available for purchase under each
option, with the same number of shares to be available under each option granted
on the same Grant Date. No Participating Employee may be granted an option which
would permit such employee to purchase stock under the ESPP and all other
employee stock purchase plans of the Company at a rate which exceeds $25,000 of
the fair market value of such stock (determined at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
A Participating Employee may elect to designate a limited percentage of
such employee's compensation (as defined in the ESPP) to be deferred by payroll
deduction as a contribution to the ESPP. A Participating Employee instead may
elect to make contributions by direct cash payment to the ESPP rather than by
payroll deduction. To the extent a Participating Employee has accumulated enough
funds, his or her contributions to the ESPP will be used to exercise the option
granted under the ESPP through purchases of Class A Common Stock on the last
business day of March, June, September and December on which the principal
trading market for the Class A Common Stock is open for trading and on any other
interim dates during the year which the Compensation Committee designates for
such purpose (the "Exercise Date"). Contributions which are not enough to
purchase a whole share of Class A Common Stock will be carried forward and
applied on the next Exercise Date in that calendar year; provided that
contributions remaining after the last Exercise Date of the calendar year may be
distributed to the Participating Employee at his election.
The purchase price at which Class A Common Stock will be purchased through
the ESPP shall be 85% of the lesser of (i) the fair market value of the Class A
Common Stock on the applicable Grant Date, and (ii) the fair market value of the
Class A Common Stock on the applicable Exercise Date. Any option granted to a
Participating Employee will be exercised automatically on each Exercise Date
during the calendar year of the option's Grant Date in whole or in part such
that the Participating Employee's accumulated contributions as of such Exercise
Date, either through direct cash payment or payroll deduction, will be applied
to the purchase of the maximum number of whole shares of Class A Common Stock
that such contribution will permit at the applicable option price, limited to
the number of shares available for purchase under the option.
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Any option granted to a Participating Employee will expire on the last
Exercise Date of the calendar year in which granted. However, if a Participating
Employee withdraws from the ESPP or terminates employment prior to such Exercise
Date, the option may expire earlier.
Upon termination of a Participating Employee's employment for any reason
other than cause, death or leave of absence in excess of ninety days, such
employee may, at his election, request the return of contributions not yet used
to purchase Class A Common Stock or continue participation in the ESPP until the
Exercise Date next following the date of termination of employment such that any
unexpired option held will be exercised automatically on such Exercise Date. If
a Participating Employee dies while employed by the Company or prior to the
Exercise Date next following termination of employment, such employee's estate
will have the right to elect to withdraw all contributions not yet used to
purchase Class A Common Stock or to exercise the Participating Employee's option
for the purchase of Class A Common Stock on the Exercise Date next following the
date of such employee's death.
The Board of Directors of the Company may at any time amend, suspend or
terminate the ESPP; provided, however, that the ESPP may not be amended to (i)
increase the maximum number of shares of Class A Common Stock for which options
may be granted under the ESPP, other than in connection with a change in
capitalization, (ii) materially modify the requirements as to the class of
employees eligible to receive options and purchase Class A Common Stock under
the ESPP, or (iii) materially increase the benefits accruing to Participating
Employees under the ESPP without in any such case obtaining approval of Sonic
stockholders.
The ESPP is intended to meet the requirements of an "employee stock
purchase plan" under Section 423 of the Code. No federal taxable income will be
recognized by Participating Employees upon the grant of an option to purchase
Class A Common Stock under the ESPP. In addition, a Participating Employee will
not recognize federal taxable income on the exercise of an option granted under
the ESPP.
If the Participating Employee holds shares of Class A Common Stock acquired
upon the exercise of an option granted under the ESPP until a date that is more
than two years from the grant date of the relevant option and one year from the
date of option exercise (or dies while owning such shares), the employee must
report as ordinary income in the year of disposition of the shares (or at death)
the lesser of (a) the excess of the fair market value of the shares at the time
of disposition (or death) over the option exercise price and (b) the excess of
the fair market value of the shares on the date the relevant option was granted
over the option exercise price. For this purpose the option exercise price is
85% of the fair market value of the shares on the date the relevant option was
granted (assuming the shares are offered at a 15% discount). Any additional
income is treated as long-term capital gain. If these holding period
requirements are met, the Company is not entitled to any deduction for tax
purposes. If the Participating Employee does not meet the holding period
requirements, the employee recognizes at the time of disposition of the shares
ordinary income equal to the difference between the price paid for the shares
and the fair market value on the date of exercise, irrespective of the price at
which the employee disposes of the shares, and an amount equal to such ordinary
income is generally deductible by the Company. Any gain or loss realized on the
disposition of the shares will be capital gain or loss, and will be long-term
gain or loss if the shares were held for more than one year.
Because the ESPP is based on voluntary participation, benefits thereunder
are not determinable.
Registration of the shares underlying the ESPP is presently not
contemplated. Such shares may be issued upon option exercise in reliance upon
the private offering exemption codified in Section 4(2) of the Securities Act.
Resale of such shares may be permitted subject to the limitations of Rule 144.
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
As part of the Reorganization, the Company entered into a Registration
Rights Agreement dated as of June 30, 1997 (the "Registration Rights
Agreements") with Sonic Financial, Bruton Smith, Scott Smith and William S.
Egan. Sonic Financial, Bruton Smith, Scott Smith and Egan Group, LLC, an
assignee of Mr. Egan (the "Egan Group") currently are the owners of record of
, , and shares of Class B Common Stock,
respectively. Upon the registration of any of their shares or as otherwise
provided in the Certificate, such shares will automatically be converted into a
like number of shares of Class A Common Stock. Subject to certain limitations,
the Registration Rights Agreements provide Sonic Financial, Bruton Smith, Scott
Smith and the Egan Group with certain piggyback registration rights that permit
them to have their shares of Common Stock, as selling security holders, included
in any registration statement pertaining to the registration of Class A Common
Stock for issuance by the Company or for resale by other selling security
holders, with the exception of registration statements on Forms S-4 and S-8
relating to exchange offers (and certain other transactions) and employee stock
compensation plans, respectively. These registration rights will be limited or
restricted to the extent an underwriter of an
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offering, if an underwritten offering, or the Company's Board of Directors, if
not an underwritten offering, determines that the amount to be registered by
Sonic Financial, Bruton Smith, Scott Smith or the Egan Group would not permit
the sale of Class A Common Stock in the quantity and at the price originally
sought by the Company or the original selling security holders, as the case may
be. The Registration Rights Agreement expires on the tenth anniversary of the
closing of the Offering. Sonic Financial is controlled by the Company's Chairman
and Chief Executive Officer, Bruton Smith.
THE SMITH ADVANCE
In connection with the Fort Mill Acquisition, Mr. Smith advanced
approximately $3.5 million to the Company (the "Smith Advance"). The Smith
Advance was used by the Company to pay a portion of the cash consideration for
the Fort Mill Acquisition at closing. The Smith Advance is evidenced by a demand
note bearing interest at the minimum statutory rate of 3.83% per annum. The
Company anticipates seeking additional cash advances or credit support in the
form of guarantees or collateral from Mr. Smith in order to meet cash payment
obligations in the remaining Acquisitions, which close prior to the consummation
of the Offering. The Company intends to repay the principal and interest on the
Smith Advance and any similar future advances from Mr. Smith used to fund the
Acquisitions from the proceeds of this Offering.
CERTAIN DEALERSHIP LEASES
Certain of the properties leased by the Company's dealership subsidiaries
are owned by officers, directors or holders of 5% or more of the Common Stock of
the Company or their affiliates. Town & Country Ford operates at facilities
leased from STC Properties, a North Carolina joint venture ("STC"). Town &
Country Ford maintains a 5% undivided interest in STC and Sonic Financial owns
the remaining 95% of STC. The STC lease on the Town & Country Ford facilities
will expire in October 2000. Annual payments under the STC lease were $510,085
for each of 1994, 1995 and 1996. Current minimum rent payments are $409,000
annually ($34,083 monthly) through 1999, and will be decreased to $340,833 in
2000, such rents being below market. When this lease expires, the Company
anticipates obtaining a long-term lease on the Town & Country Ford facility at
fair market rent.
Lone Star Ford operates, in part, at facilities leased from Viking
Investments Associates, a Texas association ("Viking"), which is controlled by
Mr. Bruton Smith. The Viking lease on the Lone Star Ford property expires in
2005. Annual payments under the Viking lease were $351,420, $302,559 and
$360,000 for 1994, 1995 and 1996, respectively. Minimum annual rents under this
lease are $360,000 ($30,000 monthly), such amount being below market. When this
lease expires, the Company anticipates obtaining a long-term lease on the Lone
Star Ford facility at fair market rent.
The dealership leases discussed below will be executed and effective as of
the consummation of the Acquisitions.
KIA of Chattanooga operates at facilities leased from KIA Land Development,
a company in which Nelson Bowers, the Company's Executive Vice President,
maintains an ownership interest. The Company negotiated this lease in connection
with the Bowers Acquisition. This triple net lease expires in 2007 and monthly
rent is currently under negotiation. The Company may renew this lease at its
option for two additional five year terms. At each renewal, the lessor may
adjust lease rents to reflect fair market rents for the property.
European Motors operates at its Chattanooga facilities under a triple net
lease from Mr. Bowers. The Company negotiated this lease in connection with the
Bowers Acquisition. The European Motors lease expires in 2007 and provides for
monthly rent of $16,846. This lease also provides for renewals on terms
identical to the KIA of Chattanooga lease.
Jaguar of Chattanooga operates at facilities leased from JAG Properties, a
company in which Mr. Bowers maintains an ownership interest. The Company
negotiated this lease in connection with the Bowers Acquisition. This triple net
lease expires in 2017 and provides for monthly rent of $22,010. The Company may
renew this lease on terms identical to the KIA of Chattanooga renewal options.
Cleveland Chrysler-Plymouth-Jeep-Eagle leases its facilities from Cleveland
Properties LLC, a limited liability company in which Mr. Bowers maintains an
ownership interest. The Company negotiated this lease in connection with the
Bowers Acquisition. This triple net lease expires in 2011, provides for monthly
rent of $14,000 and may be renewed on terms identical to the KIA of Chattanooga
lease.
Cleveland Village Imports operates at facilities leased from Nelson Bowers
and another individual. Nelson Bowers, the Company's President and a director,
owns a 75% undivided interest in the land and buildings leased by Cleveland
Village Imports, with the remaining interests owned by an unrelated party. Such
land and buildings are leased under two leases: one is a triple net fixed lease
expiring on December 31, 1997 with rent of $8,000 per month and the other,
pertaining to a used car lot, is a month-to-month lease with rent of $3,000 per
month. In connection with the Bowers Acquisition, the lessors have
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agreed to allow the expiration of these leases in October 1997, and to replace
them with a triple net lease at a negotiated rental rate for a 15-year initial
term and two five-year renewals at the option of the Company.
Saturn of Chattanooga leases its facilities from Mr. Bowers pursuant to a
triple net lease. This lease, negotiated by the Company in connection with the
Bowers Acquisition, expires in 2007 and provides for monthly rent of $27,054.
The lease may be renewed by the Company for two additional five year terms at
the Company's option, with the rent at each renewal being adjusted to fair
market rent.
Dyer Volvo operates at facilities leased from D&R Investments, an entity in
which Richard Dyer, the Company's Executive Manager for Dyer Volvo, maintains an
ownership interest. This triple net lease, negotiated by the Company in
connection with the Dyer Acquisition, expires in 2009 and provides for monthly
rent of $50,000. The Dyer Volvo lease also provides the Company with two
optional renewals of five years each with rent at each renewal being adjusted to
fair market rent.
Ken Marks Ford ("KMF") operates at facilities leased from Marks Holding
Company, a corporation that is owned by Ken Marks, the Company's Regional Vice
President-Florida. In connection with the Ken Marks Acquisition, the lessor has
agreed to enter into a triple net lease with the Company as lessee at a
negotiated rental rate of $95,000 per month for an initial term expiring 2007
with two five-year renewals at the option of the Company.
CHARTOWN TRANSACTIONS
Chartown is a general partnership engaged in real estate development and
management. Before the Reorganization, Town & Country Ford maintained a 49%
partnership interest in Chartown with the remaining 51% held by SMDA, LLC, a
North Carolina limited liability company ("SMDA"). Mr. Smith owns a 80% direct
membership interest in SMDA with the remaining 20% owned indirectly through
Sonic Financial. In addition, Sonic Financial also held a demand promissory note
for $1.2 million issued by Chartown (the "Chartown Note"), which was
uncollectible due to insufficient funds. As part of the Reorganization, the
Chartown Note was canceled and Town & Country Ford transferred its partnership
interest in Chartown to Sonic Financial for nominal consideration. In connection
with that transfer, Sonic Financial agreed to indemnify Town & Country Ford for
any and all obligations and liabilities, whether known or unknown, relating to
Chartown and Town & Country Ford's ownership thereof.
OTHER TRANSACTIONS
During each of the three years ended December 31, 1996, Town & Country Ford
paid $48,000 to Sonic Financial as a management fee. Sonic Financial's services
to Town & Country Ford have included performance of the following functions,
among others: maintenance of lender and creditor relationships; tax planning;
preparation of tax returns and representation in tax examinations; record
maintenance; internal audits and special audits; assistance to independent
public accountants; and litigation support to company counsel. Payments of fees
to and receipt of services from Sonic Financial ceased before the
Reorganization. Since that time, the Company has been providing these services
for itself.
Beginning in early 1997, certain of the Sonic Dealerships have entered into
arrangements to sell to their customers credit life insurance policies
underwritten by American Heritage Life Insurance Company, an insurer
unaffiliated with Sonic ("American Heritage"). American Heritage in turn
reinsures all of these policies with Provident American Insurance Company, a
Texas insurance company ("Provident American"). Under these arrangements, the
Sonic Dealerships paid an aggregate of $140,000 to American Heritage in premiums
for these policies since January 1, 1997. The Company anticipates terminating
this arrangement with American Heritage by 1998. Provident American is a
wholly-owned subsidiary of Sonic Financial.
Town & Country Ford and Lone Star Ford have each made several non-interest
bearing advances to Sonic Financial. As of June 30, 1997, Town & Country Ford
had made approximately $2.1 million of such advances. In preparation for the
Reorganization, a demand promissory note by Sonic Financial evidencing certain
of Town & Country Ford's advances was canceled in exchange for the redemption of
certain shares of the capital stock of Town & Country Ford held by Sonic
Financial. As of June 30, 1997, Lone Star Ford had made approximately $0.5
million of advances to Sonic Financial. In preparation for the Reorganization, a
demand promissory note by Sonic Financial evidencing certain of Lone Star Ford's
advances was canceled pursuant to a dividend. At years ended December 31, 1996,
1995 and 1994, the aggregate balances of such advances due from Sonic Financial
were approximately $2.5 million, $2.6 million and $0, respectively.
Certain subsidiaries of Sonic (such subsidiaries together with Sonic and
Sonic Financial being hereinafter referred to as the "Sonic Group") have joined
with Sonic Financial in filing consolidated federal income tax returns for
several years. Such subsidiaries will join with Sonic Financial in filing for
1996 and for the period ending on June 30, 1997. Under applicable federal tax
law, each corporation included in Sonic Financial's consolidated return is
jointly and severally liable for any resultant tax. Under a tax allocation
agreement dated as of June 30, 1997, however, Sonic agreed to pay to Sonic
Financial, in
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the event that additional federal income tax is determined to be due, an amount
equal to Sonic's separate federal income tax liability computed for all periods
in which any member of the Sonic Group has been a member of Sonic Financial's
consolidated group. Also pursuant to such agreement, Sonic Financial agreed to
indemnify Sonic for any additional amount determined to be due from Sonic
Financial's consolidated group in excess of the federal income tax liability of
the Sonic Group for such periods. The tax allocation agreement establishes
procedures with respect to tax adjustments, tax claims, tax refunds, tax credits
and other tax attributes relating to periods ending prior to the time that the
Sonic Group shall leave Sonic Financial's consolidated group.
The Company acquired the Sonic Dealerships in the Reorganization pursuant
to four separate stock subscription agreements (the "Subscription Agreements").
The Subscription Agreements provide for the acquisition of 100% of the capital
stock or membership interests, as the case may be, of each of the Sonic
Dealerships from Sonic Financial, Mr. Smith, the Egan Group (an assignee of Mr.
Egan) and Bryan Scott Smith in exchange for certain amounts of the Company's
issued and outstanding Class B Common Stock. See "Principal Stockholders."
For additional information concerning related party transaction of the
businesses being acquired in the Acquisitions, see the notes to the historical
financial statements for each respective business acquired included in this
Prospectus.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of August 1, 1997 by (i) each
stockholder who is known by the Company to own beneficially more than five
percent of the outstanding Common Stock, (ii) each director of the Company,
(iii) each executive officer of the Company, and (iv) all directors and
executive officers of the Company as a group, and as adjusted to reflect the
sale by the Company of the shares of Class A Common Stock in this Offering.
Prior to this Offering, no shares of Class A Common Stock were issued and
outstanding. However, options to acquire shares of Class A Common Stock
will be issued on or before the closing of the Offering to certain of the
Company's officers and employees, and the Dyer Warrant will be issued upon the
closing of the Dyer Acquisition. Holders of Class A Common Stock are entitled to
one vote per share on all matters submitted to a vote of the stockholders of the
Company. Holders of Class B Common Stock are entitled to ten votes per share on
all matters submitted to a vote of the stockholders, except that the Class B
Common Stock is entitled to only one vote per share with respect to any
transaction proposed or approved by the Board of Directors of the Company or
proposed by all the holders of the Class B Common Stock or as to which any
member of the Smith Group or any affiliate thereof has a material financial
interest other than as a then existing stockholder of the Company constituting a
(a) "going private" transaction (as defined herein), (b) disposition of
substantially all of the Company's assets, (c) transfer resulting in a change in
the nature of the Company's business or (d) merger or consolidation in which
current holders of Common Stock would own less than 50% of the Common Stock
following such transaction. In the event of any transfer outside of the Smith
Group or the Smith Group holds less than 15% of the total number of shares of
Common Stock outstanding, such transferred shares or all shares, respectively,
of Class B Common Stock will automatically convert into an equal number of
shares of Class A Common Stock. See "Description of Capital Stock."
<TABLE>
<CAPTION>
PERCENTAGE OF ALL
OUTSTANDING
NUMBER OF SHARES NUMBER OF SHARES COMMON STOCK
OF CLASS A COMMON OF CLASS B COMMON BEFORE AFTER
NAME (1) STOCK OWNED STOCK OWNED OFFERING OFFERING(2)
<S> <C> <C> <C> <C>
O. Bruton Smith (3)(4) 87.62% %
Sonic Financial Corporation (3) 71.05% %
Bryan Scott Smith (3)(5) 7.65% %
William R. Brooks (3) -- %
Theodore M. Wright (3)(5) -- %
Nelson E. Bowers, II (3)(5) -- %
All directors and executive officers as a group (10 persons) 95.27%
</TABLE>
* Less than one percent.
(1) Unless otherwise noted, each person has sole voting and investment power
over the shares listed opposite his name subject to community property laws
where applicable.
(2) The percentages of total voting power would be as follows: Bruton Smith,
%; Sonic Financial, %; Scott Smith, %; William Brooks, less than 1%;
Theodore Wright, less than 1%; Nelson E. Bowers, II, less than 1%; and all
directors and executive officers as a group, %. Assumes the
Underwriters' over-allotment option is not exercised.
(3) The address of such person is care of the Company at 5401 East Independence
Boulevard, Charlotte, North Carolina 28218.
(4) The shares of Common Stock shown as owned by such person or group include
all of the shares owned by Sonic Financial as indicated elsewhere in the
table. Mr. Smith owns the substantial majority of Sonic's outstanding
capital stock.
(5) All shares of Class A Common Stock beneficially owned by such person
underlie options granted (or, in the case of Mr. Bowers, to be granted upon
the closing of the Bowers Acquisition) by the Company at the public
offering price. One-third of such options become exercisable on October ,
1998, one-third on October , 1999 and one-third on October , 2000. See
"Management -- Stock Option Plan."
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of (i) 50,000,000 shares of
Class A Common Stock, $.01 par value, (ii) 15,000,000 shares of Class B Common
Stock, $.01 par value, and (iii) 3,000,000 shares of preferred stock, $.10 par
value. Upon completion of this Offering, the Company will have
outstanding shares of Class A Common Stock and outstanding shares of
Class B Common Stock and no outstanding shares of preferred stock.
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<PAGE>
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
Company's Certificate, which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, and Delaware Law. Reference is
made to such exhibit and Delaware Law for a detailed description of the
provisions thereof summarized below.
COMMON STOCK
The Company's Class A Common Stock and Class B Common Stock are equal in
all respects except for voting rights, conversion rights of the Class B Common
Stock and as required by law, as discussed more fully below.
VOTING RIGHTS; CONVERSION OF CLASS B COMMON STOCK TO CLASS A COMMON STOCK
The voting powers, preferences and relative rights of the Class A Common
Stock and the Class B Common Stock are subject to the following provisions.
Holders of Class A Common Stock have one vote per share on all matters submitted
to a vote of the stockholders of the Company. Holders of Class B Common Stock
are entitled to ten votes per share except as described below. Holders of all
classes of Common Stock entitled to vote will vote together as a single class on
all matters presented to the stockholders for their vote or approval except as
otherwise required by Delaware Law. There is no cumulative voting with respect
to the election of directors. In the event any shares of Class B Common Stock
held by a member of the Smith Group (as defined below) are transferred outside
of the Smith Group, such shares will automatically be converted into shares of
Class A Common Stock. In addition, if the total number of shares of Common Stock
held by members of the Smith Group is less than 15% of the total number of
shares of Common Stock outstanding, all of the outstanding shares of Class B
Common Stock automatically will be reclassified as Class A Common Stock. In any
merger, consolidation or business combination, the consideration to be received
per share by holders of Class A Common Stock must be identical to that received
by holders of Class B Common Stock, except that in any such transaction in which
shares of common stock are distributed, such shares may differ as to voting
rights to the extent that voting rights now differ between the classes of Common
Stock.
Notwithstanding the foregoing, the holders of Class A Common Stock and
Class B Common Stock vote as a single class, with each share of each class
entitled to one vote per share, with respect to any transaction proposed or
approved by the Board of Directors of the Company or proposed by or on behalf of
holders of the Class B Common Stock or as to which any member of the Smith Group
or any affiliate thereof has a material financial interest other than as a then
existing stockholder of the Company constituting a (a) "going private"
transaction, (b) sale or other disposition of all or substantially all of the
Company's assets, (c) sale or transfer which would cause the nature of the
Company's business to be no longer primarily oriented toward automobile
dealership operations and related activities or (d) merger or consolidation of
the Company in which the holders of the Common Stock will own less than 50% of
the Common Stock following such transaction. A "going private" transaction is
defined as any "Rule 13e-3 Transaction," as such term is defined in Rule 13e-3
promulgated under the Securities Exchange Act of 1934. An "affiliate" is defined
as (i) any individual or entity who or that, directly or indirectly, controls,
is controlled by, or is under common control with any member of the Smith Group,
(ii) any corporation or organization (other than the Company or a majority-owned
subsidiary of the Company) of which any member of the Smith Group is an officer
partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of voting securities, or in which any member of the Smith Group has a
substantial beneficial interest, (iii) a voting trust or similar arrangement
pursuant to which any member of the Smith Group generally controls the vote of
the shares of Common Stock held by or subject to such trust or arrangement, (iv)
any other trust or estate in which any member of the Smith Group has a
substantial beneficial interest or as to which any member of the Smith Group
serves as trustee or in a similar fiduciary capacity, or (v) any relative or
spouse of any member of the Smith Group or any relative of such spouse, who has
the same residence as any member of the Smith Group.
As used in this Prospectus, the term the "Smith Group" consists of the
following persons: (i) Mr. Smith and his guardian, conservator, committee, or
attorney-in-fact; (ii) William S. Egan and his guardian, conservator, committee,
or attorney-in-fact; (iii) each lineal descendant of Messrs. Smith and Egan (a
"Descendant") and their respective guardians, conservators, committees or
attorneys-in-fact; and (iv) each "Family Controlled Entity" (as defined below).
The term "Family Controlled Entity" means (i) any not-for-profit corporation if
at least 80% of its board of directors is composed of Mr. Smith, Mr. Egan and/or
Descendants; (ii) any other corporation if at least 80% of the value of its
outstanding equity is owned by members of the Smith Group; (iii) any partnership
if at least 80% of the value of the partnership interests are owned by members
of the Smith Group; and (iv) any limited liability or similar company if at
least 80% of the value of the company is owned by members of the Smith Group.
For a discussion of the effects of the disproportionate voting rights of the
Common Stock, see "Risk Factors -- Concentration of Voting Power and
Antitakeover Provisions."
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<PAGE>
Under the Company's Certificate and Delaware Law, the holders of Class A
Common Stock and/or Class B Common Stock are each entitled to vote as a separate
class, as applicable, with respect to any amendment to the Company's Certificate
that would increase or decrease the aggregate number of authorized shares of
such class, increase or decrease the par value of the shares of such class, or
modify or change the powers, preferences or special rights of the shares of such
class so as to affect such class adversely.
DIVIDENDS
Holders of the Class A Common Stock and the Class B Common Stock are
entitled to receive ratably such dividends, if any, as are declared by the
Company's Board of Directors out of funds legally available for that purpose,
provided, that dividends paid in shares of Class A Common Stock or Class B
Common Stock shall be paid only as follows: shares of Class A Common Stock shall
be paid only to holders of Class A Common Stock and shares of Class B Common
Stock shall be paid only to holders of Class B Common Stock. The Company's
Certificate provides that if there is any dividend, subdivision, combination or
reclassification of either class of Common Stock, a proportionate dividend,
subdivision, combination or reclassification of the other class of Common Stock
shall simultaneously be made.
OTHER RIGHTS
Stockholders of the Company have no preemptive or other rights to subscribe
for additional shares. In the event of the liquidation, dissolution or winding
up of the Company, holders of Class A Common Stock and Class B Common Stock are
entitled to share ratably in all assets available for distribution to holders of
Common Stock after payment in full of creditors. No shares of any class of
Common Stock are subject to a redemption or a sinking fund. All outstanding
shares of Common Stock are, and all shares offered by this Prospectus will be,
when sold, validly issued, fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
The Company has appointed First Union National Bank as the transfer agent
and registrar for the Class A Common Stock. The Company has not appointed a
transfer agent for the Class B Common Stock.
PREFERRED STOCK
No shares of preferred stock are outstanding. The Company's Certificate
authorizes the Board of Directors to issue up to 3,000,000 shares of preferred
stock in one or more series and to establish such designations and such relative
voting, dividend, liquidation, conversion and other rights, preferences and
limitations as the Board of Directors may determine without further approval of
the stockholders of the Company. The issuance of preferred stock by the Board of
Directors could, among other things, adversely affect the voting power of the
holders of Class A Common Stock and, under certain circumstances, make it more
difficult for a person or group to gain control of the Company. See "Risk
Factors -- Concentration of Voting Power and Anti-takeover Provisions."
The issuance of any series of preferred stock, and the relative
designations, rights, preferences and limitations of such series, if and when
established, will depend upon, among other things, the future capital needs of
the Company, the then-existing market conditions and other factors that, in the
judgment of the Board of Directors, might warrant the issuance of preferred
stock. At the date of this Prospectus, there are no plans, agreements or
understandings for the issuance of any shares of preferred stock.
DELAWARE LAW, CERTAIN CHARTER AND BYLAW PROVISIONS AND CERTAIN FRANCHISE
AGREEMENT PROVISIONS
Certain provisions of Delaware Law and of the Company's Certificate and
Bylaws, summarized in the following paragraphs, may be considered to have an
antitakeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
DELAWARE ANTITAKEOVER LAW. The Company, a Delaware corporation, is subject
to the provisions of Delaware Law, including Section 203. In general, Section
203 prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the business
combination is approved by both the Board of Directors and by holders of at
least 66 2/3% of the
67
<PAGE>
corporation's outstanding voting stock, excluding shares owned by the interested
stockholder. For these purposes, the term "business combination" includes
mergers, asset sales and other similar transactions with an "interested
stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own) 15%
or more of the corporation's voting stock. Although Section 203 permits a
corporation to elect not to be governed by its provisions, the Company to date
has not made this election.
CLASSIFIED BOARD OF DIRECTORS. The Company's Bylaws provide for the Board
of Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of Directors
will be elected each year. Classification of the Board of Directors expands the
time required to change the composition of a majority of directors and may tend
to discourage a takeover bid for the Company. Moreover, under Delaware Law, in
the case of a corporation having a classified board of directors, the
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the Bylaws authorizing only the board of directors to fill
vacant directorships, will preclude stockholders of the Company from removing
incumbent directors without cause, simultaneously gaining control of the Board
of Directors by filing the vacancies with their own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. The Company's Bylaws provide that special
meetings of stockholders may be called only by the Chairman or by the Secretary
or any Assistant Secretary at the request in writing of a majority of the Board
of Directors of the Company. The Company's Bylaws also provide that no action
required to be taken or that may be taken at any annual or special meeting of
stockholders may be taken without a meeting; the powers of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied. These provisions may make it more difficult for
stockholders to take action opposed by the Board of Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. The Company's Bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or a special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Company, (i) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than 90
days prior to such anniversary date, and, (ii) in the case of an annual meeting
that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, or in the case of
a special meeting of stockholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on which
notice of the date of the meeting was mailed or public disclosure of the date of
the meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a stockholder's notice to be in proper written form. These
provisions may preclude some stockholders from bringing matters before the
stockholders at an annual or special meeting or from making nominations for
directors at an annual or special meeting.
CONFLICT OF INTEREST PROCEDURES. The Company's Certificate contains
provisions providing that transactions between the Company and its affiliates
must be no less favorable to the Company than would be available in transactions
involving arms'-length dealing with unrelated third parties. Moreover, any such
transaction involving aggregate payments in excess of $500,000 must be approved
by a majority of the Company's directors and a majority of the Company's
independent directors. Otherwise, the Company must obtain an opinion as to the
financial fairness of the transactions to be issued by an investment banking or
appraisal firm of national standing.
RESTRICTIONS UNDER FRANCHISE AGREEMENTS. The Company's franchise agreements
impose restrictions on the transfer of the Common Stock. A number of
Manufacturers prohibit transactions which affect changes in management control
of the Company. Such restrictions may prevent or deter prospective acquirers
from obtaining control of the Company. See "Risk Factors -- Stock
Ownership/Issuance Limits" and "Business -- Relationships with Manufacturers."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
shares of Class A Common Stock (assuming no exercise of the Underwriters'
over-allotment option). All of such shares will be freely transferable and may
be resold without further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as defined by Rule 144),
which shares will be subject to the resale limitations of Rule 144. The
shares (the "Restricted Shares") of Class B Common Stock outstanding, which are
convertible into Class A Common Stock, are "restricted" securities within the
meaning of Rule 144 irrespective of whether the conversion right is exercised.
The shares of Class A Common Stock, which underlie options to be granted
on or before the closing of the Offering under the Company's Stock Option Plan
and the Dyer Warrant, may be resold only pursuant to a registration statement
under the Securities Act or an applicable exemption from registration thereunder
such as an exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period, such number of shares as does not exceed the greater of one
percent of the then-outstanding shares of Class A Common Stock or the average
weekly trading volume of Class A Common Stock during the four calendar weeks
prior to such resale. Rule 144 also permits, under certain circumstances, the
resale of shares without any quantity limitation by a person who has satisfied a
two-year holding period and who is not, and has not been for the preceding three
months, an affiliate of the Company. In addition, holding periods of successive
non-affiliate owners are aggregated for purposes of determining compliance with
these one- and two-year holding period requirements.
Upon completion of this Offering, none of the shares of Class B
Common Stock outstanding on the date of this Prospectus and not sold in the
Offering will have been held for at least one year. Since all such shares are
restricted securities, none of them may be resold pursuant to Rule 144 upon
completion of this Offering. Any transfer of shares of the Class B Common Stock
to any person other than a member of the Smith Group will result in a conversion
of such shares to Class A Common Stock.
The Restricted Shares will not be eligible for sale under Rule 144 until
the expiration of the one-year holding period from the date such Restricted
Shares were acquired.
The availability of shares for sale or actual sales under Rule 144 and the
perception that such shares may be sold may have a material adverse effect on
the market price of the Class A Common Stock. Sales under Rule 144 also could
impair the Company's ability to market additional equity securities.
Additionally, the Company has entered into the Registration Rights
Agreement with Sonic Financial, Bruton Smith, Scott Smith and William Egan. The
Registration Rights Agreement provides piggyback registration rights with
respect to shares of Common Stock in the aggregate. For further
information regarding the Registration Rights Agreement, see "Certain
Transactions -- Registration Rights Agreements."
The Company, all of the executive officers of the Company and the holders
of Class B Common Stock have agreed, subject to certain exceptions, not,
directly or indirectly, to (i) sell, grant an option or otherwise transfer or
dispose of any Class A Common Stock or securities convertible into or
exchangeable or exercisable for Class A Common Stock, including shares of Class
B Common Stock, or file a registration statement under the Securities Act with
respect to the foregoing or (ii) enter into any swap or other agreement or
transaction that transfers, in whole or part, the economic consequences of
ownership of the Class A Common Stock for 180 days from the date of this
Prospectus without the prior written consent of Merrill Lynch.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Montgomery Securities and
Wheat, First Securities, Inc. are acting as representatives (the
"Representatives"), has severally agreed to purchase from the Company, the
number of shares of Class A Common Stock set forth opposite its name below. In
the Purchase Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the shares of Class A
Common Stock offered hereby, if any are purchased. In the event of a default by
an Underwriter, the Purchase Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Purchase Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................................................................
Montgomery Securities.............................................................................................
Wheat, First Securities, Inc......................................................................................
Total................................................................................................
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the shares of Class A Common Stock to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share of
Class A Common Stock. The Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Class A Common Stock to certain
other dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
At the request of the Company, the Underwriters have reserved up to
shares of Class A Common Stock for sale at the initial public offering price to
directors, officers, employees, business associates and related persons of the
Company. The number of shares of Class A Common Stock available for sale to the
general public will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares which are not so purchased will be offered by the
Underwriters to the general public on the same basis as the other shares offered
hereby.
The Company, all of the executive officers of the Company and all the
holders of Class B Common Stock have agreed, subject to certain exceptions, not
to, directly or indirectly, (i) sell, grant any option to purchase or otherwise
transfer or dispose of any Class A Common Stock or securities convertible into
or exchangeable or exercisable for Class A Common Stock, including shares of
Class B Common Stock, or file a registration statement under the Securities Act
with respect to the foregoing or (ii) enter into any swap or other agreement or
transaction that transfers, in whole or part, the economic consequence of
ownership of the Class A Common Stock, without the prior written consent of
Merrill Lynch, for a period of 180 days after the date of this Prospectus.
The Company has granted an option to the Underwriters, exercisable within
30 days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Class A Common Stock at the initial public offering
price set forth on the cover page of this Prospectus, less the underwriting
discount. The Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the Class A Common Stock offered
hereby. To the extent that the Underwriters exercise this option, each
Underwriter will be obligated, subject to certain conditions, to purchase a
number of additional shares of Class A Common Stock proportionate to such
Underwriter's initial amount reflected in the foregoing table.
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<PAGE>
Prior to the Offering, there has been no public market for the Class A
Common Stock. The initial public offering price for the Class A Common Stock
will be determined by negotiation between the Company and the Representatives.
The factors considered in determining the initial public offering price, in
addition to prevailing market conditions, are price-earnings ratios of publicly
traded companies that the Representatives believe to be comparable to the
Company, certain financial information of the Company, the history of, and the
prospects for, the Company and the industry in which it competes, and an
assessment of the Company's management, its past and present operations, the
prospects for and the timing of future revenues of the Company, the present
state of the Company's development, and the above factors in relation to market
values and various valuation measures of other companies engaged in activities
similar to the Company. There can be no assurance that an active trading market
will develop for the Class A Common Stock or that the Class A Common Stock will
trade in the public market subsequent to the Offering made hereby at or above
the initial public offering price.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933, as
amended, or to contribute to payments the Underwriters may be required to make
in respect thereof.
The Company intends to apply for listing of the Class A Common Stock on the
NYSE under the symbol "DLR." In order to meet the requirements for listing of
the Class A Common Stock on that exchange, the Underwriters have undertaken to
sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales of Class A Common Stock offered hereby to any accounts
over which they exercise discretionary authority.
Until the distribution of the Class A Common Stock is completed, rules of
the Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Class A Common
Stock. As an exception to these rules, the Representatives are permitted to
engage in certain transactions that stabilize the price of Class A Common Stock.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Class A Common Stock.
If the Underwriters create a short position in the Class A Common Stock in
connection with the Offering, I.E., if they sell more shares of Class A Common
Stock than are set forth on the cover page of this Prospectus, the
Representatives may reduce that short position by purchasing Class A Common
Stock in the open market. The Representatives may also elect to reduce any short
position by exercising all or part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Class A Common Stock in the open market to reduce the Underwriters'
short position or to stabilize the price of the Class A Common Stock, they may
reclaim the amount of the selling concession from the Underwriters and selling
group members who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Class A Common Stock. In addition,
neither the Company nor any of the Underwriters makes any representation that
the Representatives will engage in such transactions or that such transactions,
once commenced, will not be discontinued without notice.
LEGAL MATTERS
Parker, Poe, Adams & Bernstein L.L.P., Charlotte, North Carolina, counsel
to the Company, will render an opinion that the shares of Class A Common Stock
offered hereby, when issued and paid for in accordance with the terms of the
Underwriting Agreement, will be duly authorized, validly issued, fully paid and
nonassessable. Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York, has served as counsel to the
Underwriters in connection with this Offering. Fried, Frank, Harris, Shriver &
Jacobson will rely on Parker, Poe, Adams & Bernstein L.L.P. with respect to
matters of North Carolina law.
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EXPERTS
The combined and consolidated financial statements of Sonic Automotive,
Inc. and Affiliated Companies as of and for the year ended December 31, 1996,
the financial statements of Dyer & Dyer, Inc., the combined financial statements
of Bowers Automotive Group, the combined financial statements of Lake Norman
Dodge, Inc. and Affiliated Companies, and the financial statements of Ken Marks
Ford, Inc. included in this Prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The combined financial statements of Sonic Automotive, Inc. and Affiliated
Companies as of December 31, 1995 and for the years ended December 31, 1994 and
1995 have been audited by Dixon, Odom & Co., L.L.P., independent auditors, as
stated in their report appearing herein, and is included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"SEC") a Registration Statement on Form S-1 under the Securities Act with
respect to the shares of Class A Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and the shares of Class A Common Stock offered hereby, reference is
made to the Registration Statement, including the exhibits and schedules filed
as part thereof. Statements contained in this Prospectus as to the contents of
any contract or any other documents are not necessarily complete, and, in each
such instance, reference is made to the copy of the contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference thereto. The Registration Statement, together
with its exhibits and schedules, may be inspected at the Public Reference
Section of the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located at 7 World Trade Center, Suite
1300, New York, New York 10048 and at the Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part
of such materials may be obtained from any such office upon payment of the fees
prescribed by the SEC. Such information may also be inspected and copied at the
office of the NYSE at 20 Broad Street, New York, New York 10005. 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 SEC.
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SONIC AUTOMOTIVE, INC. AND AFFILIATED COMPANIES:
INDEPENDENT AUDITORS' REPORTS....................................................................................... F-2-3
COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS:
Combined and Consolidated Balance Sheets at December 31, 1995 and 1996 and unaudited at June 30, 1997............ F-4
Combined and Consolidated Statements of Income for the years ended December 31, 1994, 1995 and 1996 and unaudited
for the six months ended June 30, 1996 and 1997................................................................. F-5
Combined and Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and unaudited for the six months ended June 30, 1997.......................... F-6
Combined and Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and
unaudited for the six months ended June 30, 1996 and 1997....................................................... F-7
Notes to Combined and Consolidated Financial Statements.......................................................... F-8
DYER & DYER, INC.:
INDEPENDENT AUDITORS' REPORT........................................................................................ F-16
FINANCIAL STATEMENTS:
Balance Sheets at December 31, 1995 and 1996 and unaudited at June 30, 1997...................................... F-17
Statements of Income and Retained Earnings for the years ended December 31, 1994, 1995 and 1996 and unaudited for
the six months ended June 30, 1996 and 1997..................................................................... F-18
Statements of Stockholder's Equity for the years ended December 31, 1994, 1995 and 1996 and unaudited for the six
months ended June 30, 1997...................................................................................... F-19
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and unaudited for the six months
ended June 30, 1996 and 1997.................................................................................... F-20
Notes to Financial Statements.................................................................................... F-21
BOWERS DEALERSHIPS AND AFFILIATED COMPANIES:
INDEPENDENT AUDITORS' REPORT........................................................................................ F-25
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets at December 31, 1995 and 1996 and unaudited at June 30, 1997............................. F-26
Combined Statements of Income for the years ended December 31, 1995 and 1996 and unaudited for the six months
ended June 30, 1996 and 1997.................................................................................... F-27
Combined Statements of Stockholders' Equity for the years ended
December 31, 1995 and 1996 and unaudited for the six months ended June 30, 1997................................ F-28
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 and unaudited for the six months
ended June 30, 1996 and 1997.................................................................................... F-29
Notes to Combined Financial Statements........................................................................... F-30
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES:
INDEPENDENT AUDITORS' REPORT........................................................................................ F-37
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets at December 31, 1996 and unaudited at June 30, 1997...................................... F-38
Combined Statements of Income for the year ended December 31, 1996 and unaudited for the six months ended June
30, 1996 and 1997............................................................................................... F-39
Combined Statements of Stockholders' Equity for the year ended December 31, 1996 and unaudited for the six months
ended June 30, 1997............................................................................................. F-40
Combined Statements of Cash Flows for the year ended December 31, 1996 and unaudited for the six months ended
June 30, 1996 and 1997.......................................................................................... F-41
Notes to Combined Financial Statements........................................................................... F-42
KEN MARKS FORD, INC.:
INDEPENDENT AUDITORS' REPORT........................................................................................ F-46
FINANCIAL STATEMENTS:
Balance Sheet at April 30, 1997.................................................................................. F-47
Statement of Income for the year ended April 30, 1997............................................................ F-48
Statement of Stockholders' Equity for the year ended April 30, 1997.............................................. F-49
Statement of Cash Flows for the year ended April 30, 1997........................................................ F-50
Notes to Financial Statements.................................................................................... F-51
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SONIC AUTOMOTIVE, INC.
Charlotte, North Carolina
We have audited the accompanying combined balance sheet of Sonic Automotive,
Inc. and Affiliated Companies (the "Company"), which are under common ownership
and management, as of December 31, 1996, and the related combined statements of
income, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of Sonic Automotive, Inc.
and Affiliated Companies as of December 31, 1996, and the combined results of
their operations and their combined cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
SONIC AUTOMOTIVE, INC.
Charlotte, North Carolina
We have audited the accompanying combined balance sheets of Sonic Automotive,
Inc. and Affiliated Companies (the "Company") as of December 31, 1995, and the
related combined statements of income, stockholders' equity, and cash flows for
the years ended December 31, 1994 and 1995. 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 combined financial position of Sonic Automotive, Inc.
and Affiliated Companies as of December 31, 1995, and the combined results of
their operations and their combined cash flows for the years ended December 31,
1994 and 1995 in conformity with generally accepted accounting principles.
DIXON, ODOM & CO., L.L.P.
Winston-Salem, North Carolina
April 30, 1997
F-3
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................................... $ 8,993,887 $ 6,679,490 $ 9,237,585
Marketable equity securities................................................. 706,126 638,500 769,123
Receivables (Note 5) (net of allowance for doubtful accounts of $160,031 and
$224,789 at December 31, 1995 and 1996,
respectively)............................................................. 9,085,376 11,907,786 12,897,264
Inventories (Notes 3 and 5).................................................. 39,128,041 57,970,020 59,884,909
Deferred income taxes (Note 6)............................................... 117,500 279,896 256,032
Other current assets......................................................... 311,019 332,561 818,171
Total current assets...................................................... 58,341,949 77,808,253 83,863,084
PROPERTY AND EQUIPMENT, NET (Notes 4 and 5).................................... 8,527,338 12,466,713 13,269,789
GOODWILL, NET (Note 1)......................................................... -- 4,266,084 9,463,179
OTHER ASSETS................................................................... 372,610 389,277 263,374
TOTAL ASSETS................................................................... $67,241,897 $94,930,327 $106,859,426
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3)......................................... $45,151,111 $63,893,356 $ 67,855,408
Trade accounts payable....................................................... 3,043,180 3,642,572 3,847,922
Accrued interest............................................................. 503,391 521,190 491,341
Other accrued liabilities.................................................... 1,554,713 3,031,473 3,394,178
Payable to affiliated companies (Note 7)..................................... 2,000,000 -- --
Payable to Company's Chairman (Note 2)....................................... -- -- 3,500,000
Current maturities of long-term debt......................................... 169,932 518,979 487,242
Total current liabilities................................................. 52,422,327 71,607,570 79,576,091
LONG-TERM DEBT (Note 5)........................................................ 3,560,766 5,285,862 5,137,210
PAYABLE TO AFFILIATED COMPANIES (Note 7)....................................... 1,219,204 914,339 854,984
DEFERRED INCOME TAXES (Note 6)................................................. 777,600 1,059,380 930,923
MINORITY INTEREST (Note 1)..................................................... 199,522 313,912 --
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
STOCKHOLDERS' EQUITY (Notes 8 and 9):
Preferred stock, $.10 par, 3,000,000 shares authorized and unissued.......... -- -- --
Class A Common Stock, $.01 par, 50,000,000 shares authorized and unissued.... -- -- --
Class B Common Stock, $.01 par, 50,000,000 shares authorized,
10,000 shares issued and outstanding...................................... 100 100 100
Paid-in capital.............................................................. 6,331,446 13,395,560 16,604,070
Retained earnings............................................................ 2,766,420 4,913,095 6,486,412
Unrealized loss on marketable equity securities.............................. (35,488) (93,562) (97,433)
Due from affiliates (Note 7)................................................. -- (2,465,929) (2,632,931)
Total stockholders' equity................................................ 9,062,478 15,749,264 20,360,218
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................... $67,241,897 $94,930,327 $106,859,426
</TABLE>
See notes to combined and consolidated financial statements.
F-4
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Vehicle sales............................ $227,959,827 $267,307,949 $326,841,772 $164,332,724 $185,077,493
Parts, service and collision repair...... 33,984,096 35,859,960 42,643,812 21,005,202 22,906,377
Finance and insurance.................... 5,180,998 7,813,408 7,118,217 4,277,094 4,763,248
Total revenues........................ 267,124,921 310,981,317 376,603,801 189,615,020 212,747,118
COST OF SALES.............................. 234,461,089 272,178,737 332,406,803 167,191,296 188,367,591
GROSS PROFIT............................... 32,663,832 38,802,580 44,196,998 22,423,724 24,379,527
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES................................. 24,631,532 29,343,430 33,677,529 16,590,478 18,413,226
DEPRECIATION AND AMORTIZATION.............. 838,011 832,261 1,075,618 359,630 395,573
OPERATING INCOME........................... 7,194,289 8,626,889 9,443,851 5,473,616 5,570,728
OTHER INCOME AND EXPENSE:
Interest expense, floor plan............. 3,000,622 4,504,526 5,968,430 2,800,778 3,017,903
Interest expense, other.................. 443,409 436,435 433,250 183,898 269,145
Gain on sale of marketable equity
securities............................ -- 107,007 354,922 -- --
Other income............................. 609,088 342,047 263,676 369,412 273,842
Total other expense................... 2,834,943 4,491,907 5,783,082 2,615,264 3,013,206
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST........................ 4,359,346 4,134,982 3,660,769 2,858,352 2,557,522
PROVISION FOR INCOME TAXES
(Note 6)................................. 1,559,750 1,674,900 1,399,704 1,093,034 937,212
INCOME BEFORE MINORITY
INTEREST................................. 2,799,596 2,460,082 2,261,065 1,765,318 1,620,310
MINORITY INTEREST IN EARNINGS
OF SUBSIDIARY............................ 15,564 22,167 114,390 40,612 46,993
NET INCOME................................. $ 2,784,032 $ 2,437,915 $ 2,146,675 $ 1,724,706 $ 1,573,317
PRO FORMA NET INCOME PER SHARE
(Note 1) (unaudited)..................... $ 215 $ 157
PRO FORMA NUMBER OF SHARES
USED TO COMPUTE PER SHARE
DATA (Note 1) (unaudited)................ 10,000 10,000
</TABLE>
See notes to combined and consolidated financial statements.
F-5
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
UNREALIZED LOSS
CLASS B RETAINED ON MARKETABLE DUE
COMMON STOCK PAID-IN EARNINGS EQUITY FROM
SHARES AMOUNT CAPITAL (DEFICIT) SECURITIES AFFILIATES
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993........... 10,000 $ 100 $ 4,837,100 $ (2,455,527) $ -- $ --
Net income........................... -- -- -- 2,784,032 -- --
BALANCE AT DECEMBER 31, 1994........... 10,000 $ 100 4,837,100 328,505 -- --
Capital contribution................. -- -- 1,494,346 -- -- --
Change in net unrealized loss on
marketable equity
securities......................... -- -- -- -- (35,488) --
Net income........................... -- -- -- 2,437,915 -- --
BALANCE AT DECEMBER 31, 1995........... 10,000 100 6,331,446 2,766,420 (35,488) --
Capital contribution -- -- 7,064,114 -- -- --
Advance to affiliates................ -- -- -- -- -- (2,465,929)
Change in net unrealized loss on
marketable equity
securities......................... -- -- -- -- (58,074) --
Net income........................... -- -- -- 2,146,675 --
BALANCE AT DECEMBER 31, 1996........... 10,000 100 13,395,560 4,913,095 (93,562) (2,465,929)
Capital contribution (unaudited)..... -- -- 3,208,510 -- -- --
Advance to affiliates (unaudited).... -- -- -- -- -- (167,002)
Change in net unrealized loss on
marketable equity
securities (unaudited)............. -- -- -- -- (3,871) --
Net income (unaudited)............... -- -- -- 1,573,317 -- --
BALANCE AT JUNE 30, 1997 (UNAUDITED)... 10,000 $ 100 $ 16,604,070 $ 6,486,412 $ (97,433) $(2,632,931)
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
<S> <C>
BALANCE AT DECEMBER 31, 1993........... $ 2,381,673
Net income........................... 2,784,032
BALANCE AT DECEMBER 31, 1994........... 5,165,705
Capital contribution................. 1,494,346
Change in net unrealized loss on
marketable equity
securities......................... (35,488)
Net income........................... 2,437,915
BALANCE AT DECEMBER 31, 1995........... 9,062,478
Capital contribution 7,064,114
Advance to affiliates................ (2,465,929)
Change in net unrealized loss on
marketable equity
securities......................... (58,074)
Net income........................... 2,146,675
BALANCE AT DECEMBER 31, 1996........... 15,749,264
Capital contribution (unaudited)..... 3,208,510
Advance to affiliates (unaudited).... (167,002)
Change in net unrealized loss on
marketable equity
securities (unaudited)............. (3,871)
Net income (unaudited)............... 1,573,317
BALANCE AT JUNE 30, 1997 (UNAUDITED)... $ 20,360,218
</TABLE>
See notes to combined and consolidated financial statements.
F-6
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................ $ 2,784,032 $ 2,437,915 $ 2,146,675 $ 1,724,706 $ 1,573,317
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 838,011 832,261 1,075,618 359,630 395,573
Minority interest................................... 15,564 22,167 114,390 40,612 46,993
Loss (gain) on disposal of property and equipment -- (38,721) 79,660
Gain on sale of marketable equity securities........ -- (107,007) (354,922) (278,917) (134,496)
Deferred income taxes............................... 258,400 450,400 (240,548) (62,002) 23,864
Changes in assets and liabilities that relate to
operations:
(Increase) decrease in receivables................ (2,091,063) (228,084) (2,420,651) 287,459 (989,478)
(Increase) decrease in inventories................ (8,942,669) (3,724,725) (12,653,222) (3,511,263) 2,745,061
(Increase) decrease in other current assets....... (66,945) 21,173 (10,455) (189,391) (483,564)
Increase (decrease) in other non-current assets... (679) (14,104) (69,883) 2,851 113,403
Increase in notes payable-floor plan.............. 9,489,146 3,431,241 12,984,772 4,117,088 290,190
Increase (decrease) in accounts payable and
accrued expenses............................... 676,526 (42,224) 1,439,486 1,285,875 396,972
Total adjustments.............................. 176,291 602,377 (55,755) 2,051,942 2,404,579
Net cash provided by operating activities...... 2,960,323 3,040,292 2,090,920 3,776,648 3,977,835
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash received............ -- -- (5,126,595) (692,883) (3,627,347)
Purchases of property and equipment................... (1,386,877) (1,508,848) (1,906,739) -- (886,149)
Proceeds from sale of property and equipment.......... 32,162 556,789 4,036 -- --
Purchase of marketable equity securities.............. (82,801) (1,622,845) (207,400) -- --
Proceeds from sales of marketable equity securities... -- 1,073,539 514,700 88,900 --
Net (advances to) receipts from affiliate companies... (295,578) 1,772,022 (4,770,794) (3,251,199) 3,273,643
Net cash provided by (used in) investing
activities................................... (1,733,094) 270,657 (11,492,792) (3,855,182) (1,239,853)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions................................. -- 1,494,346 7,064,114 1,000,000 500
Proceeds from long-term debt.......................... 107,284 2,899 599,206 -- --
Payments of long-term debt............................ (441,500) (269,254) (575,845) (468,970) (180,387)
Net cash provided by (used in) financing
activities................................... (334,216) 1,227,991 7,087,475 531,030 (179,887)
NET INCREASE (DECREASE) IN CASH......................... 893,013 4,538,940 (2,314,397) 452,496 2,558,095
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................................. 3,561,934 4,454,947 8,993,887 8,993,887 6,679,490
CASH AND CASH EQUIVALENTS, END OF PERIOD................ $ 4,454,947 $ 8,993,887 $ 6,679,490 $ 9,446,383 $ 9,237,585
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION -- Cash paid during the period for:
Interest.............................................. $ 3,324,678 $ 4,776,504 $ 6,488,657 $ 2,839,031 $ 3,320,996
Income taxes.......................................... $ 998,850 $ 1,522,100 $ 2,042,268 $ 834,000 $ 930,000
</TABLE>
See notes to combined and consolidated financial statements.
F-7
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Sonic Automotive, Inc ("Sonic") was
incorporated in the State of Delaware in February, 1997 in order to effect a
reorganization of certain affiliated companies (the "Reorganization") and to
undertake an initial public offering of Sonic's common stock (the "Offering").
Sonic and affiliated companies (collectively, the "Company") operate automobile
dealerships in the Houston, Texas and Charlotte, North Carolina metropolitan
areas. The Company sells new and used cars and light trucks, sells replacement
parts, provides vehicle maintenance, warranty, paint and repair services and
arranges related financing and insurance. The financial statements for the
periods through June 30, 1997 represent the combined data for the entities under
common ownership and control which became subsidiaries of Sonic pursuant to the
Reorganization on June 30, 1997, including the following entities:
<TABLE>
<S> <C>
Town and Country Ford, Inc.................................................... Charlotte
Lone Star Ford, Inc........................................................... Houston
FMF Management, Inc. (d/b/a Fort Mill Ford)................................... Charlotte
Town and Country Toyota, Inc.................................................. Charlotte
Frontier Oldsmobile-Cadillac, Inc............................................. Charlotte
</TABLE>
All material intercompany transactions have been eliminated in the combined
financial statements. Effective June 30, 1997, these five entities became
wholly-owned subsidiaries of Sonic through the exchange of their common stock or
membership interests for 10,000 shares of Sonic's Class B common stock having a
$.01 par value per share. On June 2, 1997 Sonic, through its wholly-owned
subsidiary, Fort Mill Chrysler-Plymouth-Dodge, acquired certain dealership
assets and liabilities of Jeff Boyd Chrysler-Plymouth-Dodge, Inc. (a previously
unrelated entity) for a total purchase price of approximately $3.7 million. The
unaudited consolidated financial statements as of and for the six months ended
June 30, 1997, which give effect to the Reorganization, include the accounts of
the above five entities and also include the accounts and results of operations
of Fort Mill Chrysler-Plymouth-Dodge from the date of its acquisition.
The Reorganization was accounted for at historical cost in a manner similar
to a pooling-of-interests as the entities were under the common management and
control of Mr. O. Bruton Smith. The acquisition of Jeff Boyd
Chrysler-Plymouth-Dodge was accounted for as a purchase.
Prior to the Reorganization, Town and Country Toyota, Inc. was 69% owned by
Mr. O. Bruton Smith, the Company's Chairman and Chief Executive Officer, Lone
Star Ford, Inc. and Frontier Oldsmobile -- Cadillac, Inc. were 100% owned by
Sonic Financial Corporation ("SFC"), which in turn is 100% owned by Mr. Smith
and related family trusts. Town and Country Ford, Inc. was owned 80% by SFC and
20% by Mr. Scott Smith (O. Bruton Smith's son). FMF Management, Inc. was owned
50% by SFC and 50% by Mr. O. Bruton Smith.
In connection with the Reorganization, the Company purchased the 31%
minority interest in Town and Country Toyota, Inc. for $3.2 million in a
transaction accounted for using purchase accounting.
In connection with the anticipated Offering, Sonic expects to issue shares
of its Class A common stock. The Class B common stock entitles the holder to ten
votes per share, except in certain circumstances, while the Class A common stock
entitles its holder to one vote per share.
PRO FORMA NET INCOME PER SHARE -- Pro forma net income per share in the
accompanying financial statements has been prepared based upon the shares
outstanding after the Reorganization and without giving effect to the issuance
of common stock related to the Offering.
REVENUE RECOGNITION -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the contract
is placed with the financial institution.
DEALER AGREEMENTS -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the manufacturer
to its franchised dealers. The Company's sales could be unfavorably impacted by
the manufacturer's unwillingness or inability to supply the dealership with an
adequate supply of new car inventory.
F-8
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Each dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
respective dealership. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into other 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.
CASH AND CASH EQUIVALENTS -- The Company considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three months or
less to be cash equivalents. Contracts in transit represent cash in transit to
the Company from finance companies related to vehicle purchases, and was
$2,644,804 and $5,222,589 at December 31, 1995 and 1996, respectively.
INVENTORIES -- Inventories of new vehicles, including demonstrators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of used vehicles are stated at the lower of specific cost or market, and parts
and accessories are stated at the lower first-in, first-out ("FIFO") cost or
market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. The range of estimated useful lives is as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES
<S> <C>
Building..................................................................... 40
Office equipment and fixtures................................................ 5-7
Parts and service equipment.................................................. 5
Company vehicles............................................................. 5
</TABLE>
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
GOODWILL -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired and is being amortized over a 40
year period. The cumulative amount of goodwill amortization at December 31, 1996
was approximately $98,000.
The Company periodically reviews goodwill to assess recoverability. The
Company's policy is to compare the carrying value of goodwill with the expected
undiscounted cash flows from operations of the acquired business.
MARKETABLE EQUITY SECURITIES -- The Company's marketable equity securities
are classified as "available for sale" and are not bought and held principally
for the purpose of selling them in the near term. As such, these securities are
reported at fair value, with unrealized gains and losses, net of tax, excluded
from earnings and reported as a separate component of stockholders' equity.
Realized gains and losses on sales of marketable equity securities are
determined using the specific identification method.
INCOME TAXES -- Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes currently
due plus deferred taxes related primarily to the capitalization of additional
inventory costs for income tax purposes, the recording of chargebacks and
repossession losses on the direct write-off method for income tax purposes, the
direct write-off of uncollectible accounts for income tax purposes, and the
accelerated depreciation method used for income tax purposes. The deferred tax
assets and liabilities represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. In addition, deferred tax assets are
recognized for state operating losses that are available to offset future
taxable income.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
on deposit with financial institutions. At times, amounts invested with
financial institutions may exceed FDIC insurance limits.
F-9
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the large
number of customers comprising the trade receivables balances. Trade receivables
are concentrated in the Company's two market areas of Houston, Texas and
Charlotte, North Carolina metropolitan areas.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- As of December 31, 1995 and 1996 the
fair values of the Company's financial instruments including receivables, due
from affiliates, notes payable-floor plan, trade accounts payable, payables to
affiliated companies and Company Chairman and long-term debt approximate their
carrying values.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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.
ADVERTISING -- The Company expenses advertising costs in the period
incurred. Advertising expense amounted to $3,765,363, $4,525,670 and $4,989,283
for 1994, 1995 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS -- Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Adoption of SFAS No. 121 did not have a material impact on the
Company's results of operations, financial position, and cash flows.
NEW ACCOUNTING STANDARDS -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." This Statement specifies the computation, presentation and
disclosure requirements for earnings per share. The Company believes that the
adoption of such statement would not result in earnings per share materially
different than pro forma earnings per share presented in the accompanying
statements of income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending December 31,
1998, and the Company does not intend to adopt this statement prior to the
effective date. Had the Company early adopted this Statement, it would have
reported comprehensive income of $2,784,032, $2,402,427 and $2,088,601 for the
years ended December 31, 1994, 1995 and 1996, respectively.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the six months ended June 30, 1996 and 1997 has been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The results
for interim periods are not necessarily indicative of the results to be expected
for the entire fiscal year.
F-10
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
2. BUSINESS ACQUISITIONS
In June 1997, the Company through its wholly-owned subsidiary, Fort Mill
Chrysler-Plymouth-Dodge, acquired certain dealership assets and liabilities of
Jeff Boyd Chrysler-Plymouth-Dodge for a total purchase price of $3.7 million. Of
the total purchase price of $3.7 million, $3.5 million was advanced to the
Company by Mr. O. Bruton Smith, with interest charged at 3.83%. It is
anticipated that this advance will be repaid in full with proceeds from the
Offering. This transaction was accounted for using purchase accounting and the
results of the operations of this dealership have been included from the date of
acquisition through June 30, 1997 in the accompanying Unaudited Combined and
Consolidated Statement of Income. The purchase price has been allocated to the
assets and liabilities acquired at their estimated fair market value at the
acquisition date as follows:
<TABLE>
<S> <C>
Working capital............................................................. $ 977,000
Property and equipment...................................................... 250,000
Goodwill.................................................................... 2,473,000
Totals...................................................................... $3,700,000
</TABLE>
In June, July and August the Company entered into definitive agreements to
purchase six additional dealership groups for an aggregate purchase price of
$100.7 million as follows:
<TABLE>
<S> <C>
Bowers Dealerships................................ Chattanooga, Tennessee
Lake Norman Dodge and Affiliates.................. Cornelius, North Carolina
Ken Marks Ford.................................... Clearwater, Florida
Dyer Volvo........................................ Atlanta, Georgia
Jeff Boyd Chrysler-Plymouth-Dodge................. Fort Mill, South Carolina
Williams Motors, Inc.............................. Rock Hill, South Carolina
</TABLE>
The Jeff Boyd Chrysler-Plymouth-Dodge acquisition has been consummated. The
completion of the remaining acquisitions may be dependent upon the successful
completion of the Offering.
On February 1, 1996, the Company acquired Fort Mill Ford for a total
purchase price of $5,741,114. The acquisition has been accounted for as a
purchase and the results of operations of Fort Mill Ford have been included in
the accompanying combined financial statements from the date of acquisition. The
purchase price has been allocated to the assets and liabilities acquired at
their estimated fair market value at the acquisition date as follows:
<TABLE>
<S> <C>
Working capital............................................................. $ 822,000
Property and equipment...................................................... 3,022,000
Goodwill.................................................................... 4,364,000
Non-current liabilities assumed............................................. (2,467,000)
Total....................................................................... $5,741,000
</TABLE>
The following unaudited pro forma financial data is presented as if Fort
Mill Ford had been acquired at January 1, 1994. Fort Mill Ford results of
operations for 1994 and 1995 are based on application of the first-in, first-out
method of accounting for inventories for all classes of inventory. Pro forma
results of operations for 1996 are not presented because the acquisition
occurred in February 1996, and the pro forma results would not be materially
different from the historical results presented.
<TABLE>
<CAPTION>
1994 1995
<S> <C> <C>
Revenues..................................................................................... $300,558,662 $345,198,523
Net income................................................................................... $ 2,939,561 $ 2,874,909
Earnings per share........................................................................... $ 294 $ 287
</TABLE>
The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had Fort Mill Ford been acquired
on January 1, 1994. These results are also not necessarily indicative of the
results of future operations.
F-11
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories at December 31, 1995 and 1996 and June 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
New vehicles.................................................................... $25,675,122 $38,218,187 $42,601,014
Used vehicles................................................................... 8,913,145 14,372,285 11,826,874
Parts and accessories........................................................... 4,185,547 4,939,724 4,997,869
Other........................................................................... 354,227 439,824 459,152
Total........................................................................... $39,128,041 $57,970,020 $59,884,909
</TABLE>
At December 31, 1995 and 1996 and at June 30, 1997, the excess of current
replacement cost over the stated LIFO valuation of new vehicles amounted to
$12,219,953, $13,579,696 and $13,525,047 (unaudited), respectively.
Had the Company used the FIFO method of valuing new vehicle inventory,
pretax earnings would have been $5,809,357, $5,435,709 and $5,020,512 in 1994,
1995 and 1996, respectively.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $45,151,111 and
$63,893,356 at December 31, 1996. The floor plan notes bear interest, payable
monthly on the outstanding balance, at the prime rate plus 1% (9 1/4% at
December 31, 1995 and 1996). Total floor plan interest expense amounted to
$3,000,622, $4,504,526 and $5,968,430 in 1994, 1995 and 1996, respectively. The
notes payable are due when the related vehicle is sold. As such, these floor
plan notes payable are shown as a current liability in the accompanying combined
and consolidated balance sheets.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 and June 30, 1997 is
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
Land............................................................................ $ 1,477,795 $ 2,677,795 $ 2,677,795
Buildings and improvements...................................................... 7,085,878 10,080,659 10,381,145
Office equipment and fixtures................................................... 2,442,965 2,036,980 2,360,424
Parts and service equipment..................................................... 2,955,729 2,866,291 2,941,456
Company vehicles................................................................ 373,683 437,261 512,113
Construction in progress........................................................ 265,677 -- --
Total, at cost.................................................................. 14,601,727 18,098,986 18,872,933
Less accumulated depreciation................................................... (6,074,389) (5,632,273) (5,603,144)
Property and equipment, net..................................................... $ 8,527,338 $12,466,713 $13,269,789
</TABLE>
F-12
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996 and June 30, 1997 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1996
<S> <C> <C>
Note payable in monthly installments of $8,333 plus interest at the prime rate plus 1 1/2%,
through July 2001, collateralized by accounts receivable, inventory and equipment............... $ -- $ 458,335
Mortgage payable in monthly installments of $12,222 plus interest at prime plus 3/4%, through May
2004, collateralized by building................................................................ -- 1,087,778
Unsecured note payable in monthly installments of $9,100, including interest at 8%, through March
2004............................................................................................ -- 599,238
Mortgage note payable in monthly installments of $4,203, including interest at 7%, through
November 2008, collateralized by land and building.............................................. 425,751 405,700
Mortgage note payable in monthly installments of $27,415 including interest at prime plus 1/2%,
through April 2001, at which time remaining outstanding principal balance is due, collateralized
by building..................................................................................... 3,135,379 3,062,926
Other notes payable............................................................................... 169,568 190,864
3,730,698 5,804,841
Less current maturities........................................................................... (169,932) (518,979)
Long-term debt.................................................................................... $3,560,766 $5,285,862
</TABLE>
Future maturities of debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................................ $ 518,979
1998........................................................................ 455,505
1999........................................................................ 434,609
2000........................................................................ 446,374
2001........................................................................ 3,096,525
Thereafter.................................................................. 852,849
Total....................................................................... $5,804,841
</TABLE>
6. INCOME TAXES
The provision (benefit) for income taxes consists of the following
components:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Current:
Federal........................................................................... $1,301,350 $1,147,700 $1,374,280
State............................................................................. -- 76,800 265,972
1,301,350 1,224,500 1,640,252
Deferred............................................................................ 244,900 427,200 (189,179)
Change in valuation allowance....................................................... 13,500 23,200 (51,369)
Total............................................................................. $1,559,750 $1,674,900 $1,399,704
</TABLE>
F-13
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. INCOME TAXES -- Continued
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income tax rate is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Statutory federal rate............................................................................... 34.00% 34.00% 34.00%
State income taxes................................................................................... -- 3.84 3.60
Miscellaneous........................................................................................ 1.78 2.67 .64
Effective tax rates.................................................................................. 35.78% 40.51% 38.24%
</TABLE>
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts......................................................................... $ 62,300 $ 85,992
Inventory reserves.............................................................................. 126,400 160,820
Net operating loss carryforwards................................................................ 183,800 74,931
Other........................................................................................... 1,300 75,656
Total deferred tax assets....................................................................... 373,800 397,399
Valuation allowance............................................................................. (126,300) (75,000)
Deferred tax assets, net........................................................................ 247,500 322,399
Deferred tax liabilities:
Basis difference in fixed assets................................................................ (155,200) (556,384)
Basis difference in equity investment........................................................... (644,400) (478,876)
Other........................................................................................... (108,000) (66,623)
Total deferred tax liability...................................................................... (907,600) (1,101,883)
Net deferred tax liability........................................................................ $(660,100) $ (779,484)
</TABLE>
The net changes in the valuation allowance against deferred tax assets were
an increase of $23,200 for the year ended December 31, 1995 and a decrease of
($51,300) for the year ended December 31, 1996. The increase (decrease) was
related primarily to the generation (expiration) of state net operating loss
carryforwards. At December 31, 1996, the Company had state net operating loss
carryforwards of $1,259,000 which will expire between 1998 and 2002.
The Company expects to convert its method of valuing inventories from the
LIFO method to the FIFO method in 1997 for financial reporting and income tax
reporting purposes. The Company estimates that it will incur a tax liability of
approximately $5.5 million in connection with this conversion.
7. RELATED PARTIES
Due from affiliates represents non-interest bearing advances to SFC. Since
there are no specified repayment terms, the entire amount has been reflected as
a reduction in stockholders' equity at December 31, 1996 and June 30, 1997.
The Company had amounts payable to affiliated companies of $3,219,204 and
$914,339, at December 31, 1995 and 1996, respectively. The balance, consisting
of non-interest bearing loans from affiliates, is classified as noncurrent based
upon its expected repayment date.
The Company operates certain dealerships at facilities leased from
affiliated companies. As of December 31, 1996, future commitments under these
operating leases are $769,200 annually through 1999, $701,000 in 2000, and
$360,000 from 2001 through 2005. Rent expense in 1994, 1995 and 1996 for these
leases amounted to $756,668, $737,076 and $767,200, respectively.
F-14
<PAGE>
SONIC AUTOMOTIVE, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. PREFERRED STOCK
In 1997, the Company authorized 3,000,000 shares of "blank check" preferred
stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. No preferred shares were issued and
outstanding at June 30, 1997
9. EMPLOYEE BENEFIT PLANS
Substantially all of the employees of the company are eligible to
participate in a 401(k) plan maintained by SFC. Contributions by the Company to
the plan were not significant in any period presented.
The Company intends to adopt the 1997 Stock Option Plan (the "Plan"). Under
the provisions of the Plan, options to purchase shares of Class A Common Stock
may be granted to key employees of the Company and its subsidiaries and to
officers, directors, consultants and other individuals providing services to the
Company. The exercise price of the options may not be less than the market value
of the Class A Common Stock on the date of grant. Vesting periods will range
from 5 to 10 years.
The Company intends to adopt the Sonic Employee Stock Purchase Plan (the
"ESPP"). The ESPP provides employees of the Company the opportunity to purchase
Class A Common Stock after completion of the Offering. Under the terms of the
ESPP, on January 1 of each year all eligible employees electing to participate
will be granted an option to purchase shares of Class A Common Stock. The
Company's Compensation Committee will annually determine the number of shares of
Class A Common Stock available for purchase under each option. The purchase
price at which Class A Common Stock will be purchased through the ESPP will be
90% of the lesser of (i) the fair market value of the Class A Common Stock on
the applicable Grant Date and (ii) the fair market value of the Class A Common
Stock on the applicable Exercise Date. Options will expire on the last exercise
date of the calendar year in which granted.
10. CONTINGENCIES
The Company is contingently liable for customer contracts placed with
financial institutions of approximately $741,000 at December 31, 1996. However,
the Company's potential loss is limited to the difference between the present
value of the installment contract at the date of the repossession and the market
value of the vehicle at the date of sale. Other accrued liabilities include a
provision for repossession losses. The Company provides a reserve for
repossession losses based on the ratio that historical loss experience bears to
the amount of outstanding customer contracts.
The Company has available $1,500,000 under draft-clearing credit lines with
a bank in order to immediately fund the Company's checking account for sold
vehicle contracts from other financial institutions. The Company is contingently
liable to the bank until the contracts are approved by the financial
institutions. At December 31, 1996, $151,227 was outstanding under these lines.
In the event that the Company fails to close the acquisitions of Lake
Norman Dodge and Affiliates, Dyer Volvo, Ken Marks Ford, and the Bowers
Dealerships by certain dates, the Company will be required to pay termination
fees which total approximately $5.5 million.
The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF
DYER & DYER, INC.
Atlanta, Georgia
We have audited the accompanying balance sheets of Dyer & Dyer, Inc. (the
"Company") as of December 31, 1995 and 1996, and the related statements of
income, stockholder's 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 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 audits 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 Dyer & Dyer, Inc. 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.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997
F-16
<PAGE>
DYER & DYER, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 1,522,546 $ 941,280 $ 172,937
Receivables................................................................... 432,779 1,213,846 2,535,230
Inventories (Notes 1 and 2)................................................... 9,043,156 15,071,313 11,128,333
Prepaid expenses.............................................................. 274,998 103,958 32,267
Total current assets..................................................... 11,273,479 17,330,397 13,868,767
PROPERTY AND EQUIPMENT, NET (Notes 1 and 3)..................................... 774,909 1,279,774 1,156,207
OTHER ASSETS.................................................................... 287,628 292,250 297,424
TOTAL ASSETS.................................................................... $12,336,016 $18,902,421 $15,322,398
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, floor plan (Note 2)............................................ $ 2,610,935 $ 7,146,245 $ 5,533,925
Trade accounts payable........................................................ 511,292 1,131,472 --
Income taxes payable (Notes 1 and 5).......................................... -- 238,712 238,712
Accrued payroll and bonuses................................................... 82,183 229,297 277,377
Other accrued liabilities..................................................... 196,537 261,932 235,360
Total current liabilities................................................ 3,400,947 9,007,658 6,285,374
INCOME TAXES PAYABLE (Note 5)................................................... 21,012 477,423 238,711
COMMITMENTS (Note 4)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value -- 3,000 shares authorized; 1,531 shares issued;
781 shares outstanding..................................................... 153,100 153,100 153,100
Paid-in capital............................................................... 27,623 27,623 27,623
Retained earnings............................................................. 13,709,477 14,212,760 13,593,733
Total.................................................................... 13,890,200 14,393,483 13,774,456
Less treasury stock (750 shares at cost)...................................... (4,976,143) (4,976,143) (4,976,143)
Total stockholder's equity............................................... 8,914,057 9,417,340 8,798,313
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...................................... $12,336,016 $18,902,421 $15,322,398
</TABLE>
See notes to financial statements.
F-17
<PAGE>
DYER & DYER, INC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Vehicle sales.................................. $52,245,947 $52,613,480 $60,870,919 $30,767,026 $31,373,513
Parts, service and collision repair............ 8,680,440 9,097,763 11,163,230 5,481,708 5,960,212
Finance and insurance.......................... 203,198 404,505 542,474 213,711 128,911
Total..................................... 61,129,585 62,115,748 72,576,623 36,462,445 37,462,636
COST OF SALES.................................... 54,121,066 55,776,668 62,547,497 31,969,022 32,377,247
GROSS PROFIT..................................... 7,008,519 6,339,080 10,029,126 4,493,423 5,085,389
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 6,160,564 5,621,343 6,997,283 3,353,559 3,498,432
DEPRECIATION AND AMORTIZATION.................... 123,228 90,538 126,359 45,451 150,621
OPERATING INCOME................................. 724,727 627,199 2,905,484 1,094,413 1,436,336
OTHER INCOME AND EXPENSE:
Interest expense, floor plan................... 56,944 171,690 372,590 178,970 276,393
Other income................................... 609,684 314,788 452,063 234,834 247,213
Total other income (expense).............. 552,740 143,098 79,473 55,864 (29,180)
INCOME BEFORE INCOME TAXES....................... 1,277,467 770,297 2,984,957 1,150,277 1,407,156
PROVISION FOR INCOME TAXES (Notes 1
and 5)......................................... 491,365 295,850 954,846 954,846 --
NET INCOME....................................... $ 786,102 $ 474,447 $ 2,030,111 $ 195,431 $ 1,407,156
</TABLE>
See notes to financial statements
F-18
<PAGE>
DYER & DYER, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN TREASURY RETAINED STOCKHOLDER'S
STOCK CAPITAL STOCK EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1993...................................... $153,100 $27,623 $(4,976,143) $12,448,928 $ 7,653,508
Net income............................................. -- -- -- 786,102 786,102
BALANCE
DECEMBER 31, 1994...................................... 153,100 27,623 (4,976,143) 13,235,030 8,439,610
Net income............................................. -- -- -- 474,447 474,447
BALANCE
DECEMBER 31, 1995...................................... 153,100 27,623 (4,976,143) 13,709,477 8,914,057
Dividends.............................................. -- -- -- (1,526,828) (1,526,828)
Net income............................................. -- -- -- 2,030,111 2,030,111
BALANCE
DECEMBER 31, 1996...................................... 153,100 27,623 (4,976,143) 14,212,760 9,417,340
Dividends (unaudited).................................. -- -- -- (2,026,183) (2,026,183)
Net income (unaudited)................................. -- -- -- 1,407,156 1,407,156
BALANCE
JUNE 30, 1997 (unaudited).............................. $153,100 $27,623 $(4,976,143) $13,593,733 $ 8,798,313
</TABLE>
See notes to financial statements.
F-19
<PAGE>
DYER & DYER, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................... $ 786,102 $ 474,447 $2,030,111 $ 195,431 $1,407,156
Adjustments to reconcile net income to net cash
provided by operating activities:
(Gain) Loss on disposal of fixed assets........... 8,011 11,757 86,745 -- (116)
Depreciation and amortization..................... 123,228 90,538 126,359 45,451 150,621
Changes in assets and liabilities that relate to
operations:
(Increase) decrease in accounts receivable........ (390,834) 191,714 (768,730) (39,751) (1,355,959)
(Increase) decrease in inventories................ 11,184 (4,213,189) (6,028,157) (1,566,226) 3,942,980
(Increase) decrease in prepaid expenses........... 79,966 (177,992) 171,040 218,576 71,691
Increase (decrease) in notes payable, ()
floor plan...................................... (127,470) 2,581,585 4,535,310 290,990 1,612,320
Increase (decrease) in accounts payable........... 7,048 498,092 620,180 (376,134) (1,131,472)
Increase (decrease) in other accrued
liabilities..................................... 105,201 (187,726) 147,106 170,944 25,008
Increase (decrease) in income taxes payable....... (20,682) 8,484 760,526 760,526 (242,212)
Total adjustments............................... (204,348) (1,196,737) (349,621) (495,624) (151,779)
Net cash provided by (used) in operating
activities................................... 581,754 (722,290) 1,680,490 (300,193) 1,255,377
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................... (18,485) (181,259) (717,969) (14,013) (26,938)
Increase in cash value of life insurance............. (15,398) (26,316) (4,622) (2,311) (5,174)
Deposits held by financial institutions.............. 13,001 10,849 (12,337) 22,238 34,575
Net cash provided by (used) in investing
activities................................... (20,882) (196,726) (734,928) 5,914 2,463
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid....................................... -- -- (1,526,828) (759,810) (2,026,183)
INCREASE (DECREASE) IN CASH............................ 560,872 (919,016) (581,266) (1,054,089) (768,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 1,880,690 2,441,562 1,522,546 1,522,546 941,280
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. $2,441,562 $1,522,546 $ 941,280 $ 468,457 $ 172,937
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $ 57,766 $ 176,464 $ 509,621 $ 247,970 $ 279,460
Income taxes...................................... $ 399,605 $ 438,810 $ 31,826 $ 31,826 $ 242,237
</TABLE>
See notes to financial statements.
F-20
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Dyer & Dyer, Inc. (the "Company") was
incorporated in South Carolina in 1978, and operates a Volvo automobile
dealership in Atlanta, Georgia. The Company sells new and used cars, sells
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges related financing and insurance.
In August 1997, the Company signed a definitive purchase agreement whereby
its net assets would be acquired by Sonic Automotive, Inc. for $18 million. This
acquisition is to be effective prior to the completion of an anticipated public
offering of common stock by Sonic Automotive in 1997.
REVENUE RECOGNITION -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the contract
is placed with the financial institution.
DEALER AGREEMENTS -- The Company purchases substantially all of its new
vehicles from the manufacturer at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be unfavorably
impacted by the manufacturer's unwillingness or inability to supply the
dealership with an adequate supply of new car inventory.
The dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
dealership. The ability of the Company to acquire additional franchises may be
limited due to certain restrictions imposed by the manufacturer. Additionally,
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.
The manufacturer has implemented various incentive programs for its dealers
that provide for specified payments to the dealers based on the results of
customer satisfaction surveys and the implementation of certain standardized
policies and procedures. These programs are for a limited duration and remain
subject to cancellation by the manufacturer at any time. Incentive payments
credited to cost of sales amounted to approximately $210,000, $267,000 and
$1,326,000 during 1994, 1995 and 1996, respectively, and $290,000 and $912,000
for the six months ended June 30, 1996 and 1997, respectively.
CASH AND CASH EQUIVALENTS -- The Company considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three months or
less to be cash equivalents. Contracts in transit represent cash in transit to
the Company from finance companies related to vehicle purchases, and was
approximately $1,522,000 and $934,000 at December 31, 1995 and 1996,
respectively, and $167,000 at June 30, 1997.
INVENTORIES -- Inventories of new vehicles, including demonstators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of used vehicles are stated at the lower of first-in, first-out ("FIFO") cost or
market, and parts and accessories are stated at the lower of specific cost or
market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. The range of estimated useful lives are as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES
<S> <C>
Office equipment and fixtures............................................................ 5-7
Parts and service equipment.............................................................. 5
Company vehicles......................................................................... 5
</TABLE>
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred. Significant
betterments are capitalized.
INCOME TAXES -- For the years ended December 31, 1994 and 1995, the Company
was a C Corporation and, therefore, provided for income taxes using the balance
sheet method. There were no significant deferred tax assets and liabilities as
of December 31, 1995. Effective January 1, 1996, the Company elected to be
treated as an S Corporation for federal and state income tax purposes. As such
the Company's taxable income is included in the stockholder's annual income tax
return. Accordingly, no provision for federal or state income taxes has been
included in the Company's statements of income for the
F-21
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
periods beginning after December 31, 1995, except for the amounts associated
with the Company's change to an S corporation (See Note 5).
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
on deposit with financial institutions. At times, amounts invested with
financial institutions may exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the large
number of customers comprising the trade receivables balances. Trade receivables
are concentrated in the Atlanta, Georgia area.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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.
ADVERTISING -- The Company expenses advertising costs in the period
incurred. Advertising expense approximated $709,000, $525,000 and $765,000
during 1994, 1995 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS -- Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Adoption of SFAS No. 121 did not have a material impact on the
Company's results of operations or financial position.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the six months ended June 30, 1996 and 1997 has been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The results
of interim periods are not necessarily indicative of results to be expected for
the entire fiscal year.
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
New vehicles.................................................................... $ 5,692,043 $ 7,980,256 $ 5,017,765
Used vehicles................................................................... 2,768,230 6,362,410 5,542,979
Parts and accessories........................................................... 503,490 586,129 420,959
Other........................................................................... 79,393 142,518 146,630
Total........................................................................... $ 9,043,156 $15,071,313 $11,128,333
</TABLE>
At December 31, 1995 and 1996 and at June 30, 1997, the excess of current
replacement cost over the stated LIFO valuation of new vehicles, parts and
accessories amount to $2,387,114, $2,503,330 and $2,503,330 (unaudited),
respectively.
Had the Company used the FIFO method of valuing new vehicle, parts and
accessories inventory, pretax earnings would have been $1,335,380, $1,200,776
and $3,101,173 in 1994, 1995 and 1996, respectively.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $2,610,935 and
$7,146,245 at December 31, 1995 and 1996, respectively. The floor plan notes
bear interest, payable monthly on the outstanding balance, at the prime rate
plus 1/2% to 1 1/2% (prime rate was 8.25% at December 31, 1996). Total floor
plan interest expense amounted to $56,944, $171,690 and $372,590 in 1994, 1995
and 1996, respectively.
F-22
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN -- Continued
The notes payable are due when the related vehicle is sold. As such, these floor
plan notes payable are shown as a current liability in the accompanying balance
sheets.
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
Leasehold improvements.............................................................. $1,479,385 $1,885,415 $1,885,415
Furniture and fixtures.............................................................. 1,372,801 1,546,987 1,550,022
Other equipment..................................................................... 565,398 571,778 571,778
Computer equipment.................................................................. 188,851 195,598 198,428
Service vehicles.................................................................... 117,535 122,916 143,989
3,723,970 4,322,694 4,349,632
Less accumulated depreciation and amortization...................................... (2,949,061) (3,042,920) (3,193,425)
Property and equipment, net......................................................... $ 774,909 $1,279,774 $1,156,207
</TABLE>
4. LEASES
The Company leases its business premises under noncancelable operating
leases for five to twenty-five year terms from a partnership partially owned by
the sole stockholder of the Company. Future minimum rental payments required
under noncancelable leases at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING:
<S> <C>
1997.................................................................................... $ 754,162
1998.................................................................................... 756,956
1999.................................................................................... 759,832
2000.................................................................................... 762,800
2001.................................................................................... 765,856
Thereafter.............................................................................. 5,551,504
Total................................................................................... $9,351,110
</TABLE>
Rent expense approximated $711,000, $708,000 and $715,000 during 1994, 1995
and 1996, respectively.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1995 1996
<S> <C> <C> <C>
Current:
Federal................................................................................ $439,714 $231,720 $811,620
State.................................................................................. 47,463 40,864 143,226
487,177 272,584 954,846
Deferred................................................................................. 4,188 23,266 --
Total.................................................................................... $491,365 $295,850 $954,846
</TABLE>
Effective with the Company's S Corporation election, it was required to
recapture its December 31, 1995 LIFO reserve of approximately $2,400,000 and pay
tax on that amount for both Federal and State income tax purposes. The taxes are
F-23
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. INCOME TAXES -- Continued
payable in four equal annual installments beginning March 15, 1996. This
conversion to S Corporation status resulted in the recognition of approximately
$955,000 in income tax expense.
As a result of the Company's change to S Corporation status on January 1,
1996 (see Note 1), it is exposed to potential future taxes on built-in gains
which were present on the date of the conversion. If the planned acquisition of
the net assets of the Company described in Note 1 is consummated, the disposal
of tangible and intangible property which appreciated prior to the election of S
Corporation status will result in the assessment of the built-in gains tax.
6. RETIREMENT PLAN
The Company has a contributory 401(k) plan covering substantially all
employees. Company contributions to the Plan are equal to 25% of the first 4% of
participant contributions. Company contributions amounted to $1,000, $18,000 and
$18,000 in 1994, 1995 and 1996, respectively.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARDS OF DIRECTORS AND STOCKHOLDERS OF
BOWERS DEALERSHIPS AND AFFILIATED COMPANIES
Chattanooga, Tennessee
We have audited the accompanying combined balance sheets of Bowers
Dealerships and Affiliated Companies (the "Company"), which are under common
ownership and management, as of December 31, 1995 and 1996, and the related
combined statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Bowers Dealerships
and Affiliated Companies as of December 31, 1995 and 1996, and the combined
results of their operations and their combined cash flows for the years then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997
F-25
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................................... $ 2,331,136 $ 3,422,140 $ 5,797,307
Receivables................................................................... 2,972,607 3,840,311 3,398,335
Inventories (Note 3).......................................................... 13,003,266 23,147,852 34,070,935
Other current assets (Note 6)................................................. 1,182,860 2,119,974 2,452,831
Total current assets..................................................... 19,489,869 32,530,277 45,719,408
PROPERTY AND EQUIPMENT, NET (Note 4)............................................ 2,889,753 7,254,793 8,744,225
GOODWILL, NET (Note 1).......................................................... 978,735 4,374,573 8,285,460
OTHER ASSETS.................................................................... 183,822 161,845 257,464
TOTAL ASSETS.................................................................... $23,542,179 $44,321,488 $63,006,557
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3).......................................... $11,620,942 $19,731,323 $29,070,838
Notes payable -- other (Note 6)............................................... 2,015,025 3,792,610 4,589,869
Trade accounts payable........................................................ 278,001 1,196,660 1,424,997
Accrued interest.............................................................. 69,164 105,505 178,143
Other accrued liabilities..................................................... 897,893 1,742,119 1,738,928
Current maturities of long-term debt (including amounts due to related parties
of $104,189, $104,189 and $172,072 at December 31, 1995 and 1996 and June
30, 1997, respectively).................................................... 468,040 389,658 558,332
Total current liabilities................................................ 15,349,065 26,957,875 37,561,107
LONG-TERM DEBT (Note 6) (including amounts due to related parties of $2,109,815,
$2,005,626 and $1,953,531 at December 31, 1995 and 1996
and June 30, 1997, respectively).............................................. 2,110,016 3,562,249 4,364,746
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10)
EQUITY
Common stock of combined companies (Note 8):.................................. 1,000,000 1,000,000 1,000,000
Retained earnings and members' and partners' equity........................... 5,543,728 13,661,994 20,941,334
Due from affiliates (Note 7).................................................. (460,630) (860,630) (860,630)
Total equity............................................................. 6,083,098 13,801,364 21,080,704
TOTAL LIABILITIES AND EQUITY.................................................... $23,542,179 $44,321,488 $63,006,557
</TABLE>
See notes to combined financial statements
F-26
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
REVENUES:
Vehicle sales............................... $ 91,774,886 $113,362,495 $48,251,281 $72,605,727
Parts, service and collision repair......... 5,813,582 10,405,031 4,472,267 11,596,873
Finance and insurance....................... 2,768,358 3,348,273 1,639,878 1,867,781
Total revenues......................... 100,356,826 127,115,799 54,363,426 86,070,381
COST OF SALES................................. 86,772,544 109,372,977 46,129,292 73,095,919
GROSS PROFIT.................................. 13,584,282 17,742,822 8,234,134 12,974,462
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.................................... 10,748,891 14,886,611 6,486,017 9,908,039
DEPRECIATION AND AMORTIZATION................. 321,170 514,915 193,486 415,899
OPERATING INCOME.............................. 2,514,221 2,341,296 1,554,631 2,650,524
OTHER INCOME AND EXPENSE:
Interest expense, floor plan................ 1,098,757 1,288,021 610,784 965,350
Interest expense, other..................... 270,771 380,060 157,388 211,250
Other income................................ 19,174 157,443 63,539 451,796
Total other expense.................... 1,350,354 1,510,638 704,633 724,804
INCOME BEFORE INCOME TAXES (Note 1)........... 1,163,867 830,658 849,998 1,925,720
PROVISION FOR INCOME TAXES.................... 41,879 60,850 60,215 30,927
NET INCOME.................................... $ 1,121,988 $ 769,808 $ 789,783 $ 1,894,793
</TABLE>
See notes to combined financial statements
F-27
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
RETAINED
EARNINGS
AND
COMMON MEMBERS'
STOCK OF AND
COMBINED PARTNERS' DUE FROM TOTAL
COMPANIES EQUITY AFFILIATE EQUITY
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994...................................... $1,000,000 $ 3,089,208 $ -- $ 4,089,208
Capital contribution............................................ -- 1,753,736 -- 1,753,736
Distributions................................................... -- (421,204) -- (421,204)
Net income...................................................... -- 1,121,988 -- 1,121,988
Advances to affiliates.......................................... -- -- (460,630) (460,630)
BALANCE AT DECEMBER 31, 1995...................................... 1,000,000 5,543,728 (460,630) 6,083,098
Capital contribution............................................ -- 7,700,000 -- 7,700,000
Distributions................................................... -- (351,542) -- (351,542)
Net income...................................................... -- 769,808 -- 769,808
Advances to affiliates.......................................... -- -- (400,000) (400,000)
BALANCE AT DECEMBER 31, 1996...................................... 1,000,000 13,661,994 (860,630) 13,801,364
Capital contribution (unaudited)................................ -- 5,500,000 -- 5,500,000
Distributions (unaudited)....................................... -- (115,453) -- (115,453)
Net income (unaudited).......................................... -- 1,894,793 -- 1,894,793
BALANCE AT JUNE 30, 1997 (unaudited).............................. $1,000,000 $20,941,334 $ (860,630) $21,080,704
</TABLE>
See notes to combined financial statements.
F-28
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
1995 1996 1996 1997
<S> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $1,121,988 $ 769,808 $ 789,783 $1,894,793
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 321,170 514,915 193,486 415,899
Changes in assets and liabilities that relate to operations:
(Increase) decrease in receivables........................... 909,934 (867,704) 639,758 441,976
Increase in inventories...................................... (602,704) (4,300,530) (258,272) (8,205,796)
Increase in other current assets............................. (324,499) (937,114) (966,156) (332,857)
(Increase) decrease in other non-current assets.............. (67,652) 37,947 (110,984) (94,441)
Increase in notes payable -- floor plan...................... 274,484 8,110,381 2,140,955 9,339,515
Increase (decrease) in accounts payable and accrued
expenses.................................................. (1,427,260) 1,799,226 1,146,612 297,784
Total adjustments......................................... (916,527) 4,357,121 2,785,399 1,862,080
Net cash provided by operating activities.................... 205,461 5,126,929 3,575,182 3,756,873
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash received........................ -- (9,840,438) (4,790,970) (6,718,465)
Additions to property and equipment............................... (333,741) (4,295,381) (2,570,979) (1,816,218)
Net cash used in investing activities........................ (333,741) (14,135,819) (7,361,949) (8,534,683)
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions............................................. 1,378,208 7,700,000 2,700,000 5,500,000
Due from affiliate................................................ (460,630) (400,000) -- --
Distributions to stockholders..................................... (421,204) (351,542) (351,542) (115,453)
Proceeds from long-term debt...................................... 272,084 1,872,169 1,872,169 1,280,000
Payments of long-term debt........................................ (764,933) (498,318) (192,370) (308,829)
Proceeds from notes payable -- other.............................. 1,410,025 2,582,197 1,600,994 1,059,797
Payments of notes payable -- other................................ (220,000) (804,612) (260,000) (262,538)
Net cash provided by financing activities.................... 1,193,550 10,099,894 5,369,251 7,152,977
NET INCREASE IN CASH................................................ 1,065,270 1,091,004 1,582,484 2,375,167
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD...................... 1,265,866 2,331,136 2,331,136 3,422,140
CASH AND CASH EQUIVALENTS, END OF PERIOD............................ $2,331,136 $ 3,422,140 $3,913,620 $5,797,307
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during the period for:
Interest.......................................................... $1,366,071 $ 1,631,740 $ 737,955 $1,103,962
Income taxes...................................................... $ 96,391 $ 76,081 $ 35,636 $ 27,620
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Net liabilities recorded from combining affiliated companies...... $ 372,533 $ -- $ -- $ --
</TABLE>
See notes to combined financial statements.
F-29
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Bowers Dealerships and Affiliated Companies
(the "Company") operates automobile dealerships in the Chattanooga and
Nashville, Tennessee areas. The Company sells new and used cars and light
trucks, sells replacement parts, provides vehicle maintenance, warranty, paint
and repair services and arranges financing and insurance. As of December 31,
1996, the Company had nine dealership locations selling new vehicles
manufactured by BMW, Chrysler, Ford, Honda, Infiniti, Jaguar, Saturn and
Volkswagen. Subsequent to December 31, 1996 the Company acquired a Dodge
dealership. (see Note 2).
The accompanying combined financial statements include the accounts of the
following entities:
<TABLE>
<CAPTION>
NAME LOCATION STRUCTURE
<S> <C> <C>
Cleveland Village Imports, Inc.......................... Chattanooga C Corporation
Saturn of Chattanooga, Inc.............................. Chattanooga S Corporation
Nelson Bowers Ford, L.P................................. Chattanooga Limited Partnership
Infiniti of Chattanooga, Inc............................ Chattanooga C Corporation
Cleveland Chrysler Plymouth Jeep Eagle, LLC............. Chattanooga Limited Liability Company
Jaguar of Chattanooga, LLC.............................. Chattanooga Limited Liability Company
KIA of Chattanooga...................................... Chattanooga Limited Liability Company
European Motors of Nashville LLC........................ Nashville Limited Liability Company
European Motors LLC..................................... Chattanooga Limited Liability Company
</TABLE>
The combined financial statements have been prepared in connection with a
planned acquisition of the net assets of these entities and the aforementioned
Dodge dealership by Sonic Automotive ("Sonic"). In June 1997, the Company signed
a definitive purchase agreement whereby substantially all of its net assets
would be acquired by Sonic for $33,500,000, including $28,500,000 in cash and a
$5,000,000 note payable. Net assets not being acquired are primarily land,
building and the net assets related to a body shop operation. This acquisition
is to be effective prior to the completion of an anticipated public offering of
common stock by Sonic in 1997. The accompanying combined financial statements
reflect the financial position, results of operations, and cash flows of each of
the above listed dealerships. The combination of these entities has been
accounted for at historical cost in a manner similar to a pooling-of-interest
because the entities are under common management and control. All material
intercompany transactions have been eliminated.
REVENUE RECOGNITION -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the contract
is placed with the financial institution.
DEALER AGREEMENTS -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the manufacturer
to its franchised dealers. The Company's sales could be unfavorably impacted by
the manufacturer's unwillingness or inability to supply the dealership with an
adequate supply of new car inventory.
Each dealership operates under a dealer agreement with the manufacturer
except Volkswagen of Nashville which operates under a management agreement which
generally restricts the location, management and ownership of the respective
dealership. The ability of the Company to acquire additional franchises from a
particular manufacturer may be limited due to certain restrictions imposed by
manufacturers. Additionally, 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.
CASH AND CASH EQUIVALENTS -- The Company considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three months or
less to be cash equivalents. Contracts in transit represent cash in transit to
the Company from finance companies related to a vehicle purchase, and was
$1,019,950 and $2,029,314 at December 31, 1995 and 1996, respectively.
F-30
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
INVENTORIES -- Inventories of new and used vehicles, including
demonstrators, are valued at the lower of first-in, first-out ("FIFO") cost or
market, and parts and accessories are stated at the lower of specific cost or
market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. The range of estimated useful lives is as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES
<S> <C>
Building..................................................................... 31.5-39
Office equipment and fixtures................................................ 5-7
Parts, service equipment and vehicles........................................ 7
</TABLE>
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
GOODWILL -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired and is being amortized over a 40
year period. The cumulative amount of goodwill amortization at December 31, 1995
and 1996 was $33,561 and $87,723, respectively.
The Company periodically reviews goodwill for impairment by comparing the
carrying amount of goodwill with the estimated undiscounted future cash flows
from operations of the acquired business.
INCOME TAXES -- With the exception of Infiniti of Chattanooga, Inc. and
Cleveland Village Imports, Inc., all entities included in the accompanying
combined financial statements are either S Corporations, Limited Partnerships or
Limited Liability Companies (LLC). As such, these entities do not pay Federal
corporate income taxes on their taxable income. In addition, the Limited
Partnerships and LLC's are not subject to state income taxes. The stockholders
or partners are liable for individual income taxes on their respective shares of
the Company's taxable income.
Because Infiniti of Chattanooga, Inc. and Cleveland Village Imports, Inc.
is a C Corporation, federal and state income taxes are provided for in the
financial statements and consist of taxes currently due plus deferred taxes. In
addition, the S Corporations are subject to Tennessee income taxes which are
provided for in the financial statements. Income taxes are provided for income
taxes using the balance sheet method. Deferred taxes result primarily from
warranty accruals and the accelerated depreciation method used for income tax
purposes. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. In
addition, deferred tax assets are recognized for state operating losses that are
available to offset future taxable income.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
deposits. At times, amounts invested with financial institutions may exceed FDIC
insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the large
number of customers comprising the trade receivables balances. Trade receivables
are concentrated in the Company's two market areas of Chattanooga and Nashville,
Tennessee.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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.
ADVERTISING -- The Company expenses advertising costs in the period
incurred. Advertising expense amounted to $992,839 and $1,372,775 for 1995 and
1996, respectively.
F-31
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
IMPAIRMENT OF LONG-LIVED ASSETS -- Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may be
impaired. Adoption of SFAS No. 121 did not have a material impact on the
Company's results of operations or financial position.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the six months ended June 30, 1997 has been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The results
of interim periods are not necessarily indicative of results to be expected for
the entire fiscal year.
2. BUSINESS ACQUISITIONS
EUROPEAN MOTORS OF NASHVILLE, INC. AND EUROPEAN MOTORS LLC -- In October
1996, the Company acquired European Motors of Nashville, Inc. and European
Motors LLC. The total purchase price was $9,840,438. These acquisitions have
been accounted for using purchase accounting and the results of operations of
these dealerships have been included in the accompanying combined financial
statements from the date of acquisition. The total purchase price has been
allocated to the assets and liabilities acquired at their estimated fair market
value at acquisition date as follows:
<TABLE>
<S> <C>
Inventory................................................................... $5,862,555
Property and equipment...................................................... 527,883
Goodwill.................................................................... 3,450,000
Total....................................................................... $9,840,438
</TABLE>
DODGE OF CHATTANOOGA -- On March 1, 1997, the Company acquired Dodge of
Chattanooga for a total purchase price of $6,718,465. The acquisition has been
accounted for as a purchase and the results of operations of Dodge of
Chattanooga have been included in the accompanying unaudited combined financial
statements from the date of acquisition through June 30, 1997. The purchase
price has been allocated to the assets and liabilities acquired at their
estimated fair market value at acquisition date as follows:
<TABLE>
<S> <C>
Inventory................................................................... $2,718,465
Goodwill.................................................................... 4,000,000
Total....................................................................... $6,718,465
</TABLE>
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories at December 31, 1995 and 1996 and June 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
New vehicles.................................................................... $ 9,929,971 $16,319,295 $21,837,310
Used vehicles................................................................... 2,369,023 4,821,689 9,870,280
Parts and accessories........................................................... 685,012 1,900,962 2,040,757
Other........................................................................... 19,260 105,906 322,588
Total........................................................................... $13,003,266 $23,147,852 $34,070,935
</TABLE>
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $11,620,942 and
$19,731,323 at December 31, 1995 and 1996, respectively. The floor plan notes
bear interest, that fluctuates with prime and are payable monthly on the
outstanding balance, ranging from 6.25% to 9.75% at December 31,
F-32
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN -- Continued
1996. Total floor plan interest expense amounted to $1,098,757 and $1,288,021 in
1995 and 1996, respectively. The notes payable are due when the related vehicle
is sold. As such, these floor plan notes payable are shown as a current
liability in the accompanying combined balance sheets.
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1995 and 1996 and June 30, 1997 is
comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
Land............................................................................ $ 846,265 $ 1,455,297 $ 1,831,514
Buildings and improvements...................................................... 1,114,984 3,962,427 4,868,637
Office equipment and fixtures................................................... 1,228,579 1,697,617 1,938,612
Parts and service equipment..................................................... 900,005 1,775,271 2,102,199
Leasehold improvements.......................................................... 254,694 262,261 262,261
Total, at cost.................................................................. 4,344,527 9,152,873 11,003,223
Less accumulated depreciation................................................... (1,454,774) (1,898,080) (2,258,998)
Property and equipment, net..................................................... $ 2,889,753 $ 7,254,793 $ 8,744,225
</TABLE>
5. OPERATING LEASES
The Company leases its business premises under nonconcealable operating
leases for one to twenty-six year terms. Future minimum rental payments required
under nonconcealable leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending
1997........................................................................ $ 656,237
1998........................................................................ 413,903
1999........................................................................ 387,120
2000........................................................................ 387,120
2001........................................................................ 387,120
Thereafter.................................................................. 4,994,184
Total....................................................................... $7,225,684
</TABLE>
Rent expense amounted to $458,999 and $762,725 during 1995 and 1996,
respectively.
F-33
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. FINANCING ARRANGEMENTS
Notes payable-other consists of a demand note to a bank and advances
principally from a stockholder. The stockholder advances are restricted to
investment in a cash management fund sponsored by finance companies. Other
current assets at December 31, 1995 and 1996 include $797,000 and $1,326,000,
respectively, of restricted cash in the cash management fund.
Notes payable-other consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
Unsecured demand note payable to bank, interest at 8.25%
at December 31, 1996................................................ $ -- $ 251,203 $ 600,000
Unsecured stockholder advances restricted for investment -- due on
demand.............................................................. 797,000 1,326,000 1,885,000
Other unsecured stockholder advances due on demand.................... 1,218,025 2,215,407 2,104,869
Notes payable -- other................................................ $2,015,025 $3,792,610 $ 4,589,869
</TABLE>
Long-term debt at December 31, 1995 and 1996 and June 30, 1997 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
Mortgage note payable on land and building with a carrying value of
$2,302,487, interest payable at 8.9%, due June 1, 2001.............. $ -- $1,799,152 $ 1,767,753
Mortgage note payable to stockholder on land and building with a
carrying value of $1,535,585, interest payable at 12%, due December
1, 2010............................................................. 1,545,815 1,441,626 1,389,531
Note payable due to stockholder, interest payable at 9.5%, due
December 31, 2001................................................... 564,000 564,000 564,000
Note payable related to purchase of dealership, due February 28,
1999................................................................ -- -- 333,333
Note payable on land and building with a carrying value of $1,813,502,
interest payable at 8.9%, due March 31, 2002........................ -- -- 773,714
Notes payable for equipment with a carrying value of $76,608, interest
payable ranging from 9.6% to 11.18%, payable in full November 15,
1997................................................................ 109,380 76,199 45,332
Note payable on company owned vehicles, with a carrying value of
approximately $20,253, bearing interest at 9.5%..................... 298,861 20,253 --
Note payable to an unrelated car dealership, due December 3, 1999..... 60,000 45,000 45,000
Note payable -- other................................................. -- 5,677 4,415
2,578,056 3,951,907 4,923,078
Less current maturities............................................... (468,040) (389,658) (558,332)
Long-term debt........................................................ $2,110,016 $3,562,249 $ 4,364,476
</TABLE>
F-34
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
6. FINANCING ARRANGEMENTS -- Continued
Future maturities of the above debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................................................ $ 389,658
1998........................................................................ 363,839
1999........................................................................ 477,119
2000........................................................................ 194,018
2001........................................................................ 1,606,592
Thereafter.................................................................. 920,681
Total....................................................................... $3,951,907
</TABLE>
7. RELATED PARTIES
The Company operates certain dealerships at facilities leased from
affiliated companies. The leases are classified as operating leases. Future
minimum rent payments are $387,120 annually through 2001. Rent expense in 1995
and 1996 for these leases amounted to $315,120 and $441,120, respectively.
The Company has accounts receivable from stockholders arising from various
costs paid by the Company for the stockholders totaling $460,630, $860,630 and
$860,630 as of December 31, 1995 and 1996 and June 30, 1997, respectively. Since
there are no specific repayment terms, these amounts are reflected as a
deduction from equity in the combined balance sheets.
The Company's related party transactions are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
1995 1996
<S> <C> <C>
Extended warranty premiums............................................................................ $477,327 $602,270
Advertising........................................................................................... 600,161 530,057
Auction Fees.......................................................................................... -- 39,000
Auto etching.......................................................................................... 28,200 32,861
Automobile packs...................................................................................... 91,830 107,246
</TABLE>
8. EQUITY
During 1997, an affiliated company began paying the salaries of certain
executive officers and other selling, general and administrative expenses. The
affiliated company charged the Company management fees during the six months
ended June 30, 1997 totaling $864,000 for the services performed by the
executive officers.
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
COMMON STOCK
SHARES RETAINED EARNINGS
PAR SHARES ISSUED AND AND MEMBERS' AND
VALUE AUTHORIZED OUTSTANDING AMOUNT PARTNERS' EQUITY
<S> <C> <C> <C> <C> <C>
Cleveland Village Imports, Inc.......................... No par 2,000 2,000 $ 300,000 $ 552,817
Saturn of Chattanooga, Inc.............................. $ 700 2,000 1,000 700,000 2,470,654
Nelson Bowers Ford, L.P................................. 759,039
Cleveland Chrysler Plymouth Jeep Eagle, LLC............. 596,434
Jaguar of Chattanooga, LLC.............................. 1,164,784
$1,000,000 $ 5,543,728
</TABLE>
F-35
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
8. EQUITY -- Continued
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
RETAINED EARNINGS
COMMON STOCK AND
SHARES PARTNERS'
PAR SHARES ISSUED AND AND MEMBERS'
VALUE AUTHORIZED OUTSTANDING AMOUNT EQUITY
<S> <C> <C> <C> <C> <C>
Cleveland Village Imports, Inc.......................... No par 2,000 2,000 $ 300,000 $ 563,672
Saturn of Chattanooga, Inc.............................. $ 700 2,000 1,000 700,000 2,675,993
Nelson Bowers Ford, L.P................................. -- 699,958
Cleveland Chrysler Plymouth Jeep Eagle, LLC............. -- 417,300
Jaguar of Chattanooga, LLC.............................. -- 1,141,782
European Motors of Nashville, LLC....................... -- 5,014,936
European Motors LLC..................................... -- 3,148,353
$1,000,000 $13,661,994
</TABLE>
9. EMPLOYEE BENEFIT PLANS
In April 1997, the Company established a 401(k) plan, whereby substantially
all of the employees of the company meeting certain service requirements are
eligible to participate. Contributions by the Company to the plan were not
significant in any period presented.
10. CONTINGENCIES
The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.
F-36
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
LAKE NORMAN DODGE, INC.
Cornelius, North Carolina
We have audited the accompanying combined balance sheet of Lake Norman
Dodge, Inc. and Affiliated Companies (the "Company"), which are under common
ownership and management, as of December 31, 1996, and the related combined
statements of income, stockholders' equity, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Lake Norman Dodge,
Inc. and Affiliated Companies as of December 31, 1996, and the combined results
of their operations and their combined cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997
F-37
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1996 AND JUNE 30, 1997
<TABLE>
<CAPTION>
DECEMBER
31, JUNE 30,
1996 1997
<S> <C> <C>
(UNAUDITED)
ASSETS (NOTE 4)
CURRENT ASSETS:
Cash and cash equivalents.................................................................... $ 3,491,358 $ 3,466,789
Receivables.................................................................................. 1,998,315 2,535,247
Inventories (Note 2)......................................................................... 23,603,843 22,778,488
Prepaid expenses............................................................................. -- 243,870
Total current assets...................................................................... 29,093,516 29,024,394
PROPERTY AND EQUIPMENT, NET (Note 3)........................................................... 485,880 566,875
OTHER ASSETS (NOTE 6):
Due from employees........................................................................... 281,497 302,628
Due from related partnership................................................................. 159,554 159,554
Total other assets........................................................................ 441,051 462,182
TOTAL ASSETS................................................................................... $30,020,447 $30,053,451
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable-floor plan (Note 2)............................................................ $25,957,314 $25,865,010
Trade accounts payable....................................................................... 1,364,121 1,351,664
Note payable to bank (Note 4)................................................................ 68,168 27,644
Other accrued liabilities.................................................................... 765,620 472,485
Current maturities of long-term debt......................................................... 142,857 71,429
Total current liabilities................................................................. 28,298,080 27,788,232
LONG-TERM DEBT (Note 4)........................................................................ 785,715 785,714
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Common stock of combined companies........................................................... 75,000 75,000
Paid-in capital.............................................................................. 600,009 600,009
Retained earnings............................................................................ 261,643 804,496
Total stockholders' equity................................................................ 936,652 1,479,505
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................... $30,020,447 $30,053,451
</TABLE>
See notes to combined financial statements.
F-38
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, JUNE 30,
1996 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
REVENUES:
Vehicle sales................................................................ $124,538,878 $55,071,168 $69,798,274
Finance and insurance........................................................ 3,617,296 1,773,355 1,949,987
Parts and service............................................................ 9,543,187 4,371,529 5,321,329
Total revenues............................................................ 137,699,361 61,216,052 77,069,590
COST OF SALES.................................................................. 121,806,212 53,845,015 68,272,355
GROSS PROFIT................................................................... 15,893,149 7,371,037 8,797,235
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................... 14,215,002 6,736,729 6,937,071
DEPRECIATION AND AMORTIZATION.................................................. 88,987 37,414 46,900
OPERATING INCOME............................................................... 1,589,160 596,894 1,813,264
OTHER INCOME AND EXPENSE:
Interest expense, floor plan................................................. 1,552,250 588,951 1,185,518
Interest expense, other...................................................... 49,540 2,880 67,647
Other income................................................................. 257,747 113,277 176,322
Total other expense....................................................... 1,344,043 478,554 1,076,843
NET INCOME..................................................................... $ 245,117 $ 118,340 $ 736,421
</TABLE>
See notes to combined financial statements.
F-39
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.................................. 75 $75,000 $475,009 $728,963 $1,278,972
Capital contribution........................................ -- -- 125,000 -- 125,000
Net income.................................................. -- -- -- 245,117 245,117
Distributions to owners..................................... -- -- -- (712,437) (712,437)
BALANCE AT DECEMBER 31, 1996.................................. 75 75,000 600,009 261,643 936,652
Net income (unaudited)...................................... -- -- -- 736,421 736,421
Distributions to owners (unaudited)......................... -- -- -- (193,568) (193,568)
BALANCE AT JUNE 30, 1997 (unaudited).......................... 75 $75,000 $600,009 $804,496 $1,479,505
</TABLE>
See notes to combined financial statements.
F-40
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED JUNE 30,
DECEMBER 31, 1996 1996 1997
<S> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................... $ 245,117 $ 118,340 $ 736,421
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Bad debts and repossessions........................................... 44,523 -- 9,910
Depreciation and amortization expense................................. 88,987 37,414 46,900
Increase in LIFO reserve.............................................. 169,316 177,898 324,486
Changes in assets and liabilities that relate to operations:
Increase in receivable.............................................. (533,128) (417,366) (546,842)
Increase (decrease) in inventories.................................. (10,887,995) 1,039,475 500,867
Increase (decrease) in prepaid expenses............................. 15,895 (271,689) (243,870)
(Increase) decrease in accounts payable............................. 109,802 (240,517) (12,456)
(Increase) decrease in notes payable floor plan..................... 13,226,616 547,291 (92,304)
(Increase) decrease in other accrued liabilities.................... 488,012 1,281,747 (293,135)
Total adjustments................................................ 2,722,028 2,154,253 (306,444)
Net cash provided by operating activities........................ 2,967,145 2,272,593 429,977
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................................... (282,711) (141,084) (127,895)
Advances to employees -- net............................................. (86,179) (87,558) (21,131)
Advances to related partnership -- net................................... (159,553) -- --
Net cash used in investing activities............................ (528,443) (228,642) (149,026)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank note.................................................. 100,000 100,000 --
Payments on bank note.................................................... (69,331) (30,214) (40,524)
Proceeds from long-term debt............................................. 1,000,000 1,000,000 --
Payments on long-term debt............................................... (71,429) -- (71,428)
Capital contribution..................................................... 125,000 -- --
Distributions to owners.................................................. (712,437) (540,205) (193,568)
Net cash provided by (used in) financing activities.............. 371,803 529,581 (305,520)
NET INCREASE (DECREASE) IN CASH............................................ 2,810,505 2,573,532 (24,569)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 680,853 680,853 3,491,358
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 3,491,358 $ 3,254,385 $ 3,466,789
SUPPLEMENTAL DISCLOSURES OF CASH FLOW:
Cash paid during the period for interest................................. $ 1,601,790 $ 591,831 $ 1,253,165
</TABLE>
See notes to combined financial statements.
F-41
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Lake Norman Dodge, Inc. and Affiliated
Companies' (the "Company") operates two automobile dealerships in the Charlotte,
North Carolina area. The Company sells new and used cars and light trucks, sells
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges related financing and insurance.
The combined financial statements include the accounts of Lake Norman
Dodge, Inc. ("LND") and its subsidiary, Lake Norman
Chrysler-Plymouth-Jeep-Eagle, LLC ("LNCPJE") and certain proprietorships of Phil
Gandy and Quinton Gandy. LND is 100% owned by Phil Gandy and Quinton Gandy. All
significant intercompany balances and planned transactions have been eliminated
in combination.
The combined financial statements have been prepared in connection with a
planned acquisition of the net assets of these entities by Sonic Automotive,
Inc. ("Sonic"). In May 1997, the Company signed a definitive purchase agreement
whereby its outstanding capital stock would be acquired by Sonic for
$18,200,000. This acquisition is to be effective prior to the completion of an
anticipated public offering of common stock by Sonic in 1997.
The accompanying combined financial statements reflect the financial
position, results of operations, and cash flows of each of the above listed
entities. The combination of these entities has been accounted for at historical
cost in a manner similar to a pooling-of-interest because the entities are under
common management and control. All material intercompany transactions have been
eliminated.
LNCPJE was organized on March 18, 1996, as a North Carolina limited
liability company and commenced operations on July 1, 1996. The certain
proprietorships of Phil Gandy and Quinton Gandy include commissions earned
related to sales of extended warranty contracts through LND and LNCPJE, which
were paid directly to Phil Gandy and Quinton Gandy at the option of LND and
LNCPJE. Earned commissions relating to the sales of these contracts reflect a
recurring transaction relating to the dealerships and therefore these
proprietorships have been included in the accompanying combined financial
statements.
REVENUE RECOGNITION -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the contract
is placed with the financial institutions.
DEALER AGREEMENTS -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the manufacturer
to its franchised dealers. The Company's sales could be unfavorably impacted by
the manufacturers' unwillingness or inability to supply the dealership with an
adequate supply of new car inventory.
Each dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
respective dealership. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, 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.
CASH AND CASH EQUIVALENTS -- The Company considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three months or
less to be cash equivalents. Contracts in transit represent cash in transit to
the Company from finance companies related to vehicle purchases, and was
$2,110,467 at December 31, 1996.
INVENTORIES -- Inventories of new vehicles, including demonstrators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of used vehicles are stated at the lower of first-in, first-out ("FIFO") cost or
market, and parts and accessories are stated at the lower of specific cost or
market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed over the estimated useful lives of the assets using
primarily accelerated methods. The range of estimated useful lives is as
follows:
<TABLE>
<CAPTION>
USEFUL LIVES
<S> <C>
Parts and service equipment................................................... 5 years
Office equipment and fixtures................................................. 5-7 years
Company vehicles.............................................................. 5 years
</TABLE>
F-42
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
INCOME TAXES -- LND has elected to be treated as an S Corporation for
federal and state income tax purposes, and LNCPJE is a limited liability company
(LLC). As such the stockholders and members, respectively, include their pro
rata share of the Company's taxable income for the year in their individual
income tax returns. The proprietorship income of Phil and Quinton Gandy combined
herein is also included in their personal income tax returns. Accordingly, no
provision for federal or state income taxes has been included in the
accompanying combined statement of income.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
deposits. At times, amounts invested with financial institutions may exceed FDIC
insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the large
number of customers comprising the trade receivables balances. Trade receivables
are concentrated in the Charlotte, North Carolina metropolitan area.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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.
ADVERTISING COSTS -- The Company expenses all costs of advertising when
incurred. Advertising costs of $1,828,534 are included in operating expenses for
1996.
INTERIM FINANCIAL INFORMATION -- The accompanying unaudited financial
information for the six months ended June 30, 1997 has been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The results
for interim periods are not necessarily indicative of the results to be expected
for the entire fiscal year.
The combined statement of income for the year ended December 31, 1996
includes expenses approximating $1,200,000 for discretionary bonuses to
stockholders determined at year end. Of this amount approximately $565,000 was
incurred through June 30, 1996. Given the planned acquisition by Sonic, it is
uncertain if a similar discretionary bonus will be awarded in 1997. As such, no
bonus has been accrued through June 30, 1997.
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOORPLAN
Inventories at December 31, 1996 and June 30, 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
<S> <C> <C>
(UNAUDITED)
New vehicles................................................................................... $ 16,617,268 $18,626,219
Used vehicles.................................................................................. 6,437,598 3,720,437
Parts and accessories.......................................................................... 548,977 431,832
Total.......................................................................................... $ 23,603,843 $22,778,488
</TABLE>
Had the Company used the FIFO method of valuing new vehicle inventory,
inventories would have been $1,564,142 higher and net income would have been
$414,432 as of and for the year ended December 31, 1996.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $25,957,314 at December
31, 1996. The floor plan notes bear interest, payable monthly on the outstanding
balance, at the prime rate plus 0.5% (8.75% at December 31, 1996). Total floor
plan interest expense amounted to $1,552,250 in
F-43
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOORPLAN -- Continued
1996. The notes payable are due when the related vehicle is sold. As such, these
floor plan notes payable are shown as a current liability in the accompanying
balance sheet.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and June 30, 1997 is comprised
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
<S> <C> <C>
(UNAUDITED)
Service equipment........................................................ $ 309,944 $ 373,652
Parts and accessory equipment............................................ 35,480 38,876
Vehicles................................................................. 11,809 53,898
Furniture and fixtures................................................... 212,155 278,479
Leasehold improvements................................................... 460,097 497,345
Total at cost............................................................ 1,029,485 1,242,250
Less accumulated depreciation............................................ (543,605) (675,375)
Property and equipment, net.............................................. $ 485,880 $ 566,875
</TABLE>
4. NOTE PAYABLE TO BANK AND LONG-TERM DEBT
The note payable with a balance of $68,168 at December 31, 1996 is due in
monthly installments of $7,172, including interest at 8.25%, through October,
1997. The note is collateralized by modular buildings used in Company
operations.
In July, 1996, the Company borrowed $1,000,000 from Chrysler Financial
Corporation. Payments of $11,905 plus interest at prime plus .5% (8.75% at
December 31, 1996) are due monthly, through July, 2003. The loan is
collateralized by a security interest in all assets of LNCPJE. Principal is due
as follows:
<TABLE>
<S> <C>
1998.......................................................................... $142,857
1999.......................................................................... 142,857
2000.......................................................................... 142,857
2001.......................................................................... 142,857
2002.......................................................................... 142,857
Thereafter.................................................................... 71,430
Total......................................................................... 785,715
Current maturities............................................................ 142,857
Long-term debt................................................................ $928,572
</TABLE>
5. OPERATING LEASES
The Company leases its operating facilities from its shareholders under
three separate leases expiring March, 2000 and June, 2001. Monthly payments
under these leases at December 31, 1996, total $83,000. One of these leases has
an option for renewal for two additional five year terms. The Company pays all
operating costs such as utilities, repairs, maintenance and insurance relating
to these facilities. Total payments made to related parties under these leases
in 1996 were $786,000 exclusive of operating costs.
F-44
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
5. OPERATING LEASES -- Continued
At December 31, 1996 future minimum rental payments under these operating
leases are as follows:
<TABLE>
<CAPTION>
YEAR
<S> <C>
1997........................................................................ $ 996,000
1998........................................................................ 996,000
1999........................................................................ 996,000
2000........................................................................ 564,000
2001........................................................................ 210,000
Total................................................................ $3,762,000
</TABLE>
The Company leases automobiles through Chrysler Finance under twenty-four
and thirty-six month agreements expiring at various dates. The Company pays
monthly rental of varying amounts. In addition, the Company pays all operating
costs, including insurance, repairs, and maintenance. Payments under automobile
leases were $170,800 in 1996.
At December 31, 1996, minimum future lease payments under these leases are
as follows:
<TABLE>
<S> <C>
1997.......................................................................... $216,000
1998.......................................................................... 81,000
Total.................................................................. $297,000
</TABLE>
6. RELATED PARTIES
DUE FROM RELATED PARTIES -- Due from employees includes $219,878 due from
shareholders. These amounts bear interest at the prevailing U. S. Treasury rates
for short-term debt, are noncollateralized and have no specific repayment terms.
Amounts due from related partnership are noninterest bearing,
noncollateralized and have no specific repayment terms.
7. EMPLOYEE SAVINGS PLAN
The Company operates a savings plan under Section 401(k) of the Internal
Revenue Code. This plan allows employees to defer a portion of their income on a
pre-tax basis through plan contributions. The Company makes matching
contributions up to 2% of employee salary. Company contributions to the plan in
1996 totaled $56,800. The Company also paid plan expenses of $1,312.
F-45
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
KEN MARKS FORD, INC.
Clearwater, Florida
We have audited the accompanying balance sheet of Ken Marks Ford, Inc. (the
"Company") as of April 30, 1997, and the related statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Ken Marks Ford, Inc. as of
April 30, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 26, 1997
F-46
<PAGE>
KEN MARKS FORD, INC.
BALANCE SHEET
APRIL 30, 1997
<TABLE>
<S> <C>
ASSETS (NOTE 4)
CURRENT ASSETS:
Cash and cash equivalents.................................................................................... $ 2,504,102
Receivables.................................................................................................. 2,374,483
Inventories (Note 2)......................................................................................... 11,216,499
Prepaid expenses and other current assets.................................................................... 529,633
Deferred income taxes (Note 5)............................................................................... 91,742
TOTAL CURRENT ASSETS...................................................................................... 16,716,459
PROPERTY AND EQUIPMENT (Note 3)................................................................................ 470,738
OTHER ASSETS................................................................................................... 14,000
TOTAL ASSETS................................................................................................... $17,201,197
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 2)......................................................................... $12,557,574
Trade accounts payable....................................................................................... 678,252
Accrued payroll and bonuses.................................................................................. 836,425
Other accrued liabilities (Note 7)........................................................................... 777,388
Allowance for insurance, service contract and finance income chargebacks..................................... 224,544
Income tax payable (Note 5).................................................................................. 15,161
TOTAL CURRENT LIABILITIES................................................................................. 15,089,344
DEFERRED INCOME TAXES (Note 5)................................................................................. 17,705
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 500 shares authorized and issued.............................................. 500
Paid-in capital.............................................................................................. 423,800
Retained earnings............................................................................................ 1,669,848
Total stockholders' equity................................................................................ 2,094,148
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................................................................... $17,201,197
</TABLE>
See notes to financial statements.
F-47
<PAGE>
KEN MARKS FORD, INC.
STATEMENT OF INCOME
YEAR ENDED APRIL 30, 1997
<TABLE>
<S> <C>
REVENUES:
Vehicle sales............................................................................................... $130,045,246
Parts, service and collision repairs........................................................................ 13,116,124
Finance and insurance....................................................................................... 2,188,071
Total revenues........................................................................................... 145,349,441
COST OF SALES................................................................................................. 126,870,910
GROSS PROFIT.................................................................................................. 18,478,531
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 7)......................................................... 15,743,940
DEPRECIATION AND AMORTIZATION................................................................................. 100,771
OPERATING INCOME.............................................................................................. 2,633,820
OTHER INCOME AND EXPENSE:
Interest expense, floor plan (Note 2)....................................................................... 2,008,468
Other income................................................................................................ 140,916
Total other income and expense........................................................................... 1,867,552
INCOME BEFORE INCOME TAXES.................................................................................... 766,268
PROVISION FOR INCOME TAXES (Note 5)........................................................................... 295,988
NET INCOME.................................................................................................... $ 470,280
</TABLE>
See notes to financial statements.
F-48
<PAGE>
KEN MARKS FORD, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
<S> <C> <C> <C> <C>
BALANCE
APRIL 30, 1996.......................................................... $ 500 $423,800 $1,219,568 $ 1,643,868
Dividends............................................................... -- -- (20,000) (20,000)
Net income.............................................................. -- -- 470,280 470,280
BALANCE
APRIL 30, 1997.......................................................... $ 500 $423,800 $1,669,848 $ 2,094,148
</TABLE>
See notes to financial statements.
F-49
<PAGE>
KEN MARKS FORD, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED APRIL 30, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................................... $ 470,280
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization............................................................................. 100,771
Deferred income taxes..................................................................................... 13,763
Loss on disposal of property and equipment................................................................ 45,192
Change in operating assets and liabilities:
Increase in accounts receivable......................................................................... (1,033,143)
Decrease in inventories................................................................................. 5,197,288
Decrease in prepaid expenses............................................................................ 429,467
Decrease in due from related parties.................................................................... 134,141
Decrease in notes payable, floor plan................................................................... (3,401,971)
Increase in trade accounts payable...................................................................... 322,319
Decrease in accrued payroll and bonuses................................................................. (284,875)
Decrease in accrued expenses and other payables......................................................... (848,544)
Decrease in allowance for insurance, service contract and finance income chargebacks.................... (85,107)
Decrease in income tax payable.......................................................................... (39,839)
Total adjustments.................................................................................... 549,462
Net cash provided by operating activities................................................................. 1,019,742
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.......................................................................... (183,674)
Net cash used in investing activities..................................................................... (183,674)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to stockholders............................................................................... (20,000)
Net cash used in financing activities..................................................................... (20,000)
NET INCREASE IN CASH........................................................................................... 816,068
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................................................................... 1,688,034
CASH AND CASH EQUIVALENTS, END OF YEAR......................................................................... $ 2,504,102
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest..................................................................................................... $ 2,008,468
Income taxes................................................................................................. $ 322,064
</TABLE>
See notes to financial statements.
F-50
<PAGE>
KEN MARKS FORD, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED APRIL 30, 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Ken Marks Ford, Inc. (the "Company") operates
an automobile dealership in the Tampa-Clearwater areas in Florida. The Company
sells new and used cars, sells replacement parts, provides vehicle maintenance,
warranty, paint and repair services and arranges related financing and
insurance.
In July 1997, the Company signed a definitive purchase agreement whereby
its outstanding capital stock would be acquired by Sonic Automotive, Inc. for
$24,982,500. This acquisition is to be effective prior to the completion of an
anticipated public offering of common stock by Sonic Automotive, Inc. in 1997.
REVENUE RECOGNITION -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed. Finance and
insurance commission revenue is recognized principally at the time the contract
is placed with the financial institution.
DEALER AGREEMENTS -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the manufacturer
to its franchised dealers. The Company's sales could be unfavorably impacted by
the manufacturer's unwillingness or inability to supply the dealership with an
adequate supply of new car inventory. Each dealership operates under a dealer
agreement with the manufacturer. These agreements generally restrict the
location, management and ownership of the respective dealership.
CASH AND CASH EQUIVALENTS -- The Company considers contracts in transit and
all highly liquid debt instruments with an initial maturity of three months or
less to be cash equivalents. Contracts in transit represent cash in transit to
the Company from finance companies related to vehicle purchases, and was
approximately $1,753,000 at April 30, 1997.
INVENTORIES -- Inventories of new vehicles, including demonstrators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of parts and accessories are valued on a LIFO basis using the Current Year Parts
Price Index. Inventories of used vehicles are valued on a specific
identification basis.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over
the estimated useful lives of the assets. The range of estimated useful lives is
as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
<S> <C>
Leasehold improvements.................................................................. 18-31 years
Machinery and equipment................................................................. 5-7 years
Furniture and fixtures.................................................................. 5-7 years
</TABLE>
INCOME TAXES -- Deferred income tax assets and liabilities are determined
based on the difference between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of cash
deposits. At times, amounts invested with financial institutions may exceed FDIC
insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the large
number of customers comprising the trade receivables balance. Trade receivables
are concentrated in the Tampa-Clearwater metropolitan area.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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 these estimates.
F-51
<PAGE>
KEN MARKS FORD, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expenses approximated $1,151,000 for the year ended April
30, 1997.
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
<S> <C>
New vehicles........................................................................... $ 8,431,786
Used vehicles.......................................................................... 2,341,929
Parts and accessories.................................................................. 442,784
Total.................................................................................. $11,216,499
</TABLE>
At April 30, 1997, the excess of current replacement cost over the stated
LIFO valuation of new vehicles, parts and accessories amounts to $2,749,237.
Had the Company used the FIFO method of valuing new vehicle, parts and
accessories inventory, pretax earnings would have been $949,454 for the year
ended April 30, 1997.
All new vehicles are pledged to collateralize floor plan notes payable to
financial institutions in the amount of $12,557,574 at April 30, 1997. The floor
plan notes bear interest, payable monthly on the outstanding balance, at the
prime rate plus 1% (9.5% at April 30, 1997). Total floor plan interest expense
amounted to $2,008,468 during the year ended April 30, 1997. The notes payable
become due when the related vehicle is sold. As such, these floor plan notes
payable are shown as a current liability in the accompanying balance sheet.
Certain inventory items collateralize the revolving line of credit
described in Note 4. All new vehicles and demonstrators and substantially all
parts and accessories are purchased from Ford Motor Company.
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
<S> <C>
Parts and service equipment............................................................ $ 333,063
Furniture and fixtures................................................................. 400,152
Leasehold improvements................................................................. 481,815
1,215,030
Less accumulated depreciation.......................................................... (744,292)
Property and equipment, net............................................................ $ 470,738
</TABLE>
4. FINANCING ARRANGEMENT
The Company has a revolving line of credit with Ford Motor Credit
Corporation in the amount of $2,500,000. At April 30, 1997, no amount was
outstanding relating to this line of credit, which is collateralized by personal
guarantees from the stockholders and the net assets of the Company.
F-52
<PAGE>
KEN MARKS FORD, INC.
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
<S> <C>
Current taxes............................................................................. $ 282,225
Deferred taxes............................................................................ 13,763
Provision for income taxes................................................................ $ 295,988
</TABLE>
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
1997
<S> <C>
Deferred tax asset -- current, primarily from differences relating to finance and insurance
reserves and allowance for bad debts..................................................... $ 91,742
Deferred tax liability -- long-term, primarily from differences relating to depreciation... (17,705)
Net deferred tax asset..................................................................... $ 74,037
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Ford Motor Company (FMC) owns vehicles which are used as short-term rentals
for which the Company pays FMC monthly fees. A portion of the fees are applied
against the purchase price the Company must pay for the vehicles when they are
no longer used for rental. The contingent liability to FMC to purchase the
vehicles under this program was approximately $1,771,000 at April 30, 1997.
The Company is a defendant in various legal proceedings incurred in the
normal course of business. Management believes that the outcome of such
proceedings will not have a materially adverse effect on the Company's financial
position or future operations and cashflows.
7. RELATED PARTY TRANSACTIONS
The Company leases its operating facility from a corporation which is owned
by the Company's stockholders. The lease is currently on a month-to-month basis.
Rent charged to expense under this lease was $359,630 for the year ended April
30, 1997. In addition, management fees of $675,000 for the year ended April 30,
1997 were paid by the Company to the above corporation and are included in
selling, general and administrative expenses. In addition, related party
payables of $270,000 were included in other accrued liabilities at April 30,
1997.
F-53
<PAGE>
NO DEALER, SALESPERSON, OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE CLASS A
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary................................... 3
The Offering......................................... 6
Summary Historical and Pro Forma Combined and
Consolidated Financial Data........................ 7
Risk Factors......................................... 9
The Reorganization................................... 17
The Acquisitions..................................... 17
Use of Proceeds...................................... 20
Dividend Policy...................................... 20
Capitalization....................................... 21
Dilution............................................. 22
Selected Combined And Consolidated Financial Data.... 23
Pro Forma Combined and Consolidated Financial Data... 25
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 33
Business............................................. 39
Management........................................... 55
Certain Transactions................................. 61
Principal Stockholders............................... 65
Description of Capital Stock......................... 65
Shares Eligible for Future Sale...................... 69
Underwriting......................................... 70
Legal Matters........................................ 71
Experts.............................................. 71
Additional Information............................... 72
Index to Financial Statements........................ F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
SHARES
SONIC AUTOMOTIVE, INC.
CLASS A COMMON STOCK
PROSPECTUS
MERRILL LYNCH & CO.
MONTGOMERY SECURITIES
WHEAT FIRST BUTCHER SINGER
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses to be borne by the Registrant
in connection with the issuance and distribution of the securities being
registered hereby other than underwriting discounts and commissions. All the
amounts shown are estimates, except for the registration fee with the Securities
and Exchange Commission, the NASD filing fee and the NYSE fees.
<TABLE>
<S> <C>
SEC Registration fee...................................................................... $ 31,516
NASD filing fee........................................................................... 10,900
NYSE fees.................................................................................
Transfer agent and registrar fees.........................................................
Accounting fees and expenses..............................................................
Legal fees and expenses...................................................................
"Blue Sky" fees and expenses (including legal fees).......................................
Costs of printing and engraving...........................................................
Miscellaneous.............................................................................
Total..................................................................................... $
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Bylaws effectively provide that the Registrant shall, to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Registrant's
Amended and Restated Certificate of Incorporation eliminates personal liability
of its directors to the full extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware, as amended from time to time
("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they 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 reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interest of the corporation, except
that no indemnification shall be made if such person shall have been adjudged
liable to the corporation, unless and only to the extent that the court in which
the action or suit was brought shall determine upon application that the
defendant officers or directors are reasonably entitled to indemnify for such
expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for reach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation 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 willful or negligent conduct
in paying dividends or repurchasing stock out of other than lawfully available
funds or (iv) for any transaction from which the director derived an improper
personal benefit. No such provisions shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date when such provision
becomes effective.
The Company intends to obtain, prior to the effective date of the
Registration Statement, insurance against liabilities under the Securities Act
of 1933 for the benefit of its officers and directors.
Section 7 of the Underwriting Agreement (to be filed as Exhibit 1.1 to this
Registration Statement) provides that the Underwriters severally and not jointly
will indemnify and hold harmless the Registrant and each director, officer or
controlling person of the Registrant from and against any liability caused by
any statement or omission in the Registration Statement or Prospectus based upon
information furnished to the Registrant by the Underwriters for use therein.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as hereinafter set forth, there have been no sales of unregistered
securities by the Registrant within the past there years.
As of January 30, 1997, as part of the original organization of the
Company, the Registrant issued to Sonic Financial Corporation 100 shares of
Common Stock of the Company (the "Original Shares") in exchange for $500 in
cash.
II-1
<PAGE>
As of June 30, 1997, as part of the Reorganization, the Registrant issued
to (i) its Chief Executive Officer, Bruton Smith, 1,657 shares of the
Registrant's Class B Common Stock in exchange for all his interests in Town &
Country Toyota and Fort Mill Ford, (ii) Sonic Financial Corporation 7,105 shares
of its Class B Common Stock in exchange for all its interests in the Original
Shares, Town & Country Ford, Fort Mill Ford, Lone Star Ford and Frontier
Plymouth-Oldsmobile-Cadillac, (iii) William S. Egan 473 shares of its Class B
Common Stock in exchange for all his interest in Town & Country Toyota, and (iv)
Bryan Scott Smith 765 shares of its Class B Common Stock in exchange for all his
interests in Town & Country Ford and Fort Mill Ford. Also, in connection with
the Dyer Acquisition, the Company will issue the Dyer Warrant. In each such
transaction, the securities were not or will not be registered under the
Securities Act, in reliance upon the exemption from registration provided by
Section 4(2) of said Act in view of the sophistication of the foregoing
purchasers, their access to material information, the disclosures actually made
to them by the Registrant and the absence of any general solicitation or
advertising.
On or before the consummation of the Offering, the Registrant will issue to
nine of its officers and employees, pursuant to the Registrant's Stock Option
Plan, options to purchase shares of Class A Common Stock in the aggregate.
Such securities will not be registered under the Securities Act because such
grants will be made without consideration to the Registrant and, consequently,
do not constitute offers or sales within the meaning of Section 5 of the
Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
1.1** Form of Purchase Agreement
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1** Form of Class A Common Stock Certificate
4.2* Registration Rights Agreement dated as of June 30, 1997 among the Company, O. Bruton Smith, Bryan Scott
Smith, William S. Egan and Sonic Financial Corporation
5.1** Opinion letter of Parker, Poe, Adams & Bernstein, L.L.P. regarding the legality of the securities to be
registered
10.1* Form of Lease Agreement to be entered into between the Company (or its subsidiaries) and Nelson E. Bowers,
II or his affiliates
10.2 Form of Lease Agreement to be entered into between the Company (or its subsidiaries) and Marks Holding
Company, Inc.
10.3 Lease Agreement dated as of January 1, 1995 between Lone Star Ford, Inc. and Viking Investment Associates
10.4 Lease Agreement dated as of October 23, 1979 between O. Bruton Smith, Bonnie Smith and Town and Country
Ford, Inc.
10.5 North Carolina Warranty Deed dated as of April 24, 1987 between O. Bruton Smith and Bonnie Smith, as
Grantors and STC Properties, as Grantee
10.6 Lease dated January 13, 1995 between JAG Properties LLC and Jaguar of Chattanooga LLC
10.7 Lease dated October 18, 1991 by and between Nelson E. Bowers II, Thomas M. Green, Jr., and Infiniti of
Chattanooga, Inc.
10.8 Amendment to Lease Agreement dated as of January 13, 1995 among Nelson E. Bowers II, Thomas M. Green, Jr.,
JAG Properties LLC and Infiniti of Chattanooga, Inc.
10.9 Lease dated March 15, 1996 between Cleveland Properties LLC and Cleveland Chrysler-Plymouth-Jeep-Eagle LLC
10.10 Lease Agreement dated January 2, 1993 among Nelson E. Bowers II, Thomas M. Green, Jr. and Cleveland
Village Imports, Inc.
10.11 Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing dated August 10,
1972 by Lone Star Ford, Inc.
10.12 Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing and Security
Agreement dated August 22, 1984 by Town and Country Ford, Inc.
10.13** Wholesale Floor Plan Security Agreement dated October 5, 1990 between Marcus David Corporation (d/b/a Town
& Country Toyota) and World Omni Financial Corp.
10.14 Demand Promissory Note dated October 5, 1990 of Marcus David Corporation (d/b/a Town & Country Toyota) in
favor of World Omni Financial Corp.
10.15 Security Agreement & Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 21, 1995
between Cleveland Chrysler-Plymouth-Jeep-Eagle LLC and Chrysler Credit Corporation
10.15a Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Cleveland Chrysler
Plymouth Jeep Eagle, LLC
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
10.16 Security Agreement & Master Credit Agreement dated April 21, 1995 between Saturn of Chattanooga, Inc. and
Chrysler Credit Corporation
10.16a Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Saturn of Chattanooga,
Inc.
10.17 Security Agreement & Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 24, 1995
between Nelson Bowers Ford, L.P. and Chrysler Credit Corporation
10.17a Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Nelson Bowers Ford L.P.
10.18 Floor Plan Agreement dated May 6, 1996 between European Motors, LLC and NationsBank, N.A.
10.19 Floor Plan Agreement dated April 11, 1996 between KIA of Chattanooga, LLC and NationsBank, N.A.
10.19a Security Agreement dated April 11, 1996 between KIA of Chattanooga, LLC and NationsBank, N.A.
10.20 Floor Plan Agreement dated October 17, 1996 between European Motors of Nashville, LLC and NationsBank,
N.A.
10.20a Security Agreement dated October 17, 1996 between European Motors of Nashville, LLC and NationsBank, N.A.
10.21 Floor Plan Agreement dated March 5, 1997 between Nelson Bowers Dodge, LLC (d/b/a Dodge of Chattanooga) and
NationsBank, N.A.
10.22 Security Agreement and Master Credit Agreement dated May 15, 1996 between Lake Norman Chrysler Plymouth
Jeep Eagle, LLC and Chrysler Financial Corporation
10.22a Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman Chrysler
Plymouth Jeep Eagle, LLC
10.23 Security Agreement & Capital Loan Agreement dated May 15, 1996 between Lake Norman Dodge, Inc and Chrysler
Financial Corp.
10.23a Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman Dodge, Inc.
10.23b Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman Dodge, Inc.
10.24 Security Agreement and Master Credit Agreement (Non-Chrysler Corporation Dealer) dated May 15, 1996
between Lake Norman Chrysler Plymouth Jeep Eagle, LLC and Chrysler Financial Corporation
10.24a Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman Chrysler
Plymouth Jeep Eagle, LLC
10.25 Floor Plan Agreement dated September 1, 1996 between NationsBank, N.A. and Dyer & Dyer, Inc.
10.25a Security Agreement dated September 1, 1996 between NationsBank, N.A. and Dyer & Dyer, Inc.
10.26 Security Agreement and Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 21, 1995
between Cleveland Village Imports, Inc. (d/b/a Cleveland Village Honda, Inc.) and Chrysler Credit
Corporation
10.27 Jaguar Credit Corporation Automotive Wholesale Plan Application for Wholesale Financing and Security
Agreement dated March 14, 1995 by Jaguar of Chattanooga LLC
10.28 Assignment of Joint Venturer Interest in Chartown dated as of June 30, 1997 among Town and Country Ford,
Inc., SMDA LLC and Sonic Financial Corporation
10.29 Form of Employment Agreement between the Company and O. Bruton Smith
10.30* Form of Employment Agreement between the Company and Bryan Scott Smith
10.31* Form of Employment Agreement between the Company and Theodore M. Wright
10.32* Form of Employment Agreement between the Company and Nelson E. Bowers, II
10.33* Tax Allocation Agreement dated as of June 30, 1997 between the Company and Sonic Financial Corporation
10.34* Form of Sonic Automotive, Inc. Stock Option Plan
10.35* Form of Sonic Automotive, Inc. Employee Stock Purchase Plan
10.36* Subscription Agreement dated as of June 30, 1997 between O. Bruton Smith and the Company
10.37* Subscription Agreement dated as of June 30, 1997 between Sonic Financial Corporation and the Company
10.38* Subscription Agreement dated as of June 30, 1997 between Bryan Scott Smith and the Company
10.39* Subscription Agreement dated as of June 30, 1997 between William S. Egan and the Company
10.40 Asset Purchase Agreement dated as of May 27, 1997 by and among Sonic Auto World, Inc., Lake Norman Dodge,
Inc., Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC, Quinton M. Gandy and Phil M. Gandy, Jr. (confidential
portions omitted and filed separately with the SEC)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<C> <S>
10.41 Asset Purchase Agreement dated as of June 24, 1997 by and among Sonic Auto World, Inc., Kia of
Chattanooga, LLC, European Motors of Nashville, LLC, European Motors, LLC, Jaguar of Chattanooga LLC,
Cleveland Chrysler-Plymouth-Jeep-Eagle LLC, Nelson Bowers Dodge, LLC, Cleveland Village Imports, Inc.,
Saturn of Chattanooga, Inc., Nelson Bowers Ford, L.P., Nelson E. Bowers II, Jeffrey C. Rachor, and the
other shareholders named herein (confidential portions omitted and filed separately with the SEC)
10.42 Stock Purchase Agreement dated as of July 29, 1997 between Sonic Auto World, Inc. and Ken Marks, Jr., O.K.
Marks, Sr. and Michael J. Marks (confidential portions omitted and filed separately with the SEC)
10.43 Asset Purchase Agreement dated as of August 1997 by and among Sonic Automotive, Inc., Dyer & Dyer, Inc.
and Richard Dyer (confidential portions omitted and filed separately with the SEC)
10.44 Security Agreement and Master Credit Agreement dated April 21, 1995 between Cleveland Chrysler Plymouth
Jeep Eagle and Chrysler Credit Corporation
21.1* Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dixon Odom & Co.
23.3** Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration Statement)
24* Power of Attorney (included on the signature page to this Registration Statement)
27* Financial Data Schedule
99.1* Consent of Nelson E. Bowers, II
</TABLE>
* Filed previously.
** To be furnished by Amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the
Underwriters, at the closing or closings specified in the Purchase Agreement,
certificates in such denominations and registered in such names as may be
required by the Underwriters in order to permit prompt delivery to each
purchaser.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense 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 of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Charlotte, North Carolina on August
29, 1997.
SONIC AUTOMOTIVE, INC.
By: /s/ THEODORE M. WRIGHT
THEODORE M. WRIGHT
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ * Chairman and Chief Executive Officer August 29, 1997
O. BRUTON SMITH (principal executive officer)
/s/ * President, Chief Operating Officer August 29, 1997
BRYAN SCOTT SMITH and Director
/s/ THEODORE M. WRIGHT Vice President, Treasurer, August 29, 1997
THEODORE M. WRIGHT Chief Financial Officer
(principal financial and
accounting officer) and
Director
/s/ * Director August 29, 1997
WILLIAM R. BROOKS
*By: /s/ THEODORE M. WRIGHT
THEODORE M. WRIGHT
(ATTORNEY-IN-FACT FOR EACH OF
THE PERSONS INDICATED)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
1.1** Form of Purchase Agreement
3.1* Amended and Restated Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1** Form of Class A Common Stock Certificate
4.2* Registration Rights Agreement dated as of June 30, 1997 among the Company, O. Bruton Smith,
Bryan Scott Smith, William S. Egan and Sonic Financial Corporation
5.1** Opinion letter of Parker, Poe, Adams & Bernstein, L.L.P. regarding the legality of the
securities to be registered
10.1* Form of Lease Agreement to be entered into between the Company (or its subsidiaries) and
Nelson E. Bowers, II or his affiliates
10.2 Form of Lease Agreement to be entered into between the Company (or its subsidiaries) and Marks
Holding Company, Inc.
10.3 Lease Agreement dated as of January 1, 1995 between Lone Star Ford, Inc. and Viking Investment
Associates
10.4 Lease Agreement dated as of October 23, 1979 between O. Bruton Smith, Bonnie Smith and Town
and Country Ford, Inc.
10.5 North Carolina Warranty Deed dated as of April 24, 1987 between O. Bruton Smith and Bonnie
Smith, as Grantors and STC Properties, as Grantee
10.6 Lease dated January 13, 1995 between JAG Properties LLC and Jaguar of Chattanooga LLC
10.7 Lease dated October 18, 1991 by and between Nelson E. Bowers II, Thomas M. Green, Jr., and
Infiniti of Chattanooga, Inc.
10.8 Amendment to Lease Agreement dated as of January 13, 1995 among Nelson E. Bowers II, Thomas M.
Green, Jr., JAG Properties LLC and Infiniti of Chattanooga, Inc.
10.9 Lease dated March 15, 1996 between Cleveland Properties LLC and Cleveland Chrysler-
Plymouth-Jeep-Eagle LLC
10.10 Lease Agreement dated January 2, 1993 among Nelson E. Bowers II, Thomas M. Green, Jr. and
Cleveland Village Imports, Inc.
10.11 Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing dated
August 10, 1972 by Lone Star Ford, Inc.
10.12 Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing and
Security Agreement dated August 22, 1984 by Town and Country Ford, Inc.
10.13** Wholesale Floor Plan Security Agreement dated October 5, 1990 between Marcus David Corporation
(d/b/a Town & Country Toyota) and World Omni Financial Corp.
10.14 Demand Promissory Note dated October 5, 1990 of Marcus David Corporation (d/b/a Town & Country
Toyota) in favor of World Omni Financial Corp.
10.15 Security Agreement & Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 21,
1995 between Cleveland Chrysler-Plymouth-Jeep-Eagle LLC and Chrysler Credit Corporation
10.15a Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Cleveland
Chrysler Plymouth Jeep Eagle, LLC
10.16 Security Agreement & Master Credit Agreement dated April 21, 1995 between Saturn of
Chattanooga, Inc. and Chrysler Credit Corporation
10.16a Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Saturn of
Chattanooga, Inc.
10.17 Security Agreement & Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 24,
1995 between Nelson Bowers Ford, L.P. and Chrysler Credit Corporation
10.17a Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Nelson Bowers
Ford L.P.
10.18 Floor Plan Agreement dated May 6, 1996 between European Motors, LLC and NationsBank, N.A.
10.19 Floor Plan Agreement dated April 11, 1996 between KIA of Chattanooga, LLC and NationsBank,
N.A.
10.19a Security Agreement dated April 11, 1996 between KIA of Chattanooga, LLC and NationsBank, N.A.
10.20 Floor Plan Agreement dated October 17, 1996 between European Motors of Nashville, LLC and
NationsBank, N.A.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
10.20a Security Agreement dated October 17, 1996 between European Motors of Nashville, LLC and
NationsBank, N.A.
10.21 Floor Plan Agreement dated March 5, 1997 between Nelson Bowers Dodge, LLC (d/b/a Dodge of
Chattanooga) and NationsBank, N.A.
10.22 Security Agreement and Master Credit Agreement dated May 15, 1996 between Lake Norman Chrysler
Plymouth Jeep Eagle, LLC and Chrysler Financial Corporation
10.22a Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Chrysler Plymouth Jeep Eagle, LLC
10.23 Security Agreement & Capital Loan Agreement dated May 15, 1996 between Lake Norman Dodge, Inc
and Chrysler Financial Corp.
10.23a Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Dodge, Inc.
10.23b Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Dodge, Inc.
10.24 Security Agreement and Master Credit Agreement (Non-Chrysler Corporation Dealer) dated May 15,
1996 between Lake Norman Chrysler Plymouth Jeep Eagle, LLC and Chrysler Financial Corporation
10.24a Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Chrysler Plymouth Jeep Eagle, LLC
10.25 Floor Plan Agreement dated September 1, 1996 between NationsBank, N.A. and Dyer & Dyer, Inc.
10.25a Security Agreement dated September 1, 1996 between NationsBank, N.A. and Dyer & Dyer, Inc.
10.26 Security Agreement and Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April
21, 1995 between Cleveland Village Imports, Inc. (d/b/a Cleveland Village Honda, Inc.) and
Chrysler Credit Corporation
10.27 Jaguar Credit Corporation Automotive Wholesale Plan Application for Wholesale Financing and
Security Agreement dated March 14, 1995 by Jaguar of Chattanooga LLC
10.28 Assignment of Joint Venturer Interest in Chartown dated as of June 30, 1997 among Town and
Country Ford, Inc., SMDA LLC and Sonic Financial Corporation
10.29 Form of Employment Agreement between the Company and O. Bruton Smith
10.30* Form of Employment Agreement between the Company and Bryan Scott Smith
10.31* Form of Employment Agreement between the Company and Theodore M. Wright
10.32* Form of Employment Agreement between the Company and Nelson E. Bowers, II
10.33* Tax Allocation Agreement dated as of June 30, 1997 between the Company and Sonic Financial
Corporation
10.34* Form of Sonic Automotive, Inc. Stock Option Plan
10.35* Form of Sonic Automotive, Inc. Employee Stock Purchase Plan
10.36* Subscription Agreement dated as of June 30, 1997 between O. Bruton Smith and the Company
10.37* Subscription Agreement dated as of June 30, 1997 between Sonic Financial Corporation and the
Company
10.38* Subscription Agreement dated as of June 30, 1997 between Bryan Scott Smith and the Company
10.39* Subscription Agreement dated as of June 30, 1997 between William S. Egan and the Company
10.40 Asset Purchase Agreement dated as of May 27, 1997 by and among Sonic Auto World, Inc., Lake
Norman Dodge, Inc., Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC, Quinton M. Gandy and Phil M.
Gandy, Jr. (confidential portions omitted and filed separately with the SEC)
10.41 Asset Purchase Agreement dated as of June 24, 1997 by and among Sonic Auto World, Inc., Kia of
Chattanooga, LLC, European Motors of Nashville, LLC, European Motors, LLC, Jaguar of
Chattanooga LLC, Cleveland Chrysler-Plymouth-Jeep-Eagle LLC, Nelson Bowers Dodge, LLC,
Cleveland Village Imports, Inc., Saturn of Chattanooga, Inc., Nelson Bowers Ford, L.P., Nelson
E. Bowers II, Jeffrey C. Rachor, and the other shareholders named herein (confidential
portions omitted and filed separately with the SEC)
10.42 Stock Purchase Agreement dated as of July 29, 1997 between Sonic Auto World, Inc. and Ken
Marks, Jr., O.K. Marks, Sr. and Michael J. Marks (confidential portions omitted and filed
separately with the SEC)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
<C> <S> <C>
10.43 Asset Purchase Agreement dated as of August 1997 by and among Sonic Automotive, Inc., Dyer &
Dyer, Inc. and Richard Dyer (confidential portions omitted and filed separately with the SEC)
10.44 Security Agreement and Master Credit Agreement dated April 21, 1995 between Cleveland Chrysler
Plymouth Jeep Eagle and Chrysler Credit Corporation
21.1* Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dixon Odom & Co.
23.3** Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration
Statement)
24* Power of Attorney (included on the signature page to this Registration Statement)
27* Financial Data Schedule
99.1* Consent of Nelson E. Bowers, II
</TABLE>
* Filed Previously
** To be furnished by Amendment.
COMMERCIAL LEASE
1. PARTIES. This Lease is made this _____ day of ________, 1997, by and
between Marks Holding Company, Inc., a Florida corporation, (herein called
"Landlord") and Ken Marks Ford, Inc. (herein called "Tenant").
2. PREMISES. Landlord hereby leases to Tenant and Tenant leases from
Landlord, upon all of the conditions set forth herein, that certain real
property situated in Pinellas County, Florida, commonly known as __________ and
described as __________ in Exhibit "A" attached hereto and made a part hereof.
Said real property, including the land and all improvements thereon, is herein
called the "Property."
3. TERM AND POSSESSION.
3.1 Initial Term. The initial term hereof shall be for ten (10) years
commencing on [insert closing date] ("Commencement Date") and ending on
__________, unless sooner terminated pursuant to any provision hereof.
3.2 Extended Term(s). The Tenant shall have the option, to be exercised as
hereinafter provided, to extend the term of this Lease for two (2) successive
period(s) of five (5) years(s) each (each such period herein referred to as the
"Extended Term"), upon the condition that the Lease is in full force and effect
and there is no default in the performance of any condition hereof at the time
of exercise of the option and at the commencement of the Extended Term. Each
Extended Term shall be upon the same conditions and terms, and the rent
determined and payable, as provided in this Lease, except that there shall be no
privilege to extend the term beyond the expiration of the second Extended Term.
The Tenant shall exercise the option for an Extended Term by notifying the
Landlord in writing at least twelve (12) months prior to the expiration of the
then current term. Upon such exercise, this Lease shall be deemed extended
without the execution of any further lease or other instrument. Any reference
herein to the lease term shall include, in addition to the Initial Term, the
Extended Term(s) as to which Tenant exercises its option.
4. RENT.
4.1 Rent Payment, Proration and Sales Taxes. All rental payments due
hereunder shall be paid without notice or demand, and without abatement,
deduction or setoff for any reason unless specifically provided herein. Rent for
any period during the term hereof which is for less than one month shall be a
pro rata portion of the monthly rent installment based on the number of days in
such period and the number of days in the month in question. Rent shall be
payable in lawful money of the United States to Landlord at the address stated
herein or to such other persons or at such other places as Landlord may
designate in writing. In addition,
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Tenant shall pay to Landlord all sales and use taxes imposed by the State of
Florida or any other governmental authority from time to time, upon said rent
and any other charges hereunder upon which sales and use taxes are imposed.
4.2 No Waiver. The acceptance by the Landlord of monies from the Tenant as
rent or other sums due shall not be an admission of the accuracy or the
sufficiency of the amount of such rent or other sums due nor shall it be deemed
a waiver by Landlord of any right or claim to additional or further rent or
other sums due.
4.3 Initial Rent. Tenant shall pay to Landlord as rent for the Property for
the first five (5) lease years, monthly payments of minimum rent in the amount
of Ninety-Five Thousand Dollars ($95,000.00), in advance, on or before the first
day of each month throughout the first lease year.
4.4 Rent Adjustments. Commencing at the beginning of the sixth, eleventh,
thirteenth, fifteenth, seventeenth and nineteenth lease years (if applicable),
the monthly minimum rent payable under Section 4.1 above shall be adjusted
annually by the increase, if any, from the Commencement Date, in the Consumer
Price Index published by the Bureau of Labor Statistics of the U.S. Department
of Labor Statistics for All Urban Consumers, U.S. City Average (1982-84 = 100),
All Items, herein referred to as "C.P.I." The adjusted monthly minimum rent
shall be calculated as follows: the minimum rent payable for the first month of
the term hereof, as set forth in Section 4.1 above, shall be multiplied by a
fraction, the numerator of which shall be the C.P.I. for the month immediately
preceding the effective date of the subject rent adjustment, and the denominator
of which shall be the C.P.I. for the first month of the lease term. The sum so
calculated shall constitute the new monthly minimum rent hereunder until the
subsequent adjustment, but in no event shall any adjustment reduce the minimum
rent to an amount lower than the minimum rent payable for the month immediately
preceding the date of adjustment. No delay in establishing the rent adjustment
shall be a waiver of Landlord's right to later collect the difference between
the rental at the rate prior to adjustment, which shall continue to be paid
until the adjustment is established, and the rental rate after adjustment. In
the event the compilation and/or publication of the C.P.I. shall be transferred
to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Landlord and Tenant cannot agree on an
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said arbitration shall be paid equally by Landlord and
Tenant.
5. USE.
5.1 Use. The Property shall be used and occupied only for an automobile
dealership and ancillary uses and for no other purpose. Without limiting the
foregoing, Tenant shall not use nor permit the use of the Property in any manner
that
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will tend to create waste or a nuisance or, if there shall be more than one
tenant in the building containing the Property, shall tend to disturb or
interfere with the rights of such other tenants.
5.2 Compliance with Law and Restrictions. Tenant shall, at Tenant's
expense, execute and comply with all statutes, ordinances, rules, orders,
regulations and requirements of the federal, state, county and city government,
and of any and all of their departments and bureaus, applicable to the Property,
as well as all covenants and restrictions of record, and other requirements in
effect during the term or any part thereof, which regulate the use by Tenant of
the Property. To the best of Landlord's knowledge, the Property is in good
operating condition, reasonable wear and tear excepted, and is in compliance
with all applicable law as of the date hereof.
6. MAINTENANCE, REPAIRS AND ALTERATIONS.
6.1 Casualty and Condemnation. The specific provisions hereof relating to
repairs after casualty or condemnation shall take precedence over the terms of
this Section 7, but only to the extent in conflict herewith.
6.2 Maintenance. Tenant shall, at Tenant's sole cost and expense, maintain
the Property and all components thereof throughout the lease term, (including
painters and maintenance of lighting fixtures) in good, safe and clean order,
condition and repair, including without limitation all plumbing, heating, air
conditioning, ventilating, and electrical facilities and all components thereof,
serving the Property***, excepting (a) reasonable wear and tear, (b) loss or
damage resulting from a casualty loss and (c) loss or damage resulting from a
condemnation. Upon the occurrence and continuance of an Event of Default, and,
If Tenant fails to perform Tenant's obligations under this Section 7 or under
any other section hereof, Landlord may at Landlord's option enter upon the
Property after ten (10) days' prior written notice to Tenant (except in the case
of emergency, in which case no notice shall be required), perform such
obligations on Tenant's behalf, and put the Property in good, safe and clean
order, condition and repair, and the cost thereof together with interest thereon
at the Default Rate, shall be due and payable as additional rent to Landlord
together with Tenant's next rental installment. Tenant expressly waives the
benefits of any statute now or hereafter in effect which would otherwise afford
Tenant the right to make repairs at Landlord's expense or to terminate this
Lease because of Landlord's failure to keep the Property in good order,
condition and repair.
6.3 Plate Glass. Tenant shall maintain all plate glass, if any, within or
on the perimeter of the Property.
6.4 Termination of Lease. On the last day of the term hereof, or on any
sooner termination, Tenant shall surrender the Property to Landlord in the same
condition as received, ordinary wear and tear casualty loss in the process of
repair and condemnation loss excepted, clean and free of debris. Tenant's
moveable machinery,
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furniture, fixtures and equipment, other than that which is affixed to the
Property, may be removed by Tenant upon expiration of the lease term. Tenant
shall repair all damage caused by this removal. Tenant shall repair any damage
to the Property occasioned by the installation or removal of its trade fixtures,
furnishings and equipment. Upon termination of this Lease for any cause
whatsoever, if Tenant fails to remove its effects, they shall be deemed
abandoned, and Landlord may, at its option, remove the same in any manner that
the Landlord shall choose, store them without liability to the Tenant for loss
thereof, and the Tenant agrees to pay the Landlord on demand any and all
expenses incurred in such removal, including court costs, attorney's fees and
storage charges for any length of time the same shall be in the Landlord's
possession. Tenant shall deliver all keys and combinations to locks within the
Property to Landlord upon termination of this Lease for any reason. Tenant's
obligations to perform under this provision shall survive the end of the lease
term.
7. Alterations and Additions.
(a) Tenant shall not, without Landlord's prior written consent, make any
material alterations, improvements, additions, or Utility Installations (as
defined below) in, on, or to the Property. Landlord may require Tenant to
provide Landlord, at Tenant's sole cost and expense, a lien and completion bond
in an amount equal to the estimated cost of such improvements, to insure
Landlord against any liability for construction liens and to insure completion
of the work. Landlord may require that Tenant remove any or all of said
alterations, improvements, additions or Utility Installations at the expiration
of the term, and restore the Property to its prior condition. Should Tenant make
any alterations, improvements, additions or Utility Installations without the
prior approval of Landlord, in addition to all other remedies of Landlord for
Tenant's breach, Landlord may require that Tenant remove any or all of the same.
As used in this Section, the term "Utility Installation" shall mean, air lines,
power panels, electrical distribution systems, air conditioning and plumbing,
if any.
(b) Any material alteration, improvement, addition or Utility Installation
in or to the Property that Tenant shall desire to make shall be presented to
Landlord for approval in written form, with proposed detailed description or
plans. If Landlord shall give its consent, the consent shall be deemed
conditioned upon Tenant acquiring all necessary permits to do the work from
appropriate governmental agencies, the furnishing of a copy thereof to Landlord
prior to the commencement of the work, the compliance by Tenant with all
conditions of said permits.
(c) Tenant shall pay, when due, and hereby agrees to indemnify and hold
harmless Landlord for and from, all claims for labor or materials furnished or
alleged to have been furnished to or for Tenant, at or for use in the Property,
which claims are or may be secured by any construction lien against the Property
or any interest therein. Tenant shall give Landlord not less than ten (10) days'
notice prior to the commencement of any work on the Property which might give
rise to any such lien or claim of lien, and Landlord shall have the right to
post notices of non-
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responsibility in or on the Property as provided by law. If Tenant shall, in
good faith, contest the validity of any such lien, claim or demand, then Tenant
shall, at its sole expense, defend itself and Landlord against the same and
shall pay and satisfy any adverse judgment that may be rendered thereon before
the enforcement thereof against the Landlord or the Property, upon the condition
that if Landlord shall require, Tenant shall furnish to Landlord a surety bond
satisfactory to Landlord in an amount equal to such contested lien, claim or
demand indemnifying Landlord against liability for the same and holding the
Property free from the effect of such lien, claim or demand. In addition,
Landlord may require Tenant to pay Landlord's attorney's fees and costs in
participating in such action if Landlord shall decide it is in its best
interests to do so.
(d) Unless Landlord requires their removal, all alterations, improvements,
additions and Utility Installations made on the Property shall become the
property of Landlord and remain upon and be surrendered with the Property at the
expiration of the lease term without compensation to Tenant.
7.1 Landlord's Interest Not Subject to Liens. As provided in ss.713.10,
Florida Statutes, the interest of Landlord shall not be subject to liens for
improvements made by Tenant, and Tenant shall notify any contractor making such
improvements of this provision. An appropriate notice of this provision may be
recorded by Landlord in the Public Records of Pinellas County, Florida, in
accordance with said statute, without Tenant's joinder or consent.
8. INSURANCE; INDEMNITY.
8.1 Property Insurance - Tenant. Tenant shall at all times during the term
hereof, at its expense, maintain a policy or policies insuring the Property
against loss or damage by fire, explosion, and other hazards and contingencies
("all risk," as such term is used in the insurance industry), and plate glass
insurance as required in the reasonable discretion of Landlord, in an amount of
not less than full replacement value, as same may change from time to time.
8.2 Liability Insurance - Tenant. Tenant shall, at Tenant's sole expense,
obtain and keep in force during the term hereof a policy of bodily injury and
property damage insurance, insuring Tenant and Landlord against any liability
arising out of the use, occupancy or maintenance of the Property and the parking
areas, walkways, driveways, landscaped areas and other areas exterior to the
Property and appurtenant thereto. Such insurance shall be in an amount not less
than Five Million Dollars ($5,000,000.00) combined single limit, and umbrella
liability coverage for an additional Two Million Dollars ($2,000,000.00) Two
Hundred Fifty Thousand Dollars ($250,000) property damage]. The policy shall
insure performance by Tenant of the indemnity provisions of this Section 8. The
limits of said insurance shall not, however, limit the liability of Tenant
hereunder. Upon demand, Tenant shall provide Landlord, at Landlord's expense,
with such increased amounts of insurance as Landlord may reasonably require to
afford Landlord adequate protection for risks insured under this
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Section. Tenant, as a material part of the consideration to Landlord, hereby
assumes all risk of damage to property or injury to persons, in, upon or about
the Property arising from any cause and Tenant hereby waives all claims in
respect thereof against Landlord.
8.3 Employees Compensation - Tenant. Tenant shall maintain and keep in
force all employees' compensation insurance required with respect to Tenant's
operations of the Property under the laws of the State of Florida, and such
other insurance as may be necessary to protect Landlord against any other
liability to person or property arising hereunder by operation of law, whether
such law is now in force or is adopted subsequent to the execution hereof.
8.4 Tenant's Default. Should Tenant fail to keep in effect and pay for such
insurance as it is in this section required to maintain, Landlord may do so, in
which event, the insurance premiums paid by Landlord, together with interest
thereon at the Default Rate from the date paid by Landlord, shall become due and
payable forthwith and failure of Tenant to pay same on demand shall constitute a
breach hereof.
8.5 Tenant's Compliance. Tenant shall properly and promptly comply with and
execute all rules, orders and regulations of the Southeastern Underwriter's
Association for fire and other casualties, at Tenant's own cost and expense.
Tenant shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Section 8. Tenant agrees to pay any
increase in the amount of insurance premiums over and above the rate now in
force that may be caused by Tenant's use or occupancy of the Property. In the
event any increase in premiums is caused by the act or omission of Tenant in
violation of the terms hereof, payment by Tenant of such increase shall not
release Tenant from liability for such violation.
8.6 Insurance Policies. Insurance required hereunder shall be with good and
solvent insurance companies satisfactory to Landlord; in the absence of other
specific directions, such companies shall hold a "General Policyholders Rating"
of at least A minus, or such other rating as may be required by a lender having
a lien on the Property, as set forth in the most current issue of "Best's
Insurance Guide". All policies shall name Landlord as an additional insured.
Tenant shall deliver to Landlord copies of policies of insurance required to be
provided by Tenant under this Section 8 or certificates evidencing the existence
and amounts of such insurance and its compliance with the conditions set forth
in this Section 8. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Landlord, and the interest of Landlord under such policies shall not
be affected by any default by Tenant under the provisions of such policies.
Tenant shall, at least thirty (30) days prior to the expiration of such
policies, furnish Landlord with renewals or "binders" thereof, or Landlord may
order such insurance and charge the cost thereof to Tenant, which amount shall
be payable by Tenant upon demand. If required by any mortgage encumbering the
Property, the
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mortgagee shall also be a named or additional insured and the terms of all
insurance policies shall comply with all other requirements of such mortgage.
8.7 Waiver of Subrogation. Tenant and Landlord each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for loss or damage arising out of, or incident to the perils actually insured
against under this Section 8, which perils occur in, on, or about the Property,
whether due to the negligence of Landlord or Tenant or their agents, employees,
contractors and/or invitees. Tenant and Landlord shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.8 Indemnity. Tenant shall indemnify and hold harmless Landlord from and
against any and all injury, expense, damages and claims arising from Tenant's
use of the Property, whether due to damage to the Property, claims for injury to
the person or property of any other tenant of the building (if applicable) or
any other person rightfully in or about the Property, from the conduct of
Tenant's business or from any activity, work or things done, permitted or
suffered by Tenant or its agents, servants, employees, licensees, customers, or
invitees in or about the Property or elsewhere or consequent upon or arising
from Tenant's failure to comply with applicable laws, statutes, ordinances or
regulations, and Tenant shall further indemnify and hold harmless Landlord from
and against any and all such claims and from and against all costs, attorney's
fees, expenses and liabilities incurred in the investigation, handling or
defense of any such claim or any action or proceeding brought in connection
therewith by a third person or any governmental authority; and in case any
action or proceeding is brought against Landlord by reason of any such claim,
Tenant upon notice from Landlord shall defend the same at Tenant's expense by
counsel satisfactory to Landlord. This indemnity shall not require payment as a
condition precedent to recovery.
8.9 Exemption of Landlord from Liability. Tenant hereby agrees that
Landlord shall not be liable for injury to Tenant's business or any loss of
income therefrom or for damage to the goods, wares, merchandise or other
property of Tenant, Tenant's employees, invitees, customers, or any other person
in or about the Property, whether such damage or injury is caused by or results
from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or lighting fixtures, or from any other cause,
whether the said damage or injury results from latent defects or other
conditions arising upon the Property or upon other portions of the building(s)
of which the Property is a part, or from other sources or places and regardless
of whether the cause of such damage or injury or the means of repairing the same
is inaccessible to Tenant. Landlord shall not be liable for any damages arising
from any act or neglect of any other tenant of the building in which the
Property is located.
9. DAMAGE OR DESTRUCTION.
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9.1 Damage or Destruction. In the event that the Property should be damaged
or destroyed by fire, tornado or other casualty then Landlord shall within
forty-five (45) days after the date of such damage, commence to rebuild or
repair the Property and shall proceed with reasonable diligence to restore the
Property to substantially the same condition in which it was immediately prior
to the happening of the casualty, except that Landlord shall not be required to
rebuild, repair or replace any part of the furniture, equipment, fixtures and
other improvements which may have been placed by Tenant or others within the
Property, and in any event Landlord's obligation to repair shall be limited to
the extent proceeds of insurance are available for such purpose. Landlord shall,
unless such damage is the result of any negligence or willful misconduct of
Tenant or Tenant's employees or invitees, allow Tenant a fair diminution of rent
during the time that the Property is unfit for occupancy. Notwithstanding any of
the foregoing, in the event any mortgagee, under a deed of trust, security
agreement or mortgage on the Property, should require that the insurance
proceeds be used to retire the mortgage debt, Landlord shall have no obligation
to rebuild and this Lease shall terminate upon notice to Tenant. Any insurance
which may be carried by Landlord or Tenant against loss or damage to the
Property shall be for the sole benefit of the Landlord and under its sole
control. Notwithstanding the above, in the event such damage or destruction
occurs in the last two years of the Initial Term or Extended Term, either
Landlord or Tenant may, at their option elect to terminate this Lease.
9.2 Abatement of Rent; Tenant's Remedies.
(a) In the event of damage described in this Section 9 which Landlord or
Tenant repairs or restores, the rent payable hereunder for the period during
which such damage, repair or restoration continues shall be abated in proportion
to the degree to which Tenant's use of the Property is impaired. Except for
abatement of rent, if any, Tenant shall have no claim against Landlord for any
damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Landlord shall be obligated to repair or restore the Property under
the provisions of this Section 9 and shall not commence such repair or
restoration within ninety (90) days after such obligation shall accrue, Tenant
may at Tenant's option cancel and terminate this Lease by giving Landlord
written notice of Tenant's election to do so at any time prior to the
commencement of such repair or restoration. In such event this Lease shall
terminate as of the date of such notice and Tenant shall have no other rights
against Landlord.
10. PROPERTY TAXES.
10.1 Definition of "Real Property Taxes". As used herein, the term "real
property taxes" shall include any form of tax or assessment, general, special,
ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes)
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imposed on the Property by any authority having the direct or indirect power to
tax, including any city, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage or other improvement district
thereof, against any legal or equitable interest of Landlord in the Property or
in the real property of which the Property is a part. The term "real property
tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax" or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed as a result of a transfer, either
partial or total, of Landlord's possessory interest in the Property, or which is
added to a tax or charge hereinbefore included within the definition of real
property tax by reason of such transfer, or (iv) which is imposed by reason of
this transaction, any modifications or changes hereto, or any transfers hereof.
The term "real property tax" shall not include any income, estate or inheritance
tax assessed against Landlord, documentary stamp tax imposed as a result of
Landlord's transfer of the fee interest in the Property, or any sales tax on
rent or other payments due from Tenant hereunder.
10.2 Payment of Taxes. Tenant shall pay the real property taxes, as defined
in Section 10.1, applicable to the Property throughout the lease term. If the
term hereof shall not expire concurrently with the expiration of the tax year,
Tenant's liability for real property taxes for the last partial lease year shall
be prorated on an annual basis.
10.3 Personal Property Taxes. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon trade fixtures, furnishings, equipment
and all other personal property of Tenant contained on the Property or elsewhere
or on any leasehold improvements made to the Property by Tenant, regardless of
the validity thereof or whether title to such improvements shall be in the name
of Tenant or Landlord. When possible, Tenant shall cause said trade fixtures,
furnishings, equipment and all other personal property to be assessed and billed
separately from the real property of Landlord. If any of Tenant's personal
property shall be assessed with Landlord's real property, Tenant shall pay
Landlord the taxes attributable to Tenant's personal property within ten (10)
days after receipt of a written statement from Landlord setting forth the taxes
applicable to Tenant's property.
11. UTILITIES.
(a) Tenant shall punctually pay for all water and sewer charges, and for
all gas, heat, electricity, telephone, garbage collection and all other
utilities and services consumed during the term hereof at the Property, together
with any taxes thereon.
(b) If charges to be paid by Tenant hereunder are not paid when due and
Landlord elects to pay same, interest shall accrue thereon from the date paid by
Landlord at the Default Rate, and such charges and interest shall be
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added to the subsequent month's rent and shall be collectible from Tenant in the
same manner as rent. Landlord shall not be liable for damage to Tenant's
business and/or inventory or for any other claim by Tenant resulting from an
interruption in utility services.
12. ASSIGNMENT AND SUBLETTING.
12.1 Assignment. Tenant may assign or sublet all or any portion of its
interest in the Lease and the Property. If Tenant assigns this Lease or sublets
the Property or any portion thereof, it shall notify Landlord and shall submit
in writing to Landlord; (i) the name of the assignee or subtenant; (ii) the
nature of the assignee's or subtenant's business to be conducted on the
Property; (iii) the terms of the assignment or sublease; and (iv) such financial
information as Landlord may reasonably request concerning the assignee or
subtenant.
12.2 No Release or Waiver. Unless Landlord agrees in writing to the
contrary, no subletting or assignment shall release Tenant from Tenant's
obligation or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. The
acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by any assignee of Tenant or any successor
of Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
said assignee. Landlord may consent to subsequent assignments or subletting
hereof or amendments or modifications to this Lease with assignees of Tenant,
without notifying Tenant, or any successor of Tenant, and without obtaining its
or their consent thereto and such action shall not relieve Tenant of liability
hereunder.
13. DEFAULTS; REMEDIES.
13.1 Defaults. The occurrence and continuance of any one or more of the
following events shall constitute an Event of Default by Tenant:
(b) The failure by Tenant to make any payment of rent or any other payment
required to be made by Tenant hereunder, as and when due, where such failure
shall continue for a period of five (5) days after written notice thereof from
Landlord to Tenant. In the event that Landlord serves Tenant with a notice to
pay rent or vacate pursuant to applicable unlawful detainer or other statutes,
such notice shall also constitute the notice required by this subsection;
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions hereof to be observed or performed by Tenant,
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other than described in Subsection (b) above, where such failure shall continue
for a period of thirty (30) days after written notice thereof from Landlord to
Tenant.
(d) (i) The making by Tenant of any general arrangement or assignment for
the benefit of creditors; (ii) Tenant becomes a "debtor" as defined under the
Federal Bankruptcy Code or any successor statute thereto or any other statute
affording debtor relief, whether state or federal, (unless, in the case of a
petition filed against Tenant, the same is dismissed within thirty (30) days),
or admits in writing its present insolvency or inability to pay its debts as
they mature; (iii) the appointment of a trustee or receiver to take possession
of all or a substantial portion of Tenant's assets located at the Property or of
Tenant's interest in this Lease; or (iv) the attachment, execution or other
judicial seizure of all or a substantial portion of Tenant's assets located at
the Property or of Tenant's interest in this Lease; and/or
(e) The discovery by Landlord that any financial statement, warranty,
representation or other information given to Landlord by Tenant, any assignee of
Tenant, any subtenant of Tenant, any successor in interest of Tenant or any
guarantor of Tenant's obligation hereunder, in connection with this Lease, was
materially false or misleading when made or furnished.
13.2 Remedies. Upon the occurrence and during the continuance of an event
of default by Tenant, Landlord may (but shall not be obligated), with or without
notice or demand and without limiting Landlord in the exercise of any right or
remedy which Landlord may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including accrued rent, the cost of
recovering possession of the Property, expenses of reletting, including
necessary renovation and alteration of the Property, reasonable attorney's
fees, and any customary and normal real estate commission actually paid to
third parties;
(b) Reenter and take possession of the Property and relet or attempt
to relet same for Tenant's account, holding Tenant liable in damages for
all expenses incurred by Landlord in any such reletting and for any
difference between the amount of rents received from such reletting and
those due and payable under the terms hereof. In the event Landlord relets
the Property, Landlord shall make reasonable efforts to lease the Property
or portions thereof for such periods of time and such rentals and for such
use and upon such covenants and conditions as Landlord, in its reasonable
discretion, may elect, and Landlord may make such repairs to the Property
as Landlord may deem reasonably necessary. Landlord shall be entitled to
bring such actions or proceedings for the recovery of any deficits due to
Landlord as it may deem advisable, without being obliged to wait until the
end of the term, and
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commencement or maintenance of any one or more actions shall not bar
Landlord from bringing other or subsequent actions for further accruals,
nor shall anything done by Landlord pursuant to this Subsection 13.2(b)
limit or prohibit Landlord's right at any time to pursue other remedies of
Landlord hereunder;
(c) Declare all rents and charges due hereunder immediately due and
payable, and thereupon all such rents and fixed charges to the end of the
term shall thereupon be accelerated, and Landlord may, at once, take action
to collect the same by distress or otherwise. In the event of acceleration
of rents and other charges due hereunder which cannot be exactly determined
as of the date of acceleration and/or judgment, the amount of said rent and
charges shall be as determined by trier of fact in a reasonable manner
based on information such as previous fluctuations in the C.P.I. and the
like;
(d) Perform any of Tenant's obligations on behalf of Tenant in such
manner as Landlord shall reasonably deem appropriate, including payment of
any moneys necessary to perform such obligation or obtain legal advice, and
all expenses incurred by Landlord in connection with the foregoing, as well
as any other amounts necessary to compensate Landlord for all detriment
caused by Tenant's failure to perform which in the ordinary course would be
likely to result therefrom, shall be immediately due and payable from
Tenant to Landlord upon Tenant's receipt of an invoice from Landlord for
the same, with interest at the Default Rate; such performance by Landlord
shall not cure the default of Tenant hereunder, unless Tenant fails to
reimburse Landlord for such performance within five (5) days of demand for
the same, and Landlord may proceed to pursue any or all remedies available
to Landlord on account of Tenant's Event of default; if necessary Landlord
may enter upon the Property after ten (10) days' prior written notice to
Tenant (except in the case of emergency, in which case no notice shall be
required), perform any of Tenant's obligations with respect to which an
Event of Default on the part of Tenant is in default; and/or
(e) Pursue any other remedy now or hereafter available to Landlord
under applicable law Unpaid installments of rent and other unpaid monetary
obligations of Tenant under the terms hereof shall bear interest from the
date due at the Default Rate.
13.3 No Waiver. No reentry or taking possession of the Property by Landlord
shall be construed as an election on its part to terminate this Lease, accept a
surrender of the Property or release Tenant from any obligations hereunder,
unless a written notice of such intention be given to Tenant. Notwithstanding
any such reletting or reentry or taking possession, Landlord may at any time
thereafter elect to terminate this Lease for a previous default. Pursuit of any
of the foregoing remedies shall not preclude pursuit of any of the other
remedies herein provided or any other remedies provided by law, nor shall
pursuit of any remedy herein provided constitute a forfeiture or waiver of any
rent due to Landlord hereunder or of any damages accruing to
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Landlord by reason of the violation of any of the terms, provisions and
covenants herein contained. No waiver by Landlord of any violation or breach of
any of the terms, provisions, and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or subsequent violation or breach
of any of the terms, provisions, and covenants herein contained. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of any other or
subsequent violation or default. The loss or damage that Landlord may suffer by
reason of termination of this Lease or the deficiency from any reletting as
provided for above shall include the expense of repossession and any
repairs which are the obligation of Tenant under this Lease undertaken by
Landlord following possession. Should Landlord at any time terminate this Lease
for any event of default. Subject to Section 13.2, in addition to any other
remedy Landlord may have, Landlord may recover from Tenant all damages Landlord
may incur by reason of such default, including the cost of recovering the
Property and the loss of rent for the remainder of the Lease term. Landlord's
consent to or approval of any act shall not be deemed to render unnecessary the
obtaining of Landlord's consent to or approval of any subsequent act by Tenant.
The delivery of keys to any employee or agent of Landlord shall not operate as a
termination hereof or a surrender of the Property.
13.4 Late Charges. Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder will cause Landlord to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any mortgage or trust deed covering the Property.
Accordingly, if any installment of rent or any other sum due from Tenant shall
not be received by Landlord or Landlord's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Tenant,
Tenant shall pay to Landlord a late charge equal to $3,000.00. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Landlord will incur by reason of late payment by Tenant. Acceptance of
such late charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder. The parties
agree that the payment of late charges and the payment of interest as provided
elsewhere herein are distinct and separate from one another in that the payment
of interest is to compensate Landlord for the use of Landlord's money by Tenant
and the payment of late charges is to compensate Landlord for administrative and
other expenses incurred by Landlord.
13.5 Interest on Past-Due Obligations. Except as expressly herein provided,
any amount due to Landlord not paid when due shall bear interest at a rate per
annum equal to 18%(the "Default Rate") from the date due. Payment of such
interest shall not excuse or cure any default by Tenant under this Lease,
provided, however, that interest shall not be payable on late charges incurred
by Tenant.
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Notwithstanding any other term or provision hereof, in no event shall the total
of all amounts paid hereunder by Tenant and deemed to be interest exceed the
amount permitted by applicable usury laws, and in the event of payment by Tenant
of interest in excess of such permitted amount, the excess shall be applied
towards damages incurred by Landlord or returned to Tenant, at Landlord's
option.
13.6 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or other monetary
obligation which Tenant is late in paying, Tenant shall pay to Landlord, if
Landlord shall so request, in addition to any other payments required under this
Lease, monthly advance installments, payable at the same time as the rent is
paid for the month to which it applies, in amounts required as estimated by
Landlord to establish a fund for real property tax and insurance expenses on the
Property which are payable by Tenant under the terms hereof. Such fund shall be
established to insure payment when due, before delinquency, of any or all such
real property taxes and insurance premiums. If the amounts paid to Landlord by
Tenant under the provisions of this Section 13.6 are insufficient to discharge
the obligations of Tenant to pay such real property taxes and insurance premiums
as the same become due, Tenant shall pay to Landlord, upon Landlord's demand,
additional sums necessary to pay such obligations. All moneys paid to Landlord
under this Section 13.6 may be intermingled with other monies of Landlord and
shall not bear interest.
13.7 Default by Landlord. Landlord shall not be in default unless (a)
Landlord breaches its obligations under Section 25 or (b) Landlord fails to
perform obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after written notice by Tenant to Landlord and
to the holder of any first mortgage or deed of trust covering the Property whose
name and address shall have theretofore been furnished to Tenant in writing,
specifying the obligation that Landlord has failed to perform;
14. CONDEMNATION. If the Property or any portion thereof is taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(either of which is herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than twenty five percent (25%) of
the Property or such portion thereof as will make the Property unusable for the
purposes herein leased is taken by condemnation, Tenant may terminate this Lease
by notice to the other, in writing, only within thirty (30) days after Landlord
shall have given Tenant written notice of such condemnation or pending
condemnation (or in the absence of such notice, within ten (10) days after the
condemning authority shall have taken possession), such termination to take
effect as of the date the condemning authority takes possession. If Tenant does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the Property remaining,
except that the rent shall be reduced in the proportion that the area of the
Property taken bears to the total area of the Property, and Tenant shall have no
other rights or remedies as a
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result of such condemnation. Both Landlord and Tenant shall have the right to
claim and collect any award or settlement from the condemnation proceedings for
damages to their respective interest in the Property, at their respective
expense.
15. ESTOPPEL CERTIFICATE.
15.1 Certificate. Tenant shall at any time upon not less than ten (10)
business days' prior written notice from Landlord execute, acknowledge and
deliver to Landlord and/or any lender or purchaser designated by Landlord a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if applicable, and
(ii) acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder, or specifying such defaults if any
are claimed. Any such statement may be conclusively relied upon by any purchaser
or encumbrancer of the Property.
15.2 Failure to Deliver Certificate. At Landlord's option, Tenant's failure
to deliver such statement within such time shall be a material breach by Tenant
under this Lease or shall be conclusive upon Tenant (i) that this Lease is in
full force and effect, without modification except as may be represented by
Landlord, (ii) that there are no uncured defaults in Landlord's performance, and
(iii) that no rent has been paid in advance.
15.3 Financial Statements. If Landlord desires to finance, refinance, or
sell the Property, or any part thereof, Tenant hereby agrees to deliver to any
lender or purchaser designated by Landlord the past three (3) years financial
statements of Tenant and any guarantor, in such detail as may be reasonably
required by such lender or purchaser. All such financial statements shall be
received by Landlord and such lender or purchaser in confidence and shall be
used only for the purposes of assessing the status of Tenant's tenancy and the
value of the Property.
16. SUBORDINATION.
Landlord agrees to utilize its reasonable best efforts to obtain a
subordination, non-disturbance and attornment agreement on terms reasonably
satisfactory to Tenant, with respect to all current and future mortgages
encumbering all or a portion of the Property.
17. NOTICES.
(a) Except as provided in subsection (b) below, any notice, demand, request
or other communication ("Notice") required or permitted to be given hereunder
shall be in writing and shall be deemed given when mailed by certified or
registered mail, postage prepaid, return receipt requested, addressed to Tenant
or to Landlord at the address noted below the signature of such party. Notice
given by any
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other means shall be deemed given when actually received in writing. Either
party may by notice to the other specify a different address for Notice
purposes, which shall only be effective upon receipt, except that upon Tenant's
taking possession of the Property, the Property shall constitute Tenant's
address for Notice purposes. A copy of all Notices required or permitted to be
given to Landlord hereunder shall be concurrently transmitted to such party or
parties at such addresses as Landlord may from time to time hereafter designate
by notice to Tenant.
18 INCORPORATION OF PRIOR AGREEMENTS: AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Tenant
hereby acknowledges that neither the Landlord nor any of its employees or agents
has made any oral or written warranties or representations to Tenant relative to
the condition or use by Tenant of said Property, and Tenant acknowledges that
Tenant assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Property, and the compliance thereof with
all applicable laws and regulations in effect during the term hereof, except as
otherwise specifically stated in this Lease.
19. ATTORNEY'S-FEES. If either party brings an action to enforce the terms
hereof or declare rights hereunder, the prevailing party in any such action
shall be entitled to recover reasonable attorney's and legal assistant's fees
and costs incurred in connection therewith, on appeal or otherwise, including
those incurred in arbitration, mediation, administrative or bankruptcy
proceedings and in enforcing any right to indemnity herein.
20. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord or Tenant (other than monetary payments, owed by
Tenant to Landlord), Landlord or Tenant, as applicable, shall not be liable or
responsible for, and there shall be excluded from the computation for any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations or restrictions or any
other causes of any kind whatsoever which are beyond the control of Landlord or
Tenant, as applicable.
21. HOLDING OVER. If Tenant, with Landlord's consent, remains in possession
of the Property or any part thereof after the expiration of the term hereof,
such occupancy shall be a tenancy from month to month upon all the provisions
hereof pertaining to the obligations of Tenant, but all options and rights of
first refusal, if any, granted under the terms hereof shall be deemed terminated
and be of no further effect during said month to month tenancy. If Tenant shall
hold over without Landlord's express written consent, Tenant shall become a
tenant at sufferance and rental shall be
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due at a rate equal to 150% of the rent payable immediately prior to the
expiration of the term. The foregoing provisions shall not limit Landlord's
rights hereunder or provided by law in the event of Tenant's default.
22. LANDLORD'S ACCESS. Landlord and Landlord's agents shall have the right
to enter the Property at reasonable times for the purpose of inspecting the
same, posting notices of non-responsibility, showing the same to prospective
purchasers, lenders, or tenants, performing any obligation of Tenant hereunder
of which Tenant is in default, all without being deemed guilty of an eviction
of Tenant and without abatement of rent, Landlord hereby indemnifies and holds
Tenant harmless from all loss, claims, damage, liability and expenses
(including, without limitation, reasonable attorney's fees) incurred as a result
of the exercise by Landlord of its rights hereunder. No provision hereof shall
be construed as obligating Landlord to perform any repairs, alterations or to
take any action not otherwise expressly agreed to be performed or taken by
Landlord. Landlord may at any time place on or about the Property reasonable
"For Sale" signs and Landlord may at any time during the last 365 days of the
term hereof place on or about the Property reasonable "For Lease" signs, all
without rebate of rent or liability to Tenant.
23. QUIET ENJOYMENT. Upon Tenant paying the rent for the Property and
observing and performing all of the covenants, conditions and provisions on
Tenant's part to be observed and performed hereunder, Tenant shall have quiet
possession of the Property for the entire term hereof subject to all of the
provisions hereof.
24. LANDLORD'S LIABILITY. The term "Landlord" as used herein shall mean
only the owner or owners at the time in question of the fee title or a tenant's
interest in a ground lease of the Property, and in the event of any transfer of
such title or interest, Landlord herein named (and in case of any subsequent
transfers then the grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations thereafter to be
performed, provided that any funds previously delivered by Tenant to Landlord or
the then grantor at the time of such transfer, in which Tenant has an interest,
shall be delivered to the grantee. The obligations contained in this Lease to be
performed by Landlord shall, subject to transfer of funds as aforesaid, be
binding on Landlord's successors and assigns only during their respective
periods of ownership.
25. BINDING EFFECT: CHOICE OF LAW. This Lease shall bind the parties, their
personal representatives, successors and assigns. This Lease shall be governed
by the laws of the State wherein the Property is located.
26. SEVERABILITY. The invalidity of any provision hereof under applicable
law shall in no way affect the validity of any other provision hereof.
27. TIME OF ESSENCE. Time is of the essence hereof.
28. ADDITIONAL RENT: SURVIVAL. Any and all monetary obligations of
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Tenant under the terms hereof shall be deemed to be rent, shall be secured by
any available lien for rent, and to the extent accrued shall survive expiration
or termination of the term hereof.
29. COVENANTS AND CONDITIONS. Each provision hereof performable by Tenant
shall be deemed both a covenant and a condition.
30. MERGER. The voluntary or other surrender hereof by Tenant, or a mutual
cancellation thereof, or a termination by Landlord, shall not work a merger, and
shall, at the option of Landlord, terminate all or any existing subtenancies or
may, at the option of Landlord, operate as an assignment to Landlord of any or
all of such subtenancies.
31. SECURITY MEASURES. Tenant hereby acknowledges that the rental payable
to Landlord hereunder does not include the cost of guard service or other
security measures, and that Landlord shall have no obligation whatsoever to
provide same. Tenant assumes all responsibility for the protection of Tenant,
its agents and invitees from acts of third parties.
32. AUTHORITY. If Tenant is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity, and Tenant shall, within fifteen (15) days
after execution hereof, deliver to Landlord evidence of such authority
satisfactory to Landlord.
33. CONSTRUCTION. Any conflict between the printed provisions hereof and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions. Headings used herein shall not affect the
interpretation hereof, being merely for convenience. The terms "Landlord" and
"Tenant" shall include the plural and the singular and all grammar shall be
deemed to conform thereto. If more than one person executes this Lease, their
obligations shall be joint and several. The use of the words "include,"
"includes" and "including" shall be without limitation to the items which may
follow.
34. AUCTIONS. Tenant shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Property without first having
obtained Landlord's prior written consent.
35. CAPTIONS. The parties mutually agree that the headings and captions
contained in this Lease are inserted for convenience or reference only, and are
not to be deemed part of or used in construing this Lease.
36. ARBITRATION. In the event of any dispute between the Landlord and
Tenant with respect to any issue specifically mentioned in this Lease as a
matter to be decided by arbitration, such dispute shall be determined by
arbitration in accordance
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with the laws of the State of Florida dealing with arbitration, or in the
absence of such laws, the rules of the American Arbitration Association. The
decision resulting from the arbitration shall be binding, final and conclusive
on the parties, and a decision thereon may be entered by a court having
jurisdiction.
37. RADON GAS DISCLOSURE. The following language is required by law in any
contract involving the sale or lease of any building within the State of
Florida:
"RADON GAS: Radon is a naturally occurring radioactive gas that, when it
has accumulated in a building in sufficient quantities, may present health
risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in
Florida. Additional information regarding radon and radon testing may be
obtained from your county public health unit."
38. ENVIRONMENTAL COMPLIANCE.
(a) Tenant shall not use, generate, manufacture, produce, store, release,
discharge or dispose of, on, under or about the Property, or transport to or
from the Property, any Hazardous Substance (as defined below), except in
compliance with applicable Environmental Law, or allow any other person or
entity to do so. Subject to Section 40 (f), Tenant shall keep and maintain the
Property in compliance with, and shall not cause or permit the Property to be in
violation of, any Environmental Laws (as defined below). It being agreed that
Tenant has no obligations with respect to any pre-existing condition.
(b) Tenant shall give reasonably prompt notice to Landlord of (i) any
proceeding against or formal written inquiry to Tenant by any governmental
authority (including without limitation the Florida Environmental Protection
Agency or Florida Department of Health and Rehabilitative Services) with respect
to the presence of any Hazardous Substance on the Property or the migration
thereof from or to other property; and (ii) all claims received by Tenant that
are made or threatened by any third party against Tenant, Landlord or the
Property relating to any loss or injury resulting from any Hazardous Substance.
obtaining actual knowledge of any occurrence or condition on any real property
adjoining or in the vicinity of the Property that reasonably be expected to
cause the Property or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of the Property under any
Environmental Law or any regulation adopted in accordance therewith.
(c) Tenant shall, indemnify and hold harmless Landlord, its directors,
officers, employees, agents, successors and assigns from and against any and all
loss, damage, cost, expense or liability (including attorneys' fees and costs)
arising out of or attributable to the use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal, transport or presence
of a Hazardous
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Substance on, under, about, to or from the Property, including without
limitation the costs of any necessary repair, cleanup or detoxification of the
Property, in any way arising from the acts of Tenant.
(d) "Environmental Laws" shall mean any federal, state or local law,
statute, ordinance or regulation pertaining to the environmental conditions on,
under or about the Property, including without limitation the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended from
time to time ("CERCLA"), 42 U.S.C. Sections 9601 et seq., and the Resource
Conservation and Recovery Act of 1976, as amended from time to time ("RCRA"), 42
U.S.C. Sections 6901 et seq. The term "Hazardous Substance" shall include
without limitation: (i) those substances included within the definition of
"hazardous substances," "hazardous materials," "toxic substances," or "solid
waste" in CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49
U.S.C. Sections 1801 et seq., and in the regulations promulgated pursuant to
said laws; (ii) those substances defined as "hazardous wastes" in any Florida
Statute and in the regulations promulgated pursuant to any Florida Statute;
(iii) those substances listed in the United States Department of Transportation
Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection
Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and
amendments thereto); (iv) such other substances, materials and wastes which are
or become regulated under applicable local, state or federal law, or which are
classified as hazardous or toxic under federal, state or local laws or
regulations; and (v) any material, waste or substance which is (1) petroleum,
(2) asbestos, (3) polychlorinated biphenyls, (4) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Sections
1251 et seq., or listed pursuant to Section 307 of the Clean Water Act, (5)
flammable explosive, or (6) radioactive materials.
(e) Landlord shall have the right to inspect the Property and audit
Tenant's operations thereon to ascertain Tenant's compliance with the provisions
of this Lease at any reasonable time, Landlord shall have the right, but not the
obligation, to enter upon the Property and perform any obligation of Tenant
hereunder of which Tenant is in default, including without limitation any
remediation necessary due to environmental impact of Tenant's operations on the
Property, without waiving or reducing Tenant's liability for Tenant's default
hereunder.
(f) Landlord shall indemnify and hold harmless Tenant, its directors,
officers, employees, agents, successor and assigns from and against any and all
loss, damage, cost, expense or liability arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal, transport or presence of a Hazardous Substance on, under, about, to or
from the Property, in any way arising from the acts of Landlord, any
predecessors-in-title of Landlord, any third party for which Landlord is
responsible, or otherwise arising before the date hereof.
(g) All of the terms and provisions of this Section 40 shall survive
expiration or termination of this Lease for any reason whatsoever.
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LANDLORD AND TENANT HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LANDLORD AND TENANT WITH RESPECT TO THE
PROPERTY.
LANDLORD AND TENANT HEREBY IRREVOCABLY WAIVE THEIR RIGHT TO A JURY TRIAL IN
THE EVENT OF ANY DISPUTE BETWEEN THEM REGARDING THIS LEASE.
WITNESSES: LANDLORD:
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Signature
Date:
----------------------
- -----------------------------
Print name
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Address:
---------------------------
- ----------------------------- ---------------------------
Signature
Print name
TENANT:
Ken Marks Ford, Inc.
By:
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Signature Title:
----------------------
Date:
----------------------
- -----------------------------
Print name Address:
---------------------------
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Signature
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Print name
0132152.01
07/10/97 5:46 PM (d-1)
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L E A S E
Between
Viking Investment Associates
and
Lone Star Ford Inc.
TABLE OF CONTENTS
-----------------
ARTICLE SUBJECT PAGE
- ------- ------- ----
I Parties 1
II Demised Premises 2
III Term and Use 3
TV Rental 4
V Rental Payments 5
VI Ownership, Possession, and Warranty 6
VII Fixtures and Personal Property 7
VIII Internal Maintenance and Tenant's Covenent 8
to Surrender Premises in Good Condition
IX External Maintenance 9
X Taxes and Insurance 10
XI Tax Clause 12
XII Rights of Payment upon Default 12
XIII Tenant's Default 13
XIV Utilities 14
XV Assigning and Subletting 15
XVI Environmental and ADA Liability 16
XVII Destruction by Fire 17
XVIII Notices 18
XIX Agreement between Landlord and Tenant 19
XX Obligations of Successors 20
XXI Subordination of Lease 21
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STATE OF TEXAS
COUNTY OF HARRIS
ARTICLE I
PARTIES:
THIS LEASE, made as of the 1st day of January 1995, by and between Lone
Star Ford Inc., hereinafter called "Tenant" and Viking Investment Associates,
hereinafter called "Landlord."
<PAGE>
ARTICLE II
LEASED PREMISES:
The landlord, in consideration of the covenants, conditioner agreements,
and stipulations of the Tenant hereinafter expressed, does hereby demise and
lease the following premises situated in the City of Houston and State of Texas,
described as follows:
24.76 Acres in three tracts
Tract I = 10.67 acres
Tract II = 9.29 acres
Tract III = 4.8 acres
Buildings - on Tract I = Main Garage of 52,500 SF
Showroom of 13,200 SF
Parts Building of 14,025 SF
on Tract II = Used Car Building of 2,125 SF
on Tract II = Body Shop of 26,450 SF
The 24.76 acres are lots 3,6,7 of the F.C. Trickey Subdivision of record in
Volume 176 Page 222 in Harris County Court House also a Part of Abstract 565.
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ARTICLE III
TERM AND USE:
To have and to hold the same for a term of ten (10) years to commence on
January 1, 1995.
Tenant convenants to occupy and use the demised premises during the term of
this lease and any renewals thereof as an office and warehouse and for such
purpose and in such manner as shall not violate the zoning ordinances and other
regulations of the Federal, State, County, or Municipal authorities now in force
or hereafter adopted which in any manner affect the use of the demised premises
or any appurtenances thereto.
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ARTICLE IV
RENTAL:
The landlord hereby reserves and the Tenant hereby agrees to pay the
Landlord upon the commencement of the ten(10) year term referred to hereinbefore
an annual rental of $360,000 said payments to be made in twelve equal monthly
installments of $30,000 each, between the first and fifth days of each month
during the lease term except that the first years rent will be reduced to
______________ as an inducement to lease.
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ARTICLE V
RENTAL PAYMENTS:
All rental payments provided herein shall be made to Landlord at:
Viking Investment Associates
PO Box 18747
Charlotte, NC 28218
until notice to the contrary is given by Landlord.
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ARTICLE VI
OWNERSHIP, POSSESSION AND WARRANTY
The Landlord covenants that it is lawfully seized of the demised premises
and of the parking areas, driveways, and footways and has good right and lawful
authority to enter into this lease for the full term aforesaid, that Landlord
will put the Tenant in actual possession of the demised premises at the
beginning of the term aforesaid, and that Tenant, on paying the said rent and
performing the covenants herein agreed to by it to be performed, shall and may
peaceably and quietly have, hold, and enjoy the demised premises and use the
appurtenances thereto as hereinabove referred to for the said term.
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ARTICLE VII
FIXTURES AND PERSONAL PROPERTY:
Any trade fixtures, equipment, and other property installed in or attached
to the demised premises by and at the expense of the Tenant and all light
fixtures provided by Tenant and installed by Landlord and all other items
whether trade fixtures or otherwise, installed by the Tenant shall remain as the
property of the Tenant and the Landlord agrees that the Tenant shall have the
right at any time and from time to time, provided it be not in default
hereunder, to remove any and all of its trade fixtures, equipment, and other
property which it nay have stored or installed on the demised premises;
provided, however, in much event Tenant shall restore the demised premises
substantially to the same condition in which they were at the time the Tenant
took possession.
-7-
<PAGE>
ARTICLE VIII
INTERNAL MAINTENANCE AND TENANT'S COVENANT TO SURRENDER PREMISES IN
GOOD CONDITION
Tenant covenants that it will at its own expense keep and maintain in good
order and repair the interior of the improvements, including without limitation
all window glass, plumping, wiring, electrical systems, heating, and air
conditioning system. Tenant further covenants that it will at its own expense
repair any damage to the exterior of said improvements and to the parkway,
driveways, and footways occasioned or necessitated by the negligence or
willfulness of its agents or employees. Tenant covenants and agrees that it will
not make structural changes or alterations without the written consent of the
Landlord; that it will not in any manner deface or injure said premises or any
part thereof; and that it will return said premises peacefully and promptly to
the Landlord at the end of the term of this lease, or at any previous
termination thereof, in as good condition as the same are at the beginning of
the term, loss by fire or other hazard and by ordinary wear and tear excepted.
-8-
<PAGE>
ARTICLE IX
EXTERNAL MAINTENANCE
Tenant covenants that it will at its own expense keep and maintain The
exterior and principal interior structural portions of the improvements and the
demised premises.
-9-
<PAGE>
ARTICLE X
TAXES AND INSURANCE
The Tenant shall pay all real estate taxes on the demised premises, parking
areas, and driveways. Tenant will maintain and pay for adequate fire insurance,
with extended coverage, on the demised premises. If during the term of this
lease the demised premises are used by the Tenant for any purpose or in any
manner that causes the improvements to be rated by fire insurance companies as
extra hazardous, Tenant will pay The additional insurance premium caused by such
use.
(Public Liability Insurance) Landlord shall not be responsible for damages
to property or injuries to persons which may arise from or be incident to the
use and occupancy of the leased premises, nor for damages to the property or
injuries to the person of tenant or of others who may be on said premises at
Tenant's invitation and Tenant shall hold Landlord harmless from any and all
claims for such damages or injuries. It is further agreed that Tenant shall
procure and maintain during the term of this Lease Agreement a comprehensive
general liability policy with a combined single limit of liability of $1,000,000
per occurrence for both bodily injury and property damage. Landlord shall be
named an additional insured under such policy of insurance and be furnished with
a certificate of insurance for this coverage.
Tenant shall provide for all hazard insurance on its own contents in the
demised premises.
Tenant shall pay all personal property taxes.
-10-
<PAGE>
ARTICLE XI
TAX CLAUSE:
The Tenant agrees to pay any and all ad valorem Taxes assessed or levied
against or upon the premises.
It is understood and agreed that Tenant shall have the right, in its name
or the name of Landlord, to protest or review by legal proceedings or in such
other manner as it may deem suitable any tax or assessment with respect to the
demised premises, provided any such protest or review shall be at the sole cost
or expense of Tenant.
-11-
<PAGE>
ARTICLE XII
RIGHTS OF PAYMENT UPON DEFAULT
The Landlord agrees that if it shall at any time fail to pay taxes and to
provide and pay for any insurance required of it under the terms of this lease,
then Tenant may at its option without liability for forfeiture pay such taxes or
provide and pay for such insurance and deduct the actual cost thereof from the
rent next thereafter falling due hereunder.
Landlord further agrees that Tenant shall also have the right at its option
without liability or forfeiture to pay when due or within the grace period
permitted any installment of mortgage indebtedness upon the demised premises
when the payment thereof shall be necessary to preserve Tenant's leasehold
interest hereunder and deduct the payment thereof from the rent thereafter
falling due hereunder.
Tenant agrees to pay as rent in addition to the rental herein reserved any
and all sums which may become due for reason of failure of Tenant to comply with
all of the covenants of this lease and any and all damages, costs, and expenses
which the Landlord may suffer or incur by reason of any default of the Tenant,
or failure on its part to comply with the covenants of this lease and each of
them, and also any and all damages to the demised premises caused by any act or
neglect of the Tenant. Upon notification from any first Mortgagee on the
aforementioned described property the Tenant hereby agrees to give said
Mortgagee 30 days notice in writing of any defaults under this lease in order
that said Mortgagee may have the right to cure said defaults at their sole
option.
-12-
<PAGE>
ARTICLE XIII
TENANT'S DEFAULT:
If the Tenant shall make default in any covenant or agreement to be
performed by it and if after written notice from Landlord to Tenant such default
shall continue for a period of ten (10) days or if the leasehold interest of the
Tenant shall be taken on execution or other process of law or if the Tenant
shall petition to be or be declared bankrupt or insolvent according to law, or
make any conveyance or general assignment for the benefit of creditors, or if a
receiver be appointed for such Tenant's property and such appointment be not
vacated and set aside within thirty (30) days from the date of such appointment,
or if proceedings for reorganization or for composition with creditors be
instituted by or against such Tenant, then, and in any of said cases, the
Landlord may immediately or at any time thereafter and without further notice or
demand enter into and upon said premises for any part thereof and take absolute
possession of the same fully and absolutely without such re-entry working a
forfeiture of the rents to be paid and the covenants to be performed by the
Tenant for the full term of this lease and may at the Landlord's election lease
or sublet such premises or any part thereof on such terms and conditions and for
such rents and for such time as the Landlord may elect and after crediting the
rent actually collected by the Landlord from such reletting on the rentals
stipulated to be paid under this lease by the Tenant, collect from the Tenant
any balance remaining remaining on the rent reserved under this lease.
-13-
<PAGE>
ARTICLE XIV:
UTILITIES:
During the term of this lease, Tenant shall provide and pay for all lights,
heat, water, and other utilities upon the demised premises.
-14-
<PAGE>
ARTICLE XV
ASSIGNING AND SUBLETTING.
The Tenant may not assign this lease or sublet the whole or any part of the
demised premises without the written consent of the Landlord, it being
understood and agreed that such consent will not be unreasonably withheld. In
the event the Landlord at any time in writing consents to the assignment of this
lease or to the subletting of the whole or any part of the demised premises,
such assignment or subletting shall be in writing and shall be subject to the
following conditions:
(a) That neither such assignment nor sublease nor the acceptance of rent by
the Landlord from such assignee or subtenant shall relieve, release, or in any
manner affect the liability of that Tenant hereunder;
(b) That the said assignee or subtenant by an instrument in writing in
recordable form shall assure and agree to keep, observe, and perform all of the
agreements, conditions, covenants, and terms of this lease on the part of the
Tenant to be kept, observed, and performed, and shall be, and become jointly and
severally liable with the Tenant for the non-performance thereof;
(c) That a duplicate-original of such instrument of assignment or sublease
and assumption shall be delivered to the Landlord as soon as such assignment or
sublease and assumption have been executed and delivered; and
(d) That no further or additional assignment of this lease or sublease
shall be made, except upon compliance with and subject to the provisions of this
paragraph.
-15-
<PAGE>
ARTICLE XVI
Environmental and ADA Liability:
The Tenant assumes all liability caused by non compliace or violation of
Federal, State, County, or City EPA or ADA Ordinances or Rulings. Tenant will
hold Landlord harmless for same.
-16-
<PAGE>
ARTICLE XVII
DESTRUCTION BY FIRE:
The parties hereto mutually agree that it the improvements erected upon the
demised premises be damaged by fire or other cause insured against by Landlord,
Landlord will repair the said damages as promptly as practicable, under the
supervision of Tenant's engineering department, and Tenant shall meanwhile be
entitled to an abatement in rent to the extent of the loss of use suffered by
it. In the event of the destruction (meaning by "destruction" damage to the
extent of seventy-five (75) percent or more of its value) of the said building
by fire or other cause insured against, either party may, at its option, cancel
and terminate this lease by giving to the other written notice thereof at any
time within thirty (30) days after the date of such destruction.
-17-
<PAGE>
ARTICLE XVIII
NOTICES:
Whenever in this lease it shall be required or permitted that notice or
demand be given or served by either party to this lease to or on the other, such
notice or demand shall be given or served and shall not be deemed to have been
given or served unless in writing and forwarded by mail addressed as follows:
To the Landlord: Viking Investment Associates
P.O. Box 18747
Charlotte, NC 28218
To the Tenant: Lone Star Ford
8477 North Freeway
Houston, Texas 77037
-18-
<PAGE>
ARTICLE XIX
AGREEMENT BETWEEN LANDLORD AND TENANT:
It is expressly understood and agreed by and between the parties hereto
that this lease sets forth all the promises, agreements, conditions, and
understandings between Landlord and Tenant relative to the demised premises, and
that there are no promises, agreements, conditions, or understandings, either
oral or written, between them other than are herein set forth. It is further
understood and agreed that, except as herein otherwise provided, no subsequent
alteration, amendment, change, or addition to this lease shall be binding upon
Landlord or Tenant unless reduced to writing and signed by them.
- 19 -
<PAGE>
ARTICLE XX
OBLIGATIONS OF SUCCESSORS:
The Landlord and the Tenant agree that all the provisions hereof are to be
construed as covenants and agreements as though the words imparting such
covenants and agreements were used in each separate paragraph hereof and that
all the provisions hereof shall bind and inure to the benefit of the parties
hereto, their respective heirs, legal representatives, successors, and assigns.
- 20 -
<PAGE>
ARTICLE XXI
SUBORDINATION OF LEASE;
This lease, its terms and conditions, and all the leasehold interest and
rights hereunder, are expressly made, given, and granted subject and subordinate
to the lien of any bona fide mortgage or deed of trust now or hereafter or
imposed upon all or any part of the demised premises, and Tenant agrees to
execute and deliver to Landlord, its successors or assigns, or to any other
person or corporation designated by the Landlord, any instrument or instruments
requested by Landlord consenting to any such mortgage or trust deed placed upon
the premises and subordinating this lease thereto.
In the event of subordination, all rights of Tenant hereunder shall be
fully preserved and protected as long as Tenant complies with all the covenants
or conditions herein assumed by it.
IN TESTIMONY WHEREOF, the Landlord and the Tenant have caused these
presents to be executed and delivered as of the day and year stated in Article
I.
Viking Investment Associates
By: Sonic Financial Corp, Partner
Witness: By: /s/ William R. Brooks
/s/[ILLEGIBLE] -----------------------------
William R. Brooks
VP
Lone Star Ford Inc.
Witness: By: /s/ [ILLEGIBLE]
/s/[ILLEGIBLE] -----------------------------
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF Cabarrus
I, Betty S. Robinson, a Notary Public for said County and State, do hereby
certify that William R. Brooks personally appeared before me this day and
acknowledged the due execution of the foregoing instrument.
WITNESS my hand and notarial seal, this the 6 day of December, 1995.
/s/Betty S. Robinson
-------------------
Notary Public
My commission expires:
02/27/99
- ----------------------
STATE OF Texas
COUNTY OF Harris
I, Carla Stewart, a Notary Public for said County and State, do hereby
certify that Roger L. Swick personally appeared before me this day and
acknowledged the due execution of the foregoing instrument.
WITNESS my hand and notarial seal, this the 6 day of Dec, 1995.
/s/ Carla Stewart
-----------------
Notary Public
My commission expires:
11-30-97
- 22 -
STATE OF NORTH CAROLINA,
LEASE
-----
COUNTY OF MECKLENBURG.
THIS LEASE AGREEMENT, Made and entered into in duplicate originals as of
the 23rd day of October, 1979, by and between BRUTON SMITH (hereinafter called
"Landlord") and wife BONNIE SMITH, of Mecklenburg County, North Carolina, and
TOWN AND COUNTRY FORD, INCORPORATED, a North Carolina corporation (hereinafter
called "Tenant");
W I T N E S S E T H :
The Landlord, for and in consideration of the rents, covenants, agreements
and stipulations hereinafter mentioned, reserved and contained, to be paid, kept
and performed by the Tenant, has leased, let and demised, and by these presents
does lease, let and demise unto the said Tenant, and the Tenant hereby agrees to
lease, let and demise and take upon the terms and conditions which hereinafter
appear, the following described premises, to-wit:
The land this day leased and demised (hereinafter called the "demised
premises") is shown on plat of survey for BRUTON SMITH containing 12.484
acres prepared by R. B. Pharr & Associates, N.C. R.L.S., dated September 6,
1979, and more particularly described on Addendum A attached hereto and by
reference thereto made a part hereof.
TO HAVE AND TO HOLD all and singular the demised premises unto the Tenant
for a term commencing December 1, 1979 and terminating at 12:00 midnight on the
31st day of October, 2000.
This Lease is made subject to the following further covenants, agreements
and terms which are mutually agreed upon by and between the parties hereto,
to-wit:
1. ANNUAL RENTAL. The annual rental for the aforesaid demised premises,
buildings and appurtenances during the term of this lease shall be the sum of
Four Hundred Nine Thousand, Two Hundred and no/100 Dollars ($409,200.00), which
<PAGE>
- 2 -
Tenant covenants and agrees to pay to the Landlord, its successors and assigns,
in monthly installments of Thirty-four Thousand One Hundred and no/100 Dollars
($34,100.00) each on the first day of each and every month during the term of
this Lease. All rent shall be paid to Landlord at the address to which notices
to Landlord are given as specified in paragraph 20 hereof.
2. TAXES, INSURANCE, REPAIRS AND MAINTENANCE.
A. Taxes. The Tenant shall pay all taxes and assessments upon the
demised premises, and upon the buildings and improvements thereon, which
are assessed during the Lease term or any extension thereof. All taxes
assessed prior to but payable in whole or in installments after the date of
this Lease Agreement, and all taxes assessed during the term but payable in
whole or in installments after the expiration of the Lease term, or any
extension thereof, shall be adjusted and prorated, so that the Landlord
shall pay its prorated share for the period prior to the date of this Lease
Agreement and for the period subsequent to the expiration of the Lease
Term, or any extension thereof, and the Tenant shall pay its prorated share
in accordance herewith.
B. Property Insurance. The Tenant at Tenant's cost shall maintain in
full force and effect throughout the Lease term, or any extension thereof,
on the buildings and other improvements located upon the demised premises,
(1) policy or policies of standard fire and extended coverage
insurance, with vandalism, malicious mischief and tornado
endorsements, to the extent of at least ninety per cent (90%) of
full replacement value, and
(2) policy or policies of rental and rental value insurance coverage
in an amount at least adequate to cover six (6) months of
principal and interest installments due on the indebtedness
secured by the first lien deed of trust upon the demised premises
together with one-twelfth (1/12) of the annual real estate taxes
and insurance expenses incurred for a period of at least twelve
(12) months.
All such insurance policy or policies required by this Lease Agreement
shall be in such form, in such amounts and with such companies as shall be
satisfactory to and approved by Landlord and the holder of the indebtedness
secured by first lien deed of trust upon the demised premises. Tenant shall
provide such insurance as it desires for its property located upon the
demised premises.
C. Indemnity and Liability Insurance. The Tenant shall indemnify and
save harmless the Landlord from and against any and all liability,
penalties, damages, expenses and judgments by reason of any injury or claim
of injury to persons or property arising out of the alleged negligence of
the Tenant, its agents, employees and invitees in the use, occupation or
control of the demised premises by
<PAGE>
- 3 -
the Tenant. The Tenant agrees to keep in force such insurance policy or
policies in such form and with such companies as shall be satisfactory to
and approved by Landlord and the holder of the indebtedness secured by
first lien deed of trust upon the premises, covering public liability,
claims for personal injury, bodily injury, including death, and property
damage, under a policy or policies of general public liability insurance,
with coverage limits of not less than Five Hundred Thousand Dollars
($500,000) per person and $1,000,000 per occurrence, and property damage
limits of not less than $500,000. The Tenant shall be obligated to defend
any suit or claim, whether justified or not, brought against the Landlord
by any person whatever, arising out of the use of the premises by the
Tenant, and should the Tenant fail to defend such suit or claim upon
request by the Landlord, then the Landlord may defend said suit or claim at
the expense of Tenant.
D. Repairs and Maintenance. Landlord shall, throughout the Lease term
or any extension thereof, maintain the outside walls of the buildings
located upon the demised premises. Tenant shall, throughout the Lease term
or any extension thereof, at its sole expense, keep and maintain any other
portions of the demised promises in good order and repair. Tenant shall
deliver up the said demised premises to the Landlord at the end of the
Lease term, or any extension thereof, or the said Lease's sooner
termination, in as good order and repair as the same is at the time of the
commencement of the Tenant's occupancy, damage or destruction by fire,
windstorm or other casualty and ordinary wear and tear excepted. Tenant
shall not be required to make repairs to outside walls unless the condition
necessitating the repairs was caused by Tenant, its employee(s) or its
invitee(s).
On default of the Tenant in making such repairs or replacements, the
Landlord may, but shall not be required to, make such repairs and
replacements for the Tenant's account, and the expense thereof shall
constitute and be collectible as additional rent.
E. Waiver of Subrogation. Notwithstanding anything to the contrary in
any other provisions of this Lease, Landlord and Tenant covenant and agree
that: (i) Each is hereby released from liability to the other on account of
any loss or damage occurring during the term of this Lease to the extent
that such loss or damage is covetable by insurance whether or not the same
is caused in whole or in part by Landlord or Tenant and whether or not
attributable to the negligence of Landlord or Tenant; and (ii) there shall
be no subrogation of any insurer; provided,
<PAGE>
- 4 -
however, that the mutual release of liability and provision for no
subrogation shall not be operative in any case where the effect thereof is
to invalidate any insurance coverage or increase the cost thereof, but each
party procuring insurance under this Lease shall be obligated to use its
best efforts to obtain policies permitting waiver of subrogation without
additional cost, and if such waiver causes an increase in cost,
nevertheless to procure such waiver if the other party agrees to pay any
increase in cost.
3. FIRE OR OTHER CASUALTY LOSSES -- RESTORATION OF PREMISES. In case of
damage to or destruction of the demised premises by fire, windstorm or other
casualty to such an extent as to render them untenantable, Landlord may, by
written notice to the Tenant given within thirty (30) days after such damage or
destruction, (i) elect to terminate the Lease, or (ii) elect to repair or
rebuild the improvements. If the damage is not such as to render the premises
untenantable or if the Landlord elects to rebuild, the Landlord at its expense
shall repair the damage with reasonable dispatch; and if the damage has rendered
the demised premises untenantable, in whole or in part, there shall be an
abatement and apportionment of the annual rental until the damage has been
repaired to the extent that the Tenant's activities are curtailed in the damaged
portion of the building complex upon the demised premises. In determining what
constitutes reasonable dispatch, consideration shall be given to delays caused
by strikes, adjustments of insurance, and other causes beyond the Landlord's
control.
4. EMINENT DOMAIN. If the demised premises, or any part thereof, shall be
taken in any proceeding by the public authorities by condemnation, threat of
condemnation, or otherwise, for any public or quasi-public use, Tenant shall be
entitled to an abatement of the rent hereinabove reserved to the Landlord based
upon the extent to which such taking causes a curtailment of the Tenant's
business and activities upon the demised premises. If twenty-five percent (25%)
of the parking lot area or ten percent (10%) of the total improved building area
of the demised premises shall be taken in any proceeding by the public
authorities by condemnation, threat of condemnation or otherwise, for any public
or quasi-public use, the Tenant may at its option forthwith cancel this Lease as
of the date upon which such taking shall become finally effective. All damages
for the taking of any portion
<PAGE>
- 5 -
of the demised premises shall belong to the Landlord, without prejudice,
however, to such rights, if any, as the Tenant may have to claim from the
condemning authority any damage suffered by it to its leasehold interest or
leasehold improvements as the result of such taking.
5. ASSIGNMENT OR SUBLETTING. Tenant may not sublet the demised premises or
any portion thereof or assign this Lease for the whole or any part of the term
hereof without the consent of the Landlord, which consent may not be
unreasonably withheld. In the event of any such subletting or assignment, Tenant
shall, nevertheless, be and remain bound for the payment of all rentals as and
when each shall become due and payable hereunder and for the carrying out and
performing of all of the other covenants and agreements on the part of the
Tenant to be done and performed hereunder, unless Landlord shall specifically
agree to the contrary.
6. USE OF PREMISES; COMPLIANCE WITH REGULATIONS, ORDINANCES, ETC. Tenant
agrees that it will not use the demised premises, nor will it suffer or permit
the same to be used, for any other purpose other than an automobile sales and
service establishment, including but not limited to, the sales and service of
all types of motor vehicles, tractors, farm machinery and equipment, the sale of
such merchandise as is sold ordinarily by an automobile dealer, and other
purposes incidental to an automobile sales and service establishment, or for any
other lawful purpose which the Landlord has approved in writing and which
approval shall not be unreasonably withheld. The Tenant shall, throughout the
Lease term or any extension thereof, and at no expense whatsoever to the
Landlord, promptly comply, or cause compliance, with all laws and ordinances and
the orders, rules, regulations and requirements of all Federal, State, County
and municipal governments, and appropriate departments, commissions, boards and
officers thereof, necessitated by Tenant's occupancy and use of the demised
premises. Tenant shall not be required to make structural changes in the
premises in compliance with this paragraph unless necessitated by action of
Tenant, its employee(s) or invitee(s); but Landlord may terminate this Lease on
thirty (30) days' notice if Tenant's use of the property would necessitate any
structural changes and Tenant refuses to make them.
<PAGE>
- 6 -
7. UTILITIES CHARGES AND PERMITS. The Tenant agrees to pay or cause to be
paid all charges for gas, water, sewer, electricity, light, heat, power,
telephone or other communication service or other utility or service used,
rendered or supplied to, upon or in connection with the demised premises
throughout the Lease term or any extension thereof, and to indemnify the
Landlord and save Landlord harmless against any liability or damage on such
account. The Tenant expressly agrees that the Landlord is not, nor shall
Landlord be, required to furnish the Tenant or any other occupant of the demised
premises, during the Lease term or any extension thereof, any water, sewer, gas,
heat, electricity, light, power or any other facilities, equipment, labor,
materials, or services of any kind whatsoever.
8. INDEMNITY PROVISIONS. The Tenant covenants and agrees, at its sole cost
and expense, to indemnify and save harmless the Landlord against and from any
and all claims by or on behalf of any person, firm or corporation, arising from
the conduct or management of or from any work or thing whatsoever done in or
about the demised premises during the Lease term or any extension thereof, and
further to indemnify and save the Landlord harmless against and from any and all
claims arising from any condition on the demised premises, or arising from any
breach or default on the part of the Tenant in the performance of any covenant
or agreement on the part of the Tenant to be performed, pursuant to the terms of
this Lease, or arising from any act or negligence of the Tenant, or any of its
agents, contractors, servants, employees or licensees, or arising from any
accident, injury or damage whatsoever caused to any person, firm or corporation
(other than those caused by the Landlord or its servants and employees)
occurring during the Lease term or any extension thereof, in or about the
demised premises, and from and against all costs, counsel fees, expenses and
liabilities incurred in or about any such claim, action or proceeding brought
thereon; and in case any action or proceeding be brought against the Landlord by
reason of any such claim, the Tenant upon notice from the Landlord covenants to
resist or defend any such action or proceeding by counsel satisfactory to
Landlord.
<PAGE>
- 7 -
The Tenant further covenants and agrees that the Landlord shall not be
responsible or liable to the Tenant, or any person, firm or corporation claiming
by, through or under the Tenant for, or by reason of, any defect in the demised
premises, or from any injury or lose or damage to person or property resulting
therefrom, and the Landlord shall not be responsible or liable to the Tenant, or
any person, firm or corporation claiming by, through or under the Tenant, for
any injury, loss or damage to any persons or to the demised premises, or to any
property of the Tenant, or of any other person, contained in or upon the demised
premises, caused by or arising from any defect whatsoever, or by or from any
injury or damage caused by, arising or resulting from lightning, wind, tempest,
water, snow or ice, in, upon or coming through or falling from the roof, or by
or from other actions of the elements, or from any injury or damage caused by or
arising, or resulting from acts of negligence of any occupant or occupants
(other than the Landlord and its servants and employees) of adjacent, contiguous
or neighboring premises, or any other cause whatsoever.
The foregoing indemnity provisions shall not apply to losses occasioned by
the negligence of Landlord or its employees.
9. ALTERATIONS. The Tenant agrees that it will make no structural
alterations to the building or buildings now or hereafter erected upon the
demised premises. The Tenant further agrees that it will not make any other
alterations which would change the character of said building or buildings, or
which would weaken or impair the structural integrity, or lessen the value of
said building or buildings. The Tenant may make non-structural alterations, but
it must remove same (and repair any damage caused thereby) on Landlord's request
at the termination of the Lease.
10. DEFAULT. If Tenant should become and remain for fifteen (15) days in
default in the payment of rent as and when the same shall become due and payable
hereunder, or should became and remain for thirty (30) days in default in the
performance of any of the terms or covenants of this Lease on its part to be
done after Landlord shall have given Tenant notice of such default in writing,
or if Tenant should be
<PAGE>
- 8 -
adjudged bankrupt or if a permanent receiver should be appointed to take charge
of the business and affairs of Tenant by reason of the Tenant's insolvency, then
in any one or more of such events, Landlord shall have the right to terminate
and cancel this Lease by giving Tenant five (5) days' written notice thereof and
take possession of said premises without prejudice to any other legal remedy it
may have.
The Tenant covenants and agrees that if it shall at any time fail to pay
any taxes or other charges or to pay for any insurance policies as provided for
herein which the Tenant is obligated to make or perform under this Lease, then
the Landlord may, but shall not be obligated so to do, after ten (10) days'
notice to and demand upon the Tenant and without waiving, or releasing the
Tenant from, any obligations of the Tenant in this lease contained, pay any such
taxes or charges, effect any such insurance coverage and pay premiums therefor,
and may make any other payment or perform any other act which the Tenant is
obligated to perform under this Lease, in such manner and to such extent as
shall be necessary and, in exercising any such rights, pay necessary and
incidental costs and expenses, employ counsel and incur and pay reasonable
attorneys' fees. All sums so paid by the Landlord and all necessary and
incidental costs and expenses in connection with the performance of any such act
by the Landlord together with interest thereon at the rate of eight percent (8%)
per annum from the date of the making of such expenditure by the Landlord, shall
be deemed additional rental hereunder, and, except as otherwise in this Lease
expressly provided, shall be payable to the Landlord on demand or at the option
of the Landlord may be added to any rent then due or thereafter becoming due
under this Lease, and the Tenant covenants to pay any such sum or sums with
interest as aforesaid, and the Landlord shall have (in addition to any other
right or remedy of the Landlord) the same rights and remedies in the event of
the non-payment thereof by the Tenant as in the case of default by the Tenant in
the payment of rent.
11. WARRANTY OF TITLE AND QUIET ENJOYMENT. Landlord covenants and warrants
that it is lawfully seized of the demised premises and has good, right, and
lawful authority to enter into this Lease Agreement for the full term aforesaid
(and any extension hereof), and that the Landlord will put the Tenant in actual
possession of
<PAGE>
- 9 -
the demised premises on the commencement date hereinabove referred to. Landlord
further covenants and agrees that the Tenant, on paying the annual rental and
observing and keeping the covenants, agreements and stipulations of this Lease
on its past to be kept, shall lawfully, peaceably and quietly hold, occupy and
enjoy the demised preemies during the demised term or any extension thereof
without hindrance, ejection or molestation.
12. TENANT'S FIXTURES AND EQUIPMENT. Tenant may install such fixtures and
equipment in the building or grounds upon the demised premises as it desires, so
long as such do not affect the structural integrity of the buildings, and are
done in a workmanlike manner in keeping with the original construction, and are
in compliance with all laws, rules, regulations and requirements of all
authorities having jurisdiction thereof. Any such fixtures and equipment shall
remain the exclusive property of the Tenant, and the Tenant shall have the right
at any time, provided it is not in default under this Lease Agreement, to remove
any and/or all of such fixtures and equipment; provided, however, that the
Tenant shall repair any damage to the demised premises occasioned by the removal
of its fixtures and equipment and shall restore the premises to substantially
the same condition in which it was at the time Tenant took possession, normal
wear and tear excepted. The fixtures and equipment enumerated on Addendum B
attached hereto and by reference thereto made a part hereof, located upon the
demised premises, are the property of Landlord and shall remain the property of
the Landlord as if a part of the demised premises.
13. INSPECTION OF PREMISES. The Landlord and its representatives shall be
permitted to enter the demised premises at all reasonable times during usual
business hours for purposes of inspecting the demised premises, making any
necessary repairs to the demised premises and performing any work therein which
may be necessary by reason of the Tenant's default under the terms of this
Lease, or exhibiting the demised premises for sale, lease or mortgage financing.
Except in emergency situations, Landlord will give Tenant forty-eight (48) hours
notice of its intention to visit the premises. Nothing herein shall imply any
duty upon the part of the Landlord to do any such work which under any provision
of this Lease the Tenant may be required to perform, and the performance thereof
by the Landlord shall not constitute a waiver of the Tenant's default.
<PAGE>
- 10 -
14. OPTION TO RENEW. The Tenant may, by written notice given to the
Landlord at least one hundred twenty (120) days prior to the expiration of the
original term, elect to extend the Lease for an additional period of twenty (20)
years. In such event rental for such succeeding extension period shall be agreed
upon by the parties at the time of exercise.
15. SUBORDINATION. Tenant shall, upon request by Landlord, subject and
subordinate all or any of its rights under this Lease to any and all deeds of
trust now existing or hereafter placed upon the demised premises; provided,
however, that Tenant will not be disturbed in the use or enjoyment of the
demised premises so long as Tenant is not in default hereunder. Tenant agrees
that this Lease shall remain in full force and effect notwithstanding any
default or foreclosure under any such deed of trust and that it will attorn to
the mortgagee, trustee or beneficiary of any such deed of trust, and their
successors or assigns, and to the purchaser or assignee under any such
foreclosure.
16. SUBORDINATION AND ATTORNMENT AGREEMENTS. Tenant agrees to enter into
such subordination and attornment agreements with the owners and holders of
notes secured by deeds of trust on the demised premises, providing that Tenant
will attorn to and recognize any such owner and holder who acquires possession
of the property through foreclosure or otherwise as successor Landlord under
this Lease and shall promptly execute and deliver any instrument such successor
Landlord may request to evidence such agreement to attorn.
Upon attornment this Lease shall continue in full force and effect as if it
were a direct lease between the successor Landlord and Tenant upon all of the
terms, conditions and covenants as are set forth in this Lease and shall be
applicable after such attornment except that the successor Landlord shall not be
bound by any previous modification of this Lease or by any previous prepayment
of more than one month's rent, unless such modification or prepayment shall have
been expressly approved in writing by the owner and holder of the note secured
by the deed of trust through or by reason of which the successor Landlord shall
have succeeded to the rights of landlord under this Lease. Tenant agrees that it
will not cancel this Lease for reasons other than Landlord's default or amend
this Lease without the prior written consent of the owners and holders of notes
secured by deeds of trust on the demised premises.
<PAGE>
- 11 -
17. CHANGES IN LEASE TO FACILITATE FINANCING. If, in connection with
obtaining financing or refinancing for the project a banking, insurance, or
other recognized institutional lender shall request reasonable modifications in
this Lease as a condition to such financing or refinancing, Tenant will not
unreasonably withhold, delay or defer its consent thereto, provided that such
modifications do not increase the obligations of Tenant hereunder or materially
adversely affect the leasehold interest hereby created or Tenant's use and
enjoyment of the premises.
18. ESTOPPEL LETTERS. Landlord or Tenant, as the case may be, will execute,
acknowledge and deliver to the other, promptly, upon request, a certificate of
Landlord or Tenant, as the case may be, certifying (a) that this Lease is
unmodified and in full force and effect (or, if there have been modifications,
that this Lease is in full force and effect, as modified, and stating the date
of each instrument so modifying this Lease), (b) the dates, if any, to which
basic rent, additional rent and other sums payable hereunder have been paid, and
(c) whether, in the opinion of each signer, any default exists hereunder and, if
any such default exists, specifying the nature and period of existence thereof
and what action Landlord or Tenant, as the case may be, is taking or proposes to
take with respect thereto and whether notice thereof has been given to Landlord.
19. GENERAL PROVISIONS.
(a) The waiver by Landlord of any default or breach of any covenant,
condition or agreement herein shall not be construed to be a waiver of any
subsequent breach of that covenant, condition or agreement. The acceptance of
rent by Landlord with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach. No delay or omission of landlord to
exercise any right or power arising from any default on the part of Tenant shall
impair any such right or power, or shall be construed to be a waiver of any such
default or acquiescence thereto.
(b) The parties agree to execute and deliver any instruments in writing
necessary to carry out the agreement, term, condition, or assurance in this
Lease whenever occasion shall arise and request for such instrument shall be
made and both parties agree to execute in recordable form a Memorandum of Lease
<PAGE>
- 12 -
for recording in the Mecklenburg County Public Registry.
(c) This Lease embodies the full agreement of the parties and supersedes,
any and all prior understandings or commitments concerning the subject matter of
this Lease. Any modification or amendment must be in writing and signed by both
parties.
(d) This Lease and the rights of the Landlord and Tenant and Guarantor
hereunder shall be construed and enforced in accordance with the laws of the
State of North Carolina.
(e) In the event that any part or provision of this Lease shall be
determined to be invalid or unenforceable, the remaining parts and provisions of
said Lease which can be separated from the invalid, enforceable provision shall
continue in full force and effect.
(f) Paragraph titles, numbers and captions contained in this Lease are
inserted only as a matter of convenience and for reference, and in no way
define, limit, extend, modify, or describe the scope or intent of this Lease nor
any provision herein.
(g) This Lease shall be binding upon and inure to the benefit of the
parties hereto in accordance with its terms, their assigns, administrators,
successors, estates, heirs and legatees respectively, except as herein provided
to the contrary.
2. NOTICES. Any notice, demand, request, consent, approval or communication
that either party desires or is required to give to the other party or any other
person, including Guarantor and institutional lender, shall be in writing and
either served personally or transmitted by certified mail, postage prepaid, to
the particular party at the address indicated below unless such party shall have
in writing given the other party NOTICE of change of such address. All such
notices shall be deemed given when deposited in the United States Mails
addressed to Tenant or Landlord or other party.
LANDLORDS: Bruton Smith
P. O. Box 18704
Charlotte, North Carolina 28218
<PAGE>
- 13 -
TENANT: TOWN AND COUNTRY FORD, INCORPORATED
P. O. Box 18704
Charlotte, North Carolina 28218
LENDER: NORTH CAROLINA NATIONAL BANK
c/o NCNB Mortgage Corporation
P.O. Box 10338
Charlotte, North Carolina 28237
GUARANTOR: LONE STAR FORD, INC.
8477 North Freeway
Houston, Texas 77088
21. GUARANTY. LONE STAR FORD, INC., a Texas corporation (hereinafter called
"GUARANTOR") as a material inducement to and in consideration of Landlord
entering into this Lease Agreement with Tenant, and the closing of a
$2,500,000.00 twenty-year construction/permanent loan to Landlord by North
Carolina National Bank, Charlotte, N. C., joins in the execution of this Lease
Agreement for the purpose of guaranteeing and does hereby unconditionally
guarantee and promise to and for the benefit of Landlord that Tenant shall
faithfully perform each and every provision of this Lease Agreement that Tenant
is to perform.
No amendment or modification of this Lease Agreement or Assignment of the
same by Landlord shall be binding on Guarantor unless Guarantor shall have first
given Guarantor's written consent to such amendment, modification or assignment.
Landlord does, however, hereby expressly consent to the assignment of Landlord's
rights in this Lease Agreement and the rents payable hereunder to North Carolina
National Bank, Charlotte, N. C. and/or Monumental Life Insurance Company or
Volunteer State Life Insurance Company, as additional security for the payment
of the $2,500,000.00 indebtedness hereinbefore mentioned. Any renewals,
extensions or modifications of the promissory note evidencing the said
indebtedness shall be and remain binding upon Guarantor. Upon the payment in
full of the said indebtedness, this guaranty shall cease and terminate and
Guarantor shall have no further liability hereunder; provided, however, should
the lien of the deed of trust securing the payment of the promissory note
secured thereby be foreclosed because of Landlord's default in the performance
of Landlord's obligations under the provisions of the said note or deed of
trust, this guaranty shall continue in full force and effect until the
termination of the original term of this Lease Agreement.
BONNIE SMITH, wife of BRUTON SMITH, joins in the execution of this Lease
Agreement for the purpose of releasing, and she does hereby release, any rights
which she may have in and to the land described herein by reason of her marital
status.
<PAGE>
- 14 -
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease Agreement to
be duly executed in duplicate originals by the proper persons, all as of the day
and year first above written.
/s/Bruton Smith (SEAL)
----------------
Bruton Smith
LANDLORD
/s/ Bonnie Smith (SEAL)
-----------------
[SEAL] Bonnie Smith
TOWN AND COUNTRY FORD, INCORPORATED,
BY /s/ Bruton Smith
------------------
President
Attest: TENANT
/s/[ILLEGIBLE]
- --------------
Secretary
[SEAL] LONE STAR FORD, INC.
BY /s/ Bruton Smith
-------------------
President
Attest. GUARANTOR
/s/[ILLEGIBLE]
- --------------
Secretary
<PAGE>
- 15 -
STATE OF NORTH CAROLINA,
MECKLENBURG COUNTY.
I, a Notary Public in and for said state and county, do hereby certify that
BRUTON SMITH and wife, BONNIE SMITH personally appeared before me this day and
acknowledged their due execution of the foregoing and attached instrument for
the purposes therein expressed.
WITNESS my hand and notarial seal this 6th day of November, 1979.
/s/[Illegible]
--------------
Notary Public
My commission expires:
My Commission Expires September 19, 1984
STATE OF NORTH CAROLINA,
MECKLENBURG COUNTY.
I, a Notary Public in and for said state and county, do hereby certify that
[Illegible] personallv came before me this day and acknowledge that he is
___________Secretary of TOWN AND COUNTRY FORD, INCORPORATED, a North Carolina
corporation, and that by authority duly given and as the act of the corporation,
the foregoing and attached instrument was signed in its name by its President,
sealed with its corporate seal and attested by [Illegible] as its Secretary.
WITNESS my hand and official stamp or seal, this 6th day of November, 1979.
/s/[Illegible]
--------------
Notary Public
My commission expires:
My Commission Expires September 19, 1984
STATE OF NORTH CAROLINA,
MECKLENBURG COUNTY.
I, a Notary Public in and for said state and county, do hereby certify that
[Illegible] personally came before me this day and acknowledge that he is
Asst. Secretary of LONE STAR FORD, INC., a Texas corporation, and that by
authority duly given and as the act of the corporation, the foregoing and
attached instrument was signed in its name by its President, sealed with its
corporate seal and attested by [Illegible] as its Asst. Secretary.
WITNESS my hand and official stamp or seal, this 6th day of November, 1979.
/s/[Illegible]
--------------
Notary Public
My commission expires:
My Commission Expires September 19, 1984
<PAGE>
ADDENDUM A
BEGINNING at a point located in the northeasterly margin of the right of way of
East Independence Boulevard, said point of beginning being located S. 34-23-40
E. 540.17 feet from a new iron pin located at the southwest corner of the
property conveyed to Borough Land Corp. by deed recorded in Deed Book 3589 at
Page 65, Mecklenburg County Public Registry and running thence with the
southerly boundary of a 60-foot Nonexclusive Access Easement N. 55-36-20 E.
750.0 feet to a point; thence S. 34-23-40 E. 725.0 feet to a point; thence S.
55-35-47 W. 750.0 feet to a point located in the northeasterly margin of the
right of way of East Independence Boulevard; and thence with the northeasterly
margin of the right of way of East Independence Boulevard N. 34-23-40 W. 725.0
feet to the point of BEGINNING.
TOGETHER with that certain 60-foot Nonexclusive Access Easement adjoining the
northerly boundary of the above described tract of land, said easement being
more particularly described as follows:
BEGINNING at a point located in the northeasterly margin of the right of
way of East Independence Boulevard, said point of beginning being located
S. 34-23-40 E. 480.17 feet from a new iron pin located at the southwest
corner of the property conveyed to Borough Land Corp. by deed recorded in
Deed Book 3589 at Page 65, Mecklenburg County Public Registry and runs
thence N. 55-36-20 E. 750.0 feet to a point; thence S. 34-23-40 E 60.0
feet to a point; thence S. 55-36-20 W. 750.0 feet to a point located in the
northeasterly margin of the right of way of East Independence Boulevard and
thence with the northeasterly margin of the right of way of East
Independence Boulevard N. 34-23-40 W. 60.0 feet to the point of BEGINNING.
The above described land and 60-foot Nonexclusive Access Easement are shown on
survey for Bruton Smith made by R. B. Pharr & Associates, dated September 6,
1979.
<PAGE>
ADDENDUM B
The fixtures and equipment listed below shall at all times remain the property
of the landlord as if a part of the demised promises (see paragraph 12 of
Lease):
Two (2) Furnaces -
Manufacturer - Drabo Hastings
Model - P-45 WO
Type - Waste oil burning
Serial Numbers- 000136 and 000164
Capacity - 450,000 BTU output each
Carpeting -
Quantity - Approximately 1,750 square yards
Description - Symmetry nylon
Color - Royal spice
Location - Hallway between service area and vehicle
showroom, business office, salesmen's closing
offices, perimeter of vehicle showroom, steps to
second floor offices, and sales meeting room.
Counters -
Construction - Wood with white formica covering
Location - Parts department
Dimensions - 36" W X 42" H X 28' L
36" W X 42" H X 27' L
36" W X 42" H X 12' L
Vehicle Exhaust System - Service Department -
Manufacturer - Constructed by general contractor
Description - Constructed of 4" diameter galvanized sheet
metal in 4 banks, 2 having 15 outlets each and 2
having 13 outlets each, totaling approximately
600 lineal feet. Outlets attach to tail pipes of
vehicles to exhaust carbon monoxide from service
department. Each bank is equipped with its own
exhaust fan manufactured by Twin City Fan and
Blower Company, Type BOV.
Ceiling Exhaust Fans - Service Department -
Manufacturer - Square D Company
Size - 1 hp. 36"
Quantity - 3
Description - Located in ceiling in vicinity of service
write-up area to exhaust fumes from vehicles
driving in for service
Overhead Doors - Service Department -
Installation - By general contractor
Location - Two each at service write-up entry and exit and
2 at rear of service department
Pneumatic Tube System and Air Pump -
Tube System - Tube system constructed by general contractor of
3" galvanized tubing to carry documents between
the following activity centers:
Parts department
Service writers
Service cashier
Dispatcher
Truck service department
Shop foreman
Air Pump -
Manufacturer - Spencer Company
Size - 3 hp.
ID No. - 63.20669.015
Location - Parts department
<PAGE>
Page Two of ADDENDUM B
Wall Exhaust Fans - Body Shop -
Manufacturer - Square D Company
Size - 1 hp., 36"
Quantity - 4
Location - Outside walls of body shop
Gas Heaters - Body Shop -
Manufacturer - Crane Company
Size - 50,000 BTU output
Type - Natural gas
Quantity - 7
Location - Hung from ceilings in body shop
<PAGE>
EXHIBIT A
BEGINNING at a point located in the northeasterly margin of the right of way of
East Independence Boulevard, said point of beginning being located S. 34-23-40
E. 545.17 feet from a new iron pin located at the southwest corner of the
property conveyed to Borough Land Corp. by deed recorded in Deed Book 3589, Page
65, Mecklenburg County Public Registry, said point of Beginning also being
located at the southwest corner of that certain lot of land conveyed to William
A. Egan, et al., Trustees (Trust BSS-II) by deed dated November 7, 1979, and
recorded in the Mecklenburg County Public Registry, and running thence two
courses and distances with the said William A. Egan, et al., et al., Trustees
land (1) N. 55-36-20 E. 50.0 feet to a point, and (2) N. 34-23-40 W. 5.0 feet to
a point in the southerly boundary of a 60-foot Nonexclusive Access Easement;
thence with the southerly boundary of the said Access Easement N. 55-36-20 E.
700.0 feet to a point; thence S. 34-23-40 E. 725.0 feet to a point; thence S.
55-35-47 W. 700.0 feet to a point located at the southeasterly corner of that
certain lot of land conveyed to William A. Egan, et al., Trustees (Trust MGS-II)
by deed dated November 7, 1979, and recorded in the Mecklenburg County Public
Registry; thence with two courses and distances of the said William A. Egan, et
al., Trustees' land (1) N. 34-23-40 W. 5.0 feet to a point, and (2) S. 55-35-47
W. 50.0 feet to a point, located in the northeasterly margin of the right of way
of East Independence Boulevard and thence with the northeasterly margin of the
right of way of East Independence Boulevard, N. 34-23-40 W. 715.0 feet to the
point of BEGINNING.
LEASE
DEED BOOK PAGE [STAMP]
5484 0758 PRESENTED FOR REGISTRATION
APR 29 4 24 PM '87
CHARLES E. CROWDER
REGISTER OF DEEDS
MECKLENBURG CO. N.C.
Excise Tax Recording Time, Book and Page
- --------------------------------------------------------------------------------
Tax Lot No. 133-081-22 Parcel Identifier No.________________________
Verified by _____________________ County on the _______day of __________, 19____
By______________________________________________________________________________
- --------------------------------------------------------------------------------
Mail after recording to Parker, Poe, et al (AGWjr) FEE 9.5
2600 Charlotte Plaza, Charlotte, NC 28244 < > 9.5
This instrument was prepared by A. Grant Whitney, Jr. CASH 9.5
Brief description for the Index =============================
=============================
11:26 #3988 0000
04/29/87
- --------------------------------------------------------------------------------
NORTH CAROLINA GENERAL WARRANTY DEED
THIS DEED made this 24th day of April, 1987, by and between
- --------------------------------------------------------------------------------
GRANTOR
BRUTON SMITH and wife, BONNIE J. SMITH
GRANTEE
STC PROPERTIES, a North Carolina General Partnership
P.O. Box 18747
Charlotte, N.C. 28218
Enter in appropriate block for each party: name, address, and if appropriate,
character of entity, e.g. corporation or partnership.
- --------------------------------------------------------------------------------
The designation Grantor and Grantee as used herein shall include said parties,
their heirs, successors, and assigns, and shall include singular, plural,
masculine, feminine or neuter as required by context.
WITNESSETH, that the Grantor, for a valuable consideration paid by the Grantee,
the receipt of which is hereby acknowledged, has and by these presents does
grant, bargain, sell and convey unto the Grantee in fee simple, all that certain
lot or parcel of land situated in the City of Charlotte Township, Mecklenburg
County, North Carolina and more particularly described on Exhibit A, attached
hereto and incorporated herein by reference.
The above-described land is a portion of the land that was conveyed to Bruton
Smith by Deed recorded in Book 4160, at Page 986, Mecklenburg County Public
Registry.
<PAGE>
DEED BOOK PAGE
5484 0759
The property hereinabove described was acquired by Grantor by instrument
recorded in ___________________________________________________________________
A map showing the above described property is recorded in Plat Book ____________
page _____.
TO HAVE AND TO HOLD the aforesaid lot or parcel of land and all privileges and
appurtenances thereto belonging to the Grantee in fee simple.
And the Grantor covenants with the Grantee, that Grantor is seized of the
premises in fee simple, has the right to convey the same in fee simple, that
title is marketable and free and clear of all encumbrances, and that Grantor
will warrant and defend the title against the lawful claims of all persons
whomsoever except for the exceptions hereinafter stated. Title to the property
hereinabove described is subject to the following exceptions.
See Exhibit B, Permitted Exceptions, attached hereto and incorporated by
reference herein.
IN WITNESS WHEREOF, the Grantor has hereunto set his hand and seal, or if
corporate, has caused this instrument to be signed in its corporate name by its
duly authorized officers and its seal to be hereunto affixed by authority of its
Board of Directors, the day and year first above written.
USE BLACK INK ONLY
/s/ Bruton Smith
------------------------------ ------------------------------(SEAL)
(Corporate Name) BRUTON SMITH
By: /s/ Bonnie J. Smith
---------------------------- ------------------------------(SEAL)
BONNIE J. SMITH
- ----------------------President ------------------------------(SEAL)
ATTEST:
- ------------------------------- ------------------------------(SEAL)
- ----------------------Secretary
(Corporate Seal)
SEAL-STAMP
(NOTARY PUBLIC
SEAL)
Use Black Ink
NORTH CAROLINA, MECKLENBURG County,
I, a Notary Public of the County and State aforesaid, certify that Bruton Smith
and wife, Bonnie J. Smith, Grantor, personally appeared before me this day and
acknowledged the execution of the foregoing instrument. Witness my hand and
official stamp or seal, this 24th day of April, 1987.
My commission expires: Commission Expires November 18, 1990 /s/ Dorothy K.
Morris Notary Public
================================================================================
SEAL-STAMP
Use Black Ink
NORTH CAROLINA, _______________ County I, a Notary Public of the County and
State aforesaid, certify that ___________________ personally came before me this
day and acknowledged that _____ he is ________ Secretary of ____________________
a North Carolina corporation and that by authority duly given and as the act of
the corporation, the foregoing instrument was signed in its name by its
_________ President, sealed with its corporate seal and attested by ___________
as its _____________ Secretary. Witness my hand and official stamp or seal, this
_____ day of ________, 19___.
My commission expires: _______________________________________ Notary Public
================================================================================
The foregoing Certificate of Dorothy K. Morris, a Notary Public for said County
and State is certified to be correct. This instrument and this certificate are
duly registered at the date and time and in the Book and Page shown on first
page hereof.
Charles E. Crowder REGISTER OF DEEDS FOR Mecklenburg COUNTY
By /s/ Mary A.<illegible> Deputy - Register of Deeds
This 29th day of April, 1987
See Pages 760 - 761
<PAGE>
DEED BOOK PAGE
5484 0760
EXHIBIT A
To Deed from Bruton Smith and wife, Bonnie J. Smith to STC Properties dated
April 24, 1987.
BEGINNING at a point in the northernmost corner of the land conveyed to R.B.
Borough by deed recorded in Book 4267, Page 370, Mecklenburg County Public
Registry and which point of beginning is also located in the southeasterly
boundary of the land conveyed to MJMRIM & AAM Investment Corp. by deed recorded
in Book 3313, Page 425, Mecklenburg County Public Registry; and runs thence with
the southeasterly boundary of the MJMRIM & AAM Investment Corp. Land N. 55-36-20
E. 403.96 feet to a point in the southerly boundary of Lot 3, Block 29 of
Idlewild #1, Map Book 10, Page 301 Mecklenburg County Public Registry; and runs
thence with the southerly boundaries of Lots 3, 4, 5, 6, 7, 8, and 9, Block 29
of Idlewild #1, Map 10, Page 301, Mecklenburg County Public Registry S. 85-05-02
E. 585.07 feet to a point in the northwesterly corner of Lot 2, Block I of
Cedars East (Section III) as shown on map thereof recorded in Map Book 15, Page
245, Mecklenburg County Public Registry; thence with the westerly boundaries of
Lots 2 and 1, Block I, a 50-foot Street and Lots 1, 2, 3, 4, 5, 6 and 7, Block
D, all of Cedars East (Section III) as shown on map thereof recorded in Map Book
15, Page 245, Mecklenburg County Public Registry and the westerly boundary of
the land conveyed to Chatham Associates L.P. by deed recorded in Book 3976, Page
150 (and shown on map recorded in Map Book 14, Page 439), Mecklenburg County
Public Registry S. 15-16-31 E. 1370.43 feet to a point in the northernmost
corner of the land conveyed to Lincoln National Life Insurance Company by deed
recorded in Book 4528, Page 475 Mecklenburg County Public Registry; thence with
the northwesterly boundary of the Lincoln National Life Insurance Company Land
S. 55-35-47 W. 257.78 feet to a point; thence N. 34-23-40 W. 1205.17 feet to a
point; thence S. 55-36-20 W. 150.00 feet to a point at the easternmost corner of
the land conveyed to R.B. Borough by deed recorded in Book 4267, Page 370,
Mecklenburg County Public Registry; thence with the northeasterly boundary of
the Borough Land N. 34-23-40 W. 400.36 feet to the BEGINNING, containing 19.7996
acres, all as shown on survey prepared by R.B. Pharr & Associates, P.A. dated
September 15, 1986 (File No. W-916).
TOGETHER with the right to use, in common with others, that certain 60-foot
non-exculsive access easement and drainage easement recorded in Book 4253, Page
767, Mecklenburg County Public Registry.
STC Properties
<PAGE>
DEED BOOK PAGE
5484 0761
EXHIBIT B
Permitted Exceptions to Deed From Bruton Smith and wife Bonnie J. Smith to STC
Properties dated April 24, 1987.
1. Taxes for the year 1987, not yet due and payable.
2. Deed of Trust to William H. Cannon, Trustee for NCNB National Bank of North
Carolina, recorded in Book 4163, Page 32, Mecklenburg County Public
Registry.
3. Deed of Trust to Trustee for NCNB National Bank of North Carolina, recorded
in Book 4616, Page 156, Mecklenburg County Public Registry.
4. Deed of Trust to Trustee for NCNB National Bank of North Carolina, recorded
in Book 4874, Page 20, Mecklenburg County Public Registry.
5. Right of way to the City of Charlotte, recorded in Book 4253, Page 764,
Mecklenburg County Public Registry.
6. Terms and conditions of that 60-foot non-exculsive access easement and
drainage easement recorded in Book 4253, Page 767; fee title to land under
access easement is subject to Deed of Trust recorded in Book 4253, Page
769.
7. Easement for Retention Pond, recorded in Book 4394, Page 614.
8. Rights of tenant(s) in possession under unrecorded lease(s).
9. Such state of facts occurring subsequent to September 15, 1986, date of
survey by R.B. Pharr, as would be disclosed by a current accurate survey
and inspection of the premises.
LEASE
By and Between
JAG PROPERTIES LLC
as Lessor
And
JAGUAR OF CHATTANOOGA LLC
as Lessee
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Description and Term ................................................ 1
(a) Description .................................................... 1
(b) Term ........................................................... 1
(c) Possession ..................................................... 1
2. Rent ................................................................ 1
3. Covenant to Pay Rent and Use ........................................ 2
4. "For Sale" and "To Let" Signs ....................................... 2
5. Acceptance of Premises, Maintenance
and Improvements .................................................. 2
6. Governmental Requirements ........................................... 3
7. Parking Area and Driveways .......................................... 3
8. Permits ............................................................. 3
9 Insurance ........................................................... 3
10. Condemnation ........................................................ 5
11. Covenant on Proceeds ................................................ 5
12. Defaults ............................................................ 6
13. Electrical Wiring ................................................... 7
14. Waiver of Requirements .............................................. 7
15. Notices ............................................................. 7
16. Right to Sublease or Assign ......................................... 8
17 Surrender ........................................................... 8
18. Estoppel Certificates ............................................... 8
19. Construction of Lease ............................................... 8
20. Captions ............................................................ 8
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<PAGE>
21. Taxes ............................................................... 8
22. Lease Acceptance .................................................... 9
23. Binding Upon Successor .............................................. 9
24. Attorney Fees ....................................................... 9
25. Definition of Lessor; Liability of
Lessor Limited .................................................... 9
SIGNATURES
EXHIBIT A Property Description
-ii-
<PAGE>
LEASE
THIS LEASE by and between JAG PROPERTIES LLC, a Tennessee Limited Liability
Company herein collectively called the "Lessor," and JAGUAR OF CHATTANOOGA LLC,
a Tennessee Limited Liability Company, hereinafter called the "Lessee."
W I T N E S S E T H:
WHEREAS, the Lessee herein desires to lease from Lessor and the Lessor
desires to lease to the Lessee certain premises hereinafter described.
NOW, THEREFORE, in consideration of the covenants, terms, and conditions
hereinafter set forth, Lessor and Lessee agree as follows:
1. Description and Term. In consideration of the rents hereinafter reserved
and all terms, conditions, covenants, and agreements hereinafter contained, the
Lessor hereby leases and demises to the Lessee, and the Lessee hereby hires,
leases and takes from the Lessor the following-described property (hereinafter
called the "Premises"), to wit:
(a) Description. The Premises, the subject of this Lease between
Lessor and Lessee, is the land and buildings located on the real property
more particularly described on Exhibit A attached hereto.
(b) Term. The term of this Lease shall be twenty-two (22) years from
January 1, 1995 until December 31, 2017.
(c) Possession. Lessee's possession of the Premises, carries with it
all the obligations of Lessee under this Lease, including all covenants and
conditions and all responsibilities.
2. Rent. The annual rental for the first five (5) years of the term of this
Lease shall be Eighty Seven Thousand Six Hundred Forty-Eight Dollars
($87,648.00). The Lessee agrees to pay said rent in lawful money of the United
States in equal monthly installments of Seven Thousand Three Hundred Four
Dollars ($7,304.00) in advance of the first day of the Lease term beginning
February 1, 1995 and thereafter upon the same day of each successive month
during the term, at the office of the Lessor or at such other place as Lessor
may designate. Upon the expiration of
<PAGE>
the first five (5) years of the term of this Lease, the rent shall be adjusted
by an amount equal to forty percent (40%) of the increase, if any, in the debt
service amount payable under Lessor's loan (or any renewal, extension,
modification or replacement thereof) secured by the Premises. Lessor shall
notify Lessee of the amount of such rent adjustment, and said rent shall be paid
in equal monthly installments in advance of the first day of each month for the
remainder of the term of this Lease.
3. Covenant to Pay Rent and Use. In consideration of the foregoing letting,
the Lessee does hereby covenant and agree as follows:
(a) To pay rent as aforementioned and herein provided;
and
(b) Not to use and not to permit or suffer the use of the Premises for
illegal or unlawful purposes, but for an automobile dealership for the
purpose of selling and servicing new and used automobiles.
4. "For Sale" and "To Let" Signs. During the last six (6) months of the
term of this Lease or any renewals thereof, unless the Lessee has given a notice
to renew pursuant to paragraph 3 of this Lease, the Lessor may maintain "To Let"
or "For Sale" signs upon the Premises and may freely exhibit the Premises to any
prospective tenants and/or purchasers; provided, however, that Lessor has
notified Lessee of such exhibition and it occurs during reasonable times after
normal business hours or as otherwise agreed.
5. Acceptance of Premises, Maintenance and Improvements. At the
commencement of the term, the Lessee accepts the land and buildings in their
existing condition. No representation, statement or warranty, express or
implied, has been made by or on behalf of the Lessor as to such condition, or as
to the use that may be of such property. In no event shall the Lessor be liable
for any defect in such property or for any limitation in its use.
-2-
<PAGE>
Lessor shall have no further responsibility for maintenance or repairs of the
Premises after the beginning of the term of this Lease. Lessee agrees to make
all interior and exterior repairs and/or improvements to the buildings at its
own expense and to reasonably maintain the Premises for the term of the Lease.
Lessee shall at the end of the Lease term, or any renewal thereof, return the
Premises to the Lessor in as good a condition as when the Lease term began,
excepting damage caused by fire or other catastrophe not resulting from Lessee's
gross negligence and excepting ordinary wear and tear. Lessee shall make no
repairs, alterations or improvements to the Premises which would affect the
structural integrity of the Premises without first requesting permission to do
so from the Lessor and obtaining written approval from Lessor; provided,
however, such written approval shall not be unreasonably withheld.
6. Governmental Requirements. The Lessee agrees that it shall comply with
all requirements of all laws, orders, ordinances, and regulations which shall
impose any duty upon the owner or occupant of the Premises.
7. Parking Area and driveways. Lessee specifically covenants to Lessor and
agrees to maintain for the full term of this Lease, and any renewals thereof,
the driveways and parking areas which are a part of the Premises.
8. Permits. Any permits required from any governmental agency because of
the use of the Premises by the Lessee shall be secured by the Lessee and shall
be its sole obligation and the failure to obtain any such permit or the
revocation of any such permit at any time shall in no way alter the terms or
conditions of this Lease.
9. Insurance.
(a) From the date hereof and until the end of the term of this Lease, or
any renewals thereof, the Lessee shall keep the Premises insured, at its sole
cost and expense, against claims for personal injury or property damage under a
policy of general public liability insurance, with limits of at least
$200,000/$500,000 for bodily injury, and $100,000 for property damage. Such
policies shall name the Lessor and the Lessee as the insureds. The public
liability policy or a certificate thereof shall be delivered to the
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<PAGE>
Lessor within twenty (20) days of the commencement of the term hereof and
not less than twenty (20) days before its expiration date during the term of
this Lease, and any renewals thereof.
(b) From the date hereof until the end of the term of this Lease, or any
renewals thereof, the Lessee shall keep its improvements which do not become
fixtures insured with fire and extended coverage insurance in an amount equal to
one hundred percent (100%) of the full replacement cost of said improvements.
Any policy providing such coverage shall contain the so-called special coverage
all-risk endorsement and the full replacement cost endorsement.
(c) From the date hereof until the end of the term of this Lease, or any
renewals thereof, Lessee shall keep the Premises insured at its sole cost and
expense for fire and extended coverage insurance. The policy providing such
coverage shall contain the so-called special coverage all-risk endorsement.
(d) All policies of insurance required to be maintained by the Lessee shall
name the Lessee and Lessor as the insureds as their respective interests may
appear.
(e) All insurance required to be maintained by the Lessee shall be effected
by valid and enforceable policies issued by insurers of recognized
responsibility, satisfactory to the Lessor.
(f) Lessor shall cause any insurance policy carried by him, and Lessee
shall cause each insurance policy carried by it insuring the fixtures of the
buildings and contents in the Premises to be written in such a manner so as to
provide that the insurance company will waive all right of recovery by way of
subrogation against Lessor or Lessee in connection with any loss or damage
covered by any such policies. Neither party shall be liable to the other for any
loss or damage caused by fire or any of the risks enumerated in standard
extended coverage insurance. If the release or either Lessor or Lessee, as set
forth in the preceding sentence of this paragraph, shall contravene any law with
respect to exculpatory agreements, the liability of the party in question shall
be deemed not released but shall be deemed secondary to the latter's insurer.
Lessor shall not do or permit to be done any act
- 4-
<PAGE>
or thing upon the Premises that would invalidate or be in conflict with fire
insurance policies covering the land and buildings.
10. Condemnation. The parties hereto agree that should the Premises, or
such portion thereof as will make the Premises unusable for the purposes herein
leased, be taken or condemned by competent authority for public or quasi-public
use, then this Lease shall, at the Lessee's option, terminate from the date when
possession of the parts so taken shall be required for the use and purpose for
which they had been taken. During any period in which there is less than
complete interference with the operation of the business in the Premises, then
the rent owing by the Lessee shall be abated in proportion to gross revenues
volume at the Premises during such period of interference as it relates and
compares to the gross revenue of the Premises during the last full month of
operation of the Premises prior to such interference. In the event that the
means of ingress and egress are in any way blocked or partially blocked as a
result of any road construction or other improvements, Lessor agrees to make an
abatement of rent during such period of construction or improvement. All
compensation awarded for such taking of the fee and leasehold shall belong to
and be the property of the Lessor; provided, however, that the Lessor shall not
be entitled to any portion of the award made to the Lessee for loss of business
and for the cost of removal of any stock or other furnishings which have not
become fixtures. Lessee shall, notwithstanding anything above to the contrary,
have the right to participate as a party in any condemnation proceedings to the
extent of its leasehold interest in the property and any interest in
improvements to the property which have not vested in Lessor.
11. Covenant on Proceeds. If all or part of the Premises shall be damaged
or destroyed by fire or other casualty, insured under the standard fire
insurance policy with so-called special coverage all-risk endorsement required
pursuant to paragraph 10(c), Lessor shall, except as otherwise provided herein,
repair and/or rebuild the same with reasonable diligence, but Lessor's
obligation hereunder shall not include the improvements or betterments applied
by any other party, unless such improvements or betterments become fixtures.
Nothing hereinabove contained shall impose upon Lessor any liability or
responsibility to replace or repair any property belonging to Lessee. This Lease
shall continue in full force and effect, but rent and additional rent, if any,
shall abate from the
-5-
<PAGE>
date of such damage until ten (10) days after the Lessor has repaired or
restored said buildings in the manner and in the condition provided in this
section and notified Lessee of such fact. In the event that a part of the
Premises is rendered untenable or not suitable for use for the conduct of
Lessee's business therein, a just and proportionate part of the rent shall be
abated from the date of such damage until ten (10) days after Lessor has
repaired same and notified Lessee of such fact. Furthermore, in connection with
the above, Lessee shall receive a credit or refund, whichever is appropriate, of
any rent paid in advance.
Notwithstanding anything to the contrary contained in the preceding
paragraph, either party may at its option terminate this Lease on thirty (30)
days' notice to the other given within ninety (90) days after the occurrence of
any damage or destruction of (i) the destruction or damage is caused as a result
of a risk not covered by Lessee's insurance policies, (ii) the Premises are
damaged or destroyed during the last eighteen months of the Lease term or any
renewal term, or (iii) the Premises are completely destroyed or so damaged by
fire or other casualty as to render it unfit for use as an outpatient radiation
therapy facility and the insurance coverage is insufficient in amount to pay in
full for necessary repairs and restoration and if either party deems such
repairs or restoration economically unfeasible.
12. Defaults. If Lessee should default in the payment of any rental or
monies due hereunder when due, or be in default of any covenant, agreement or
condition herein provided for, or abandon or vacate the Premises, or bankrupt or
make an assignment for benefit of creditors, or in the event a receiver is
appointed for Lessee, then, upon the occurrence of any one or more of such
contingencies and after the Lessee has been given notice by Certified Mail of
such default, Lessee shall have ten (10) days after the receipt of such notice
within which to correct such default or defaults, or if such default shall be of
such nature that it cannot be cured completely within such 10-day period, the
Lessee shall commence to cure such default or defaults within the 10-day period
and shall thereafter proceed with reasonable diligence and in good faith to
remedy such default; otherwise, this Lease may be cancelled at the option of the
Lessor and all rights of the Lessee terminated. In the event of such
cancellation and termination, Lessor shall have
-6-
<PAGE>
the immediate right or at any time thereafter to re-enter and take possession of
the Premises.
The Lessee shall be liable for the cost of seizure and repossession of the
Premises and reasonable attorneys' fees incurred as a result of the seizure and
repossession of the Premises.
Upon regaining possession of the Premises and upon re-entry therein and the
removal of all persons and property therefrom, Lessor shall relet the Premises
at a reasonable rental and upon such terms as may be reasonably obtained under
the circumstances and hold Lessee liable for any deficiency. Lessor is
authorized to make all necessary repairs, changes, and alterations in or to the
Premises for the new tenant.
13. Electrical Wiring. The occupancy of the Premises by Lessee shall
constitute acceptance of the electrical wiring as it is with no further
obligation upon the Lessor to repair or improve said wiring, and specifically
the Lessee's occupancy constitutes acceptance of the electrical wiring as
suitable for its use and purposes in the Premises and the Lessor shall have no
obligation whatsoever because of said wiring. It is further understood that the
signature of the Lessee hereto constitutes a waiver of any liability on the part
of the Lessor in case of a fire or other calamity caused by said electrical
wiring after occupancy.
14. Waiver of Requirements. No requirement whatsoever of this Lease shall
be deemed waived or varied, nor shall the Lessor's acceptance of any payment
with knowledge of any default or of Lessor's failure or delay to take advantage
of any default constitute a waiver of the Lessor's rights thereby nor of any
subsequent or continued breach of any requirement of this Lease. All remedies
herein provided for shall be in addition to, and not in substitution for, any
remedies otherwise available to the Lessor.
15. Notices. All notices to be given under this Lease shall be in writing
and shall either be served personally or sent by Certified Mail to the address
of the parties below specified. The Lessor's address for notices shall be 5915
Brainerd Road, Chattanooga, Tennessee 37411. The Lessee's address for notices
shall be 5915 Brainerd Road, Chattanooga, Tennessee 37411.
-7-
<PAGE>
16. Right to Sublease or Assign. Lessee shall not have the right to
sublease or assign the Premises in whole or in part.
17. Surrender. Upon the expiration or other termination of the term of this
Lease, or any renewals thereof, Lessee shall quit and surrender to Lessor the
Premises, together with all buildings and improvements which became fixtures,
broom clean, in good order and condition, damage caused by fire or other
catastrophe not resulting from Lessee's gross negligence excepted, and ordinary
wear and tear also excepted. Lessee shall remove all property to be removed at
the expense of the Lessee, and Lessee hereby agrees to pay all costs and
expenses thereby incurred. Lessee's obligations to observe or perform this
covenant shall survive the expiration or other termination of the term of this
Lease.
18. Estoppel Certificates. Lessee agrees to execute and deliver to Lessor
or Lessor's mortgagee or financial institution estoppel certificates in form and
substance reasonably required by any lender of Lessor, together with such
additional documents as such lender may reasonably request.
19. Construction of Lease. Words of any gender used in this Lease shall be
held to include any other gender, and words in the singular number shall be held
to include the plural, when sense requires. Wherever used herein, the words
"Lessor" and "Lessee" shall be deemed to include the heirs, personal
representatives, successors, sublessees and assigns of said parties, unless the
context excludes such construction.
20. Captions. The paragraph captions as to contents of particular
paragraphs herein are inserted only for convenience and are in no way to be
construed as part of this Lease or as a limitation on the scope of the
particular paragraph to which they refer.
21. Taxes. Lessee agrees to pay all real estate taxes and assessments on
the land and buildings due and payable during the term of this Lease, or any
renewals thereof.
-8-
<PAGE>
22. Lease acceptance. This Lease contains all the oral and written
agreements, representations and arrangements between the parties hereto and any
rights which the respective parties hereto may have had under any previous
contracts or oral arrangements are hereby cancelled and terminated and no
representations or warranties are made or implied other than those set forth
herein. No oral agreement or representations for rental shall be deemed to
constitute a lease other than this Lease and not until and unless this Lease
shall have been properly executed by the Lessee and delivered to and executed by
the Lessor.
23. Binding Upon Successors. All provisions herein contained shall bind and
inure to the benefit of the parties hereto, their heirs, personal
representatives, successors and permitted assigns.
24. Attorney Fees. If it should become necessary for Lessor to employ an
attorney to assert any right of Lessor or force any obligation of Lessee
hereunder after default by Lessee, Lessor shall be entitled to recover, in
addition to the other costs and expenses herein provided for, the reasonable
costs and charges of investigation and of such attorney.
25. Definition of Lessor; Liability of Lessor Limited. The term "Lessor" as
used in this Lease means only the owner or ground Lessor for the time being of
the land which constitutes the leased Premises, so that in the event of any sale
or sales of such land, or assignment of the ground lease, or assignment,
transfer or other conveyance of his rights under this Lease, the said Lessor
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Lessor hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser at any such sale, or the successor to
Lessor by reason of any assignment, transfer or other conveyance of Lessor's
interest in this Lease, that such purchaser or successor has assumed and agreed
to perform all of Lessor's obligations hereunder. The preceding sentence shall
also be applicable to all successor lessors. Notwithstanding anything to the
contrary provided in this Lease, it is agreed that Lessor, his heirs, successors
and assigns, shall have absolutely no liability with respect to any of the
terms, covenants and conditions of this Lease, and Lessee hereby expressly
agrees that it shall look solely to the equity of Lessor or his successor(s) in
interest in the leased Premises for the
-9-
<PAGE>
satisfaction of each and every remedy of Lessee in the event of any breach by
Lessor or by such successor in interest of any of the terms, covenants and
conditions of this Lease to be performed by Lessor, such exculpation of personal
liability to be absolute and without any exception whatsoever. Lessee covenants
that no execution shall be levied against Lessor, but only against the leased
Premises, and all judgments shall be so indexed.
IN WITNESS WHEREOF, the parties have hereunto set their hands this 13th day
of January, 1995.
LESSOR:
JAG PROPERTIES LLC
/s/ Nelson E. Bowers II, Chief Manager
-------------------------------------
By: Nelson E. Bowers II, Chief Manager
LESSEE:
JAGUAR OF CHATTANOOGA LLC
/s/ Nelson E. Bowers II, Chief Manager
-------------------------------------
By: Nelson E. Bowers II, Chief Manager
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<PAGE>
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence) and who, upon oath, acknowledged
himself to be the Chief Manager of JAG PROPERTIES LLC, the within-named
bargainor, or, a Limited Liability Company, and that he as such Manager,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the Limited Liability Company as he is authorized so to do.
WITNESS my hand and seal this 13th day of January, 1995.
/s/ [illegible]
---------------------------
Notary Public
My commission expires: 5/6/98
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence), and who, upon oath, acknowledged
himself to be the Chief Manager of JAGUAR OF CHATTANOOGA LLC, the within-named
bargainor, or, a Limited Liability Company, and that he as such Manager,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the Limited Liability Company as he is authorized so to do.
WITNESS my hand and seal this 13th day of January, 1995.
/s/ [illegible]
---------------------------
Notary Public
My commission expires: 5/6/98
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<PAGE>
Exhibit A
[FLOOR PLAN]
LEASE
By and Between
NELSON E. BOWERS II and THOMAS M. GREEN, JR.,
as Lessor
And
INFINITI OF CHATTANOOGA, INC.,
as Lessee
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
RECITALS ................................................................... 1
1. Description and Term ................................................... 1
(a) Street Address ..................................................... 1
(b) Description ........................................................ 1
(c) Term ............................................................... 1
(d) Possession ......................................................... 1
2. Rent ................................................................... 2
3. Covenant to Pay Rent and Use ........................................... 2
4. "For Sale" and "To Let" Signs .......................................... 2
5. Acceptance of Premises, Maintenance
and Improvements ...................................................... 3
6. Governmental Requirements .............................................. 3
7. Parking Area and Driveways ............................................. 3
8. Permits ................................................................ 3
9. Insurance .............................................................. 4
10. Condemnation ........................................................... 5
11. Covenant on Proceeds ................................................... 6
12. Defaults ............................................................... 6
13. Electrical Wiring ...................................................... 7
14. Waiver of Requirements ................................................. 7
15. Notices ................................................................ 8
16. Right to Sublease or Assign ............................................ 8
17. Surrender .............................................................. 8
18. Estoppel Certificates .................................................. 8
19. Construction of Lease .................................................. 8
20. Captions ............................................................... 9
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<PAGE>
21. Taxes ................................................................. 9
22. Lease Acceptance ...................................................... 9
23. Binding Upon Successor ................................................ 9
24. Attorney Fees ......................................................... 9
25. Definition of Lessor; Liability of
Lessor Limited....................................................... 9
SIGNATURES
EXHIBIT A Property Description
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<PAGE>
LEASE
THIS LEASE by and between NELSON E. BOWERS II and THOMAS M. GREEN, JR.,
hereinafter collectively called the "Lessor," and INFINITI OF CHATTANOOGA, INC.,
a Tennessee corporation, hereinafter called the "Lessee."
W I T N E S S E T H:
WHEREAS, the Lessee herein desires to lease from Lessor and the Lessor
desires to lease to the Lessee certain premises hereinafter described.
NOW, THEREFORE, in consideration of the covenants, terms, and conditions
hereinafter set forth, Lessor and Lessee agree as follows:
1. Description and Term. In consideration of the rents hereinafter reserved
and all terms, conditions, covenants, and agreements hereinafter contained, the
Lessor hereby leases and demises to the Lessee, and the Lessee hereby hires,
leases and takes from the Lessor the following-described property (hereinafter
called the "Premises"), to wit:
(a) Street Address: 5915 Brainerd Road, Chattanooga, Tennessee 37421.
(b) Description. The Premises, the subject of this Lease between
Lessor and Lessee, is the land and buildings located on the real property
more particularly described on Exhibit A attached hereto.
(c) Term. The term of this Lease shall be twenty-six (26) years from
July 1, 1991 until June 30, 2017.
(d) Possession. Lessee shall have the right to immediate possession of
the Premises. Lessee's possession, however, carries with it all the
obligations of Lessee under this Lease, including all covenants and
conditions and all responsibilities.
<PAGE>
2. Rent. The annual rental for the first three (3) years of the term of
this Lease shall be One Hundred Eighty-Three Thousand Dollars ($183,000.00). The
Lessee agrees to pay said rent in lawful money of the United States in equal
monthly installments of Fifteen Thousand, Two Hundred Fifty Dollars ($15,250.00)
in advance of the first day of the Lease term beginning July 1, 1991 and
thereafter upon the same day of each successive month during the term, at the
office of the Lessor or at such other place as Lessor may designate. Upon the
expiration of the first three (3) years of the term of this Lease, the rent
shall be adjusted by an amount equal to the increase, if any, in the debt
service amount pay under Lessor's loan (or any renewal, extension, modification
or replacement thereof) for the acquisition of the Premises. Lessor shall notify
Lessee of the amount of such rent adjustment, and said rent shall be paid in
equal monthly installments in advance of the first day of each month for the
remainder of the term of this Lease.
3. Covenant to Pay Rent and Use. In consideration of the foregoing letting,
the Lessee does hereby covenant and agree as follows:
(a) To pay rent as aforementioned and herein provided; and
(b) Not to use and not to permit or suffer the use of the Premises for
illegal or unlawful purposes, but for an automobile dealership for the
purpose of selling and servicing new and used automobiles.
4. "For Sale" and "To Let" Signs. During the last six (6) months of the
term of this Lease or any renewals thereof, unless the Lessee has given a notice
to renew pursuant to paragraph 3 of this Lease, the Lessor may maintain "To Let"
or "For Sale" signs upon the Premises and may freely exhibit the Premises to
any prospective tenants and/or purchasers; provided, however, that Lessor has
notified Lessee of such exhibition and it occurs during reasonable times after
normal business hours or as otherwise agreed.
-2-
<PAGE>
5. Acceptance of Premises Maintenance and Improvements. At the commencement
of the term, the Lessee accepts the land and buildings in their existing
condition. No representation, statement or warranty, express or implied, has
been made by or on behalf of the Lessor as to such condition, or as to the use
that may be of such property. In no event shall the Lessor be liable for any
defect in such property or for any limitation in its use.
Lessor shall have no further responsibility for maintenance or repairs of
the Premises after the beginning of the term of this Lease. Lessee agrees to
make all interior and exterior repairs and/or improvements to the buildings at
its own expense and to reasonably maintain the Premises for the term of the
Lease. Lessee shall at the end of the Lease term, or any renewal thereof, return
the Premises to the Lessor in as good a condition as when the Lease term began,
excepting damage caused by fire or other catastrophe not resulting from Lessee's
gross negligence and excepting ordinary wear and tear. Lessee shall make no
repairs, alterations or improvements to the Premises which would affect the
structural integrity of the Premises without first requesting permission to do
so from the Lessor and obtaining written approval from Lessor; provided,
however, such written approval shall not be unreasonably withheld.
6. Governmental Requirements. The Lessee agrees that it shall comply with
all requirements of all laws, orders, ordinances, and regulations which shall
impose any duty upon the owner or occupant of the Premises.
7. Parking Area and Driveways. Lessee specifically covenants to Lessor and
agrees to maintain for the full term of this Lease, and any renewals thereof,
the driveways and parking areas which are a part of the Premises.
8. Permits. Any permits required from any governmental agency because of
the use of the Premises by the Lessee shall be secured by the Lessee and shall
be its sole obligation and the failure to obtain any such permit or the
revocation of any such permit at any time shall in no way alter the terms or
conditions of this Lease.
-3-
<PAGE>
9. Insurance.
(a) From the date hereof and until the end of the term of this Lease, or
any renewals thereof, the Lessee shall keep the Premises insured, at its sole
cost and expense, against claims for personal injury or property damage under a
policy of general public liability insurance, with limits of at least
$200,000/$500,000 for bodily injury, and $100,000 for property damage. Such
policies shall name the Lessor and the Lessee as the insureds. The public
liability policy or a certificate thereof shall be delivered to the Lessor
within twenty (20) days of the commencement of the term hereof and not less than
twenty (20) days before its expiration date during the term of this Lease, and
any renewals thereof.
(b) From the date hereof until the end of the term of this Lease, or any
renewals thereof, the Lessee shall keep its improvements which do not become
fixtures insured with fire and extended coverage insurance in an amount equal to
one hundred percent (100%) of the full replacement cost of said improvements.
Any policy providing such coverage shall contain the so-called special coverage
all-risk endorsement and the full replacement cost endorsement.
(c) From the date hereof until the end of the term of this Lease, or any
renewals thereof, Lessee shall keep the Premises insured at its sole cost and
expense for fire and extended coverage insurance. The policy providing such
coverage shall contain the so-called special coverage all-risk endorsement.
(d) All policies of insurance required to be maintained by the Lessee shall
name the Lessee and Lessor as the insureds as their respective interests may
appear.
(e) All insurance required to be maintained by the Lessee shall be effected
by valid and enforceable policies issued by insurers of recognized
responsibility, satisfactory to the Lessor.
(f) Lessor shall cause any insurance policy carried by them, and Lessee
shall cause each insurance policy carried by it insuring the fixtures of the
buildings and contents in the Premises to be written in such a manner so as to
provide that the insurance company will waive all right of recovery by way of
subrogation
-4-
<PAGE>
against Lessor or Lessee in connection with any loss or damage covered by any
such policies. Neither party shall be liable to the other for any loss or damage
caused by fire or any of the risks enumerated in standard extended coverage
insurance. If the release or either Lessor or Lessee, as set forth in the
preceding sentence of this paragraph, shall contravene any law with respect to
exculpatory agreements, the liability of the party in question shall be deemed
not released but shall be deemed secondary to the latter's insurer. Lessor shall
not do or permit to be done any act or thing upon the Premises that would
invalidate or be in conflict with fire insurance policies covering the land and
buildings.
10. Condemnation. The parties hereto agree that should the Premises, or
such portion thereof as will make the Premises unusable for the purposes herein
leased, be taken or condemned by competent authority for public or quasi-public
use, then this Lease shall, at the Lessee's option, terminate from the date when
possession of the parts so taken shall be required for the use and purpose for
which they had been taken. During any period in which there is less than
complete interference with the operation of the business in the Premises, then
the rent owing by the Lessee shall be abated in proportion to gross sales volume
at the Premises during such period of interference as it relates and compares to
the gross sales of the Premises during the last full month of operation of the
Premises prior to such interference. In the event that the means of ingress and
egress are in any way blocked or partially blocked as a result of any road
construction or other improvements, Lessor agrees to make an abatement of rent
during such period of construction or improvement. All compensation awarded for
such taking of the fee and leasehold shall belong to and be the property of the
Lessor; provided, however, that the Lessor shall not be entitled to any portion
of the award made to the Lessee or sublessee for loss of business and for the
cost of removal of any stock or other furnishings which have not become
fixtures. Lessee shall, notwithstanding anything above to the contrary, have the
right to participate as a party in any condemnation proceedings to the extent of
its leasehold interest in the property and any interest in improvements to the
property which have not vested in Lessor.
-5-
<PAGE>
11. Covenant on Proceeds. If all or part of the Premises shall be damaged
or destroyed by fire or other casualty, insured under the standard fire
insurance policy with so-called special coverage all-risk endorsement required
pursuant to paragraph lO(c), Lessor shall, except as otherwise provided herein,
repair and/or rebuild the same with reasonable diligence, but Lessor's
obligation hereunder shall not include the improvements or betterments applied
by any other party, unless such improvements or betterments become fixtures.
Nothing hereinabove contained shall impose upon Lessor any liability or
responsibility to replace or repair any property belonging to Lessee. This Lease
shall continue in full force and effect, but rent and additional rent, if any,
shall abate from the date of such damage until ten (10) days after the Lessor
has repaired or restored said buildings in the manner and in the condition
provided in this section and notified Lessee of such fact. In the event that a
part of the Premises is rendered untenable or not suitable for use for the
conduct of Lessee's business therein, a just and proportionate part of the rent
shall be abated from the date of such damage until ten (10) days after Lessor
has repaired same and notified Lessee of such fact. Furthermore, in connection
with the above, Lessee shall receive a credit or refund, whichever is
appropriate, of any rent paid in advance.
Notwithstanding anything to the contrary contained in the preceding
paragraph, either party may at its option terminate this Lease on thirty (30)
days' notice to the other given within ninety (90) days after the occurrence of
any damage or destruction of (i) the destruction or damage is caused as a result
of a risk not covered by Lessee's insurance policies, (ii) the Premises are
damaged or destroyed during the last eighteen months of the Lease term or any
renewal term, or (iii) the Premises are completely destroyed or so damaged by
fire or other casualty as to render it unfit for use as a new automobile
dealership and the insurance coverage is insufficient in amount to pay in full
for necessary repairs and restoration and if either party deems such repairs or
restoration economically unfeasible.
12. Defaults. If Lessee should default in the payment of any rental or
monies due hereunder when due, or be in default of any covenant, agreement or
condition herein provided for, or abandon or vacate the Premises, or bankrupt or
make an assignment for benefit of creditors, or in the event a receiver is
appointed for Lessee,
-6-
<PAGE>
then, upon the occurrence of any one or more of such contingencies and after the
Lessee has been given notice by Certified Mail of such default, Lessee shall
have ten (10) days after the receipt of such notice within which to correct such
default or defaults, or if such default shall be of such nature that it cannot
be cured completely within such 10-day period, the Lessee shall commence to cure
such default or defaults within the 10-day period and shall thereafter proceed
with reasonable diligence and in good faith to remedy such default; otherwise,
this Lease may be cancelled at the option of the Lessor and all rights of the
Lessee terminated. In the event of such cancellation and termination, Lessor
shall have the immediate right or at any time thereafter to re-enter and take
possession of the Premises.
The Lessee shall be liable for the cost of seizure and repossession of the
Premises and reasonable attorneys' fees incurred as a result of the seizure and
repossession of the Premises.
Upon regaining possession of the Premises and upon re-entry therein and the
removal of all persons and property therefrom, Lessor shall relet the Premises
at a reasonable rental and upon such terms as may be reasonably obtained under
the circumstances and hold Lessee liable for any deficiency. Lessor is
authorized to make all necessary repairs, changes, and alterations in or to the
Premises for the new tenant.
13. Electrical Wiring. The signing of this Lease shall constitute
acceptance of the electrical wiring as it is with no further obligation upon the
Lessor to repair or improve said wiring, and specifically the Lessee's signature
to this Lease constitutes acceptance of the electrical wiring as suitable for
its use and purposes in the Premises and the Lessor shall have no obligation
whatsoever because of said wiring. It is further understood that the signature
of the Lessee hereto constitutes a waiver of any liability on the part of the
Lessor in case of a fire or other calamity caused by said electrical wiring.
14. Waiver of Requirements. No requirement whatsoever of this Lease shall
be deemed waived or varied, nor shall the Lessor's acceptance of any payment
with knowledge of any default or of Lessor's failure or delay to take advantage
of any default constitute a waiver of the Lessor's rights thereby nor of any
-7-
<PAGE>
subsequent or continued breach of any requirement of this Lease. All remedies
herein provided for shall be in addition to, and not in substitution for, any
remedies otherwise available to the Lessor.
15. Notices. All notices to be given under this Lease shall be in writing
and shall either be served personally or sent by Certified Mail to the address
of the parties below specified. The Lessor's address for notices shall be 217
Colmore Circle, Lookout Mountain, Tennessee 37350. The Lessee's address for
notices shall be 5915 Brainerd Road, Chattanooga, Tennessee 37421.
16. Right to Sublease or Assign. Lessee shall not have the right to
sublease or assign the Premises in whole or in part.
17. Surrender. Upon the expiration or other termination of the term of this
Lease, or any renewals thereof, Lessee shall quit and surrender to Lessor the
Premises, together with all buildings and improvements which became fixtures,
broom clean, in good order and condition, damage caused by fire or other
catastrophe not resulting from Lessee's gross negligence excepted, and ordinary
wear and tear also excepted. Lessee shall remove all property to be removed at
the expense of the Lessee, and Lessee hereby agrees to pay all costs and
expenses thereby incurred. Lessee's obligations to observe or perform this
covenant shall survive the expiration or other termination of the term of this
Lease.
18. Estoppel Certificates. Lessee agrees to execute and deliver to Lessor
or Lessor's mortgagee or financial institution estoppel certificates in form and
substance reasonably required by any lender of Lessor, together with such
additional documents as such lender may reasonably request.
19. Construction of Lease. Words of any gender used in this Lease shall be
held to include any other gender, and words in the singular number shall be held
to include the plural, when sense requires. Wherever used herein, the words
"Lessor" and "Lessee" shall be deemed to include the heirs, personal
representatives, successors, sublessees and assigns of said parties, unless the
context excludes such construction.
-8-
<PAGE>
20. Captions. The paragraph captions as to contents of particular
paragraphs herein are inserted only for convenience and are in no way to be
construed as part of this Lease or as a limitation on the scope of the
particular paragraph to which they refer.
21. Taxes. Lessee agrees to pay all real estate taxes and assessments on
the land and buildings due and payable during the term of this Lease, or any
renewals thereof.
22. Lease Acceptance. This Lease contains all the oral and written
agreements, representations and arrangements between the parties hereto and any
rights which the respective parties hereto may have had under any previous
contracts or oral arrangements are hereby cancelled and terminated and no
representations or warranties are made or implied other than those set forth
herein. No oral agreement or representations for rental shall be deemed to
constitute a lease other than this Lease and not until and unless this Lease
shall have been properly executed by the Lessee and delivered to and executed by
the Lessor.
23. Binding Upon Successors. All provisions herein contained shall bind and
inure to the benefit of the parties hereto, their heirs, personal
representatives, successors and permitted assigns.
24. Attorney Fees. If it should become necessary for Lessor to employ an
attorney to assert any right of Lessor or force any obligation of Lessee
hereunder after default by Lessee, Lessor shall be entitled to recover, in
addition to the other costs and expenses herein provided for, the reasonable
costs and charges of investigation and of such attorney.
25. Definition of Lessor: Liability of Lessor Limited. The term "Lessor" as
used in this Lease means only the owner or ground Lessor for the time being of
the land which constitutes the leased Premises, so that in the event of any sale
or sales of such land, or assignment of the ground lease, or assignment,
transfer or other conveyance of his rights under this Lease, the said Lessor
shall be and hereby is entirely freed and relieved of all covenants and
obligations of Lessor hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser at any such sale, or the successor to
Lessor by reason of any
-9-
<PAGE>
assignment, transfer or other conveyance of Lessor's interest in this Lease,
that such purchaser or successor has assumed and agreed to perform all of
Lessor's obligations hereunder. The preceding sentence shall also be applicable
to all successor lessors. Notwithstanding anything to the contrary provided in
this Lease, it is agreed that Lessor, his heirs, successors and assigns, shall
have absolutely no liability with respect to any of the terms, covenants and
conditions of this Lease, and Lessee hereby expressly agrees that it shall look
solely to the equity of Lessor or his successor(s) in interest in the leased
Premises for the satisfaction of each and every remedy of Lessee in the event of
any breach by Lessor or by such successor in interest of any of the terms,
covenants and conditions of this Lease to be performed by Lessor, such
exculpation of personal liability to be absolute and without any exception
whatsoever. Lessee covenants that no execution shall be levied against Lessor,
but only against the leased Premises, and all judgments shall be so indexed.
IN WITNESS WHEREOF the parties have hereunto set their hands this 18th day
of October, 1991.
LESSOR:
/s/ Nelson E. Bowers II
-------------------------
Nelson E. Bowers II
/s/ Thomas M. Green, Jr.
-------------------------
Thomas M. Green, Jr.
LESSEE:
INFINITI OF CHATTANOOGA, INC.
By: /s/ Nelson E. Bowers II
---------------------------
Title: Pres.
---------------------------
-10-
<PAGE>
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence) and who, upon oath, acknowledged
himself to be the person who executed the foregoing instrument, and that he
executed the same as his free act and deed.
WITNESS my hand an seal this 18th day of October, 1991.
/s/ Betty A. Alexander
------------------------
Notary Public
My commission expires: 7/26/95
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared THOMAS M. GREEN, JR., with whom I am personally acquainted (or proved
to me on the basis of satisfactory evidence) and who, upon oath, acknowledged
himself to be the person who executed the foregoing instrument, and that he
executed the same as his free act and deed.
WITNESS my hand an seal this 18th day of October, 1991.
/s/ Betty A. Alexander
------------------------
Notary Public
My commission expires: 7/26/95
-11-
<PAGE>
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared Nelson E. Bowers II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence), and who, upon oath, acknowledged
himself to be the President of INFINITI OF CHATTANOOGA, INC., the within-named
bargainor, a corporation, and that he as such officer, executed the foregoing
instrument for the purposes therein contained, by signing the name of the
corporation as he is authorized so to do.
WITNESS my hand an seal this 18th day of October, 1991.
/s/ Betty A. Alexander
------------------------
Notary Public
My commission expires: 7/26/95
-12-
AMENDMENT TO LEASE AGREEMENT
This Amendment entered into as of this the 13th day of January, 1995, by
and among Nelson E. Bowers II and Thomas M. Green, Jr. hereinafter collectively
referred to as the "Assignor"; JAG Properties LLC a Tennessee Limited Liability
Company hereinafter called the "Lessor" and Infiniti of Chattanooga, Inc. a
Tennessee Corporation, hereinafter called the "Lessee."
RECITALS
WHEREAS, Assignor transferred by Quitclaim Deed all of its right, title,
and interest in 5915 Brainerd Road, Chattanooga, Tennessee to Lessor on January
13, 1995; and
WHEREAS, Lessor desires that Assignor transfer all of its right, title, and
interest in the Lease Agreement dated October 18, 1991, by and between Assignor
and Lessee (the "Lease"); and
WHEREAS, Lessor desires to amend the Lease; and
WHEREAS, Lessee has entered into this Amendment for the express purpose
of consenting to the assignment and amending the Lease,
NOW, THEREFORE, the parties intending to be legally bound agree as follows:
1. The parties agree that paragraph 1. (b) of the Lease be amended by
deleting the Exhibit A thereon and adopting the Exhibit A attached to this
Amendment as the "Premises."
2. The parties agree that paragraph 2. of the Lease be amended by deleting
said paragraph in its entirety and adding the following new paragraph 2.:
2. Rent. The annual rental for the next five (5) years of the term of
this Lease shall be One Hundred Thirty-One Thousand Four Hundred
Seventy-two Dollars ($131,472.00). The Lessee agrees to pay said rent in
lawful money of the United States in equal monthly installments of Ten
Thousand Nine Hundred Fifty-Six Dollars ($10,956.00) in advance of the
first day of each month beginning February 1, 1995 and thereafter upon the
same day of each successive month during the term, at the office of the
Lessor or at such other place as Lessor may designate. Upon the expiration
of said five (5) year term, the rent shall be adjusted by an amount equal
to sixty percent (60%) of the increase, if any, in the debt service amount
payable under Lessor's loan (or any renewal, extension,
<PAGE>
modification or replacement thereof) secured by the Premises. Lessor shall
notify Lessee of the amount of such rent adjustment, and said rent shall be
paid in equal monthly installments in advance of the first day of each
month for the remainder of the term of this Lease.
3. Lessee has joined in this Amendment for the express purpose of
consenting to this Amendment and the assignment by Assignor to Lessor of the
Lease. Lessee further agrees to be bound by all of the terms, covenants and
conditions of the Lease as amended by this Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment to Lease as of
the day first above written.
LESSOR:
JAG PROPERTIES LLC
By: /s/ Nelson E. Bowers II, Chief Manager
------------------------------------------
Nelson E. Bowers II, Chief Manager
LESSEE:
INFINITI OF CHATTANOOGA, INC.
By: /s/ Nelson E. Bowers II, President
------------------------------------------
Nelson E. Bowers II, President
By: /s/ Nelson E. Bowers II, Assignor
------------------------------------------
Nelson E. Bowers II, Assignor
------------------------------------------
Thomas M. Green, Jr., Assignor
2
<PAGE>
STATE OF TENNESSEE )
COUNTY OF HAMILTON )
Before me, a Notary Public of the State and County aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence), and who, upon oath, acknowledged
himself to be Chief Manager of JAG PROPERTIES LLC, the within named bargainor, a
Limited Liability Company, and that he as such Chief Manager executed the
foregoing instrument for the purposes therein contained by signing the name of
the Company by himself as such Manager.
Witness my hand and seal, this 13th day of January, 1995.
/s/ [illegible]
---------------------------
Notary Public
My commission expires: 01-12-97
STATE OF TENNESSEE )
COUNTY OF HAMILTON )
Before me, a Notary Public of the State and County aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence), and who, upon oath, acknowledged
himself to be President of INFINITI OF CHATTANOOGA, INC., the within named
bargainor, a corporation, and that he as such officer executed the foregoing
instrument for the purposes therein contained by signing the name of the
corporation by himself as such officer.
Witness my hand and seal, this 13th day of January, 1995.
/s/ [illegible]
---------------------------
Notary Public
My commission expires: 01-12-97
3
<PAGE>
STATE OF TENNESSEE )
COUNTY OF HAMILTON )
Before me, a Notary Public of the State and County aforesaid,
personally appeared NELSON E. BOWERS II, the within named Assignor, with whom I
am personally acquainted (or proved to me on the basis of satisfactory
evidence), and who acknowledged that he executed the foregoing instrument for
the purposes therein contained.
Witness my hand and seal, this 13th day of January, 1995.
/s/ [illegible]
---------------------------
Notary Public
My commission expires: 01-12-97
STATE OF TENNESSEE )
COUNTY OF HAMILTON )
Before me, a Notary Public of the State and County aforesaid, personally
appeared THOMAS M. GREEN, JR. the within named Assignor, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who acknowledged that he executed the foregoing instrument for the purposes
therein contained.
Witness my hand and seal, this 13th day of January, 1995.
---------------------------
Notary Public
My commission expires:
4
<PAGE>
Exhibit A
[FLOOR PLAN]
LEASE
THIS LEASE by and between CLEVELAND PROPERTIES LLC, a Tennessee Limited
Liability Company hereinafter called the "Lessor," and CLEVELAND
CHRYSLER-PLYMOUTH JEEP-EAGLE, LLC, a Tennessee Limited Liability Company,
hereinafter called the "Lessee."
W I T N E S S E T H:
WHEREAS, the Lessee herein desires to lease from Lessor and the Lessor
desires to lease to the Lessee certain premises hereinafter described.
NOW, THEREFORE, in consideration of the covenants, terms, and conditions
hereinafter set forth, Lessor and Lessee agree as follows:
1. Description and Term. In consideration of the rents hereinafter reserved
and all terms, conditions, covenants, and agreements hereinafter contained, the
Lessor hereby leases and demises to the Lessee, and the Lessee hereby hires,
leases and takes from the Lessor the property located at 2950 South Lee Highway,
Cleveland Tennessee (hereinafter called the Premises).
(a) Description. The Premises, the subject of this Lease between Lessor and
Lessee, is the land and buildings located on the real property more particularly
described on Exhibit A attached hereto.
(b) Term. The term of this Lease shall be fifteen (15) years from April 1,
1996 until March 31, 2011.
(c) Possession. Lessee's possession of the Premises, carries with it all
the obligations of Lessee under this Lease, including all covenants and
conditions and all responsibilities.
2. Rent. The annual rental for the first five (5) years of the term of this
Lease shall be One Hundred Sixty-Eight Thousand and No/100ths Dollars
($168,000.00). The Lessee agrees to pay said rent in lawful money of the United
States in equal monthly installments of Fourteen Thousand and No/l00ths Dollars
($14,000.00) in advance of the first day of the month beginning April 1, 1996,
and thereafter upon the same day of each successive month during the term, at
the office of the Lessor or at such other place as Lessor may designate. Upon
the expiration of the first five (5) years of the term of this Lease, the rent
shall be adjusted by an amount equal to forty percent (40%) of the increase, if
any, in the debt service amount payable under Lessor's loan (or any renewal,
extension, modification or replacement thereof) secured by the Premises. Lessor
shall notify Lessee of the amount of such rent adjustment, and said rent shall
be paid in equal monthly installments in advance of the first day of each month
for the remainder of the term of this Lease.
3. Covenant to Pay Rent and Use. In consideration of the foregoing letting,
the Lessee does hereby covenant and agree as follows:
<PAGE>
(a) To payment as aforementioned and herein provided; and
(b) Not to use and not to permit or suffer the use of the Premises for
illegal or unlawful purposes, but for an automobile dealership for the
purpose of selling and servicing new and used automobiles
4. "For Sale" and "To Let" Signs. During the last six (6) months of the
term of this Lease or any renewals thereof, unless the Lessee has given a notice
to renew pursuant to paragraph 3 of this Lease, the Lessor may maintain "To Let"
or "For Sale" signs upon the Premises and may freely exhibit the Premises to any
prospective tenants and/or purchasers; provided, however, that Lessor has
notified Lessee of such exhibition and it occurs during reasonable times after
normal business hours or as otherwise agreed.
5. Acceptance of Premises, Maintenance and Improvements. At the
commencement of the term, the Lessee accepts the land and buildings in their
existing condition. No representation, statement or warranty express or implied
has been made by or on behalf of the Lessor as to such condition, or as to the
use that may be of such property. In no event shall the Lessor be liable for any
defect in such property or for any limitation in its use.
Lessor shall have no further responsibility for maintenance or repairs of
the Premises after the beginning of the term of this Lease. Lessee agrees to
make all interior and exterior repairs and/or improvements to the buildings at
its own expense and to reasonably maintain the Premises for the term of the
Lease. Lessee shall at the end of the Lease term, or any renewal thereof, return
the Premises to the Lessor in as good a condition as when the Lease term began,
excepting damage caused by fire or other catastrophe not resulting from Lessee's
gross negligence and excepting ordinary wear and tear. Lessee shall make no
repairs, alterations or improvements to the Premises which would affect the
structural integrity of the Premises without first requesting permission to do
so from the Lessor and obtaining written approval from Lessor, provided,
however, such written approval shall not be unreasonably withheld.
6. Governmental Requirements. The Lessee agrees that it shall comply
with all requirements of all laws, orders, ordinances, and regulations which
shall impose any duty upon the owner or occupant of the Premises.
7. Parking Area and Driveways. Lessee specifically covenants to Lessor and
agrees to maintain for the full term of this Lease, and any renewals thereof,
the driveways and parking areas which are a part of the Premises.
8. Permits. Any permits required from any governmental agency because of
the use of the Premises by the Lessee shall be secured by the Lessee and shall
be its sole obligation and the failure to obtain any such permit or the
revocation of any such permit at any time shall in no way alter the terms or
conditions of this Lease.
2
<PAGE>
9. Insurance.
(a) From the date hereof and until the end of the term of this Lease, or
any renewals thereof, the Lessee shall keep the Premises insured, at its sole
cost and expense, against claims for personal injury or property damage under a
policy of general public liability insurance, with limits of at least
$200,000/$500,000 for bodily injury, and $100,000 for property damage. Such
policies shall name the Lessor and the Lessee as the insureds. The public
liability policy or a certificate thereof shall be delivered to the Lessor
within twenty (20) days of the commencement of the term hereof and not less than
twenty (20) days before its expiration date during the term of this Lease, and
any renewals thereof.
(b) From the date hereof until the end of the term of this Lease, or any
renewals thereof, the Lessee shall keep its improvements which do not become
fixtures insured with fire and extended coverage insurance in an amount equal to
one hundred percent (100%) of the full replacement cost of said improvements.
Any policy providing such coverage shall contain the so-called special coverage
all-risk endorsement and the full replacement cost endorsement.
(c) From the date hereof until the end of the term of this Lease, or any
renewals thereof, Lessee shall keep the Premises insured at its sole cost and
expense for fire and extended coverage insurance in the amount of Nine Hundred
Twenty-Five Thousand Dollars ($925,000.00). The policy providing such coverage
shall contain the so-called special coverage all-risk endorsement.
(d) All policies of insurance required to be maintained by the Lessee shall
name the Lessee and Lessor as the insureds as their respective interests may
appear.
(e) All insurance required to be maintained by the Lessee shall be effected
by valid and enforceable policies issued by insurers of recognized
responsibility, satisfactory to the Lessor.
(f) Lessor shall cause any insurance policy carried by him, and Lessee
shall cause each insurance policy carried by it insuring the fixtures of the
buildings and contents in the Premises to be written in such a manner so as to
provide that the insurance company will waive all right of recovery by way of
subrogation against Lessor or Lessee in connection with any loss or damage
covered by any such policies. Neither party shall be liable to the other for any
loss or damage caused by fire or any of the risks enumerated in standard
extended coverage insurance. If the release or either Lessor or Lessee, as set
forth in the preceding sentence of this paragraph, shall contravene any law with
respect to exculpatory agreements, the liability of the party in question shall
be deemed not released but shall be deemed secondary to the latter's insurer.
Lessor shall not do or permit to be done any act or thing upon the Premises that
would invalidate or be in conflict with fire insurance policies covering the
land and buildings.
10. Condemnation. The parties hereto agree that should the Premises, or
such portion thereof as will make the Premises unusable for the purposes herein
leased, be taken or condemned by competent authority for public or quasi-public
use, then this Lease shall, at the Lessee's option,
<PAGE>
terminate from the date when possession of the parts so taken shall be required
for the use and purpose for which they had been taken. During any period in
which there is less than complete interference with the operation of the
business in the Premises, then the rent owing by the Lessee shall be abated in
proportion to gross revenues volume at the Premises during such period of
interference as it relates and compares to the gross revenue of the Premises
during the last full month of operation of the Premises prior to such
interference. In the event that the means of ingress and egress are in any way
blocked or partially blocked as a result of any road construction or other
improvements, Lessor agrees to make an abatement of rent during such period of
construction or improvement. All compensation awarded for such taking of the fee
and leasehold shall belong to and be the property of the Lessor, provided,
however, that the Lessor shall not be entitled to any portion of the award made
to the Lessee for loss of business and for the cost of removal of any stock or
other furnishings which have not become fixtures. Lessee shall, notwithstanding
anything above to the contrary, have the right to participate as a party in any
condemnation proceedings to the extent of its leasehold interest in the property
and any interest in improvements to the property which have not vested in
Lessor.
11. Covenant on Proceeds. If all or part of the Premises shall be damaged
or destroyed by fire or other casualty, insured under the standard fire
insurance policy with so-called special coverage all-risk endorsement required
pursuant to paragraph 9(c), Lessor shall, except as otherwise provided herein,
repair and/or rebuild the same with reasonable diligence, but Lessor's
obligation hereunder shall not include the improvements or betterments applied
by any other party, unless such improvements or betterments become fixtures.
Nothing hereinabove contained shall impose upon Lessor any liability or
responsibility to replace or repair any property belonging to Lessee. This Lease
shall continue in full force and effect, but rent and additional rent, if any,
shall abate from the date of such damage until ten (10) days after the Lessor
has repaired or restored said buildings in the manner and in the condition
provided in this section and notified Lessee of such fact. In the event that a
part of the Premises is rendered untenable or not suitable for use for the
conduct of Lessee's business therein, a just and proportionate part of the rent
shall be abated from the date of such damage until ten (10) days after Lessor
has repaired same and notified Lessee of such fact. Furthermore, in connection
with the above, Lessee shall receive a credit or refund, whichever is
appropriate, of any rent paid in advance.
Notwithstanding anything to the contrary contained in the preceding
paragraph, either party may at its option terminate this Lease on thirty (30)
days' notice to the other given within ninety (90) days after the occurrence of
any damage or destruction of (i) the destruction or damage is caused as a result
of a risk not covered by Lessee's insurance policies, (ii) the Premises are
damaged or destroyed during the last eighteen months of the Lease term or any
renewal term, or (iii) the Premises are completely destroyed or so damaged by
fire or other casualty as to render it unfit for use as an outpatient radiation
therapy facility and the insurance coverage is insufficient in amount to pay in
full for necessary repairs and restoration and if either party deems such
repairs or restoration economically unfeasible.
19. Defaults. If Lessee should default in the payment of any rental or
monies due
<PAGE>
hereunder when due, or be in default of any covenant, agreement or
condition herein provided for, or abandon or vacate the Premises, or bankrupt or
make an assignment for benefit of creditors, or in the event a receiver is
appointed for Lessee, then, upon the occurrence of any one or more of such
contingencies and after the Lessee has been given notice by Certified Mail of
such default, Lessee shall have ten (10) days after the receipt of such notice
within which to correct such default or defaults, or if such default shall be of
such nature that it cannot be cured completely within such 10-day period, the
Lessee shall commence to cure such default or defaults within the 10-day period
and shall thereafter proceed with reasonable diligence and in good faith to
remedy such default; otherwise, this Lease may be canceled at the option of the
Lessor and all rights of the Lessee terminated. In the event of such
cancellation and termination, Lessor shall have the immediate right or at any
time thereafter to re-enter and take possession of the Premises.
The Lessee shall be liable for the cost of seizure and repossession of the
Premises and reasonable attorneys' fees incurred as a result of the seizure and
repossession of the Premises.
Upon regaining possession of the Premises and upon re-entry therein and the
removal of all persons and property therefrom, Lessor shall relet the Premises
at a reasonable rental and upon such terms as may be reasonably obtained under
the circumstances and hold Lessee liable for any deficiency. Lessor is
authorized to make all necessary repairs, changes, and alterations in or to the
Premises for the new tenant.
13. Electrical Wiring. The occupancy of the Premises by Lessee shall
constitute acceptance of the electrical wiring as it is with no further
obligation upon the Lessor to repair or improve said wiring, and specifically
the Lessee's occupancy constitutes acceptance of the electrical wiring as
suitable for its use and purposes in the Premises and the Lessor shall have no
obligation whatsoever because of said wiring. It is further understood that the
signature of the Lessee hereto constitutes a waiver of any liability on the part
of the Lessor in case of a fire or other calamity caused by said electrical
wiring after occupancy.
14. Waiver of Requirements. No requirement whatsoever of this Lease shall
be deemed waived or varied, nor shall the Lessor's acceptance of any payment
with knowledge of any default or of Lessor's failure or delay to take advantage
of any default constitute a waiver of the Lessor's rights thereby nor of any
subsequent or continued breach of any requirement of this Lease. All remedies
herein provided for shall be in addition to, and not in substitution for, any
remedies otherwise available to the Lessor.
15. Notices. All notices to be given under this Lease shall be in writing
and shall either be served personally or sent by Certified Mail to the address
of the parties below specified. The Lessor's address for notices shall be 6025
International Drive, Chattanooga, Tennessee 37421. The Lessee's address for
notices shall be 2490 South Lee Highway, Cleveland, Tennessee 37311.
16. Right to Sublease or Assign Lessee shall not have the right to sublease
or assign the Premises in whole or in part.
5
<PAGE>
17. Surrender. Upon the expiration or other termination of the term of this
Lease, or any renewals thereof, Lessee shall quit and surrender to Lessor the
Premises, together with all buildings and improvements which became fixtures,
broom clean, in good order and condition, damage caused by fire or other
catastrophe not resulting from Lessee's gross negligence excepted, and ordinary
wear and tear also excepted. Lessee shall remove all property to be removed at
the expense of the Lessee, and Lessee hereby agrees to pay all costs and
expenses thereby incurred. Lessee's obligations to observe or perform this
covenant shall survive the expiration or other termination of the term of this
Lease.
18. Estoppel Certificates. Lessee agrees to execute and deliver to Lessor
or Lessor's mortgagee or financial institution estoppel certificates in form and
substance reasonably required by any lender of Lessor, together with such
additional documents as such lender may reasonably request
19. Construction of Lease. Words of any gender used in this Lease shall be
held to include any other gender, and words in the singular number shall be held
to include the plural, when sense requires. Wherever used herein, the words
"Lessor" and "Lessee" shall be deemed to include the heirs, personal
representatives, successors, sublessees, and assigns of said parties, unless the
context excludes such construction.
20. Captions. The paragraph captions as to contents of particular
paragraphs herein are inserted only for convenience and are in no way to be
construed as part of this Lease or as a limitation on the scope of the
particular paragraph to which they refer.
21. Taxes. Lessee agrees to pay all real estate taxes and assessments on
the land and buildings due and payable during the term of this Lease, or any
renewals thereof.
22. Lease Acceptance. This Lease contains all the oral and written
agreements, representations and arrangements between the parties hereto and any
rights which the respective parties hereto may have had under any previous
contracts or oral arrangements are hereby canceled and terminated and no
representations or warranties are made or implied other than those set forth
herein. No oral agreement or representations for rental shall be deemed to
constitute a lease other than this Lease and not until and unless this Lease
shall have been properly executed by the Lessee and delivered to and executed by
the Lessor.
23. Binding Upon Successors. All provisions herein contained shall bind and
inure to the benefit of the parties hereto, their heirs, personal
representatives, successors and permitted assigns.
24. Attorney Fees. If it should become necessary for Lessor to employ an
attorney to assert any right of Lessor or force any obligation of Lessee
hereunder after default by Lessee, Lessor shall be entitled to recover, in
addition to the other costs and expenses herein provided for, the reasonable
costs and charges of investigation and of such attorney.
6
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands this 15th day
of March, 1996.
LESSOR:
CLEVELAND PROPERTIES, LLC
By: /s/ Nelson E. Bowers II
--------------------------------------
Nelson E. Bowers II, Chief Manager
LESSEE:
CLEVELAND CHRYSLER-PLYMOUTH-JEEP-
EAGLE, LLC
By:/s/ Nelson E. Bowers II
-------------------------------------
Nelson E. Bowers II, Chief Manager
7
<PAGE>
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence), and who, upon oath, acknowledged
himself to be the Chief Manager of CLEVELAND PROPERTIES, LLC, the within-named
bargainor, a Limited Liability Company, and that he, as such Manager, executed
the foregoing instrument for the purposes therein contained, by signing the name
of the Limited Liability Company as he is authorized so to do.
WITNESS my hand and seal this 18th day of March, 1996.
/s/ [illegible]
---------------------------------
Notary Public
My commission expires: 1-21-98
STATE OF TENNESSEE:
COUNTY OF HAMILTON:
Before me, a Notary Public of the state and county aforesaid, personally
appeared NELSON E. BOWERS II, with whom I am personally acquainted (or proved to
me on the basis of satisfactory evidence), and who, upon oath, acknowledged
himself to be the Chief Manager of CLEVELAND CHRYSLER-PLYMOUTH-JEEP, LLC, the
within-named bargainor, a Limited Liability Company, and that he, as such
Manager, executed the foregoing instrument for the purposes therein contained,
by signing the name of the Limited Liability Company as he is authorized so to
do.
WITNESS my hand and seal this 18th day of March, 1996.
/s/ [illegible]
---------------------------------
Notary Public
My commission expires: 1-21-98
8
<PAGE>
Commitment No. 96
EXHIBIT A
LEGAL DESCRIPTION
[illegible] in the Second Civil District of Bradley County, Tennessee, and being
[illegible] described as follows:
Being all of Lot Three (3) of Automobile Park, as shown by plat of record
in Plat Book 6, Page 64, in the Register's Office of Bradley County,
Tennessee, prepared by Jimmy L. Richmond, Registered Land Surveyor No. 917.
[illegible] title see Deed recorded in Deed Book 369, Page 140, Bradley County
[illegible] Office.
LEASE
BY AND AMONG
NELSON E. BOWERS, II
and
THOMAS M. GREEN, JR.,
as Lessors
AND
CLEVELAND VILLAGE IMPORTS, INC.,
as Lessee
<PAGE>
LEASE
THIS LEASE by and among NELSON E. BOWERS, II and THOMAS M. GREEN, JR.,
hereinafter collectively called the "Lessor," and CLEVELAND VILLAGE IMPORTS,
INC., a Tennessee corporation, hereinafter called the "Lessee."
W I T N E S S E T H:
WHEREAS, the Lessee herein desires to lease from Lessor and the Lessor
desires to lease to the Lessee certain premises hereinafter described.
NOW, THEREFORE, in consideration of the covenants, terms, and conditions
hereinafter set forth, Lessor and Lessee agree as follows:
1. Description and Term. In consideration of the rents hereinafter reserved
and all terms, conditions, covenants, and agreements hereinafter contained, the
Lessor hereby leases and demises to the Lessee, and the Lessee hereby hires,
leases and takes from the Lessor the following-described property (hereinafter
called the "Premises"), to wit:
(a) Street Address: 2490 South Lee Highway, Cleveland, Tennessee
37311.
<PAGE>
(b) Description. The Premises, the subject of this Lease between
Lessor and Lessee, is the land and buildings located on the real property
more particularly described on Exhibit A attached hereto.
(c) Term. The term of this Lease shall be five (5) years from January
1, 1993 until December 31, 1997.
(d) Possession. Lessee shall have the right to immediate possession of
the Premises. Lessee's possession, however, carries with it all the
obligations of Lessee under this Lease, including all covenants and
conditions and all responsibilities.
2. Rent. The minimum annual rental agreed upon between the parties shall be
Ninety-Six Thousand Dollars ($96,000.00). The Lessee agrees to pay said rent in
lawful money of the United States in equal monthly installments of Eight
Thousand Dollars ($8,000.00) in advance of the first day of the Lease term and
thereafter upon the same day of each successive month during the term, at the
office of the Lessor or at such other place as Lessor may designate.
3. Options to Renew. The Lessee shall have the right and option to renew
and extend this Lease for two additional terms of five (5) years each under the
same provisions and conditions as is in this Lease; but at such rental as is
agreed upon between the
-2-
<PAGE>
Lessor and Lessee after negotiation; provided, however, the second option shall
not be exercisable by Lessee unless the Lessee has exercised the first option
hereunder.
In order to qualify to exercise either option set forth above, the Lessee
must give the Lessor written notice by Certified Mail of its intention to
exercise the option not later than six (6) months prior to the expiration of the
term of this Lease, or of the term as extended by the first option hereunder, as
the case may be.
In no event does this paragraph give the Lessee a tenancy in excess of
fifteen (15) years from the beginning of the original Lease term.
4. Covenant to Pay Rent and Use. In consideration of the foregoing letting,
the Lessee does hereby covenant and agree as follows:
(a) To pay rent as aforementioned and herein provided; and
(b) Not to use and not to permit or suffer the use of the Premises for
illegal or unlawful purposes, but for an automobile dealership for the
purpose of selling and servicing new and used automobiles.
-3-
<PAGE>
5. "For Sale" and "To Let" Signs. During the last six (6) months of the
term of this Lease or any renewals thereof, unless the Lessee has given a notice
to renew pursuant to paragraph 3 of this Lease, the Lessor may maintain "To Let"
or "For Sale" signs upon the Premises and may freely exhibit the Premises to any
prospective tenants and/or purchasers; provided, however, that Lessor has
notified Lessee of such exhibition and it occurs during reasonable times after
normal business hours or as otherwise agreed.
6. Acceptance of Premises, Maintenance and Improvements. At the
commencement of the term, the Lessee accepts the land and buildings in their
existing condition. No representation, statement or warranty, express or
implied, has been made by or on behalf of the Lessor as to such condition, or as
to the use that may be of such property. In no event shall the Lessor be liable
for any defect in such property or for any limitation in its use.
Lessor shall have no further responsibility for maintenance or repairs of
the Premises after the beginning of the term of this Lease. Lessee agrees to
make all interior and exterior repairs and/or improvements to the buildings at
its own expense and to reasonably maintain the Premises for the term of the
Lease. Lessee shall at the end of the Lease term, or any renewal thereof, return
the Premises to the Lessor in as good a condition as when the Lease term began,
excepting damage caused by fire or other catastrophe not resulting from Lessee's
gross negligence and excepting ordinary
-4-
<PAGE>
wear and tear. Lessee shall make no repairs, alterations or improvements to the
Premises which would affect the structural integrity of the Premises without
first requesting permission to do so from the Lessor and obtaining written
approval from Lessor; provided, however, such written approval shall not be
unreasonably withheld.
7. Governmental Requirements. The Lessee agrees that it shall comply with
all requirements of all laws, orders, ordinances, and regulations which shall
impose any duty upon the owner or occupant of the Premises.
8. Parking Area and Driveways. Lessee specifically covenants to Lessor and
agrees to maintain for the full term of this Lease, and any renewals thereof,
the driveways and parking areas which are a part of the Premises.
9. Permits. Any permits required from any governmental agency because of
the use of the Premises by the Lessee shall be secured by the Lessee and shall
be its sole obligation and the failure to obtain any such permit or the
revocation of any such permit at any time shall in no way alter the terms or
conditions of this Lease.
-5-
<PAGE>
10. Insurance.
(a) From the date hereof and until the end of the term of this Lease,
or any renewals thereof, the Lessee shall keep the Premises insured, at its
sole cost and expense, against claims for personal injury or property
damage under a policy of general public liability insurance, with limits of
at least $200,000, $500, 000 for bodily injury, and $100,000 for property
damage. Such policies shall name the Lessor and the Lessee as the insureds.
The public liability policy or a certificate thereof shall be delivered to
the Lessor within twenty (20) days of the commencement of the term hereof
and not less than twenty (20) days before its expiration date during the
term of this Lease, and any renewals thereof.
(b) From the date hereof until the end of the term of this Lease, or
any renewals thereof, the Lessee shall keep its improvements which do not
become fixtures insured with fire and extended coverage insurance in an
amount equal to one hundred percent (100%) of the full replacement cost of
said improvements. Any policy providing such coverage shall contain the
so-called special coverage all-risk endorsement and the full replacement
cost endorsement.
(c) From the date hereof until the end of the term of this Lease, or
any renewals thereof, Lessee shall keep the Premises insured at its sole
cost and expense for fire and extended coverage insurance in the coverage
amount of at least One Million Dollars
-6-
<PAGE>
($1,000,000.00). The policy providing such coverage shall contain the
so-called special coverage all-risk endorsement.
(d) All policies of insurance required to be maintained by the Lessee
shall name the Lessee and Lessor as the insureds as their respective
interests may appear.
(e) All insurance required to be maintained by the Lessee shall be
effected by valid and enforceable policies issued by insurers of recognized
responsibility, satisfactory to the Lessor.
(f) Lessor shall cause any insurance policy carried by them, and
Lessee shall cause each insurance policy carried by it insuring the
fixtures of the buildings and contents in the Premises to be written in
such a manner so as to provide that the insurance company will waive all
right of recovery by way of subrogation against Lessor or Lessee in
connection with any loss or damage covered by any such policies. Neither
party shall be liable to the other for any loss or damage caused by fire or
any of the risks enumerated in standard extended coverage insurance. If the
release or either Lessor or Lessee, as set forth in the preceding sentence
of this paragraph, shall contravene any law with respect to exculpatory
agreements, the liability of the party in question shall be deemed not
released but shall be deemed secondary to the latter's insurer. Lessor
shall not do or permit to be done any act
-7-
<PAGE>
or thing upon the Premises that would invalidate or be in conflict with
fire insurance policies covering the land and buildings.
11. Condemnation. The parties hereto agree that should the Premises, or
such portion thereof as will make the Premises unusable for the purposes herein
leased, be taken or condemned by competent authority for public or quasi-public
use, then this Lease shall, at the Lessee's option, terminate from the date when
possession of the parts so taken shall be required for the use and purpose for
which they had been taken. During any period in which there is less than
complete interference with the operation of the business in the Premises, then
the rent owing by the Lessee shall be abated in proportion to gross sales volume
at the Premises during such period of interference as it relates and compares to
the gross sales of the Premises during the last full month of operation of the
Premises prior to such interference. In the event that the means of ingress and
egress are in any way blocked or partially blocked as a result of any road
construction or other improvements, Lessor agrees to make an abatement of rent
during such period of construction or improvement. All compensation awarded for
such taking of the fee and leasehold shall belong to and be the property of the
Lessor; provided, however, that the Lessor shall not be entitled to any portion
of the award made to the Lessee or sublessee for loss of business and for the
cost of removal of any stock or other furnishings which have not become
fixtures. Lessee shall, notwithstanding anything above to the contrary, have the
right to participate as a party in any
-8-
<PAGE>
condemnation proceedings to the extent of its leasehold interest in the property
and any interest in improvements to the property which have not vested in
Lessor.
12. Covenant on Proceeds. If all or part of the Premises shall be damaged
or destroyed by fire or other casualty, insured under the standard fire
insurance policy with so-called special coverage all-risk endorsement required
pursuant to paragraph lO(c), Lessor shall, except as otherwise provided herein,
repair and/or rebuild the same with reasonable diligence, but Lessor's
obligation hereunder shall not include the improvements or betterments applied
by any other party, unless such improvements or betterments become fixtures.
Nothing hereinabove contained shall impose upon Lessor any liability or
responsibility to replace or repair any property belonging to Lessee. This Lease
shall continue in full force and effect, but rent and additional rent, if any,
shall abate from the date of such damage until ten (10) days after the Lessor
has repaired or restored said buildings in the manner and in the condition
provided in this section and notified Lessee of such fact. In the event that a
part of the Premises is rendered untenable or not suitable for use for the
conduct of Lessee's business therein, a just and proportionate part of the rent
shall be abated from the date of such damage until ten (10) days after Lessor
has repaired same and notified Lessee of such fact. Furthermore, in connection
with the above, Lessee shall receive a credit or refund, whichever is
appropriate, of any rent paid in advance.
-9-
<PAGE>
Notwithstanding anything to the contrary contained in the preceding
paragraph, either party may at its option terminate this Lease on thirty (30)
days' notice to the other given within ninety (90) days after the occurrence of
any damage or destruction of (i) the destruction or damage is caused as a result
of a risk not covered by Lessee's insurance-policies, (ii) the Premises are
damaged or destroyed during the least eighteen months of the Lease term or any
renewal term, or (iii) the Premises are completely destroyed or so damaged by
fire or other casualty as to render it unfit for use as a new automobile
dealership and the insurance coverage is insufficient in amount to pay in full
for necessary repairs and restoration and if either party deems such repairs or
restoration economically unfeasible.
13. Defaults. If Lessee should default in the payment of any rental or
monies due hereunder when due, or be in default of any covenant, agreement or
condition herein provided for, or abandon or vacate the Premises, or bankrupt or
make an assignment for benefit of creditors, or in the event a receiver is
appointed for Lessee, then, upon the occurrence of any one or more of such
contingencies and after the Lessee has been given notice by Certified Mail of
such default, Lessee shall have ten (10) days after the receipt of such notice
within which to correct such default or defaults, or if such default shall be of
such nature that it cannot be cured completely within such 10-day period, the
Lessee shall commence to cure such default or defaults within the 10-day period
and shall
-10-
<PAGE>
thereafter proceed with reasonable diligence and in good faith to remedy such
default; otherwise, this Lease may be cancelled at the option of the Lessor and
all rights of the Lessee terminated. In the event of such cancellation and
termination, Lessor shall have the immediate right or at any time thereafter to
re-enter and take possession of the Premises.
The Lessee shall be liable for the cost of seizure and repossession of the
Premises and reasonable attorneys' fees incurred as a result of the seizure and
repossession of the Premises.
Upon regaining possession of the Premises and upon re-entry therein and the
removal of all persons and property therefrom, Lessor shall relet the Premises
at a reasonable rental and upon such terms as may be reasonably obtained under
the circumstances and hold Lessee liable for any deficiency. Lessor is
authorized to make all necessary repairs, changes, and alterations in or to the
Premises for the new tenant.
14. Electrical Wiring. The signing of this Lease shall constitute
acceptance of the electrical wiring as it is with no further obligation upon the
Lessor to repair or improve said wiring, and specifically the Lessee's signature
to this Lease constitutes acceptance of the electrical wiring as suitable for
its use and purposes in the Premises and the Lessor shall have no obligation
whatsoever because of said wiring. It is further
-11-
<PAGE>
understood that the signature of the Lessee hereto constitutes a waiver of any
liability on the part of the Lessor in case of a fire or other calamity caused
by said electrical wiring.
15. Waiver of Requirements. No requirement whatsoever of this Lease shall
be deemed waived or varied, nor shall the Lessor's acceptance of any payment
with knowledge of any default or of Lessor's failure or delay to take advantage
of any default constitute a waiver of the Lessor's rights thereby nor of any
subsequent or continued breach of any requirement of this Lease. All remedies
herein provided for shall be in addition to, and not in substitution for, any
remedies otherwise available to the Lessor.
16. Notices. All notices to be given under this Lease shall be in writing
and shall either be served personally or sent by Certified Mail to the address
of the parties below specified. The Lessor's address for notices shall be 6025
International Drive, Chattanooga, Tennessee 37421. The Lessee's address for
notices shall be 2490 South Lee Highway, Cleveland, Tennessee 37311.
17. Right to Sublease or Assign. Lessee shall not have the right to
sublease or assign the Premises in whole or in part.
18. Surrender. Upon the expiration or other termination of the term of this
Lease, or any renewals thereof, Lessee shall quit and surrender to Lessor the
Premises, together with all buildings
-12-
<PAGE>
and improvements which became fixtures, broom clean, in good order and
condition, damage caused by fire or other catastrophe not resulting from
Lessee's gross negligence excepted, and ordinary wear and tear also excepted.
Lessee shall remove all property to be removed at the expense of the Lessee, and
Lessee hereby agrees to pay all costs and expenses thereby incurred. Lessee's
obligations to observe or perform this covenant shall survive the expiration or
other termination of the term of this Lease.
19. Construction of Lease. Words of any gender used in this Lease shall be
held to include any other gender, and words in the singular number shall be held
to include the plural, when sense requires. Wherever used herein, the words
"Lessor" and "Lessee" shall be deemed to include the heirs, personal
representatives, successors, sublessees and assigns of said parties, unless the
context excludes such construction.
20. Captions. The paragraph captions as to contents of particular
paragraphs herein are inserted only for convenience and are in no way to be
construed as part of this Lease or as a limitation on the scope of the
particular paragraph to which they refer.
21. Taxes. Lessee agrees to pay all real estate taxes and assessments on
the land and buildings due and payable during the term of this Lease, or any
renewals thereof.
-13-
<PAGE>
22. Lease Acceptance. This Lease contains all the oral and written
agreements, representations and arrangements between the parties hereto and any
rights which the respective parties hereto may have had under any previous
contracts or oral arrangements are hereby cancelled and terminated and no
representations or warranties are made or implied other than those set forth
herein. No oral agreement or representations for rental shall be deemed to
constitute a lease other than this Lease and not until and unless this Lease
shall have been properly executed by the Lessee and delivered to and executed by
the Lessor.
23. Binding Upon Successors. All provisions herein contained shall bind and
inure to the benefit of the parties hereto, their heirs, personal
representatives, successors and assigns.
24. Attorney Fees. If it should become necessary for Lessor to employ an
attorney to assert any right of Lessor or force any obligation of Lessee
hereunder after default by Lessee, Lessor shall be entitled to recover, in
addition to the other costs and expenses herein provided for, the reasonable
costs and charges of investigation and of such attorney.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands this 2nd day
of January, 1993.
LESSOR:
-------
/s/ Nelson E. Bowers, II
-------------------------------
Nelson E. Bowers, II
/s/ Thomas M. Green, Jr.
-------------------------------
Thomas M. Green, Jr.
LESSEE:
-------
CLEVELAND VILLAGE IMPORTS, INC.
By: Nelson E. Bowers, II
---------------------------
Title: Pres.
------------------------
-15-
<PAGE>
Exhibit A
To Lease Agreement By and Between Cleveland Village Imports, Inc.,
Lessee, and Nelson Bowers II and Thomas M. Green, Jr., Lessor
The following described Real Estate situated in Cleveland, Bradley County,
Tennessee consisting of three point five (3.5) acres of a fifteen acre track
confronting Interstate By-pass 64 and South Lee Highway with access to South Lee
Highway.
48 1/HX/O/sei
01-02-93
-16-
AUTOMOTIVE WHOLESALE PLAN
APPLICATION FOR WHOLESALE FINANCING
[LOGO]
Ford Motor Credit Company
Date AUGUST 10, 1972
To: Ford Motor Credit Company (hereinafter called "FMCC")
The undersigned LONE STAR FORD, INC. (hereinafter called "Dealer"
- --------------------------------------------------------------------------------
(Dealer's Exact Business Name)
of 8600 No. FREEWAY HOUSTON TEXAS - 77088
- --------------------------------------------------------------------------------
(Street and Number) (City) (Zone) (State)
hereby requests FMCC to extend to Dealer financing accommodations under the FMCC
Wholesale Plan as set forth in the August 1962 edition of FMCC Dealer Manual
entitled "Automotive Finance Plans for Ford Motor Company Dealers" or any
subsequent edition thereof (herein called the "Plan"), and in consideration
thereof Dealer hereby agrees as follows:
1. Scope of Services -
FMCC, at all times, shall have the right in its sole discretion to determine the
extent to which, the terms and conditions on which, and the period for which it
will make advances to or on behalf of Dealer, or extend credit to Dealer under
the Plan or otherwise. FMCC at any time and from time to time in its sole
discretion may establish, rescind or change limits or the extent to which
financing accommodations under the Plan shall be made available to Dealer.
2. Execution of Documents, Etc. -
Dealer shall execute and deliver to FMCC promissory notes or other evidences of
indebtedness and/or trust receipts, conditional sale contracts, chattel
mortgages or other title retention or security instruments for the amounts of
credit extended by FMCC hereunder and shall execute any additional documents
which FMCC may reasonably request to confirm Dealer's obligations to FMCC and to
confirm FMCC's title, title retention, lien or security interest in any
merchandise financed by FMCC for Dealer under the Plan, and FMCC's title
retention, lien or security or other interest in any such merchandise shall not
be impaired by the delivery to Dealer of such merchandise or bills of lading,
certificates of origin, invoices or other documents pertaining thereto, or by
the payment by Dealer of any curtailment, security or other deposit or portion
of the amount financed. The execution by Dealer or on Dealer's behalf of any
document for the amount of any credit extended shall be deemed evidence of
Dealer's obligation and not payment thereof. FMCC may, for and in the name of
Dealer, endorse and assign any obligation transferred to FMCC by Dealer and any
check or other medium of payment intended to apply on such obligation. FMCC may
complete any blank-space and fill in omitted information on any document or
paper furnished to it by Dealer.
3. Dealer's Possession of Merchandise -
All merchandise financed hereunder shall be held by Dealer for the sole purpose
of storing and exhibiting the same for sale in the ordinary course of Dealer's
business. Dealer shall keep the merchandise brand new and subject to inspection
by FMCC and free from all taxes, liens and encumbrances. Any sum of money that
may be paid by FMCC in release or discharge of any taxes, liens or encumbrances
on any such merchandise or on any documents executed in connection therewith
shall be paid by Dealer to FMCC upon demand. Dealer shall not mortgage, pledge
or loan all or any portion of such merchandise, and shall not transfer or
otherwise dispose thereof except by sale in the ordinary course of Dealer's
business. Any and all proceeds or any sale or other disposition of the
merchandise by Dealer shall be received and held by Dealer in trust for FMCC and
shall be fully, faithfully and promptly accounted for and remitted by the Dealer
to FMCC to the extent of Dealer's obligation to FMCC with respect to such
merchandise. FMCC's title, title retention, lien or security interest in any
such merchandise shall attach, to the full extent provided or permitted by law,
to the proceeds, in whatever form, of any sale of disposition thereof by the
Dealer until such proceeds are accounted for and remitted to FMCC as
hereinbefore provided.
4. Furnishing of Information -
To induce FMCC to extend such financing accommodations to it, Dealer submits the
information concerning its business organization and financial condition set
forth on the reverse side hereof and/or attached hereto, and certifies that the
same is complete, true and correct in all respects and that the financial
information contained therein and/or subsequently to be furnished to FMCC from
time to time does and shall fairly present the financial condition of Dealer in
accordance with generally accepted accounting principles. Dealer agrees to
notify FMCC promptly of any material change in its business organization,
financial condition, or in any information relating thereto previously furnished
to FMCC. Dealer acknowledges and intends that FMCC shall rely, and shall
[ILLEGIBLE] the right to rely on such information in extending and continuing to
extend financing accommodations to Dealer. Dealer hereby authorizes FMCC from
time to time and at all reasonable times to examine, appraise and verify the
existence and condition of all merchandise, documents and commercial or other
property which FMCC has or has had any title, title retention, lien or security
or interest, and all of Dealer's books and records in any way relating thereto.
5. Credits -
All funds or other property belonging to FMCC received by Dealer shall be
received by Dealer in trust for FMCC and shall be forthwith remitted to FMCC.
FMCC shall, at all times, have a right to offset and apply any and all
[ILLEGIBLE] monies or properties of Dealer in FMCC's possession or control
against obligation of Dealer to FMCC.
6. Payment by Dealer -
Dealer promises to pay FMCC promptly when due by acceleration or [ILLEGIBLE] all
curtailments or other amounts due with respect to merchandise financed by FMCC
for Dealer hereunder together with all interest and flat charges established by
FMCC from time to time in its sole discretion under the Plan.
7. General -
Dealer waives the benefit of all homestead and/or exemption laws and [ILLEGIBLE]
that the acceptance by FMCC of any payment after it may have become [ILLEGIBLE]
the waiver by FMCC of any other default shall not be deemed to alter
[ILLEGIBLE] Dealer's obligation and/or FMCC's right with respect to any
subsequent [ILLEGIBLE] or default.
Neither this agreement, nor any other agreement between Dealer and FMCC nor any
funds payable by FMCC to Dealer shall be assigned by Dealer without the express
prior written consent of FMCC in each case.
Any provision hereof prohibited by any applicable law shall be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof. Except as herein provided, no modification hereof may be made except by
a written instrument duly executed by, or pursuant to the express written
authority of, an executive officer of FMCC. This agreement shall be deemed
[ILLEGIBLE] contract by Dealer to give trust receipts to FMCC for all
merchandise [ILLEGIBLE] hereunder at all times when the Uniform Trust Receipts
Act is in effect [ILLEGIBLE] state in which Dealer's place of business is
located as set forth above.
8. Acceptance and Termination -
Dealer waives notice of FMCC's acceptance hereof and this agreement [ILLEGIBLE]
deemed accepted by FMCC at the time it shall first extend credit to Dealer
[ILLEGIBLE] the Plan and shall be binding on Dealer and FMCC and their
respective successors and assigns for the date thereof until terminated by
receipt of written notice by either party from the other, but any such
termination shall not relieve party from any obligation incurred prior to the
effective date thereof.
Witness LONE STAR FORD, INC.
----------------------------------
(Dealer's Exact Business Name)
/s/ [ILLEGIBLE] By [ILLEGIBLE] Title V.P.
--------------------- ------------------ ------
<PAGE>
Date August 10, 1972
To FORD MOTOR COMPANY From LONE STAR FORD, INC.
----------------------------- ------------------------------
(Manufacturer's or Seller's Name) (Dealer's Exact Business Name)
HOUSTON DISTRICT SALES OFFICE 8600 No. FREEWAY
- --------------------------------- ------------------------------
(Division-District Sales Office) (Street and Number)
P.O. BOX 1851 HOUSTON TEXAS 77088
- --------------------------------- ------------------------------
(Street and Number) (City) (Zone) (State)
HOUSTON TEXAS 77001
- ----------------------------------
(City) (Zone) (State)
Please be advised that the undersigned Dealer has applied to Ford Motor Credit
Company for the wholesale accommodations provided under the FMCC Automotive
Wholesale Plan for purchases by the undersigned from you of new FORD CARS &
---- ---- -
TRUCKS motor vehicles. You are hereby requested and authorized to handle all
- ------
deliveries to the undersigned of such motor vehicles in accordance with the
terms of the FMCC Automotive Wholesale Plan until you are notified in writing to
the contrary by the undersigned. You also are authorized to rescind the sale of,
or divert the shipment of, any of such motor vehicles ordered by the undersigned
in accordance with the instructions of Ford Motor Credit Company from time to
time.
If you have any questions please contact FMCC at:
6300 HILLCROFT LONE STAR FORD, INC.
- ------------------------------ ------------------------------
(FMCC Branch Address) (Dealer's Exact Business Name)
HOUSTON TEXAS - 77036
- ------------------------------ By /s/ Charles A. West, V.P.
(City) (Zone) (State) ------------------------------
(Date)
771-8371 DH
- -------------- ------------
Telephone No. Branch Code
- --------------------------------------------------------------------------------
POWER OF ATTORNEY FOR WHOLESALE
KNOW ALL MEN BY THESE PRESENTS: That the undersigned dealer does hereby make,
constitute and appoint R.C. White of Dearborn, Michigan and any other officer or
employee of Ford Motor Credit, a Delaware corporation of Dearborn, Michigan, its
true and lawful attorneys with full power of substitution, for and in its name,
stead and behalf, to prepare, make, execute, acknowledge and deliver to Ford
Motor Credit Company from time to time promissory notes or other evidences of
indebtedness and trust receipts, chattel mortgages, conditional sale contracts
and other title retention or security instruments necessary or appropriate in
connection with the wholesale financing by Ford Motor Credit Company of
merchandise for the undersigned dealer, under the terms of the Ford Motor Credit
Company Automotive Wholesale Plan, and generally to perform all acts, and to do
all things necessary of appropriate in discharge of the power hereby conferred,
including the making of affidavits and the acknowledging of instruments, as if
fully done by the undersigned dealer, and the said attorneys are hereby further
authorized and empowered in the discharge of the power hereby conferred to
execute any instruments by means of either a normal imprinted or other facsimile
signature or by completing a printed form to which an imprinted or
other facsimile signature is then affixed.
This Power of Attorney is executed by the undersigned dealer to induce Ford
Motor Credit Company to make advances for merchandise to be acquired by the
undersigned dealer and recognizes that such advances are made to manufacturers,
distributors and other sellers of such merchandise at places other than the
undersigned dealer's place of business, and that it is impractical for the
undersigned dealer to execute the promissory notes, trust receipts, chattel
mortgages, conditional sale contracts and other title retention or security
instruments necessary or appropriate in connection with such advances without
unduly delaying the delivery of such merchandise to the undersigned dealer.
Accordingly, this Power of Attorney may be revoked by the undersigned dealer
only by notice in writing addressed to Ford Motor Credit Company, Dearborn,
Michigan by registered mail, return receipt requested, stating an effective date
on or after the receipt thereof by Ford Motor Credit Company.
Dated this 10 day of August 1972
LONE STAR FORD, INC.
-------------------------------------------
(Dealer's Exact Business Name)
Witness or Attest:
By /s/ Charles A. West Title V.P.
- ---------------------------- --------------------------- ---------
State of Texas
--------------
ss.
County of Harris
------------
On this 10 day of August 1972 before me, the undersigned Notary Public,
personally appeared Chas. A. West who acknowledged himself to be the
--------------------------
(Person Signing for Dealer)
Vice President of LONE STAR FORD, INC., the grantor of
- ------------------- --------------------------------------------
(Title) (Dealer's Name)
the foregoing Power of Attorney, and that he, being authorized so to do,
executed the foregoing Power of Attorney for the purposes therein contained, by
signing the name of the said grantor by himself in the capacity indicated.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ [ILLEGIBLE]
(NOTARY'S -----------------------------------
SEAL ) Notary Public
My commission expires June 1, 1973
------------------
[LOGO] Ford Motor Credit Company
AUTOMOTIVE WHOLESALE PLAN
APPLICATION FOR WHOLESALE FINANCING
AND SECURITY AGREEMENT
To: Ford Motor Credit Company (hereinafter called "Ford Credit")
Date August 22, 1984
The undersigned Town And Country Ford, Inc.
(DEALER'S EXACT BUSINESS NAME)
(hereinafter called "Dealer") of 5401 E. Independence Blvd. Charlotte N.C. 28212
(STREET AND NUMBER) (CITY) (STATE) (ZIP CODE)
hereby requests Ford Credit to establish and maintain for Dealer a wholesale
line of credit to finance new and used automobiles, trucks, truck-tractors,
trailers, semi-trailers, buses, mobile homes, motor homes, other vehicles and
other merchandise (hereinafter called the "Merchandise") for Dealer under the
terms of the Ford Credit Wholesale Plan as set forth in the April, 1979 edition
of the Ford Credit Dealer Manual entitled "Automotive Finance Plans for Ford
Motor Company Dealers" or any subsequent edition thereof (hereinafter called the
"Plan") and in connection therewith to make advances to or on behalf of Dealer,
purchase instalment sale contracts evidencing the sale of Merchandise to Dealer
by the manufacturer, distributor or other seller thereof, or otherwise extend
credit to Dealer. In consideration thereof Dealer hereby agrees as follows:
1. Advances by Ford Credit
Ford Credit at all times shall have the right in its sole discretion to
determine the extent to which, the terms and conditions on which, and the period
for which it will make such advances, purchase such contracts or otherwise
extend credit to Dealer (hereinafter called an "Advance" (individually) or
"Advances" (collectively)), under the Plan or otherwise. Ford Credit may, at any
time and from time to time, in its sole discretion, establish, rescind or change
limits or the extent to which financing accomodations under the Plan will be
made available to Dealer. In connection with the purchase of any such contract
and/or other extension of credit, Ford Credit may pay to any manufacturer,
distributor or other seller of the Merchandise the invoice, contract amount
therefor and be fully protected in relying in good faith upon any invoice,
contract or other advice from such manufacturer, distributor or seller that the
Merchandise described therein has been ordered or shipped to Dealer and that the
amount therefor is correctly stated. Any such payment made by Ford Credit to
such manufacturer, distributor or seller, and any loan or other extension of
credit made by Ford Credit directly to Dealer with respect to Merchandise of any
type held by Dealer for sale, shall be an Advance made by Ford Credit hereunder
and, except with respect to any Advance that is a purchase of an instalment sale
contract, shall be repayable by Dealer in accordance with the terms hereof. All
rights of Ford Credit and obligations of Dealer with respect to Advances
hereunder that constitute the purchase by Ford Credit of an insalment sale
contract shall be pursuant to the provisions of such contract.
From time to time Ford Credit shall furnish statements to Dealer of Advances
made by Ford Credit hereunder. Dealer shall review the same promptly upon
receipt and advise Ford Credit in writing of any discrepancy therein. If Dealer
shall fail to advise Ford Credit of any discrepancy in any such statement within
ten calendar days following the receipt thereof by Dealer, such statement shall
be deemed to be conclusive evidence of Advances made by Ford Credit hereunder
unless Dealer or Ford Credit establishes by a preponderance of evidence that
such Advances were not made or were made in different amounts than as set forth
in such statement.
2. Interest and Service and Insurance Flat Charges
Each Advance made by Ford Credit hereunder shall bear interest at the rates
established by Ford Credit from time to time for Dealer, except that any amount
not paid when due hereunder shall bear interest at a rate that is 4 percentage
points higher than the current pre-default rate up to the maximum contract rate
permitted by the law of the state where Dealer maintains its business as set out
above. In addition to interest, the financing of Merchandise under the Plan
shall be subject to service and insurance flat charges established by Ford
Credit from time to time for Dealer.
Ford Credit shall advise Dealer in writing from time to time of any change in
the interest rate and service and insurance flat charges applicable to Dealer
and the effective date of such change. Such change shall not become effective,
however, if Dealer elects to terminate this Agreement and pay to Ford Credit the
full unpaid balance outstanding under Dealer's wholesale line of credit and all
other amounts due or to become due hereunder in good funds within ten calendar
days after the receipt of such notice by Dealer.
3. Payments by Dealer
The aggregate amount outstanding from time to time of all Advances made by Ford
Credit hereunder shall constitute a single obligation of Dealer, not-
withstanding Advances are made from time to time. Unless otherwise provided in
the promissory note, instalment sale contract, security agreement or other
instrument evidencing the same from time to time, Dealer shall pay to Ford
Credit, upon demand, the unpaid balance (or so much thereof as may be demanded)
of all Advances plus Ford Credit's interest and flat charges with respect
thereto, and in any event, without demand, the unpaid balance of the Advance
made by Ford Credit hereunder with respect to an item of the Merchandise at or
before the date on which the same is sold, leased or placed in use by Dealer.
Dealer also shall pay to Ford Credit, upon demand, the full amount of any
rebate, refund or other credit received by Dealer with respect to the
Merchandise.
If the promissory note, instalment sale contract, security agreement or other
instrument evidencing an Advance or Advances is payable in one or more
instalments, Ford Credit may from time to time in its sole discretion, extend
any instalment due thereunder or on a month-to-month basis, and, except as
provided below or in any instalment sale contract, Ford Credit's failure to
demand any such instalment when due shall be deemed to be a one month extension
of the same. Any such extension, however, shall not obligate Ford Credit to
grant an extension in the future or waive Ford Credit's right to demand payment
when due. Following the sale, lease or use date of an item of the Merchandise,
no instalment shall be deemed extended without Ford Credit's specific written
consent, and Dealer agrees to pay the same, as required, without demand.
4. Ford Credit's Security Interest
As security for all Advances now or hereafter made by Ford Credit hereunder, and
for the observance and performance of all other obligations of Dealer to Ford
Credit in connection with the wholesale financing of Merchandise for Dealer,
Dealer hereby grants to Ford Credit a security interest in the Merchandise now
owned or hereafter acquired by Dealer and in the proceeds, in whatever form, of
any sale or other disposition thereof; and Dealer hereby assigns to Ford Credit,
and grants to Ford Credit a security interest in, all amounts that may now or
hereafter be payable to Dealer by the manufacturer, distributor or seller of any
of the Merchandise by way of rebate or refund of all or any portion of the
purchase price thereof.
5. Dealer's Possession and Sale of Merchandise
Dealer's possession of the Merchandise shall be for the sole purpose of storing
and exhibiting the same for sale or lease in the ordinary course of Dealer's
business. Dealer shall keep the Merchandise brand new and subject to inspection
by Ford Credit and free from all taxes, liens and encumbrances, and any sum of
money that may be paid by Ford Credit in release or discharge of any taxes,
liens or encumbrances on the Merchandise or on any documents executed in
connection therewith shall be paid by Dealer to Ford Credit upon demand. Except
as may be necessary to remove or transport the same from a freight depot to
Dealer's place of business. Dealer shall not use or operate, or permit the use
or operation of, the Merchandise for demonstration, hire or otherwise without
the express prior written consent of Ford Credit in each case, and shall not in
any event use the Merchandise illegally or improperly. Dealer shall not
mortgage, pledge or loan any of the Merchandise, and shall not transfer or
otherwise dispose of the same except by sale or lease in the ordinary course of
Dealer's business. Any and all proceeds of any sale, lease or other disposition
of the Merchandise by Dealer shall be received and held by Dealer in trust for
Ford Credit and shall be fully, faithfully and promptly accounted for and
remitted by Dealer to Ford Credit to the extent of Dealer's obligation to Ford
Credit with respect to the Merchandise. As used in this paragraph 5 (a) "sale in
the ordinary course of Dealer's business" shall include only (i) a bona fide
<PAGE>
retail sale to a purchaser for his own use at the fair market value of the
merchandise sold and (ii) an occasional sale of such Merchandise to another
dealer at a price not less than Dealer's cost of the Merchandise sold, unless
such sale is a part of a plan or scheme to liquidate all or any portion of
Dealer's business, and (b) "lease in the ordinary course of Dealer's business"
shall include only a bona fide lease to a lessee for his own use at a fair
rental value of the Merchandise leased.
6. <illegible> of Loss and Unsurance Requirements
The Merchandise shall be at Dealer's sole risk of any loss or damage to the
same, except to the extent of any insurance proceeds actually received by Ford
Credit with respect thereto under insurance obtained by Ford Credit pursuant to
the Plan. Dealer shall indemnify Ford Credit against all claims for injury or
damage to persons or property caused by the use, operation or holding of the
Merchandise and, if requested to do so by Ford Credit, maintain at its own
expense liability insurance in connection therewith in such form and amounts as
Ford Credit may reasonably require from time to time. In addition, Dealer shall
insure each item of the Merchandise that is or may be used for demonstration or
operated for any other purpose against loss due to collision, subject in each
case to the deductible amounts and limitations set forth in the Plan.
7. Credits
All funds or other property belonging to Ford Credit and received by Dealer
shall be received by Dealer in trust for Ford Credit and shall be remitted to
Ford Credit forthwith. Ford Credit, at all times, shall have a right to offset
and apply any and all credits, monies or properties of Dealer in Ford Credit's
possession or control against any obligation of Dealer to Ford Credit.
8. Information Concerning Dealer
To induce Ford Credit to extend financing accommodations hereunder, Dealer has
submitted information concerning its business organization and financial
condition, and certifies that the same is complete, true and correct in all
respects and that the financial information contained therein and any that may
be furnished to Ford Credit from time to time hereafter does and shall fairly
present the financial condition of Dealer in accordance with generally accepted
accounting principles applied on a consistent basis. Dealer agrees to notify
Ford Credit promptly of any material change in its business organization or
financial condition or in any information relating hereto previously furnished
to Ford Credit. Dealer acknowledges and intends that Ford Credit shall rely, and
shall have the right to rely on such information in extending and continuing to
extend financing accommodations to Dealer. Dealer hereby authorizes Ford Credit
from time to time and in all reasonable times to examine, appraise and verify
the existence and condition of all Merchandise, documents, commercial or other
paper and other property in which Ford Credit has or has had any title, title
retention and security or other interest, and all of Dealer's books and record
in any way relating to its business.
9. Default
The following shall constitute an Event of Default hereunder:
a) Dealer shall fail to promptly pay any amount now or hereafter owing to Ford
Credit as and when the same shall become due and payable, or
b) Dealer shall fail to duly observe or perform any other obligation secured
hereby, or
c) any representation made by Dealer to Ford Credit shall prove to have been
false or misleading in any material respect as of the date on which the same was
made, or
d) a proceeding in bankruptcy, insolvency or receivership shall be instituted by
or against Dealer or Dealer's property.
Upon the occurrence of an Event of Default Ford Credit may accelerate, and
declare immediately due and payable, all or any part of the unpaid balance of
all Advances made hereunder together with accrued interest and flat charges,
without notice to anyone. In addition, Ford Credit may take immediate possession
of all property in which it has a security interest hereunder, without demand or
other notice and without legal process. For this purpose and in furtherance
thereof if Ford Credit so requests, Dealer shall assemble such property and make
it available to Ford Credit at a reasonably convenient place designated by Ford
Credit, and Ford Credit shall have the right, and Dealer hereby authorizes and
empowers Ford Credit, its agents or representatives, to enter upon the premises
wherever such property may be and remove same. In the event Ford Credit acquires
possession of such property or any portion thereof, as hereinbefore provided.
Ford Credit may, in its sole discretion (i) sell the same, or any portion
thereof, after five days' written notice, at public or private sale for the
account of Dealer, (ii) declare this agreement, all wholesale transactions and
Dealer's obligations in connection therewith to be terminated and cancelled and
retain any sums of money that may have been paid by Dealer in connection
therewith, and (iii) enforce any other remedy that Ford Credit may have under
applicable law. Dealer agrees that the sale by Ford Credit of any new and unused
property repossessed by Ford Credit to the manufacturer, distributor or seller
thereof, or to any person designated by such manufacturer, distributor or
seller, at the invoice cost thereof to Dealer less any credits granted to Dealer
with respect thereto and reasonable costs of transportation and reconditioning,
shall be deemed to be a commercially reasonable means of disposing of the same.
Dealer further agrees that if Ford Credit shall solicit bids from three or more
other dealers in the type of property repossessed by Ford Credit hereunder, any
sale by Ford Credit of such property in bulk or in parcels to the bidder
submitting the highest cash bid therefor also shall be deemed to be a
commercially reasonable means of disposing of the same. Dealer understands and
agrees, however, that such means of disposal shall not be exclusive and that
Ford Credit shall have the right to dispose of any property repossessed
hereunder by any commercially reasonable means. Dealer agrees to pay reasonable
attorney's fees and legal expenses incurred by Ford Credit in connection with
the repossession and sale of any such property. Ford Credit's remedies hereunder
are cumulative and may be enforced successively or concurrently.
10. General
Dealer waives the benefit of all homestead and exemption laws and agrees that
the acceptance by Ford Credit of any payment after it may have become due or the
waiver by Ford Credit of any other default shall not be deemed to alter or
affect Dealer's obligations or Ford Credit's right with respect to any
subsequent payment or default.
Neither this agreement, nor any other agreement between Dealer and Ford Credit,
or between Dealer and any manufacturer, distributor or seller that has been
assigned to Ford Credit, nor any funds payable by Ford Credit to Dealer, shall
be assigned by Dealer without the express prior written consent of Ford Credit
in each case.
Any provision hereof prohibited by any applicable law shall be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof. Except as herein provided, no modification hereof may be made except by
a written instrument duly executed by, or pursuant to the express written
authority of an executive officer of Ford Credit.
Dealer shall execute and deliver to Ford Credit promissory notes or other
evidences of Dealer's indebtedness hereunder, security agreements, trust
receipts, chattel mortgages or other security instruments and any other
documents which Ford Credit may reasonably request to confirm Dealer's
obligations to Ford Credit and to confirm Ford Credit's security interest in the
Merchandise financed by Ford Credit under the Plan or in any other property as
provided hereunder, and in such event the terms and conditions hereof shall be
deemed to be incorporated therein. Ford Credit's security or other interest in
any Merchandise shall not be impaired by the delivery to Dealer of Merchandise
or of bills of lading, certificates of origin, invoices or other documents
pertaining thereto or by the payment by Dealer or any curtailment, security or
other deposit or portion of the amount financed. The execution by Dealer or on
Dealer's behalf of any document for the amount of any credit extended shall be
deemed evidence of Dealer's obligation and not payment thereof. Ford Credit may,
for and in the name of Dealer, endorse and assign any obligation transferred to
Ford Credit by Dealer and any check or other medium of payment intended to apply
upon such obligation. Ford Credit may complete any blank space and fill in
omitted information on any document or paper furnished to it by Dealer.
Unless the context otherwise clearly requires, the terms used herein shall be
given the same meaning as ascribed to them under the provisions of the Uniform
Commercial Code. Section headings are inserted for convenience only and shall
not affect any construction or interpretation of this agreement.
This agreement shall be interpreted in accordance with the laws of the state of
the Dealer's place of business set out above.
11. Acceptance and Termination
Dealer waives notice of Ford Credit's acceptance of this agreement and agrees
that it shall be deemed accepted by Ford Credit at the time Ford Credit shall
first extend credit to Dealer under the Plan. This agreement shall be binding on
Dealer and Ford Credit and their respective successors and assigns from the date
thereof until terminated by receipt of a written notice by either party from the
other, except that any such termination shall not relieve either party from any
obligation incurred prior to the effective date thereof.
Witness or Attest: Town And Country Ford, Inc.
--------------------------------
/s/ <illegible> (DEALER'S EXACT BUSINESS NAME)
- ------------------
By /s/ <illegible> Title <illegible>
-------------------------------- --------------
<PAGE>
POWER OF ATTORNEY FOR WHOLESALE
KNOW ALL MEN BY THESE PRESENTS: That the undersigned dealer does hereby make,
constitute and appoint S.L. Owens, J.M. Walsh and F.H. Mason, all of Dearborn,
Michigan and each of them and any other officer or employee of Ford Motor Credit
Company, a Delaware corporation of Dearborn, Michigan, its true and lawful
attorneys with full power of substitution, for and in its name, stead and
behalf, to prepare, make, execute, acknowledge and deliver to Ford Motor Credit
Company from time to time promissory notes or other evidences of indebtedness,
bearing such rate of interest as Ford Motor Credit Company may require from time
to time, and trust receipts, chattel mortgages and other title retention or
security instruments necessary or appropriate in connection with the wholesale
financing by Ford Motor Credit Company of merchandise for the undersigned dealer
under the terms of the Ford Motor Credit Company Automotive Wholesale Plan, and
generally to perform all acts and to do all things necessary or appropriate in
discharge of the power hereby conferred, including the making of affidavits and
the acknowledging of instruments, as if fully done by the undersigned dealer,
and each of the said attorneys hereby is further authorized and empowered in the
discharge of the power hereby conferred to execute any instruments by means of
either a manual, imprinted or other facsimile signature or by completing a
printed form to which an imprinted or other facsimile signature is then affixed.
This Power of Attorney is executed by the undersigned dealer to induce Ford
Motor Credit Company to make advances for merchandise to be acquired by the
undersigned dealer and recognizes that such advances are made to manufacturers,
distributors and other sellers of such merchandise at places other than the
undersigned dealer's place of business, and that it is impractical for the
undersigned dealer to execute the promissory notes, trust receipts, chattel
mortgages and other title retention or security instruments necessary or
appropriate in connection with such advances without unduly delaying the
delivery of such merchandise to the undersigned dealer. Accordingly, this Power
of Attorney may be revoked by the undersigned dealer only by notice in writing
addressed to Ford Motor Credit Company, Dearborn, Michigan by registered mail,
return receipt requested, stating an effective date on or after the receipt
thereof by Ford Motor Credit Company.
Dated this 22 day of August 1984
Witness or Attest: Town And Country Ford, Inc.
(DEALER'S EXACT BUSINESS NAME)
/s/ <illegible> By /s/ <illegible> Title Pres.
- ------------------------------ ----------------- --------
State of North Carolina
ss.
County of Mecklenburg
On this 22 day of August, 1984, before me, the undersigned Notary Public,
personally appeared Bruton Smith who acknowledged himself to be the President of
Town And Country Ford, Inc., the grantor of the foregoing Power of Attorney, and
that he, being authorized so to do, executed the foregoing Power of Attorney for
the purposes therein contained, by signing the name of the said grantor by
himself in the capacity indicated.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ Beckie McManus [STAMP] (NOTARY'S SEAL)
- -------------------------- BECKIE McMANUS
Notary Public NOTARY PUBLIC
UNION COUNTY, NC
MY COMMISSION EXPIRES 2-28-89
CERTIFIED COPY OF RESOLUTION OF BOARD OF DIRECTORS
The undersigned hereby certifies that he is the Secretary of Town And Country
Ford, Inc. of 5401 E. Independence Blvd., Charlotte, N.C. 28212 and that the
following is a true, correct and complete copy of resolutions adopted by the
board of directors of the said corporation at a meeting duly called and held on
August 22, 1984 at which a quorum was present and voting, and that said
resolutions are unchanged and are now in full force and effect:
RESOLVED, That the officers of this corporation be, and each hereby is,
authorized and empowered to execute and deliver on behalf of this corporation an
Application for Wholesale Financing to Ford Motor Credit Company of Dearborn,
Michigan in such form and upon such terms and conditions as the said Ford Motor
Credit Company may require, and to execute and deliver from time to time
promissory notes or other evidences of indebtedness, bearing such rate of
interest as the said Ford Motor Credit Company may require from time to time,
and trust receipts, chattel mortgages and other title retention or security
instruments as, and in such form as, the said Ford Motor Credit Company may
require, evidencing any financing extended by the said Ford Motor Credit Company
to this corporation under the terms of the Ford Motor Credit Company Automotive
Wholesale Plan.
FURTHER RESOLVED, That S.L. Owens, J.M. Walsh and F.H. Mason, all of Dearborn,
Michigan, and each of them and any other officer or employee of the said Ford
Motor Credit Company be and each of them hereby is constituted and appointed an
attorney-in-fact of this corporation for the purposes set forth in the Power of
Attorney presented to this board of directors this date, with full power of
substitution, and the officers of this corporation are, and each of them hereby
is, authorized and empowered to execute a formal Power of Attorney in such form.
FURTHER RESOLVED, That the officers of this corporation be, and each hereby is,
authorized and empowered to do other things and to execute all other instruments
and documents necessary or appropriate in the premises.
IN WITNESS WHEREOF I have hereunto set my hand and affixed the corporate seal of
the said corporation this 22 day of August 1984.
/s/ <illegible>
- ----------------------------- (CORPORATE SEAL)
SECRETARY
World Omni Financial Corp.
DEMAND PROMISSORY NOTE
(Line of Credit)
DATE: October 5, 1990
Location Charlotte, NC 28217
$5,500,000.00
FOR VALUE RECEIVED, the undersigned ("Maker") promises to pay on DEMAND to
the order of WORLD OMNI FINANCIAL CORP., a Florida corporation, together with
any subsequent holder hereof (hereinafter collectively called the "Holder"), the
principal sum of Five Million Five Hundred Thousand DOLLARS ($5,500,000.00) or
such portion thereof which shall have been advanced to Maker, with interest as
set forth below on the unpaid balance until paid, and both principal and
interest shall be payable in lawful money of the United States of America at the
office of the Holder located at 4601 Charlotte Park Drive Charlotte, NC 28217,
or at such other place as Holder may designate in writing. It is understood and
agreed that additional amounts may be advanced by Holder as provided in the
Wholesale Floor Plan Security Agreement (as hereinafter defined) securing this
Demand Promissory Note ("Note") and, if no promissory note reflecting such
additional advance is executed by Maker, such advances will be added to the
principal of this Note, will accrue interest as set forth below from the date of
advance until paid and will otherwise be payable in accordance with the terms of
this Note.
All sums due under this Note, including, without limitation, all principal
and interest and all amounts advanced by the Holder of this Note or any
predecessor or assignor (immediate or remote) with respect hereto, shall be due
and payable upon DEMAND or, in the absence of any DEMAND, upon such additional
terms and conditions as are set forth in this Note and in the Wholesale Floor
Plan Security Agreement dated October 5, 1990, between World Omni Financial
Corp. and Maker, including any amendments thereto (the "Wholesale Floor Plan
Security Agreement"), which agreement and amendments, if any, are incorporated
herein by reference.
Accrued interest shall be paid monthly on the 1st day of each month
commencing on November 1, 1990. Of that portion of the principal amount of this
Note advanced to enable Maker to acquire new Vehicles (as defined in the
Wholesale Floor Plan Security Agreement), interest shall be a percentage of such
principal amount at an annual rate equal to .75 percent (.75%) plus the interest
rate announced from time to time by Southeast Bank, N.A., as the Prime Rate (the
"Prime Rate") and shall be computed on the basis of the actual number of days
elapsed over a period of 360 days. On that portion of the principal amount of
this Note advanced to enable Maker to acquire used Vehicles, or advanced for any
other purpose, other than to enable Maker to acquire new Vehicles, interest
shall be a percentage of such principal amount at an annual rate equal to 1.75
percent (1.75%) plus the interest rate announced from time to time by Southeast
Bank, N.A., as the Prime Rate and shall be computed on the basis of the actual
number of days elapsed over a period of 360 days. Each change in the interest
rate hereunder shall be effective as of that date upon which the Prime Rate is
changed. Interest shall be computed on a daily basis by applying the interest
rate effective on that day as a daily rate to the outstanding principal balance
as of that day. The outstanding principal balance as of any day shall be the
outstanding principal balance hereunder as of the beginning of that day,
plus any advance made pursuant to this loan charged to Maker's account on that
day (exclusive of the interest) and less any payments of principal credited to
Maker's account on that day.
The obligation of Maker to make the payments required to be made hereunder
shall be absolute and unconditional and shall not be subject to diminution or
delay by setoff, counterclaim, abatement or otherwise.
Maker shall indicate in writing, at the time of each request for an advance
hereunder, the amount of the requested advance that will be used to enable Maker
to acquire new vehicles and the amount of the requested advance that will be
used to enable Maker to acquire used vehicles, which indications shall be made
in accordance with Holder's normal business practices. Holder shall provide a
monthly statement to Maker indicating the amount of the advances made hereunder
that have been made to enable Maker to acquire new Vehicles and indicating the
amount of the advances made hereunder that have been made to enable Maker to
acquire used Vehicles, which monthly statement shall be controlling in the event
of any conflict with any writing provided by Maker.
Each Event of Default as defined in the Wholesale Floor Plan Security
Agreement shall be, and hereby is, incorporated herein by this reference and by
virtue thereof shall be deemed an event of default hereunder (hereinafter, an
"Event of Default").
In the event of a default in payment of any installment of principal or
interest hereof or upon the occurance of any other Event of Default, Holder may,
without notice, declare the remainder of the principal and interest due
hereunder at once due and payable. Failure to exercise this option shall not
constitute a waiver of the right to exercise the same at any other time. The
unpaid principal of this Note and accrued interest, if any, shall bear interest
after default at the rate of 18% per annum until paid.
Acceptance of any payment after its due date shall not be deemed a waiver
of the right to require prompt payment when due of all other sums, and
acceptance of any payment after Holder has declared its entire indebtedness due
and payable shall not cure any Event of Default or operate as a waiver of any
right of Holder hereunder.
-1-
<PAGE>
Maker, and any sureties, guarantors or endorsers of this Note, hereby jointly
and severally waive presentment of payment, demand for payment, protest, notice
of dishonor, notice of nonpayment or notice of default (or any other notice of
any kind, all of which are hereby expressly waived by Maker and such sureties,
guarantors and endorsers to the fullest extent permitted by law), and hereby
jointly and severally waive all defenses on the grounds of extension of time for
the payment hereof, renewals, waivers, modifications, or substitutions hereof,
releases of Collateral, or substitution or release of any sureties, guarantors
and endorsers hereof which may be given by Holder to them or either of them or
to anyone who has assumed any obligation for the payment of this Note.
All payments shall be applied first to fees and costs, including attorney's
fees, if any, next to interest and then to principal, but notwithstanding any
provision in this Note or in any other document executed in connection with this
Note, Maker's total liability during any payment period for payment of fees,
charges or other payments which may be deemed interest shall not exceed the
limits imposed by the usury laws under applicable law. If, for any reason, total
payments which may be deemed interest shall be greater than the limit imposed by
the usury laws under applicable law for any interest payment period, then all
sums in excess of those lawfully collectable as interest for that period shall
be applied, without further agreement or notice, first to the reduction of
principal until paid in full with the excess, if any, being repaid to the Maker.
Holder agrees to accept such sums as a penalty-free prepayment of principal,
unless Holder at any time elects, by notice in writing, to waive or limit the
collection of any sums in excess of those lawfully collectable as interest
rather than accept those sums as a prepayment or principal. If this Note is
accelerated by an Event of Default, any interest on principal accelerated to
maturity in excess of the limits imposed by the usury laws under applicable law
shall be eliminated. This Note may be prepaid in whole or in part at any time
without penalty.
Upon the occurance of an Event of Default, Holder may employ an attorney or
a law firm to enforce Holder's rights and remedies, including the right to
collect the amounts due under this Note and to protect or foreclose the
Collateral, and Maker's principal, surety, guarantor and endorsers of this Note
hereby agree, jointly and severally, to pay to Holder reasonable attorneys' fees
(provided, however, that if this Demand Promissory Note is governed by and
construed and enforced under the laws of the State of Georgia, Maker shall pay
Holder attorney' fees at the rate of 15% of principal and interest owing by
Maker to Holder) and costs, whether or not suit be brought, including attorneys'
fees and costs on appeal, plus all other reasonable expenses incurred by Holder
in exercising any of the Holder's rights and remedies upon default, including,
without limitation, court costs, other legal expenses and attorneys' fees
incurred in connection with consultation, arbitration and litigation, and such
fees, costs, and expenses shall bear interest at the rate of 18% per annum until
paid and shall be secured as provided by the Wholesale Floor Plan Security
Agreement.
Unless otherwise defined herein, all capitalized terms used herein shall
have the meanings given to such terms in the Wholesale Floor Plan Security
Agreement.
Holder may pledge, transfer or assign this Note and shall thereupon be
relieved of all duties hereunder and with respect to the Collateral. All rights
and duties of the parties hereto and any sureties, guarantors and endorsers
shall inure to the benefit of and bind their heirs, distributees, legal
representatives, successors and assigns.
This Note is given for the loan of money, and is secured by a security
interest in the Collateral granted pursuant to the Wholesale Floor Plan Security
Agreement and incorporated herein by reference. The provisions of all other
security agreements securing this Note, if any, are incorporated herein by
reference.
This Note may not be changed orally, but only by an agreement in writing
and signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
This Note is to be governed by and construed and enforced under the laws of
the State of North Carolina without regard to its conflict of laws principles.
Maker hereby knowingly, voluntarily and intentionally waives the right to a
trial by jury to any litigation based on this Note, or arising out of, under, or
in connection with any document or agreement executed in connection with the
transactions contemplated hereby, or arising out of, under or in connection with
any course of conduct, course of dealing statements (written or oral), or
actions of Maker or any other person. This waiver of trial by jury provision is
a material inducement for Holder to enter into the transactions contemplated by
this Note.
IN TESTIMONY WHEREOF, each corporate Maker caused this instrument to be
executed under its hand and seal in its corporate name by its ______________
President, and caused its corporate seal to be affixed hereto, all by order of
its Board of Directors, first duly given, this day and year first above written.
Marcus David Corp. D/B/A Town & Country Toyota
----------------------------------------------
(Corporate Name)
(Corporate Seal)
ATTEST: By /s/ Bruton Smith (SEAL)
----------------------
/s/ William R. Brooks (SEAL) Ollen Bruton Smith, as its President
- ------------------------
, as its Secretary
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT [LOGO] CHRYSLER
CREDIT
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 21 day of April, 1995; and effective September 1,
1984 or the date hereof, whichever is later, is by and between CLEVELAND
CHRYSLER PLYMOUTH JEEP EAGEL, LLC, having its principal place of business at
2490 South Lee Hwy. - Cleveland, Tn. 37311 (hereinafter called "Debtor"), and
Chrysler Credit Corporation, a Delaware corporation, having offices located at
27777 Franklin Road, Southfield, Michigan 48034-8286 (hereinafter called
"Secured Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of Chrysler
Corporation and desires Secured Party to finance the acquisition by Debtor in
the ordinary course of its business of new and unused vehicles sold and
distributed by Chrysler Corporation and/or other authorized sellers and of used
vehicles (all such unused and used vehicles being hereinafter collectively
called the "Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor (1) by agreeing with Chrysler
Corporation to purchase from Chrysler Corporation receivables evidencing credit
sales of Vehicles by Chrysler Corporation to Debtor, and (2) by making loans or
advances to Debtor to finance the acquisition by Debtor of Vehicles from other
sellers.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing as
follows:
(a) to purchase receivables from Chrysler Corporation evidencing credit
sales of Vehicles by Chrysler Corporation to Debtor, at 100% of the
face amount of such receivables; or
(b) by making loans or advances to Debtor to finance the acquisition by
Debtor of Vehicles from sellers thereof, on the terms and conditions
set forth in Paragraph 2.1 herein or as set forth in the Vehicle
financing terms and conditions as they may be made available to Debtor
from time to time by Secured Party.
For the purposes of this Agreement, amounts applied by Secured Party to
acquire Debtor's receivables from Chrysler Corporation as contemplated by
clause (a) are herein called "Receivable Purchase Advances", and loans or
advances provided by Secured Party directly to either Debtor or to the
seller of Vehicles to Debtor as contemplated by clause (b) are herein
called "Direct Loan Advances", and all such amounts, loans and advances
provided by Secured Party contemplated by clause (a) and clause (b) are
herein collectively called "Advances". Debtor acknowledges that (x) the
maximum amount of Advances which will be made by Secured Party hereunder
will be established from time to time by Secured Party in its sole
discretion and (y) all such Advances shall be made on and shall be subject
to the terms and conditions of this Agreement. It is understood and agreed
that the making of any Advance hereunder shall be at the option of Secured
Party and shall not be obligatory, and that the right of Debtor to request
that Secured Party make Advances may be terminated at any time by Secured
Party at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Receivable Purchase Advance
shall be evidenced by and made against a Credit Sale Agreement of Chrysler
Corporation delivered to Secured Party, and Secured Party shall be entitled
to make Receivable Purchase Advances against such Credit Sale Agreement
appropriately completed and executed on behalf of Debtor by Chrysler
Corporation by facsimile signature or otherwise under Power of Attorney
given by Debtor, without any duty to inquire as to the continued
effectiveness of such power or to verify with Debtor the amount of, or
Vehicles listed upon, such Credit Sale Agreement and each such Credit Sale
Agreement shall evidence the valid and binding payment obligation of
Debtor. Each Direct Loan Advance shall be made at such time as Debtor shall
request in accordance with the then-effective Vehicle financing terms and
conditions referred to above. Debtor will execute and deliver to Secured
Party from time to time its demand promissory notes in aggregate principal
amount equal to that amount agreed to by Debtor and Secured Party from time
to time, such demand promissory notes (the "Promissory Notes") to evidence
the liability of Debtor to Secured Party on account of all Direct Loan
Advances and to constitute additional evidence of Debtor's obligation in
respect of the receivables underlying the Receivable Purchase Advances. The
maximum liability of Debtor under this Agreement shall at any time be equal
to the aggregate principal amount of all Advances at the time outstanding
hereunder plus interest and such other amounts as may be due under this
Agreement. Debtor will pay to Secured Party on demand the aggregate
principal amount of all Advances from time to time outstanding, and will
pay upon demand the interest due thereon and such other additional charges
as Secured Party shall determine from time to time.
Notwithstanding any inconsistent terms of any agreement between Debtor and
Chrysler Corporation in respect of Debtor's liability under any Credit Sale
Agreement, in consideration of Secured Party's making of Receivable
Purchase Advances and Direct Loan Advances, Debtor will pay to Secured
Party interest at the rate(s) per annum designated by Secured Party from
time to time on the amount of each Advance made by Secured Party hereunder
from the date of such Advance until the date of repayment to Secured Party
of the full amount thereof. For the purposes of the preceding sentence,
each Receivable Purchase Advance shall be deemed to have been made by
Secured Party on the date on which payment shall have been made by Secured
Party to Chrysler Corporation for the related receivable of Debtor
purchased by Secured Party from Chrysler Corporation. Secured Party will
give notice to Debtor of the interest rate(s) established by it from time
to time under the terms hereof, and each such notice shall constitute an
agreement between Debtor and Secured Party as to the applicability to the
Advances of the interest rate(s) contained therein, to be applicable from
the dates stated in such notice until such interest rate(s) are changed by
subsequent notice given by Secured Party pursuant to this sentence. All
interest accrued on the Advances shall be payable monthly by Debtor, and
shall be due upon receipt by Debtor of the statement of Secured Party
setting forth the amount of such accrued interest.
<PAGE>
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof, subject only to any prior security interest in a Vehicle
financed by a Receivable Purchase Advance which has been granted by Debtor
to Chrysler Corporation and assigned by Chrysler Corporation to Secured
Party in connection with the making of such Receivable Purchase Advance.
Further, Debtor also hereby grants to Secured Party a security interest in
and to all Chattel Paper, Accounts whether or not earned by performance and
including without limitation all amounts due from the manufacturer or
distributor of the Vehicles or any of its subsidiaries or affiliates,
Contract Rights, Documents, Instruments, General Intangibles, Consumer
Goods, Inventory of Automotive Parts, Accessories and Supplies, Equipment,
Furniture, Fixtures, Machinery, Tools, and Leasehold Improvements, whether
now owned or hereafter acquired by way of replacement, substitution,
addition or otherwise, together with all additions and accessions thereto
and all proceeds thereof, as additional security for each and every
indebtedness and obligation of Debtor as set forth herein. The security
interest hereby granted shall secure the prompt, timely and full payment of
(1) all Advances, (2) all interest accrued thereon in accordance with the
terms of this Agreement and the Promissory Notes, (3) all other
indebtedness and obligations of Debtor under the Promissory Notes, (4) all
costs and expenses incurred by Secured Party in the collection or
enforcement of the Promissory Notes or of the receivable underlying any
Receivable Purchase Advance or of the obligations of the Debtor under this
Agreement, (5) all monies advanced by Secured Party on behalf of Debtor for
taxes, levies, insurance and repairs to and maintenance of any Vehicle or
other collateral, and (6) each and every other indebtedness or obligation
now or hereafter owing by Debtor to Secured Party including any collection
or enforcement costs and expenses or monies advanced on behalf of Debtor in
connection with any such other indebtedness or obligations. Nothing in this
Agreement shall require Debtor, in respect of any Receivable Purchase
Advance, to proceed first under the security interest created by this
Agreement or first under the security interest granted by Debtor to
Chrysler Corporation to secure the receivable underlying such Receivable
Purchase Advance and assigned by Chrysler Corporation to Secured Party and
the remedies of Secured Party under each security interests shall be
cumulative.
3.1 All said security set forth in Paragraph 3.0 above shall hereinafter
collectively be called "Collateral". Debtor hereby expressly agrees that
the term "proceeds" as used in Paragraph 3.0 above shall include without
limitation all insurance proceeds on the Collateral, money, chattel paper,
goods received in trade including without limitation vehicles received in
trade, contract rights, instruments, documents, accounts whether or not
earned by performance, general intangibles, claims and tort recoveries
relating to the Collateral. Notwithstanding that Advances hereunder are
made from time to time with respect to specific Vehicles, each Vehicle and
the proceeds thereof and all other Collateral hereunder shall constitute
security for all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
- --------------------------------------------------------------------------------
PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may, at its option and
notwithstanding any inconsistent terms in any agreement between Debtor and
Chrysler Corporation and/or Secured Party with respect to the receivable
underlying any Receivable Purchase Advance by Secured Party, terminate this
Agreement, refuse to advance funds hereunder, convert outstanding
installment payment obligations to payment on Vehicle sale obligations, and
declare the aggregate of all Advances outstanding hereunder immediately due
and payable upon the occurrence of any of the following events (each
hereinafter called an Event of Default), and that Debtor's liabilities
under this sentence shall constitute additional obligations of Debtor
secured under this Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under any
other agreement between Secured Party and Debtor, or shall fail in the
due performance or compliance with any other term or condition hereof
or thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or a rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business, except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the Uniform
Commercial Code or under any other statute or at common law or in equity or
under this Agreement. Such rights and remedies shall be cumulative. Debtor
hereby agrees that it shall pay all expenses and reimburse Secured Party
for any expenditures, including reasonable attorneys fees and legal
expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times as Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
<PAGE>
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary, Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party or Debtor, Secured Party and Chrysler
Corporation or Debtor and Chrysler Corporation with respect to the
Receivable underlying any Receivable Purchase Advance by Secured Party
should be construed together as one agreement; provided, however, in the
event of any conflict, the terms and provisions of this Agreement shall
govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below:
- --------------------------------------------------------------------------------
TO DEBTOR TO SECURED PARTY
- --------------------------------------------------------------------------------
CLEVELAND CHRYSLER PLYMOUTH JEEP EAGLE, LLC Chrysler Credit Corporation
2490 South Lee Hwy. P.O. Box 80247
Cleveland, Tn. 37311 Chattanooga, Tn. 37414
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
CLEVELAND CHRYSLER PLYMOUTH JEEP EAGLE, LLC
-------------------------------------------
(DEBTOR)
/s/ J L Allen By /s/ Nelson E. Bowers II
- --------------------------- ---------------------------------------
(WITNESS)
ILLEGIBLE Title President
- --------------------------- -------------------------------------
(WITNESS)
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
----------------------------------------
Title Branch Manager
------------------------------------
<PAGE>
AMENDMENT TO THE SECURITY AGREEMENT [LOGO] CHRYSLER
AND MASTER CREDIT AGREEMENT CREDIT CORPORATION
This Amendment to the Security Agreement and Master Credit Agreement
(hereinafter "Amendment"), by and between the undersigned parties hereto, hereby
amends and is made a part of that certain Security Agreement and Master Credit
Agreement (hereinafter "Agreement"), executed by the undersigned parties on
given date herewith.
It is hereby agreed by the parties hereto that the Agreement is amended as
follows:
Paragraph 3.0 of the Agreement, titled "Security", is hereby amended to add the
following sentence immediately after the first full sentence in said Paragraph
3.0:
"Further, Debtor also hereby grants to Secured Party a security interest in
and to all Chattel Paper, Accounts whether or not earned by performance and
including without limitation all amounts due from the manufacturer or
distributor of the Vehicles or any of its subsidiaries or affiliates,
Contract Rights, Documents, Instruments, General Intangibles, Consumer
Goods, Inventory of Automotive Parts, Accessories and Supplies, Equipment,
Furniture, Fixtures, Machinery, Tools, and Leasehold Improvements, whether
now owned or hereafter acquired by way of replacement, substitution,
addition or otherwise, together with all additions and accessions thereto
and all proceeds thereof, as additional security for each and every
indebtedness and obligation of Debtor as set forth herein."
Except as herein amended, the terms and conditions of the Agreement remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to the
Agreement as of the day and year as shown below.
CLEVELAND CHRYSLER PLYMOUTH JEEP EAGLE, LLC
-------------------------------------------
(DEBTOR)
/s/ J L Allen By /s/ Nelson E. Bowers II
- --------------------------- ---------------------------------------
Witness
Title President
- --------------------------- -------------------------------------
Witness
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
----------------------------------------
Date 4/21/95
------------------------------------
PROMISSORY NOTE
- --------------------------------------------------------------------------------
AMOUNT CITY STATE DATE
$5,520,000.00 Cleveland Tennessee 4-21-1995
- --------------------------------------------------------------------------------
ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of
CHRYSLER CREDIT CORPORATION, a Delaware Corporation, at its office at Cleveland,
Tennessee or at such other place as the holder hereof may direct in writing, the
sum of Five Million Five Hundred Twenty & 00/100 Dollars ($5,520,000.00), in
lawful money of the United States of America, together with interest thereon
from the date hereof until paid at the rate or rates established from time to
time, pursuant to paragraph 2.0 of that certain Security Agreement and Master
Credit Agreement dated __________________, 19__, between the undersigned and
Chrysler Credit Corporation, which interest shall be payable monthly in like
lawful money; provided, however, that the rate of interest payable hereunder
shall not exceed the maximum rate of interest permitted by applicable law.
The undersigned agrees to pay reasonable attorneys fees if this note is placed
in the hands of an attorney for collection.
The makers, sureties, guarantors and endorsers hereof severally waive
presentment for payment, protest and notice of protest and non-payment of this
note, and consents to any extension, renewal or postponement of the time of
payment of this note, without notice, at the option of the holder.
- --------------------------------------------------------------------------------
DEALER BY ITS
CLEVELAND CHRYSLER PLYMOUTH JEEP /s/ Nelson E. Bowers II President
EAGEL, LLC
- --------------------------------------------------------------------------------
84-291-4331 (3/92) [LOGO] CHRYSLER
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT CREDIT
(Non-Chrysler Corporation Dealer)
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 21 day of April 1995,; is by and between SATURN OF
CHATTANOOGA, INC., having its principal place of business at 6025 International
Drive - Chattanooga, Tn. 37422 (hereinafter called "Debtor"), and Chrysler
Credit Corporation, a Delaware corporation, having offices located at 27777
Franklin Rd., Southfield, Michigan 48034-8286 (hereinafter called "Secured
Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of SATURN and
desires Secured Party to finance the acquisition by Debtor in the ordinary
course of its business of new and unused vehicles sold and distributed by SATURN
DISTRIBUTION CORPORATION and/or other authorized sellers and of used vehicles
(all such unused and used vehicles being hereinafter collectively called the
"Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor by making loans or advances to
Debtor to finance the acquisition by Debtor of Vehicles.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing by
making loans or advances to Debtor to finance the acquisition by Debtor of
Vehicles from sellers thereof, on the terms and conditions set forth in
Paragraph 2.1 herein or as set forth in the Vehicle financing terms and
conditions as they may be made available to Debtor from time to time by
Secured Party.
For the purposes of this Agreement, loans or advances provided by Secured
Party directly to either Debtor or to the seller of Vehicles to Debtor are
herein called "Advances". Debtor acknowledges that (x) the maximum amount
of Advances which will be made by Secured Party hereunder will be
established from time to time by Secured Party in its sole discretion and
(y) all such Advances shall be made on and shall be subject to the terms
and conditions of this Agreement. It is understood and agreed that the
making of any Advance hereunder shall be at the option of Secured Party and
shall not be obligatory, and that the right of Debtor to request that
Secured Party make Advances may be terminated at any time by Secured Party
at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Advance shall be made at such
time as Debtor shall request in accordance with the then-effective Vehicle
financing terms and conditions referred to above. Debtor will execute and
deliver to Secured Party from time to time its demand promissory notes in
aggregate principal amount equal to that amount agreed to by Debtor and
Secured Party from time to time, such demand promissory notes (the
"Promissory Notes") to evidence the liability of Debtor to Secured Party on
account of all Advances. The maximum liability of Debtor under this
Agreement shall at any time be equal to the aggregate principal amount of
all Advances at the time outstanding hereunder plus interest and such other
amounts as may be due under this Agreement. Debtor will pay to Secured
Party on demand the aggregate principal amount of all Advances from time to
time outstanding, and will pay upon demand the interest due thereon and
such other additional charges as Secured Party shall determine from time to
time.
In consideration of Secured Party's making Advances, Debtor will pay to
Secured Party interest at the rate(s) per annum designated by Secured Party
from time to time on the amount of each Advance made by Secured Party
hereunder from the date of such Advance until the date of repayment to
Secured Party of the full amount thereof. Secured Party will give notice to
Debtor of the interest rate(s) established by it from time to time under
the terms hereof, and each such notice shall constitute an agreement
between Debtor and Secured Party as to the applicability to the Advances of
the interest rate(s) contained therein, to be applicable from the dates
stated in such notice until such interest rate(s) are changed by subsequent
notice given by Secured Party pursuant to this sentence. All interest
accrued on the Advances shall be payable monthly by Debtor, and shall be
due upon receipt by Debtor of the statement of Secured Party setting forth
the amount of such accrued interest.
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof. Further, Debtor also hereby grants to Secured Party a
security interest in and to all Chattel Paper, Accounts whether or not
earned by performance and including without limitation all amounts due from
the manufacturer or distributor of the Vehicles or any of its subsidiaries
or affiliates, Contract Rights, Documents, Instruments, General
Intangibles, Consumer Goods, Inventory of Automotive Parts, Accessories and
Supplies, Equipment, Furniture, Fixtures, Machinery, Tools, and Leasehold
Improvements, whether now owned or hereafter acquired by way of
replacement, substitution, addition or otherwise, together with all
additions and accessions thereto and all proceeds thereof, as additional
security for each and every indebtedness and obligation of Debtor as set
forth herein. The security interest hereby granted shall secure the prompt,
timely and full payment of (1) all Advances, (2) all interest accrued
thereon in accordance with the terms of this Agreement and the Promissory
Notes, (3) all other indebtedness and obligations of Debtor under the
Promissory Notes, (4) all costs and expenses incurred by Secured Party in
the collection or enforcement of the Promissory Notes or of the obligations
of the Debtor under this Agreement, (5) all monies advanced by Secured
Party on behalf of Debtor for taxes, levies, insurance and repairs to and
maintenance of any Vehicle or other collateral, and (6) each and every
other indebtedness or obligation now or hereafter owing by Debtor to
Secured Party including any collection or enforcement costs and expenses or
monies advanced on behalf of Debtor in connection with any such other
indebtedness or obligations.
<PAGE>
3.1 All said security set forth in Paragraph 3.0 shall hereinafter collectively
be called "Collateral". Debtor hereby expressly agrees that the term
"proceeds" as used in Paragraph 3.0 shall include without limitation all
insurance proceeds on the Collateral, money, chattel paper, goods received
in trade including without limitation vehicles received in trade, contract
rights, instruments, documents, accounts whether or not earned by
performance, general intangibles, claims and tort recoveries relating to
the Collateral. Notwithstanding that Advances hereunder are made from time
to time with respect to specific Vehicles, each Vehicle and the proceeds
thereof and all other Collateral hereunder shall constitute security for
all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
- --------------------------------------------------------------------------------
PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may terminate this
Agreement, refuse to advance funds hereunder, and declare the aggregate of
all Advances outstanding hereunder immediately due and payable upon the
occurrence of any of the following events (each hereinafter called an
"Event of Default"), and that Debtor's liabilities under this sentence
shall constitute additional obligations of Debtor secured under this
Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under any
other agreement between Secured Party and Debtor, or shall fail in the
due performance or compliance with any other term or condition hereof
or thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or a rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
<PAGE>
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business, except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the Uniform
Commercial Code or under any other statute or at common law or in equity or
under this Agreement. Such rights and remedies shall be cumulative. Debtor
hereby agrees that it shall pay all expenses and reimburse Secured Party
for any expenditures, including reasonable attorneys' fees and legal
expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times as Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary, Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party should be construed together as one
agreement; provided, however, in the event of any conflict, the terms and
provisions of this Agreement shall govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
<PAGE>
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below:
- --------------------------------------------------------------------------------
TO DEBTOR TO SECURED PARTY
- --------------------------------------------------------------------------------
SATURN OF CHATTANOOGA, INC. CHRYSLER CREDIT CORPORATION
6025 International Drive P.O. Box 80247
Chattanooga, Tn. 37422 Chattanooga, Tn. 37414
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
SATURN OF CHATTANOOGA, INC.
/s/ ILLEGIBLE By /s/ Nelson E. Bowers II
- ---------------------------------- -------------------------------
(WITNESS)
ILLEGIBLE Title President
- --------------------------------- ----------------------------
(WITNESS)
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
-------------------------------
Title Branch Manager
----------------------------
<PAGE>
AMENDMENT TO THE SECURITY AGREEMENT [LOGO] CHRYSLER
AND MASTER CREDIT AGREEMENT CREDIT CORPORATION
This Amendment to the Security Agreement and Master Credit Agreement
(hereinafter "Amendment"), by and between the undersigned parties hereto, hereby
amends and is made a part of that certain Security Agreement and Master Credit
Agreement (hereinafter "Agreement"), executed by the undersigned parties on even
date herewith.
It is hereby agreed by the parties hereto that the Agreement is amended as
follows:
Paragraph 3.0 of the Agreement, titled "Security", is hereby amended to add the
following sentence immediately after the first full sentence in said Paragraph
3.0:
"Further, Debtor also hereby grants to Secured Party a security interest in
and to all Chattel Paper, Accounts whether or not earned by performance and
including without limitation all amounts due from the manufacturer or
distributor of the Vehicles or any of its subsidiaries or affiliates,
Contract Rights, Documents, Instruments, General Intangibles, Consumer
Goods, Inventory of Automotive Parts, Accessories and Supplies, Equipment,
Furniture, Fixtures, Machinery, Tools, and Leasehold Improvements, whether
now owned or hereafter acquired by way of replacement, substitution,
addition or otherwise, together with all additions and accessions thereto
and all proceeds thereof, as additional security for each and every
indebtedness and obligation of Debtor as set forth herein."
Except as herein amended, the terms and conditions of the Agreement remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to the
Agreement as of the day and year as shown below.
SATURN OF CHATTANOOGA, INC.
/s/ ILLEGIBLE By /s/ Nelson E. Bowers II
- ---------------------------------- -------------------------------
Witness
Title President
- --------------------------------- ----------------------------
Witness
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
-------------------------------
Date 4-21-95
----------------------------
PROMISSORY NOTE
- --------------------------------------------------------------------------------
AMOUNT CITY STATE DATE
$3,490,000.00 Chattanooga Tennessee 4-21-1995
- --------------------------------------------------------------------------------
ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of
CHRYSLER CREDIT CORPORATION, a Delaware Corporation, at its office at
Chattanooga, Tennessee or at such other place as the holder hereof may direct in
writing, the sum of Three Million Four Hundred Ninety Thousand and 00/100
Dollars ($3,490,000.00), in lawful money of the United States of America,
together with interest thereon from the date hereof until paid at the rate or
rates established from time to time, pursuant to paragraph 2.0 of that certain
Security Agreement and Master Credit Agreement dated ____________________,
19___, between the undersigned and Chrysler Credit Corporation, which interest
shall be payable monthly in like lawful money; provided, however, that the rate
of interest payable hereunder shall not exceed the maximum rate of interest
permitted by applicable law.
The undersigned agrees to pay reasonable attorneys fees if this note is placed
in the hands of an attorney for collection.
The makers, sureties, guarantors and endorsers hereof severally waive
presentment for payment, protest and notice of protest and non-payment of this
note, and consents to any extension, renewal or postponement of the time of
payment of this note, without notice, at the option of the holder.
- --------------------------------------------------------------------------------
DEALER BY ITS
SATURN OF CHATTANOOGA, INC. /s/ Nelson E. Bowers II President
- --------------------------------------------------------------------------------
84-291-4331 (3/92) [LOGO] CHRYSLER
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT CREDIT
(Non-Chrysler Corporation Dealer)
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 21 day of April, 1995; is by and between NELSON
BOWERS FORD L.P., having its principal place of business at 717 South Lee Hwy. -
Cleveland, Tn. 37311 (hereinafter called "Debtor"), and Chrysler Credit
Corporation, a Delaware corporation, having offices located at 27777 Franklin
Rd., Southfield, Michigan 48034-8286 (hereinafter called "Secured Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of FORD motor
Company and desires Secured Party to finance the acquisition by Debtor in the
ordinary course of its business of new and unused vehicles sold and distributed
by Ford Motor company and/or other authorized sellers and of used vehicles (all
such unused and used vehicles being hereinafter collectively called the
"Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor by making loans or advances to
Debtor to finance the acquisition by Debtor of Vehicles.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing by
making loans or advances to Debtor to finance the acquisition by Debtor of
Vehicles from sellers thereof, on the terms and conditions set forth in
Paragraph 2.1 herein or as set forth in the Vehicle financing terms and
conditions as they may be made available to Debtor from time to time by
Secured Party.
For the purposes of this Agreement, loans or advances provided by Secured
Party directly to either Debtor or to the seller of Vehicles to Debtor are
herein called "Advances". Debtor acknowledges that (x) the maximum amount
of Advances which will be made by Secured Party hereunder will be
established from time to time by Secured Party in its sole discretion and
(y) all such Advances shall be made on and shall be subject to the terms
and conditions of this Agreement. It is understood and agreed that the
making of any Advance hereunder shall be at the option of Secured Party and
shall not be obligatory, and that the right of Debtor to request that
Secured Party make Advances may be terminated at any time by Secured Party
at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Advance shall be made at such
time as Debtor shall request in accordance with the then-effective Vehicle
financing terms and conditions referred to above. Debtor will execute and
deliver to Secured Party from time to time its demand promissory notes in
aggregate principal amount equal to that amount agreed to by Debtor and
Secured Party from time to time, such demand promissory notes (the
"Promissory Notes") to evidence the liability of Debtor to Secured Party on
account of all Advances. The maximum liability of Debtor under this
Agreement shall at any time be equal to the aggregate principal amount of
all Advances at the time outstanding hereunder plus interest and such other
amounts as may be due under this Agreement. Debtor will pay to Secured
Party on demand the aggregate principal amount of all Advances from time to
time outstanding, and will pay upon demand the interest due thereon and
such other additional charges as Secured Party shall determine from time to
time.
In consideration of Secured Party's making Advances, Debtor will pay to
Secured Party interest at the rate(s) per annum designated by Secured Party
from time to time on the amount of each Advance made by Secured Party
hereunder from the date of such Advance until the date of repayment to
Secured Party of the full amount thereof. Secured Party will give notice to
Debtor of the interest rate(s) established by it from time to time under
the terms hereof, and each such notice shall constitute an agreement
between Debtor and Secured Party as to the applicability to the Advances of
the interest rate(s) contained therein, to be applicable from the dates
stated in such notice until such interest rate(s) are changed by subsequent
notice given by Secured Party pursuant to this sentence. All interest
accrued on the Advances shall be payable monthly by Debtor, and shall be
due upon receipt by Debtor of the statement of Secured Party setting forth
the amount of such accrued interest.
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof. Further, Debtor also hereby grants to Secured Party a
security interest in and to all Chattel Paper, Accounts whether or not
earned by performance and including without limitation all amounts due from
the manufacturer or distributor of the Vehicles or any of its subsidiaries
or affiliates, Contract Rights, Documents, Instruments, General
Intangibles, Consumer Goods, Inventory of Automotive Parts, Accessories and
Supplies, Equipment, Furniture, Fixtures, Machinery, Tools, and Leasehold
Improvements, whether now owned or hereafter acquired by way of
replacement, substitution, addition or otherwise, together with all
additions and accessions thereto and all proceeds thereof, as additional
security for each and every indebtedness and obligation of Debtor is set
forth herein. The security interest hereby granted shall secure the prompt,
timely and full payment of (1) all Advances, (2) all interest accrued
thereon in accordance with the terms of this Agreement and the Promissory
Notes, (3) all other indebtedness and obligations of Debtor under the
Promissory Notes, (4) all costs and expenses incurred by Secured Party in
the collection or enforcement of the Promissory Notes or of the obligations
of the Debtor under this Agreement, (5) all monies advanced by Secured
Party on behalf of Debtor for taxes, levies, insurance and repairs to and
maintenance of any Vehicle or other collateral, and (6) each and every
other indebtedness or obligation now or hereafter owing by Debtor to
Secured Party including any collection or enforcement costs and expenses or
monies advanced on behalf of Debtor in connection with any such other
indebtedness or obligations.
<PAGE>
3.1 All said security set forth in Paragraph 3.0 shall hereinafter collectively
be called "Collateral". Debtor hereby expressly agrees that the term
"proceeds" as used in Paragraph 3.0 shall include without limitation all
insurance proceeds on the Collateral, money, chattel paper, goods received
in trade including without limitation vehicles received in trade, contract
rights, instruments, documents, accounts whether or not earned by
performance, general intangibles, claims and tort recoveries relating to
the Collateral. Notwithstanding that Advances hereunder are made from time
to time with respect to specific Vehicles, each Vehicle and the proceeds
thereof and all other Collateral hereunder shall constitute security for
all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
- --------------------------------------------------------------------------------
PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may terminate this
Agreement, refuse to advance funds hereunder, and declare the aggregate of
all Advances outstanding hereunder immediately due and payable upon the
occurrence of any of the following events (each hereinafter called an
"Event of Default"), and that Debtor's liabilities under this sentence
shall constitute additional obligations of Debtor secured under this
Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under any
other agreement between Secured Party and Debtor, or shall fail in the
due performance or compliance with any other term or condition hereof
or thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or a rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
<PAGE>
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business, except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the Uniform
Commercial Code or under any other statute or at common law or in equity or
under this Agreement. Such rights and remedies shall be cumulative. Debtor
hereby agrees that it shall pay all expenses and reimburse Secured Party
for any expenditures, including reasonable attorneys' fees and legal
expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects, Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times as Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary. Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party should be construed together as one
agreement; provided, however, in the event of any conflict, the terms and
provisions of this Agreement shall govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
<PAGE>
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below:
- --------------------------------------------------------------------------------
TO DEBTOR TO SECURED PARTY
- --------------------------------------------------------------------------------
NELSON BOWERS FORD L.P. CHRYSLER CREDIT CORPORATION
717 south Lee Hwy. P.O. Box 80247
Cleveland, Tn. 37311 Chattanooga, Tn. 37414
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
NELSON BOWERS FORD L.P.
-----------------------------------
(DEBTOR)
/s/ ILLEGIBLE By /s/ Nelson E. Bowers II
- ---------------------------------- -------------------------------
(WITNESS)
Title President
- --------------------------------- ----------------------------
(WITNESS)
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
-------------------------------
Title Branch Manager
----------------------------
<PAGE>
AMENDMENT TO THE SECURITY AGREEMENT [LOGO] CHRYSLER
AND MASTER CREDIT AGREEMENT CREDIT CORPORATION
This Amendment to the Security Agreement and Master Credit Agreement
(hereinafter "Amendment"), by and between the undersigned parties hereto, hereby
amends and is made a part of that certain Security Agreement and Master Credit
Agreement (hereinafter "Agreement"), executed by the undersigned parties on even
date herewith.
It is hereby agreed by the parties hereto that the Agreement is amended as
follows:
Paragraph 3.0 of the Agreement, titled "Security", is hereby amended to add the
following sentence immediately after the first full sentence in said Paragraph
3.0:
"Further, Debtor also hereby grants to Secured Party a security interest in
and to all Chattel Paper, Accounts whether or not earned by performance and
including without limitation all amounts due from the manufacturer or
distributor of the Vehicles or any of its subsidiaries or affiliates,
Contract Rights, Documents, Instruments, General Intangibles, Consumer
Goods, Inventory of Automotive Parts, Accessories and Supplies, Equipment,
Furniture Fixtures, Machinery, Tools, and Leasehold Improvements, whether
now owned or hereafter acquired by way of replacement, substitution,
addition or otherwise, together with all additions and accessions thereto
and all proceeds thereof, as additional security for each and every
indebtedness and obligation of Debtor as set forth herein."
Except as herein amended, the terms and conditions of the Agreement remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to the
Agreement as of the day and year as shown below.
NELSON BOWERS FORD L.P.
-----------------------------------
Debtor
/s/ ILLEGIBLE By /s/ Nelson E. Bowers II
- ---------------------------------- -------------------------------
Witness
Title President
- --------------------------------- ----------------------------
Witness
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
-------------------------------
Date Branch Manager 4-21-95
----------------------------
PROMISSORY NOTE
- --------------------------------------------------------------------------------
AMOUNT CITY STATE DATE
$3,060,000.00 Cleveland Tennessee 4-21-1995
- --------------------------------------------------------------------------------
ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of
CHRYSLER CREDIT CORPORATION, a Delaware Corporation, at its office at
Chattanooga, Tennessee or at such other place as the holder hereof may direct in
writing, the sum of Three Million Sixty Thousand and 00/100 Dollars
($3,060,000.00), in lawful money of the United States of America, together with
interest thereon from the date hereof until paid at the rate or rates
established from time to time, pursuant to paragraph 2.0 of that certain
Security Agreement and Master Credit Agreement dated ____________________,
19___, between the undersigned and Chrysler Credit Corporation, which interest
shall be payable monthly in like lawful money; provided, however, that the rate
of interest payable hereunder shall not exceed the maximum rate of interest
permitted by applicable law.
The undersigned agrees to pay reasonable attorneys fees if this note is placed
in the hands of an attorney for collection.
The makers, sureties, guarantors and endorsers hereof severally waive
presentment for payment, protest and notice of protest and non-payment of this
note, and consents to any extension, renewal or postponement of the time of
payment of this note, without notice, at the option of the holder.
- --------------------------------------------------------------------------------
DEALER BY ITS
NELSON BOWERS FORD L.P, /s/ Nelson E. Bowers II President
- --------------------------------------------------------------------------------
NationsBank
NationsBank, N.A. (South) Dated: May 6, 1996
FLOOR PLAN AGREEMENT
This Floor Plan Agreement is entered into by and between NationsBank, N.A
(South) (Bank) 600 Peachtree Street, 17th Floor, Atlanta, Georgia 30308 and
European Motors, LLC (Borrower) 5949 Brainerd Rd., Chattanooga, Tennessee 37421.
1. BACKGROUND. Borrower hereby requests Bank to extend to it a line of credit
(Line) to purchase inventory to be secured by Borrower's Collateral
described in paragraph 7 (Collateral). Bank agrees to extend the Line
subject to the terms of this Agreement.
2. THE LINE OF CREDIT. Bank extends to Borrower a Line in the amount of
$6,000,000.00 or such other amount as may be set by Bank from time to time.
Before maturity or demand, Borrower may borrow, repay and reborrow
hereunder at anytime, up to an aggregate amount outstanding at any one time
equal to the principal amount of Note, provided, however, that Borrower is
not in default of any provision of Note, Floor Plan Agreement, Security
Agreement or any other agreement or obligation between Borrower and Bank.
Any sums Bank may Advance in excess of the face amount of the Note shall
also be part of the principal amount the Borrower is obligated to pay Bank
and shall be subject to all the terms of the Note, Security Agreement, and
this Floor Plan Agreement. The Bank's records of the amounts borrowed from
time to time shall be conclusive proof thereof. Borrower acknowledges and
agrees that notwithstanding any provisions of any Note, Floor Plan
Agreement, Security Agreement or any other documents executed in connection
with a Note, Floor Plan Agreement and Security Agreement, the Bank has no
obligation to make any Advance, and that all Advances are at the sole
discretion of Bank.
3. NOTE. Debt under the Line shall be evidenced by Borrower's Floor Plan
Promissory Note (Note).
4. RATE. Debt under the Line shall bear interest as set forth in the Note.
5. DUE DATES.
(a) Unpaid principal and interest hereon shall be due and payable as
set forth in the Note, and as set forth below. Unless Borrower is in
default under the terms of any Security Agreement securing the Note, this
Floor Plan Agreement or any other agreement relating to this Floor Plan
Agreement, upon sale of inventory, Borrower will pay to Bank at the earlier
of Borrower's receipt of payment for that item of inventory or three ( 3 )
business days after that item of inventory is delivered to the customer or
otherwise disposed of, cash in the amount equal to the original amount
<PAGE>
advanced less any curtailment payments made with respect to the item sold.
If Borrower is in default at time of sale, all proceeds of sale will
immediately be remitted to Bank and applied to debt hereunder.
(b) Curtailment payments based on the original amount advanced with
respect to specific items of inventory shall be paid from time to time by
Borrower as provided for in Addendum "A" attached hereto and made a part
hereof for all purposes as if copied word for word herein.
6. USE OF LINE AND ADVANCES.
(a) The Advances under this Line shall be exclusively for the purpose
of purchasing inventory to be displayed and demonstrated in conjunction
with the sale of the inventory in the ordinary course of Borrower's
business unless otherwise agreed to in writing by Bank. Borrower agrees not
to use the inventory for any other purpose without the prior written
approval of Bank. The term "Advance" as used in this Agreement shall mean
the dollar amount loaned by Bank on a motor vehicle financed under a floor
plan line of credit and includes but is not limited to any charge against,
debit against, draft against, or draw against the line of credit. Advances
under the Line (Advances) shall be made against and in payment of drafts
drawn on Bank, or in accordance with the written request of Borrower
executed by the person signing this Agreement on behalf of Borrower or a
person hereafter designated in writing by Borrower.
(b) Units of inventory which may be presented as Collateral as well as
the amount of outstanding debt permitted at any one time in connection with
the particular type of Collateral being financed shall be in accordance
with Addendum "B".
(c) Bank may reject as Collateral hereunder any item of inventory
which is received by Borrower in damaged condition. Bank has no obligation
to inspect inventory for damage before paying drafts. If Bank has paid a
draft on damaged inventory, Borrower shall direct the manufacturer to
refund all payments directly to Bank. If the manufacturer fails to make the
refund within thirty (30) days, Borrower shall reduce the debt outstanding
under the Line by the amount Advanced against the damaged item.
(d) Borrower will submit or cause to be submitted to Bank invoices or
bills of sale representing the actual cost to Borrower of the inventory.
Bank may advance an amount equal to Borrower's cost (not to exceed NADA
wholesale value in the case of used motor vehicles) or such part of the
cost thereof as Bank elects at its sole discretion. The Advance may be
disbursed to Borrower or the manufacturer or others from whom Borrower
purchases inventory. Presentation of drafts or other requests for payment
by manufacturers or others from whom Borrower purchases inventory
<PAGE>
shall constitute requests by Borrower that Bank lend Borrower the amount of
such drafts or other requests for payment pursuant to this Agreement.
(e) A fee in the amount of $0.00 shall be paid by Borrower for each
unit of inventory presented as Collateral to obtain Advances. The fee shall
be paid monthly by Borrower.
7. COLLATERAL. Borrower hereby grants to Bank a security interest in all of
its inventory of:
_X_ New Motor Vehicles (now existing or hereafter acquired)
_X_ Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories added to vehicles, now existing or
hereafter acquired by Borrower, including any such goods as may be leased
or held for leasing, together with any and all accounts and proceeds
arising from the sale, lease or disposition of said property and all
returned, refused and repossessed goods, all monies received from
manufacturers by way of credits, refunds or otherwise with respect to
Collateral, and all proceeds thereof (Collateral) to secure all debt of
Borrower to Bank under any and all present and future Advances of whatever
kind and further including but not limited to the Line and all other debt
and other obligations of Borrower to Bank of any nature now existing or
hereafter arising, including but not limited to debt arising directly
between Borrower and Bank or acquired outright, conditionally or as
Collateral security from another by Bank, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising under the operation of law or
otherwise, direct or indirect, whether incurred directly or as part of a
partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Borrower will execute
and deliver any documents, instruments or agreements required by Bank to
evidence debt hereunder, grant, perfect and preserve the security interest,
and otherwise carry out the terms of this Agreement. The security interest
herein described is also evidenced by a Security Agreement between Borrower
and Bank, and in the event of any conflict between the terms hereof and the
terms thereof, the terms hereof will apply.
8. IDENTIFICATION OF COLLATERAL. Without limiting the foregoing general grant
of a security interest, as set forth in the Security Agreement, Collateral
subject to the security interest granted herein shall include but not be
limited to (i) inventory listed on invoices submitted to Bank by
manufacturers attached to drafts submitted by manufacturers for payment,
which drafts Bank pays; and/or (ii) inventory in Borrower's possession set
out on a list submitted by Borrower as Collateral for Advances directly to
Borrower.
9. TITLE DOCUMENTS. Title documents consisting of manufacturers' certificate
of origin,
<PAGE>
manufacturers' statement of origin, certificates of title and/or any and
all other title documents for each item of inventory shall be in the
possession of Borrower unless otherwise directed by Bank. In the event Bank
does require possession of title documents, Borrower shall deliver all such
documents to Bank immediately upon demand.
10. PAYMENT OF DRAFTS. From time to time Bank may make Advances hereunder by
direct payment to manufacturers or others, in which event, invoices
submitted by Manufacturers along with drafts paid by Bank shall serve as
evidence of Advances under the Line. Borrower authorizes Bank to pay all
drafts or invoices upon presentation by the manufacturer or others
supplying inventory to Borrower.
11. ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Bank its
attorney-in-fact, to execute, deliver and file from time to time, in the
name of Borrower or Bank, any trust receipts, security agreements,
promissory notes, financing statements, continuation statements and
amendments thereto, and any and all other documents and instruments that
Bank may require in connection with evidencing and securing debt under this
Agreement and carrying out the provisions hereof, which appointment shall
be deemed to be a power coupled with an interest.
12. QUALITY OF INVENTORY. Borrower shall be responsible for the quantity,
quality, condition and value of the inventory selected by Borrower and
financed under this Agreement. Bank shall have no liability of any nature
because of the failure of any inventory to conform to Borrower's
specifications, and any dispute between the manufacturer or others and
Borrower with respect to such inventory shall not affect Borrower's
obligation to Bank to pay amounts Advanced hereunder.
13. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
(a) Borrower has taken all action necessary to make this Agreement and
all other agreements between it and Bank legal, valid and binding
obligations enforceable in accordance with their terms, and Borrower is a:
(i)___ corporation duly organized, existing and in good standing
under the laws of the State of _____________ , that it is licensed to
do business and in good standing in each state in which the property
owned by it or the business transacted by it requires it to be
licensed as a foreign corporation.
(ii) _X_ limited liability company, duly organized, and in good
standing under the laws of the State of Tennessee.
(iii)___ partnership composed of________________________________
__________________________________________
__________________________________________
<PAGE>
(iv) sole proprietorship owned by ______________________________
__________________________________________
(b) Borrower is not in default with respect to any agreement between
it and Bank on this date.
(c) All Collateral is owned by Borrower free and clear of any security
interests or encumbrances except those granted pursuant hereto.
(d) Borrower is and will hereafter be not in default under any
agreement with any other party, and the execution and performance of this
Agreement will not be a default under any agreement with any other party by
which Borrower or any of Borrower's property is bound.
(e) Borrower does not do financing of any motor vehicle inventory with
any other source or purchase inventory from any seller on credit except as
set out below:
___________________________________________________________________________
___________________________________________________________________________
________________________________________________________________
_________________________________________________________________
Borrower shall notify Bank immediately in the event it buys inventory of
motor vehicles on credit or enters into any such inventory financing
arrangement with any other source, giving the name and address of the Bank
or seller and details of the purchase or loan.
(f) All financial and other information Borrowers have heretofore
submitted or may hereafter submit is and will be true, complete, and
correct and reflects or will reflect all direct, indirect, and contingent
liabilities.
(g) There has been no material adverse change in the Borrower's
financial condition and operations since the date of Borrowers most recent
financial statements heretofore submitted.
(h) Borrower has and will maintain, at all times, all franchise,
distributor agreements, licenses, permits, and other rights that are
necessary to the conduct of its business.
(i) All representations and warranties set forth herein will be deemed
to be have been made anew with each Advance and shall be continuing in
effect beyond the termination or expiration of this Floor Plan Agreement.
<PAGE>
14. COVENANTS. While the Line is in effect, and thereafter while Borrower is
indebted to Bank, Borrower will:
(a) _X_ Provide Bank within twenty (20) days of each month's end, a
company prepared financial statement (including the thirteenth
(13) month statement including all adjustments to net worth) in
accordance with requirements of the franchise(s) for which
Borrower is a dealer.
_X_ Provide Bank within sixty (60) days after Borrower's fiscal
year-end a financial statement compiled by a Certified Public
Accountant acceptable to the Bank.
__ Provide Bank within one-hundred-twenty (120) days after
Borrower's fiscal year-end a financial statement reviewed by a
Certified Public Accountant acceptable to the Bank.
___ Provide Bank within one-hundred-fifty (150) days of Borrower's
fiscal year-end audited financial statements prepared by a
Certified Public Accountant acceptable to the Bank.
In submitting such statements to Bank an authorized officer of Borrower
will certify such statements to be true and accurate, continuing compliance
with all terms and conditions contained herein and in the other Loan
Documents and that no material violation or default exists with any
material agreement.
_X_ As to Guarantors, provide the Bank a copy of each Guarantor's
personal financial statement within thirty (30) days of calendar
year-end in a manner and form acceptable to the Bank.
Additionally, each Guarantor shall provide the Bank a copy of
each Guarantor's federal income tax return and all schedules
thereto within thirty (30) days of filing each return.
(b) Not merge into or consolidate with any other person, firm,
corporation or limited liability company nor sell any substantial part of
its assets to any person, firm, corporation or limited liability company
except in the ordinary course of business;
(c) Not sell or enter into any agreement to sell or deal in new motor
vehicles manufactured by any manufacturer for whom it is not now a Retailer
or Wholesaler, unless approved by Bank in writing which will not be
unreasonably withheld;
(d) Keep all Collateral and inventory insured, by insurers acceptable
to Bank, at all times in an amount at least equal to the amount of debt to
Bank under the Line with deductible amount satisfactory to Bank, and the
insurance policy to contain loss
<PAGE>
payable clauses to Bank as its interest may appear. Borrower will deliver
original policies or, if permitted by Bank, certificates of insurance to
Bank;
(e) Permit Bank to enter upon the property of Borrower at any time to
examine all Collateral and to examine Borrower's books in connection
therewith.
(f) At time of execution of this Floor Plan Agreement deliver to Bank
such Landlord Waiver and/or Mortgagee Waiver and Estoppel Agreements duly
executed by the appropriate parties in such form as is satisfactory to Bank
and Borrower will thereafter furnish to Bank current executed copies of the
above instruments upon written request of Bank;
(g) Not allow any material change in ownership or management nor enter
into any management agreement pursuant to which any third party assumes the
management of Borrower in anticipation of a sale of Borrower's business or
any material part of its assets without Bank's prior written approval;
(h) Operate business in compliance with all environmental protection
laws and regulations including applicable local, state, or federal law,
regulations, or rule of common law;
(i) Not allow any liens or encumbrances on any of Borrower's assets or
property without the written consent of Bank;
(j) Borrower and Guarantor shall promptly notify Bank in writing of
(i) any condition, event or act which comes to Borrower's or Guarantor's
attention that would or might materially adversely affect Borrower's or
Guarantor's financial condition or operations, the Collateral, or Bank's
rights under the Guaranty or any Loan Documents, (ii) any litigation in
excess of $25,000.00 filed by or against Borrower or Guarantor, or (iii)
any event that has occurred that would constitute an event of default under
any Loan Documents, including but not limited to any Guaranty.
(k) See Addendum "C" for additional covenants which are a part of this
Agreement for all purposes as if they were copied word for word herein.
15. EVENTS OF DEFAULT.
The following are events of default hereunder and under the other Loan
Documents: (a) the failure to pay or perform any obligation, liability,
indebtedness or covenant of any Borrower or Guarantor to Bank, or to any
affiliate of Bank, whether under this Floor Plan Agreement, Security
Agreement, Note or any other agreement or instrument now or hereafter
existing, as and when due (whether upon demand, at maturity or by
acceleration); (b) the failure to pay
<PAGE>
or perform any other obligation, liability or indebtedness of any Borrower
or Guarantor whether to Bank or some other party, the collateral for which
constitutes an encumbrance on the collateral for this Floor Plan Agreement;
(c) a proceeding being filed or commenced against any Borrower or Guarantor
for dissolution or liquidation, or any Borrower or Guarantor voluntarily or
involuntarily terminating or dissolving or being terminated or dissolved;
(d) insolvency of, business failure of, the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, or an
assignment for the benefit of creditors by, or the filing of a voluntary or
involuntary petition under bankruptcy, insolvency or debtor's relief law or
for any adjustment of indebtedness, composition or extension by or against
any Borrower or Guarantor; (e) any lien, encumbrance or additional security
interest being placed upon any of the Collateral which is security for this
Floor Plan Agreement; (f) acquisition at any time or from time to time of
title to the whole of or any part of the Collateral which is security for
this Floor Plan Agreement by any person, partnership, corporation or other
entity except for sales thereof in the ordinary course of business; (g)
Bank determining that any representation or warranty made by any Borrower
or Guarantor to Bank is, or was, untrue or materially misleading; (h)
failure of any Borrower or Guarantor to timely deliver such financial
statements, including tax returns, and other statements of condition or
other information as Bank shall request from time to time; (i) entry of a
judgment against any Borrower or Guarantor which Bank deems to be of a
material nature, in Bank's sole discretion; (j) the seizure or forfeiture
of, or the issuance of any writ of possession, garnishment or attachment,
or any turnover order for any property of any Borrower or Guarantor; (k)
Bank reasonably deeming itself insecure or its prospects for payment of the
debt impaired for any reason; (1) the determination by Bank that a material
adverse change has occurred in the financial condition of any Borrower or
Guarantor; (m) the failure to comply with any law regulating the operation
of Borrower's business; (n) Guarantor undertakes to terminate or revoke any
guaranty of payment of this Note or defaults in the performance of or
disputes any of his obligations as Guarantor; (o) the inability of the
Borrower or Guarantor to pay debts as they mature owing to Bank or any
other party.
16. REMEDIES. Upon the occurrence of any default hereunder or any of the other
Loan Documents, Bank shall have all of the rights and remedies of a
creditor and, of a secured party under the Uniform Commercial Code as
enacted in the State of Georgia, O.C.G.A ss.11-9 and all other applicable
law. Without limiting the generality of the foregoing, Bank may, at its
option and without notice or demand: (a) declare any liability of Borrower
under this Agreement or any of the other Loan Documents accelerated and due
and payable at once; and (b) take possession of any Collateral wherever
located, and sell, resell, assign, transfer and deliver all or any part of
said Collateral of Borrower or Guarantor at any public or private sale or
otherwise dispose of any or all of the Collateral in its then condition,
for cash or on credit or for future delivery, and in connection therewith
Bank may impose reasonable conditions upon any such sale. Bank, unless
prohibited by law the provisions of which cannot be waived, may purchase
all or any part of said Collateral to be sold, free from and in discharge
of all trusts, claims, rights of redemption and equities of the Borrower or
Guarantor whatsoever; Borrower and Guarantor acknowledge and agree that the
sale of any Collateral through any
<PAGE>
nationally recognized broker - dealer, investment banker or any other
method common in the securities industry shall be deemed a commercially
reasonable sale under the Uniform Commercial Code or any other equivalent
statute or federal law, and expressly waive notice thereof except as
provided herein; and (c) set-off against any and all money owed by Bank in
any capacity to Borrower or Guarantor whether or not due for any
Liabilities of the Borrower to the Bank under this Agreement and the other
Loan Documents.
17. ATTORNEY FEES, COST AND EXPENSES. Borrower and/or Guarantor shall pay all
costs of collection and attorney's fees equal to reasonable and actual
attorney's fees, including reasonable attorney's fees in connection with
any suit, mediation or arbitration proceeding, out of court payment
agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or
paid by Bank in enforcing the payment of any Liability or enforcing or
preserving any right or interest of Bank hereunder, including the
collection, preservation, sale or delivery of any Collateral from time to
time pledged to Bank, and after deducting such fees, costs and expenses
from the proceeds of sale or collection, Bank may apply any residue to pay
any of the Liabilities and Guarantor shall continue to be liable for any
deficiency with interest at the rate specified in any instrument evidencing
the Liability or, at the Bank's option, equal to the highest lawful rate,
which shall remain a liability.
18. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Borrower and/or
Guarantor pledged to Bank to secure Borrower's and/or Guarantor's
obligations against prior parties who may be liable in connection
therewith, and Borrower and/or Guarantor hereby agree to take any such
steps. Bank, nevertheless, at any time, may (a) take any action it deems
appropriate for the care or preservation of such property or of any rights
of Borrower and/or Guarantor or Bank therein, (b) demand, sue for, collect
or receive any money or property at any time due, payable or receivable on
account of or in exchange for any property of Borrower and/or Guarantor,
(c) compromise and settle with any person liable on such property, or (d)
extend the time of payment or otherwise change the terms thereof as to any
party liable thereon, all without notice to, without incurring
responsibility to, and without affecting any of the obligations or
liabilities of Borrower and/or Guarantor.
19. TERMINATION. The Line may be terminated at any time by either party with or
without cause upon 30 days' notice in writing to the other. Upon the
occurrence of a default hereunder, Bank shall have the right to terminate
the Line and to mature all debt outstanding hereunder, including principal
and interest, without notice to any person. Termination of the Line
hereunder shall not affect the obligations of Borrower with respect to any
debt incurred prior to termination. All such obligations shall continue in
full force and effect until all debt under the Line is paid in full.
20. OVERLINE DEBT. In the event debt outstanding under the Line should for any
reason
<PAGE>
exceed the amount of the Line allowed hereunder, all such debt shall be
payable on demand, but if no demand is made, no later than such time as may
be specified by Bank at the time of the approval of the temporary overline.
The overline debt shall bear interest at the rate specified for debt under
the Line, and shall be governed by all the terms and conditions of this
Agreement and the other Loan Documents and shall be secured by all
Collateral for the Line, and all items of inventory financed by the
overline debt shall secure all debt under the Line including the overline
and be governed by all terms of the Security Agreement, Floor Plan
Agreement and Note. Bank shall have no obligation to permit any overline at
any time but in its sole discretion may do so.
21. REVIEW OF LINE. Bank may, at its option, from time to time review the
credit for performance, pricing, amount of Line, and Borrower's financial
condition.
22. CHANGE IN TERMS. Bank may at its discretion amend or modify any term or
provision of this Floor Plan Agreement, Security Agreement or any other
agreements pertaining to this Agreement, with any change to be effective 15
days after mailing of notice to Borrower.
23. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and each party's respective successors,
heirs, executors, administrators, personal representatives and assigns.
Neither this Floor Plan Agreement nor any interest in it may be assigned or
otherwise voluntarily or involuntarily transferred by Borrower without
Bank's prior written approval.
24. WAIVER. (a) Bank may consent to or waive any action or any failure to act
by Borrower with respect to any obligation of Borrower hereunder. Any
consent or waiver on the part of Bank shall be binding upon Bank only when
in writing and signed by an officer of Bank, and no failure to take action
with respect to any default shall constitute a waiver thereof. No waiver of
any default shall be a waiver of any other or future default of that or any
other nature; (b) Bank shall not be required to proceed first against
Borrower, or any other person, firm or corporation, whether primarily or
secondarily liable, or against any collateral held by it, before resorting
to Guarantor for payment, and Guarantor shall not be entitled to assert as
a defense to the enforceability of the Guaranty any defense of Borrower
with respect to any Liabilities or Obligations.
25. GOVERNING LAW. This Floor Plan Agreement shall be deemed to have been made
in the State of Georgia at the address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of
Georgia, and is performable in the State of Georgia.
26. MEDIATION, BINDING ARBITRATION. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this
Agreement or the other Loan Documents by participating in mediation and/or
binding arbitration. Each party agrees that each will bear its respective
expenses related to either mediation and/or arbitration. The parties
further agree if the matter has not been resolved pursuant to mediation
within thirty
<PAGE>
(30) days of notice to mediate given by either party, the controversy shall
be settled by arbitration and shall be governed by the United States
Arbitration Act, 9 U.S.C. ss.1-16, (or if not applicable, the applicable
state law), and judgment upon the award rendered by the Arbitrator may be
entered by any court having jurisdiction thereof. The parties recognize
that Bank could be prejudiced by not being able to foreclose on property
pledged as Collateral to Bank. The parties agree that nothing in this
Agreement shall be deemed to (i) limit the applicability of any otherwise
applicable statutes of limitation or repose and any waivers contained in
this Agreement; or (ii) be a waiver by the Bank of the protection afforded
to it by 12 U.S.C. Sec. 91 or any substantially equivalent state law; or
(iii) limit the right of the Bank hereto (a) to exercise self help remedies
such as (but not limited to) setoff, or (b) to foreclose against any real
or personal property collateral, or (c) to obtain from a court provisional
or ancillary remedies such as (but not limited to) injunctive relief or the
appointment of a receiver. The Bank may exercise such self help rights,
foreclose upon such property, or obtain such provisional or ancillary
remedies before, during or after the pendency of any arbitration proceeding
brought pursuant to this agreement. At Bank's option, foreclosure under a
deed of trust or mortgage may be accomplished by any of the following: the
exercise of a power of sale under the deed of trust or mortgage, or by
judicial sale under the deed of trust or mortgage, or by judicial
foreclosure. Neither this exercise of self help remedies nor the
institution or maintenance of an action for foreclosure or provisional or
ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
<PAGE>
27. ADDITIONAL TERMS. (a) As used herein, the singular number shall include the
plural (e.g. "Note" means Note or Notes); or (b) In the event that there
are any written terms that may differ between this Floor Plan Agreement and
any other agreements, documents, or negotiations in existence prior to the
execution of this Floor Plan Agreement, Bank and Borrower agree that the
terms of this Floor Plan Agreement shall control and be the final
agreement.
28. MERGER. The terms of any commitment letter issued by Bank to Borrower for
this Line are incorporated herein by reference, except to the extent that
such terms are inconsistent with the terms of this Floor Plan Agreement,
Security Agreement or Note. Any such inconsistent terms are of no effect.
This Floor Plan Agreement supersedes any Floor Plan Agreements heretofore
executed by and between Bank and Borrower, and all outstanding Floor Plan
Agreement indebtedness is hereafter subject to all of the terms and
provisions of this Floor Plan Agreement, and the outstanding principal
balance of all such Floor Plan indebtedness is added to the principal
balance of this Floor Plan Agreement.
29. NOTICES. Any notice or other communication required or permitted hereunder
or under any Note or Security Agreement shall be in writing and shall be
delivered personally, sent by facsimile transmission or by first-class,
certified, registered or express mail, or by courier, with postage and
other charges prepaid. Any such notice shall be deemed given when so
delivered personally, by courier or by facsimile transmission, or, if
mailed, five (5) days after the date of deposit in the United States mail,
as follows:
If to Borrower, to:
European Motors, LLC
5949 Brainerd Rd
Chattanooga, TN 37421
Attention: Nelson E. Bowers, II
Facsimile #__________________________________
If Bank, to:
NationsBank, N.A. (South)
600 Peachtree Street, 17th Floor
Atlanta, Georgia 30308
Attention: Tim Kelley or Bill Brantley
Either Bank or Borrower may, by notice given in accordance with this
provision, designate another address or person for receipt of notices
hereunder.
<PAGE>
30. FLOOR PLAN COLLATERAL AND/OR INVENTORY INSPECTION. Floor Plan inventory
inspections will be conducted by Bank from time to time at the sole
discretion of Bank. Borrower agrees to pay in full any item or unit of
Collateral that is not located at Borrower's premises or accounted for by
Borrower to Bank. Borrower shall make payment to Bank immediately upon
notice of demand being given to Borrower pursuant to paragraph 29 (NOTICES)
of the Floor Plan Agreement.
31. FINAL AGREEMENT. THIS FLOOR PLAN AGREEMENT, THE FLOOR PLAN PROMISSORY NOTE,
THE SECURITY AGREEMENT AND ANY OTHER AGREEMENTS EXECUTED IN CONJUNCTION
WITH THIS FLOOR PLAN REVOLVING LINE OF CREDIT REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Floor Plan Agreement to
be executed under seal on the 6th day of May, 1996.
European Motors, LLC (Seal)
NationsBank, N.A. (South) Borrower
Bank
By /s/ Timothy W. Kelley By /s/ Nelson E. Bowers
-------------------------- -------------------------
Timothy W. Kelley Nelson E. Bowers, II
Assistant Vice President Chief Manager
(Name and Title) (Name and Title)
<PAGE>
ADDENDUM "A"
This Addendum "A" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated May 6. 1996
between Bank and Borrower.
Curtailments. Curtailment payments based upon the original amount advanced with
respect to specific items of Collateral shall be paid on the following types of
units of Collateral based upon either a dollar or percentage amount as billed to
Borrower and payment is due when billed. The Curtailment payment is to be
applied against the original amount advanced for a unit of Collateral. The
Curtailment payment based upon either a dollar or percentage amount is
calculated on the original amount advanced for the unit and not the outstanding
unpaid balance from time to time.
Unit Type Curtailment Amount Curtailment Date Final Payoff Date
New 10% of original Due 90 days 15 months from
amount financed. prior to maturity. date financed.
Used and In full at the end
Program of the 7th month.
Executed under seal this 6th day of May, 1996.
Borrower: European Motors, LLC (Seal)
By: /s/ Nelson E. Bowers
-------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
-------------------------------
Timothy W. Kelley
Assistant Vice President
(Name and Title)
<PAGE>
ADDENDUM "B"
This Addendum "B" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated May 6. 1996
between Bank and Borrower.
Floor Plan Sublimits. The following sublimits represent the amount of
outstandings permitted at any one time in connection with the particular type of
Collateral being financed; notwithstanding, the Bank, in it's sole discretion,
may advance from time to time amounts in excess of the sublimit amounts below:
Unit Type Sublimit Amount
- --------- ---------------
New Vehicles $5,500,000.00
Used Vehicles $ 500,000.00
Executed under seal on the 6th day of May, 1996.
Borrower: European Motors, LLC (Seal)
By: /s/ Nelson E. Bowers
-------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
-------------------------------
Timothy W. Kelley
Assistant Vice President
(Name and Title)
<PAGE>
ADDENDUM "C"
This Addendum "C" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated May 6, 1996
between Bank and Borrower.
As used herein, the following defined terms shall have the following meanings:
Working Capital - Current assets minus current liabilities.
Current Assets - Current assets (inclusive of LIFO reserve for new and used
vehicles) less amounts due from officers, stockholders, insiders,
affiliates and employees included as current assets, all computed in
accordance with generally accepted accounting principles.
Current Liabilities - Current liabilities less amounts included as current
liabilities due to officers, stockholders, insiders, affiliates and
employees, which have been expressly subordinated in payment to the Bank,
all computed in accordance with generally accepted accounting principles.
Inventory Trust Position - The sum of cash, contracts in transit, vehicle
accounts receivable (excluding any finance contract receivable), new and
used vehicle inventory (inclusive of LIFO reserves for new and used
vehicles) less new and used vehicle floor plan debt.
Tangible Net Worth - Net worth less intangible assets, less leasehold
improvements, less amounts due from officers, stockholders, insiders,
affiliates and employees, plus 100% times the LIFO reserve for new and used
vehicles, plus amounts payable to officers, stockholders, insiders,
affiliates and employees that are expressly subordinated in payment to the
Bank all computed in accordance with generally accepted accounting
principles.
Total Liabilities - Total liabilities less amounts payable to officers,
stockholders, insiders, affiliates and employees that are expressly
subordinated in payment to the Bank, all computed in accordance with
generally accepted accounting principles.
Additional Covenants. While the Line is effect, and thereafter while Borrower is
indebted to Bank, Borrower will: (Mark block for applicable covenant)
_X_(1) Maintain Working Capital of not less than $1,000,000.00 based on annual
CPA prepared Compiled Financial Statements.
___(2) Maintain a ratio of Current Assets to Current Liabilities of not less
than______ to 1.0 at all times.
_X_(3) Maintain Tangible Net Worth of not less than $723,775.00 at all times.
1
<PAGE>
___(4) Not permit the ratio of Total Liabilities to Tangible Net Worth to exceed
______ to 1.0 based on annual CPA prepared Compiled Financial Statements.
___(5) Maintain a minimum Inventory Trust Position of not less than $__________
at all times.
___(6) Provide to Bank within _ days of each month end a monthly Certificate
of Compliance in the form attached hereto as "Exhibit A-1", signed by a
duly authorized representative of Borrower or Borrower.
_X_(7) Other: (If additional space is needed, attach additional pages to this
Addendum)
Maintain a Cash Flow Coverage Ratio of not less than 1.25 to 1.0 based on
annual CPA prepared Compiled Financial Statements.
Cash Flow Coverage Ratio is defined as follows: The aggregate of net income
after taxes plus depreciation and amortization plus the annual LIFO
Adjustment and other non-cash expenses, less dividends and/or profits taken
out of the Borrower divided by the aggregate of the current portion of long
term debt and capital lease obligations.
Executed under seal on the 6th day of May, 1996.
Borrower: European Motors, LLC (Seal)
By: /s/ Nelson E. Bowers
-------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
-------------------------------
Timothy W. Kelley
Assistant Vice President
(Name and Title)
2
NationsBank
NationsBank, N.A. (South) Dated: April 11, 1997
FLOOR PLAN AGREEMENT
This Floor Plan Agreement is entered into by and between NationsBank, N.A
(South) (Bank) 600 Peachtree Street, 17th Floor, Atlanta, Georgia 30308 and Kia
of Chattanooga, LLC (Borrower) 6015 International Drive, Chattanooga, Tennessee
37421.
1. BACKGROUND. Borrower hereby requests Bank to extend to it a line of credit
(Line) to purchase inventory to be secured by Borrower's Collateral
described in paragraph 7 (Collateral). Bank agrees to extend the Line
subject to the terms of this Agreement.
2. THE LINE OF CREDIT. Bank extends to Borrower a Line in the amount of
$2,500,000.00 or such other amount as may be set by Bank from time to time.
Before maturity or demand, Borrower may borrow, repay and reborrow
hereunder at anytime, up to an aggregate amount outstanding at any one time
equal to the principal amount of Note, provided, however, that Borrower is
not in default of any provision of Note, Floor Plan Agreement, Security
Agreement or any other agreement or obligation between Borrower and Bank.
Any sums Bank may Advance in excess of the face amount of the Note shall
also be part of the principal amount the Borrower is obligated to pay Bank
and shall be subject to all the terms of the Note, Security Agreement, and
this Floor Plan Agreement. The Bank's records of the amounts borrowed from
time to time shall be conclusive proof thereof. Borrower acknowledges and
agrees that notwithstanding any provisions of any Note, Floor Plan
Agreement, Security Agreement or any other documents executed in connection
with a Note, Floor Plan Agreement and Security Agreement, the Bank has no
obligation to make any Advance, and that all Advances are at the sole
discretion of Bank.
3. NOTE. Debt under the Line shall be evidenced by Borrower's Floor Plan
Promissory Note (Note).
4. RATE. Debt under the Line shall bear interest as set forth in the Note.
5. DUE DATES.
(a) Unpaid principal and interest hereon shall be due and payable as set
forth in the Note, and as set forth below. Unless Borrower is in
default under the terms of any Security Agreement securing the Note,
this Floor Plan Agreement or any other agreement relating to this
Floor Plan Agreement, upon sale of inventory, Borrower will pay to
Bank at the earlier of Borrower's receipt of payment for that item of
inventory or three (3) business days after that item of inventory is
1
<PAGE>
delivered to the customer or otherwise disposed of, cash in the amount
equal to the original amount advanced less any curtailment payments
made with respect to the item sold. If Borrower is in default at time
of sale, all proceeds of sale will immediately be remitted to Bank and
applied to debt hereunder.
(b) Curtailment payments based on the original amount advanced with
respect to specific items of inventory shall be paid from time to time
by Borrower as provided for in Addendum "A" attached hereto and made a
part hereof for all purposes as if copied word for word herein.
6. USE OF LINE AND ADVANCES.
(a) The Advances under this Line shall be exclusively for the purpose of
purchasing inventory to be displayed and demonstrated in conjunction
with the sale of the inventory in the ordinary course of Borrower's
business unless otherwise agreed to in writing by Bank. Borrower
agrees not to use the inventory for any other purpose without the
prior written approval of Bank. The term "Advance" as used in this
Agreement shall mean the dollar amount loaned by Bank on a motor
vehicle financed under a floor plan line of credit and includes but is
not limited to any charge against, debit against, draft against, or
draw against the line of credit. Advances under the Line (Advances)
shall be made against and in payment of drafts drawn on Bank or in
accordance with the written request of Borrower executed by the person
signing this Agreement on behalf of Borrower or a person hereafter
designated in writing by Borrower.
(b) Units of inventory which may be presented as Collateral as well as the
amount of outstanding debt permitted at any one time in connection
with the particular type of Collateral being financed shall be in
accordance with Addendum "B".
(c) Bank may reject as Collateral hereunder any item of inventory which is
received by Borrower in damaged condition. Bank has no obligation to
inspect inventory for damage before paying drafts. If Bank has paid a
draft on damaged inventory, Borrower shall direct the manufacturer to
refund all payments directly to Bank. If the manufacturer fails to
make the refund within thirty (30) days, Borrower shall reduce the
debt outstanding under the Line by the amount Advanced against the
damaged item.
(d) Borrower will submit or cause to be submitted to Bank invoices or
bills of sale representing the actual cost to Borrower of the
inventory. Bank may advance an amount equal to Borrower's cost (not to
exceed NADA wholesale value in the case of used motor vehicles) or
such part of the cost thereof as Bank elects at its sole discretion.
The Advance may be disbursed to Borrower or the manufacturer or others
from whom Borrower purchases inventory. Presentation of drafts or
other requests for payment by manufacturers or others from whom
Borrower
2
<PAGE>
purchases inventory shall constitute requests by Borrower that Bank
lend Borrower the amount of such drafts or other requests for payment
pursuant to this Agreement.
(e) A fee in the amount of $0.00 shall be paid by Borrower for each unit
of inventory presented as Collateral to obtain Advances. The fee shall
be paid monthly by Borrower.
7. COLLATERAL Borrower hereby grants to Bank a security interest in all of its
inventory of:
_X_ New Motor Vehicles (now existing or hereafter acquired)
___ Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories added to vehicles, now existing or
hereafter acquired by Borrower, including any such goods as may be leased
or held for leasing, together with any and all accounts and proceeds
arising from the sale, lease or disposition of said property and all
returned, refused and repossessed goods, all monies received from
manufacturers by way of credits, refunds or otherwise with respect to
Collateral, and all proceeds thereof (Collateral) to secure all debt of
Borrower to Bank under any and all present and future Advances of whatever
kind and further including but not limited to the Line and all other debt
and other obligations of Borrower to Bank of any nature now existing or
hereafter arising, including but not limited to debt arising directly
between Borrower and Bank or acquired outright, conditionally or as
Collateral security from another by Bank, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising under the operation of law or
otherwise, direct or indirect, whether incurred directly or as part of a
partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Borrower will execute
and deliver any documents, instruments or agreements required by Bank to
evidence debt hereunder, grant, perfect and preserve the security interest,
and otherwise carry out the terms of this Agreement. The security interest
herein described is also evidenced by a Security Agreement between Borrower
and Bank, and in the event of any conflict between the terms hereof and the
terms thereof, the terms hereof will apply.
8. IDENTIFICATION OF COLLATERAL. Without limiting the foregoing general grant
of a security interest, as set forth in the Security Agreement, Collateral
subject to the security interest granted herein shall include but not be
limited to (i) inventory listed on invoices submitted to Bank by
manufacturers attached to drafts submitted by manufacturers for payment,
which drafts Bank pays; and/or (ii) inventory in Borrower's possession set
out on a list submitted by Borrower as Collateral for Advances directly to
Borrower.
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<PAGE>
9. TITLE DOCUMENTS. Title documents consisting of manufacturers' certificate
of origin, manufacturers' statement of origin, certificates of title and/or
any and all other title documents for each item of inventory shall be in
the possession of Borrower unless otherwise directed by Bank. In the event
Bank does require possession of title documents, Borrower shall deliver all
such documents to Bank immediately upon demand.
10. PAYMENT OF DRAFTS. From time to time Bank may make Advances hereunder by
direct payment to manufacturers or others, in which event, invoices
submitted by Manufacturers along with drafts paid by Bank shall serve as
evidence of Advances under the Line. Borrower authorizes Bank to pay all
drafts or invoices upon presentation by the manufacturer or others
supplying inventory to Borrower.
11. ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Bank its
attorney-in-fact, to execute, deliver and file from time to time, in the
name of Borrower or Bank, any trust receipts, security agreements,
promissory notes, financing statements, continuation statements and
amendments thereto, and any and all other documents and instruments that
Bank may require in connection with evidencing and securing debt under this
Agreement and carrying out the provisions hereof, which appointment shall
be deemed to be a power coupled with an interest.
12. QUALITY OF INVENTORY. Borrower shall be responsible for the quantity,
quality, condition and value of the inventory selected by Borrower and
financed under this Agreement. Bank shall have no liability of any nature
because of the failure of any inventory to conform to Borrower's
specifications, and any dispute between the manufacturer or others and
Borrower with respect to such inventory shall not affect Borrower's
obligation to Bank to pay amounts Advanced hereunder.
13. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
(a) Borrower has taken all action necessary to make this Agreement and all
other agreements between it and Bank legal, valid and binding
obligations enforceable in accordance with their terms, and Borrower
is a:
(i) ___ corporation duly organized, existing and in good standing
under the laws of the State of ________, that it is licensed
to do business and in good standing in each state in which
the property owned by it or the business transacted by it
requires it to be licensed as a foreign corporation.
(ii) _X_ limited liability company, duly organized, and in good
standing under the laws of the State of Tennessee.
4
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(iii) ___ partnership composed of________________________________
_______________________________________________________
_______________________________________________________
(iv) ___ sole proprietorship owned by __________________________
_______________________________________________________
(b) Borrower is not in default with respect to any agreement between it
and Bank on this date.
(c) All Collateral is owned by Borrower free and clear of any security
interests or encumbrances except those granted pursuant hereto.
(d) Borrower is and will hereafter be not in default under any agreement
with any other party, and the execution and performance of this
Agreement will not be a default under any agreement with any other
party by which Borrower or any of Borrower's property is bound.
(e) Borrower does not do financing of any motor vehicle inventory with any
other source or purchase inventory from any seller on credit except as
set out below:
______________________________________________________________________
______________________________________________________________________
Borrower shall notify Bank immediately in the event it buys inventory
of motor vehicles on credit or enters into any such inventory
financing arrangement with any other source, giving the name and
address of the Bank or seller and details of the purchase or loan.
(f) All financial and other information Borrowers have heretofore
submitted or may hereafter submit is and will be true, complete, and
correct and reflects or will reflect all direct, indirect, and
contingent liabilities.
(g) There has been no material adverse change in the Borrower's financial
condition and operations since the date of Borrowers most recent
financial statements heretofore submitted.
(h) Borrower has and will maintain, at all times, all franchise,
distributor agreements, licenses, permits, and other rights that are
necessary to the conduct of its business.
(i) All representations and warranties set forth herein will be deemed to
be have been made anew with each Advance and shall be continuing in
effect beyond the termination or expiration of this Floor Plan
Agreement.
5
<PAGE>
14. COVENANTS. While the Line is in effect, and thereafter while Borrower is
indebted to Bank, Borrower will:
(a) _X_ Provide Bank within twenty (20) days of each month's end, a
company prepared financial statement (including the
thirteenth (13) month statement including all adjustments to
net worth) in accordance with requirements of the
franchise(s) for which Borrower is a dealer.
_X_ Provide Bank within sixty (60) days after Borrower's fiscal
year-end a financial statement compiled by a Certified
Public Accountant acceptable to the Bank.
___ Provide Bank within one-hundred-twenty (120) days after
Borrower's fiscal year-end a financial statement reviewed by
a Certified Public Accountant acceptable to the Bank.
___ Provide Bank within one-hundred-fifty (150) days of
Borrower's fiscal year-end audited financial statements
prepared by a Certified Public Accountant acceptable to the
Bank.
In submitting such statements to Bank an authorized officer of Borrower
will certify such statements to be true and accurate, continuing compliance
with all terms and conditions contained herein and in the other Loan
Documents and that no material violation or default exists with any
material agreement.
_X_ As to Guarantors, provide the Bank a copy of each
Guarantor's personal financial statement within thirty (30)
days of calendar year-end in a manner and form acceptable to
the Bank. Additionally, each Guarantor shall provide the
Bank a copy of each Guarantor's federal income tax return
and all schedules thereto within thirty (30) days of filing
each return.
(b) Not merge into or consolidate with any other person, firm, corporation
or limited liability company nor sell any substantial part of its
assets to any person, firm, corporation or limited liability company
except in the ordinary course of business;
(c) Not sell or enter into any agreement to sell or deal in new motor
vehicles manufactured by any manufacturer for whom it is not now a
Retailer or Wholesaler, unless approved by Bank in writing which will
not be unreasonably withheld;
6
<PAGE>
(d) Keep all Collateral and inventory insured, by insurers acceptable to
Bank, at all times in an amount at least equal to the amount of debt
to Bank under the Line with deductible amount satisfactory to Bank,
and the insurance policy to contain loss payable clauses to Bank as
its interest may appear. Borrower will deliver original policies or,
if permitted by Bank, certificates of insurance to Bank;
(e) Permit Bank to enter upon the property of Borrower at any time to
examine all Collateral and to examine Borrower's books in connection
therewith.
(f) At time of execution of this Floor Plan Agreement deliver to Bank such
Landlord Waiver and/or Mortgagee Waiver and Estoppel Agreements duly
executed by the appropriate parties in such form as is satisfactory to
Bank and Borrower will thereafter furnish to Bank current executed
copies of the above instruments upon written request of Bank;
(g) Not allow any material change in ownership or management nor enter
into any management agreement pursuant to which any third party
assumes the management of Borrower in anticipation of a sale of
Borrower's business or any material part of its assets without Bank's
prior written approval;
(h) Operate business in compliance with all environmental protection laws
and regulations including applicable local, state, or federal law,
regulations, or rule of common law;
(i) Not allow any liens or encumbrances on any of Borrower's assets or
property without the written consent of Bank;
(j) Borrower and Guarantor shall promptly notify Bank in writing of (i)
any condition, event or act which comes to Borrower's or Guarantor's
attention that would or might materially adversely affect Borrower's
or Guarantor's financial condition or operations, the Collateral, or
Bank's rights under the Guaranty or any Loan Documents, (ii) any
litigation in excess of $25,000.00 filed by or against Borrower or
Guarantor, or (iii) any event that has occurred that would constitute
an event of default under any Loan Documents, including but not
limited to any Guaranty.
(k) See Addendum "C" for additional covenants which are a part of this
Agreement for all purposes as if they were copied word for word
herein.
15. EVENTS OF DEFAULT.
The following are events of default hereunder and under the other Loan
Documents: (a) the failure to pay or perform any obligation, liability,
indebtedness or covenant of any Borrower or Guarantor to Bank, or to any
affiliate of Bank, whether under this Floor Plan Agreement, Security
Agreement, Note or any other agreement or instrument
7
<PAGE>
now or hereafter existing, as and when due (whether upon demand, at
maturity or by acceleration); (b) the failure to pay or perform any other
obligation, liability or indebtedness of any Borrower or Guarantor whether
to Bank or some other party, the collateral for which constitutes an
encumbrance on the collateral for this Floor Plan Agreement; (c) a
proceeding being filed or commenced against any Borrower or Guarantor for
dissolution or liquidation, or any Borrower or Guarantor voluntarily or
involuntarily terminating or dissolving or being terminated or dissolved;
(d) insolvency of, business failure of, the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, or an
assignment for the benefit of creditors by, or the filing of a voluntary or
involuntary petition under bankruptcy, insolvency or debtor's relief law or
for any adjustment of indebtedness, composition or extension by or against
any Borrower or Guarantor; (e) any lien, encumbrance or additional security
interest being placed upon any of the Collateral which is security for this
Floor Plan Agreement; (f) acquisition at any time or from time to time of
title to the whole of or any part of the Collateral which is security for
this Floor Plan Agreement by any person, partnership, corporation or other
entity except for sales thereof in the ordinary course of business; (g)
Bank determining that any representation or warranty made by any Borrower
or Guarantor to Bank is, or was, untrue or materially misleading; (h)
failure of any Borrower or Guarantor to timely deliver such financial
statements, including tax returns, and other statements of condition or
other information as Bank shall request from time to time; (i) entry of a
judgment against any Borrower or Guarantor which Bank deems to be of a
material nature, in Bank's sole discretion; (j) the seizure or forfeiture
of, or the issuance of any writ of possession, garnishment or attachment,
or any turn over order for any property of any Borrower or Guarantor; (k)
Bank reasonably deeming itself insecure or its prospects for payment of the
debt impaired for any reason; (1) the determination by Bank that a material
adverse change has occurred in the financial condition of any Borrower or
Guarantor; (m) the failure to comply with any law regulating the operation
of Borrower's business; (n) Guarantor undertakes to terminate or revoke any
guaranty of payment of this Note or defaults in the performance of or
disputes any of his obligations as Guarantor; (o) the inability of the
Borrower or Guarantor to pay debts as they mature owing to Bank or any
other party.
16. REMEDIES. Upon the occurrence of any default hereunder or any of the other
Loan Documents, Bank shall have all of the rights and remedies of a
creditor and, of a secured party under the Uniform Commercial Code as
enacted in the State of Georgia, O.C.G.A. ss.11-9 and all other applicable
law. Without limiting the generality of the foregoing, Bank may, at its
option and without notice or demand: (a) declare any liability of Borrower
under this Agreement or any of the other Loan Documents accelerated and due
and payable at once; and (b) take possession of any Collateral wherever
located, and sell, resell, assign, transfer and deliver all or any part of
said Collateral of Borrower or Guarantor at any public or private sale or
otherwise dispose of any or all of the Collateral in its then condition,
for cash or on credit or for future delivery, and in connection therewith
Bank may impose reasonable conditions upon any
8
<PAGE>
such sale. Bank, unless prohibited by law the provisions of which cannot be
waived, may purchase all or any part of said Collateral to be sold, free
from and in discharge of all trusts, claims, rights of redemption and
equities of the Borrower or Guarantor whatsoever; Borrower and Guarantor
acknowledge and agree that the sale of any Collateral through any
nationally recognized broker - dealer, investment banker or any other
method common in the securities industry shall be deemed a commercially
reasonable sale under the Uniform Commercial Code or any other equivalent
statute or federal law, and expressly waive notice thereof except as
provided herein; and (c) setoff against any and all money owed by Bank in
any capacity to Borrower or Guarantor whether or not due for any
Liabilities of the Borrower to the Bank under this Agreement and the other
Loan Documents.
17. ATTORNEY FEES. COST AND EXPENSES. Borrower and/or Guarantor shall pay all
costs of collection and attorney's fees equal to reasonable and actual
attorney's fees, including reasonable attorney's fees in connection with
any suit, mediation or arbitration proceeding, out of court payment,
agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or
paid by Bank in enforcing the payment of any Liability or enforcing or
preserving any right or interest of Bank hereunder, including the
collection, preservation, sale or delivery of any Collateral from time to
time pledged to Bank, and after deducting such fees, costs and expenses
from the proceeds of sale or collection, Bank may apply any residue to pay
any of the Liabilities and Guarantor shall continue to be liable for any
deficiency with interest at the rate specified in any instrument evidencing
the Liability or, at the Bank's option, equal to the highest lawful rate,
which shall remain a liability.
18. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Borrower and/or
Guarantor pledged to Bank to secure Borrower's and/or Guarantor's
obligations against prior parties who may be liable in connection
therewith, and Borrower and/or Guarantor hereby agree to take any such
steps. Bank, nevertheless, at any time, may (a) take any action it deems
appropriate for the care or preservation of such property or of any rights
of Borrower and/or Guarantor or Bank therein, (b) demand, sue for, collect
or receive any money or property at any time due, payable or receivable on
account of or in exchange for any property of Borrower and/or Guarantor,
(c) compromise and settle with any person liable on such property, or (d)
extend the time of payment or otherwise change the terms thereof as to any
party liable thereon, all without notice to, without incurring
responsibility to, and without affecting any of the obligations or
liabilities of Borrower and/or Guarantor.
19. TERMINATION. The Line may be terminated at any time by either party with or
without cause upon 30 days' notice in writing to the other. Upon the
occurrence of a default hereunder, Bank shall have the right to terminate
the Line and to mature all debt outstanding hereunder, including principal
and interest, without notice to any person. Termination of the Line
hereunder shall not affect the obligations of Borrower with
9
<PAGE>
respect to any debt incurred prior to termination. All such obligations
shall continue in full force and effect until all debt under the Line is
paid in full.
20. OVERLINE DEBT. In the event debt outstanding under the Line should for any
reason exceed the amount of the Line allowed hereunder, all such debt shall
be payable on demand, but if no demand is made, no later than such time as
may be specified by Bank at the time of the approval of the temporary
overline. The overline debt shall bear interest at the rate specified for
debt under the Line, and shall be governed by all the terms and conditions
of this Agreement and the other Loan Documents and shall be secured by all
Collateral for the Line, and all items of inventory financed by the
overline debt shall secure all debt under the Line including the overline
and be governed by all terms of the Security Agreement, Floor Plan
Agreement and Note. Bank shall have no obligation to permit any overline at
any time but in its sole discretion may do so.
21. REVIEW OF LINE. Bank may, at its option, from time to time review the
credit for performance, pricing, amount of Line, and Borrower's financial
condition.
22. CHANGE IN TERMS. Bank may at its discretion amend or modify any term or
provision of this Floor Plan Agreement, Security Agreement or any other
agreements pertaining to this Agreement, with any change to be effective 15
days after mailing of notice to Borrower.
23. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon each party's respective successors, heirs, executors,
administrators, personal representatives and assigns. Neither this Floor
Plan Agreement nor any interest in it may be assigned by Borrower
without Bank's prior written approval.
24. WAIVER (a) Bank may consent to or waive any action or any failure to act by
Borrower with respect to any obligation of Borrower hereunder. Any consent
or waiver on the part of Bank shall be binding upon Bank only when in
writing and signed by an officer of Bank, and no failure to take action
with respect to any default shall constitute a waiver thereof. No waiver of
any default shall be a waiver of any other or future default of that or any
other nature; (b) Bank shall not be required to proceed first against
Borrower, or any other person, firm or corporation, whether primarily or
secondarily liable, or against any collateral held by it, before resorting
to Guarantor for payment, and Guarantor shall not be entitled to assert as
a defense to the enforceability of the Guaranty any defense of Borrower
with respect to any Liabilities or Obligations.
25. GOVERNING LAW. This Floor Plan Agreement shall be deemed to have been made
in the State of Georgia at the address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of
Georgia, and is performable in the State of Georgia.
10
<PAGE>
26. MEDIATION, BINDING ARBITRATION. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this
Agreement or the other Loan Documents by participating in mediation and/or
binding arbitration. Each party agrees that each will bear its respective
expenses related to either mediation and/or arbitration. The parties
further agree if the matter has not been resolved pursuant to mediation
within thirty (30) days of notice to mediate given by either party, the
controversy shall be settled by arbitration and shall be governed by the
United States Arbitration Act, 9 U.S.C. ss. 1-16, (or if not applicable,
the applicable state law), and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof. The
parties recognize that Bank could be prejudiced by not being able to
foreclose on property pledged as Collateral to Bank. The parties agree that
nothing in this Agreement shall be deemed to (i) limit the applicability of
any otherwise applicable statutes of limitation or repose and any waivers
contained in this Agreement; or (ii) be a waiver by the Bank of the
protection afforded to it by 12 U.S.C. Sec. 91 or any substantially
equivalent state law; or (iii) limit the right of the Bank hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to
obtain from a court provisional or ancillary remedies such as (but not
limited to) injunctive relief or the appointment of a receiver. The Bank
may exercise such self help rights, foreclose upon such property, or obtain
such provisional or ancillary remedies before, during or after the pendency
of any arbitration proceeding brought pursuant to this agreement. At Bank's
option, foreclosure under a deed of trust or mortgage may be accomplished
by any of the following: the exercise of a power of sale under the deed of
trust or mortgage, or by judicial sale under the deed of trust or mortgage,
or by judicial foreclosure. Neither this exercise of self help remedies nor
the institution or maintenance of an action for foreclosure or provisional
or ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
27. ADDITIONAL TERMS. (a) As used herein, the singular number shall include the
plural (e.g. "Note" means Note or Notes); or (b) In the event that there
are any written terms that may differ between this Floor Plan Agreement and
any other agreements, documents, or negotiations in existence prior to the
execution of this Floor Plan Agreement, Bank and Borrower agree that the
terms of this Floor Plan Agreement shall control and be the final
agreement.
28. MERGER. The terms of any commitment letter issued by Bank to Borrower for
this Line are incorporated herein by reference, except to the extent that
such terms are inconsistent with the terms of this Floor Plan Agreement,
Security Agreement or Note. Any such inconsistent terms are of no effect.
This Floor Plan Agreement supersedes any Floor Plan Agreements heretofore
executed by and between Bank and Borrower, and all outstanding Floor Plan
Agreement indebtedness is hereafter subject to all of the terms and
provisions of this Floor Plan Agreement, and the outstanding principal
11
<PAGE>
balance of all such Floor Plan indebtedness is added to the principal
balance of this Floor Plan Agreement.
29. NOTICES. Any notice or other communication required or permitted hereunder
or under any Note or Security Agreement shall be in writing and shall be
delivered personally, sent by facsimile transmission or by first-class,
certified, registered or express mail, or by courier, with postage and
other charges prepaid. Any such notice shall be deemed given when so
delivered personally, by courier or by facsimile transmission, or, if
mailed, five (5) days after the date of deposit in the United States mail,
as follows:
If to Borrower, to:
Kia of Chattanooga, LLC
6015 International Drive
Chattanooga, TN 37421
Attention: Nelson E. Bowers, II
Facsimile #__________________________________
If Bank, to:
NationsBank, N.A. (South)
600 Peachtree Street, 17th Floor
Atlanta, Georgia 30308
Attention: Tim Kelley or Bill Brantley
Either Bank or Borrower may, by notice given in accordance with this
provision, designate another address or person for receipt of notices
hereunder.
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<PAGE>
30. FLOOR PLAN COLLATERAL AND/OR INVENTORY INSPECTION. Floor Plan inventory
inspections will be conducted by Bank from time to time at the sole
discretion of Bank. Borrower agrees to pay in full any item or unit of
Collateral that is not located at Borrower's premises or accounted for by
Borrower to Bank. Borrower shall make payment to Bank immediately upon
notice of demand being given to Borrower pursuant to paragraph 29 (NOTICES)
of the Floor Plan Agreement.
31. FINAL AGREEMENT. THIS FLOOR PLAN AGREEMENT, THE FLOOR PLAN PROMISSORY NOTE,
THE SECURITY AGREEMENT AND ANY OTHER AGREEMENTS EXECUTED IN CONJUNCTION
WITH THIS FLOOR PLAN REVOLVING LINE OF CREDIT REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Floor Plan Agreement to
be executed under seal on the 11th day of April, 1997.
Kia of Chattanooga, LLC (Seal)
NationsBank, N.A. (South) Borrower
Bank
By By /s/ Nelson E. Bowers, II
-------------------------- -------------------------
Timothy Kelley Nelson E. Bowers, II
Assistant Vice President Chief Manager
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<PAGE>
ADDENDUM "A"
This Addendum "A" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated April 11,
1997 between Bank and Borrower.
Curtailments. Curtailment payments based upon the original amount advanced with
respect to specific items of Collateral shall be paid on the following types of
units of Collateral based upon either a dollar or percentage amount as billed to
Borrower and payment is due when billed. The Curtailment payment is to be
applied against the original amount advanced for a unit of Collateral. The
Curtailment payment based upon either a dollar or percentage amount is
calculated on the original amount advanced for the unit and not the outstanding
unpaid balance from time to time.
Unit Type Curtailment Amount Curtailment Date Final Payoff Date
- --------- ------------------ ---------------- -----------------
New 10% of original Due 90 days 15 months from
amount financed. prior to maturity. date financed.
Program 2% of original Due monthly In full at the
amount financed. beginning at the end of the 7th
end of the 4th month month.
Executed under seal this 11th day of April, 1997.
Borrower: Kia of Chattanooga, LLC (Seal)
By /s/ Nelson E. Bowers, II By:
-------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By:
-------------------------------
Timothy W. Kelley, Assistant Vice President
(Name and Title)
<PAGE>
ADDENDUM "B"
This Addendum "B" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated April 11,
1996 between Bank and Borrower.
Floor Plan Sublimits. The following sublimits represent the amount of
outstandings permitted at any one time in connection with the particular type of
Collateral being financed; notwithstanding, the Bank, in it's sole discretion,
may advance from time to time amounts in excess of the sublimit amounts below:
Unit Type Sublimit Amount
- --------- ---------------
New Vehicles $2,500,000.00
Executed under seal on the 11th day of April, 1997.
Borrower: Kia of Chattanooga, LLC (Seal)
By /s/ Nelson E. Bowers, II By:
-------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By:
-------------------------------
Timothy W. Kelley, Assistant Vice President
(Name and Title)
<PAGE>
10.19a
NATIONSBANK. N.A. (SOUTH)
SECURITY AGREEMENT
(Floor Plan)
Date April 11, 1997
Between: and
================================================================================
BANK: (SECURED PARTY) DEBTOR: (BORROWER)
NATIONSBANK, N.A. (SOUTH) Kia of Chattanooga, LLC
600 Peachtree Street 17th Floor 6015 International Drive
Atlanta, Georgia 30308 Chattanooga, Tennessee 37421
Fulton County Hamilton County
(address including county) Name and address, including county)
================================================================================
Debtor is: [ ] Individual [ ] Corporation [ ] Partnership [X] Other Limited
Liability
Corporation
- --------------------------------------------------------------------------------
Address is Debtor's: [ ] Residence [X] Place of Business [ ] Chief Executive
Office if more than one place of business
================================================================================
[This Agreement contains some provisions preceded by boxes. Mark only those
boxes beside provisions which will be applicable to this transaction. A box
which is not marked means that the provision beside it is not applicable to this
transaction.]
SECTION I. CREATION OF SECURITY INTEREST.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged and subject to the applicable terms of a Floor Plan
Agreement, Floor Plan Promissory Note and this Floor Plan Security Agreement,
Debtor hereby grants to Secured Party (Bank) a security interest in the
Collateral described in Section 11 of this Security Agreement to secure
performance and payment of all obligations and indebtedness of Debtor to Bank of
whatever kind and whenever or however created or incurred. Said obligations and
indebtedness includes but is not limited to any and all liabilities, fixed or
contingent, whether arising by notes, discounts, overdraws, or in any other
manner whatsoever.
SECTION II. COLLATERALS
The Collateral of this Security Agreement is inventory of the following
description:
[X] New Motor Vehicles (now existing or hereafter acquired)
[ ] Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories added to vehicles, now existing or hereafter
acquired by Debtor (Borrower), including any such goods as may be leased or held
for leasing, together with any and all accounts and Proceeds arising from the
sale, lease or disposition of said property and all returned, refused and
repossessed goods, all monies received from manufacturers by way of credits,
refunds or otherwise with respect to Collateral, and all Proceeds thereof
(Collateral) to secure all debt of Debtor (Borrower) to Secured Party (Bank)
under any and all present and future Advances of whatever kind and further
including but not limited to the Line and all other debt of Debtor (Borrower) to
Secured Party (Bank) of any nature now existing or hereafter arising, including
but not limited to debt arising directly between Debtor (Borrower) and Bank or
acquired outright, conditionally or as Collateral security from another by
Secured Party, absolute or contingent, joint or several, secured or unsecured,
due or not due, contractual or tortious, liquidated or unliquidated, arising
under the operation of law or otherwise, direct or indirect, whether incurred
directly or as part of a partnership, association or other group, or whether
incurred as principal, surety, indorser, accommodation party or otherwise.
Debtor (Borrower) will execute and deliver any documents, instruments or
agreements required by Secured Party (Bank) to evidence debt hereunder, grant,
perfect and preserve the security interest, and otherwise carry out the terms of
the Floor Plan Agreement, Floor Plan Note and this Floor Plan Security
Agreement. See attached schedule for additional Collateral, if applicable.
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<PAGE>
The inclusion of Proceeds in this Security Agreement does not authorize
Debtor to sell, dispose of or otherwise use the Collateral in any manner not
specifically authorized by the Floor Plan Agreement or this Security Agreement.
The term "Proceeds" means proceeds as said term is defined in the Uniform
Commercial Code and includes without limitation cash, accounts, general
intangibles, documents, inventory (including trade-ins), instruments, chattel
paper, equipment, and all other property of every kind received upon the sale,
exchange, collection, lease or other disposition of inventory.
SECTION III. PAYMENT OBLIGATIONS OF DEBTOR.
1. Debtor shall pay to Secured Party on demand all expenses and
expenditures, including attorney fees, plus interest thereon at the highest
legal rate per annum, pursuant to the provisions of the Floor Plan Agreement,
Floor Plan Note and this Security Agreement.
2. Debtor shall pay to Secured Party the earned outstanding indebtedness of
Debtor to Secured Party upon demand or Debtor's default pursuant to the terms
and conditions contained in a Floor Plan Note, Floor Plan Agreement or this
Security Agreement.
SECTION IV. DEBTOR'S REPRESENTATIONS AND WARRANTIES.
1. The representations and warranties contained in a Floor Plan Agreement
between Debtor and Secured Party dated April 11, 1997, are hereby incorporated
by reference for all purposes as if copied herein word for word.
2. Debtor will execute alone or with Secured Party any Financing Statement
or other document or procure any document, and pay all connected costs,
necessary to perfect, continue and protect the security interest under this
Security Agreement against the rights or interest of third persons.
3. Debtor will at all times keep Collateral and its Proceeds separate and
distinct from other property of Debtor and shall keep accurate and complete
records of the Collateral and its Proceeds.
4. Debtor shall pay prior to delinquency all taxes, charges, liens and
assessments against the Collateral, and upon Debtor's failure to do so, Secured
Party at its option may pay any of them and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Such payment shall become part of the indebtedness secured by this Agreement and
shall be paid to Secured Party by Debtor immediately and without demand, with
interest thereon at the highest legal rate per annum.
5. The Collateral shall remain in Debtor's possession or control at all
times at Debtor's risk of loss; and be kept at the address shown at the
beginning of this Agreement, or at _____________________________________________
________________________________________________________________________________
(No. and Street) (City) (County) (State)
where Secured Party may inspect it at any time. Except for its temporary removal
in connection with its ordinary use, Debtor shall not remove the Collateral from
the above address without obtaining prior written consent from Secured Party.
Debtor shall bear the risk of loss and damage to Collateral at all times.
6. The Collateral will not be misused or abused, wasted or allowed to
deteriorate, except for the ordinary wear and tear of its intended primary use,
and will not be used in violation of any statute or ordinance.
7. The Collateral will not be sold, transferred or disposed of by Debtor
except in the ordinary course of business or be subjected to any other security
interest unpaid charge, including rent and taxes, or to any subsequent interest
of a third person created or suffered by Debtor voluntarily or involuntarily
unless Secured Party consents in advance in writing to such sale, transfer,
disposition, charge, or subsequent interest, or unless otherwise provided in
this Agreement.
8. Debtor will promptly notify Secured Party in writing of any addition to,
change in or discontinuance of: (i) its address as shown at the beginning of
this Security Agreement; (ii) the location of its place of business if it has
one location or its chief executive office if it has more than one place of
business as set forth in this Security Agreement; and (iii) the location of the
office where it keeps its records as set forth in this Security Agreement.
9. If any Collateral is leased or held for lease to customers of Debtor and
is of a type normally used in more than one State (such as automotive equipment,
rolling stock, airplanes, road building equipment, commercial harvesting
equipment, construction machinery and the like), Debtor's place of business if
it has one location or its chief executive office if it has more than one place
of business is the address shown at the beginning of this Agreement.
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10. The office where Debtor keeps its records is 6015 International Drive,
Chattanooga, TN 37421 (Hamilton County).
11. Debtor shall account fully and faithfully to Secured Party for Proceeds
from disposition of the Collateral in any manner and shall pay or turn over
pursuant to paragraph 5(a) of the Floor Plan Agreement in cash, negotiable
instruments, drafts, assigned accounts or chattel paper, all Proceeds from each
sale to be applied to Debtor's indebtedness to Secured Party, subject, if other
than cash, to final payment or collection.
12. If any Collateral or Proceeds includes obligations of third parties to
Debtor, the transactions giving rise to the Collateral shall conform in all
respects to the applicable State or Federal law including but not limited to
consumer credit law. Debtor shall hold harmless and indemnify Bank against any
cost, loss or expense arising from Debtor's breach of this covenant.
13. Without the written consent of Bank, Debtor shall not change its name,
change its corporate status, use any trade name or engage in any business in
which it was not engaged on the date of this Agreement.
14. Debtor appoints any officer of Bank as Debtor's attorney-in-fact with
full power in Debtor's name and behalf to do every act which Debtor is obligated
to do or may be required to do hereunder; however, nothing in this paragraph
shall be construed to obligate Bank to take any action hereunder nor shall Bank
be liable to Debtor for failure to take any action hereunder. This appointment
shall be deemed a power coupled with an interest and shall not be terminable as
long as the obligations are outstanding and shall not terminate on the
disability or incompetence of the Debtor.
15. Debtor will comply with all State and Federal laws and regulations
applicable to its business, whether now in effect or hereafter enacted including
but not limited to the wage and hours laws and relating to the use or disposal
of hazardous materials and wastes.
SECTION V. COVENANTS.
The Covenants contained in a Floor Plan Agreement between Debtor and
Secured Party dated April 11, 1997, are hereby incorporated by reference for all
purposes as if copied word for word herein.
SECTION VI. Events of Default.
Debtor shall be in default under this Security Agreement upon the happening
of any of the following events or conditions (hereinafter called an "Event of
Default"):
1. The occurrence of any events of default referred to in a Floor Plan
Agreement between Debtor and Secured Party dated April ____, 1997 all of which
are hereby incorporated by reference for all purposes as if copied word for word
herein.
2. Debtor defaults in the due observance or performance of any terms or
provisions of this Security Agreement or other Loan Documents.
3. If any physical damage, property and/or other insurance, insuring said
Collateral and the respective interests of the parties therein, is cancelled for
any reason and the Debtor fails or refuses to furnish written proof to Secured
Party of his having obtained substitute insurance coverage replacing the
cancelled policies.
SECTION VII. SECURED PARTY'S RIGHTS AND REMEDIES.
A. Rights Exclusive of Default.
(1) This Security Agreement, Secured Party's rights hereunder or the
indebtedness hereby secured may be assigned from time to time, and in any
such case the Assignee shall be entitled to all of the rights, privileges
and remedies granted in this Security Agreement to Secured Party, and
Debtor will assert no claims or defenses it may have against Secured Party
against the Assignee except those granted in this Security Agreement.
(2) At its option, Secured Party may discharge taxes, liens or
security interests or other encumbrances at any time levied or placed on
the Collateral, may pay for insurance on the Collateral and may pay for the
maintenance and preservation of the Collateral. Debtor agrees to reimburse
Secured Party on demand for any payment made, or any expense incurred by
Secured Party pursuant to the foregoing authorization, plus interest
thereon at the highest legal rate per annum.
(3) Secured Party may execute, sign, endorse, transfer or deliver in
the name of Debtor notes, checks, drafts or other instruments for the
payment of money and receipts, certificates of origin, applications for
certificates of title or any other documents, necessary to evidence,
perfect or realize upon the security interest and obligations created by
this Security Agreement.
(4) Secured Party may notify the account debtors or obligors of any
accounts, chattel paper, negotiable instruments or other evidences of
indebtedness remitted by Debtor to Secured Party as Proceeds to pay Secured
Party directly.
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(5) Secured Party may at any time demand, sue for, collect or make any
compromise or settlement with reference to the Collateral as Secured Party,
in its sole discretion, chooses.
(6) Secured Party may enter upon Debtor's premises at any reasonable
time to inspect the Collateral and Debtor's books and records pertaining to
the Collateral; Secured Party may require the Debtor to assemble the
Collateral for such inspection in a reasonably convenient place; and in all
other ways the Debtor shall assist the Secured Party in making such
inspection.
B. Rights in Event of Default.
(1) Upon the occurrence of an Event of Default, or if Secured Party
deems payment of Debtor's obligations to Secured Party to be insecure, and
at any time thereafter, Secured Party may declare all obligations secured
hereby immediately due and payable and shall have the rights and remedies
of a Secured Party under the Uniform Commercial Code as enacted in the
State of Georgia, O.C.G.A. ss. 11-9 and all other applicable laws,
including without limitation thereto, the right to sell, lease or otherwise
dispose of any or all of the Collateral and the right to take possession of
the Collateral, and for that purpose Secured Party may enter upon any
premises on which the Collateral or any part thereof may be situated and
remove the same therefrom. Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties.
Unless Collateral threatens to decline speedily in value or is a type
customarily sold in a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of
the time after which any private or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be met as such
notice is mailed, postage prepaid, to the address of Debtor shown at the
beginning of this Security Agreement at least five (5) days before the time
of sale or disposition. After sale, all monies will be applied to amounts
outstanding under the Floor Plan Agreement, the Note and this Security
Agreement, and Debtor will be liable for any remaining deficiencies.
Expenses of retaking, holding, preparing for sale, selling or the like
shall include Secured Party's reasonable attorneys' fees and legal
expenses, plus interest thereon at the highest legal rate per annum. Debtor
shall remain liable for any deficiency.
(2) Secured Party may remedy any default and may waive any default
without waiving the default remedied or without waiving any other prior or
subsequent default. Secured Party may remedy any default and may waive any
default without waiving any other prior or subsequent default.
(3) The remedies of Secured Party hereunder are cumulative, and the
exercise of any one or more of the remedies provided for herein shall not
be construed as a waiver of any of the other remedies of Secured Party.
(4) Debtor hereby waives all rights which Debtor has or may have under
and by virtue of O.C.G.A. ss. 44-14, including, without limitation, the
right of Debtor to notice and to a judicial hearing prior to seizure of any
Collateral by Secured Party.
SECTION VIII. ADDITIONAL AGREEMENTS.
1. The terms and conditions contained in a Floor Plan Agreement between
Debtor and Secured Party dated April 11, 1997, are hereby incorporated by
reference for all purposes as if copied word for word herein.
2. The term "Debtor" (Borrower) as used in this instrument shall be
construed as singular or plural to correspond with the number of persons
executing this instrument as Debtor. The pronouns used in this instrument are in
the masculine gender but shall be construed as feminine or neuter as occasion
may require. "Secured Party" (Bank) and "Debtor" as used in this instrument
include, without limitations, the heirs, executors or administrators,
successors, representatives, receivers, trustees and assigns of those parties.
3. Floor Plan inventory inspections will be conducted by Secured Party from
time to time at the sole discretion of Secured Party. Debtor agrees to pay in
full any item or unit of Collateral that is not located at Debtor's premises or
accounted for by Debtor to Secured Party. Debtor shall make payment to Secured
Party (Bank) immediately upon notice of demand being given to Debtor pursuant to
paragraph 29 (NOTICES) of the Floor Plan Agreement.
4. (Write in any additional agreements or conditions): See attached
Schedule, if appropriate.
5. MEDIATION, BINDING ARBITRATION. THE PARTIES WILL ATTEMPT IN GOOD FAITH
TO RESOLVE ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
BY PARTICIPATING IN MEDIATION AND/OR BINDING ARBITRATION. EACH PARTY AGREES THAT
EACH WILL BEAR THEIR RESPECTIVE EXPENSES RELATED TO EITHER MEDIATION AND/OR
ARBITRATION. THE PARTIES FURTHER AGREE IF THE MATTER HAS NOT BEEN RESOLVED
PURSUANT TO MEDIATION WITHIN THIRTY (30) DAYS OF NOTICE TO MEDIATE GIVEN BY
EITHER PARTY, THE CONTROVERSY SHALL BE SETTLED BY ARBITRATION AND SHALL BE
GOVERNED BY THE UNITED STATES ARBITRATION ACT, 9 U.S.C. ss.1-16, (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), AND JUDGMENT UPON THE AWARD RENDERED BY
THE ARBITRATOR MAY BE ENTERED BY ANY
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<PAGE>
COURT HAVING JURISDICTION THEREOF. THE PARTIES RECOGNIZE THAT BANK COULD BE
PREJUDICED BY NOT BEING ABLE TO FORECLOSE ON PROPERTY PLEDGED AS COLLATERAL TO
BANK. THE PARTIES AGREE THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY THE
BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISI0NAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH
SELF HELP RIGHTS, FORECLOSURE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S OPTION, FORECLOSURE
UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING:
THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENENCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
6. NOTICE OF FINAL AGREEMENT: THIS WRITTEN SECURITY AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed under seal this 11th day of April, 1997.
NationsBank, N.A. (South) Kia of Chattanooga, LLC (Seal)
Secured Party Debtor
By: By /s/ Nelson E. Bowers, II
------------------------------- -------------------------
Timothy W. Kelley Nelson E. Bowers, II
Assistant Vice President Chief Manager
5
NationsBank
NationsBank, N.A. (South) Dated: October 17, 1996
FLOOR PLAN AGREEMENT
This Floor Plan Agreement is entered into by and between NationsBank, N.A
(South) (Bank) 600 Peachtree Street, 17th Floor, Atlanta, Georgia 30308 and
European Motors of Nashville, LLC (Borrower) 630 Murfreesboro Rd., Nashville,
Tennessee 37210.
1. BACKGROUND. Borrower hereby requests Bank to extend to it a line of credit
(Line) to purchase inventory to be secured by Borrower's Collateral
described in paragraph 7 (Collateral). Bank agrees to extend the Line
subject to the terms of this Agreement.
2. THE LINE OF CREDIT. Bank extends to Borrower a Line in the amount of
$5,000,000.00 or such other amount as may be set by Bank from time to time.
Before maturity or demand, Borrower may borrow, repay and reborrow
hereunder at anytime, up to an aggregate amount outstanding at any one time
equal to the principal amount of Note, provided, however, that Borrower is
not in default of any provision of Note, Floor Plan Agreement, Security
Agreement or any other agreement or obligation between Borrower and Bank.
Any sums Bank may Advance in excess of the face amount of the Note shall
also be part of the principal amount the Borrower is obligated to pay Bank
and shall be subject to all the terms of the Note, Security Agreement, and
this Floor Plan Agreement. The Bank's records of the amounts borrowed from
time to time shall be conclusive proof thereof. Borrower acknowledges and
agrees that notwithstanding any provisions of any Note, Floor Plan
Agreement, Security Agreement or any other documents executed in connection
with a Note, Floor Plan Agreement and Security Agreement, the Bank has no
obligation to make any Advance, and that all Advances are at the sole
discretion of Bank.
3. NOTE. Debt under the Line shall be evidenced by Borrower's Floor Plan
Promissory Note (Note).
4. RATE. Debt under the Line shall bear interest as set forth in the Note.
5. DUE DATES.
(a) Unpaid principal and interest hereon shall be due and payable as set
forth in the Note, and as set forth below. Unless Borrower is in
default under the terms of any Security Agreement securing the Note,
this Floor Plan Agreement or any other agreement relating to this
Floor Plan Agreement, upon sale of inventory, Borrower will pay to
Bank at the earlier of Borrower's receipt of payment for that item of
inventory or three ( 3 ) business days after that item of inventory is
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delivered to the customer or otherwise disposed of, cash in the amount
equal to the original amount advanced less any curtailment payments
made with respect to the item sold. If Borrower is in default at time
of sale, all proceeds of sale will immediately be remitted to Bank and
applied to debt hereunder.
(b) Curtailment payments based on the original amount advanced with
respect to specific items of inventory shall be paid from time to time
by Borrower as provided for in Addendum "A" attached hereto and made a
part hereof for all purposes as if copied word for word herein.
6. USE OF LINE AND ADVANCES.
(a) The Advances under this Line shall be exclusively for the purpose of
purchasing inventory to be displayed and demonstrated in conjunction
with the sale of the inventory in the ordinary course of Borrower's
business unless otherwise agreed to in writing by Bank. Borrower
agrees not to use the inventory for any other purpose without the
prior written approval of Bank. The term "Advance" as used in this
Agreement shall mean the dollar amount loaned by Bank on a motor
vehicle financed under a floor plan line of credit and includes but is
not limited to any charge against, debit against, draft against, or
draw against the line of credit. Advances under the Line (Advances)
shall be made against and in payment of drafts drawn on Bank or in
accordance with the written request of Borrower executed by the person
signing this Agreement on behalf of Borrower or a person hereafter
designated in writing by Borrower.
(b) Units of inventory which may be presented as Collateral as well as the
amount of outstanding debt permitted at any one time in connection
with the particular type of Collateral being financed shall be in
accordance with Addendum "B".
(c) Bank may reject as Collateral hereunder any item of inventory which is
received by Borrower in damaged condition. Bank has no obligation to
inspect inventory for damage before paying drafts. If Bank has paid a
draft on damaged inventory, Borrower shall direct the manufacturer to
refund all payments directly to Bank. If the manufacturer fails to
make the refund within thirty (30) days, Borrower shall reduce the
debt outstanding under the Line by the amount Advanced against the
damaged item.
(d) Borrower will submit or cause to be submitted to Bank invoices or
bills of sale representing the actual cost to Borrower of the
inventory. Bank may advance an amount equal to Borrower's cost (not to
exceed NADA wholesale value in the case of used motor vehicles) or
such part of the cost thereof as Bank elects at its sole discretion.
The Advance may be disbursed to Borrower or the manufacturer or others
from whom Borrower purchases inventory. Presentation of drafts or
other requests for payment by manufacturers or others from whom
Borrower
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purchases inventory shall constitute requests by Borrower that Bank
lend Borrower the amount of such drafts or other requests for payment
pursuant to this Agreement.
(e) A fee in the amount of $0.00 shall be paid by Borrower for each unit
of inventory presented as Collateral to obtain Advances. The fee shall
be paid monthly by Borrower.
7. COLLATERAL. Borrower hereby grants to Bank a security interest in all of
its inventory of:
_X_ New Motor Vehicles (now existing or hereafter acquired)
_X_ Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories added to vehicles, now existing or
hereafter acquired by Borrower, including any such goods as may be leased
or held for leasing, together with any and all accounts and proceeds
arising from the sale, lease or disposition of said property and all
returned, refused and repossessed goods, all monies received from
manufacturers by way of credits, refunds or otherwise with respect to
Collateral, and all proceeds thereof (Collateral) to secure all debt of
Borrower to Bank under any and all present and future Advances of whatever
kind and further including but not limited to the Line and all other debt
and other obligations of Borrower to Bank of any nature now existing or
hereafter arising, including but not limited to debt arising directly
between Borrower and Bank or acquired outright, conditionally or as
Collateral security from another by Bank, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising under the operation of law or
otherwise, direct or indirect, whether incurred directly or as part of a
partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Borrower will execute
and deliver any documents, instruments or agreements required by Bank to
evidence debt hereunder, grant, perfect and preserve the security interest,
and otherwise carry out the terms of this Agreement. The security interest
herein described is also evidenced by a Security Agreement between Borrower
and Bank, and in the event of any conflict between the terms hereof and the
terms thereof, the terms hereof will apply.
8. IDENTIFICATION OF COLLATERAL. Without limiting the foregoing general grant
of a security interest, as set forth in the Security Agreement, Collateral
subject to the security interest granted herein shall include but not be
limited to (i) inventory listed on invoices submitted to Bank by
manufacturers attached to drafts submitted by manufacturers for payment,
which drafts Bank pays; and/or (ii) inventory in Borrower's possession set
out on a list submitted by Borrower as Collateral for Advances directly to
Borrower.
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9. TITLE DOCUMENTS. Title documents consisting of manufacturers' certificate
of origin, manufacturers' statement of origin, certificates of title and/or
any and all other title documents for each item of inventory shall be in
the possession of Borrower unless otherwise directed by Bank. In the event
Bank does require possession of title documents, Borrower shall deliver all
such documents to Bank immediately upon demand.
10. PAYMENT OF DRAFTS. From time to time Bank may make Advances hereunder by
direct payment to manufacturers or others, in which event, invoices
submitted by Manufacturers along with drafts paid by Bank shall serve as
evidence of Advances under the Line. Borrower authorizes Bank to pay all
drafts or invoices upon presentation by the manufacturer or others
supplying inventory to Borrower.
11. ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Bank its
attorney-in-fact, to execute, deliver and file from time to time, in the
name of Borrower or Bank, any trust receipts, security agreements,
promissory notes, financing statements, continuation statements and
amendments thereto, and any and all other documents and instruments that
Bank may require in connection with evidencing and securing debt under this
Agreement and carrying out the provisions hereof, which appointment shall
be deemed to be a power coupled with an interest.
12. QUALITY OF INVENTORY. Borrower shall be responsible for the quantity,
quality, condition and value of the inventory selected by Borrower and
financed under this Agreement. Bank shall have no liability of any nature
because of the failure of any inventory to conform to Borrower's
specifications, and any dispute between the manufacturer or others and
Borrower with respect to such inventory shall not affect Borrower's
obligation to Bank to pay amounts Advanced hereunder.
13. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
(a) Borrower has taken all action necessary to make this Agreement and all
other agreements between it and Bank: legal, valid and binding
obligations enforceable in accordance with their terms, and Borrower
is a:
(i)___ corporation duly organized, existing and in good standing under
the laws of the State of _____________ , that it is licensed to
do business and in good standing in each state in which the
property owned by it or the business transacted by it requires it
to be licensed as a foreign corporation.
(ii) _X_ limited liability company, duly organized, and in good
standing under the laws of the State of Tennessee.
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(iii)___ partnership composed of_____________________
___________________________________________________________
___________________________________________________________
(iv)___ sole proprietorship owned by ______________________________
(b) Borrower is not in default with respect to any agreement between it
and Bank on this date.
(c) All Collateral is owned by Borrower free and clear of any security
interests or encumbrances except those granted pursuant hereto.
(d) Borrower is and will hereafter be not in default under any agreement
with any other party, and the execution and performance of this
Agreement will not be a default under any agreement with any other
party by which Borrower or any of Borrower's property is bound.
(e) Borrower does not do financing of any motor vehicle inventory with any
other source or purchase inventory from any seller on credit except as
set out below:
The floor plan financing of new Volkswagen vehicles only by 1st
Tennessee.
________________________________________________________________
_________________________________________________________________
Borrower shall notify Bank immediately in the event it buys inventory
of motor vehicles on credit or enters into any such inventory
financing arrangement with any other source, giving the name and
address of the Bank or seller and details of the purchase or loan.
(f) All financial and other information Borrowers have heretofore
submitted or may hereafter submit is and will be true, complete, and
correct and reflects or will reflect all direct, indirect, and
contingent liabilities.
(g) There has been no material adverse change in the Borrower's financial
condition and operations since the date of Borrowers most recent
financial statements heretofore submitted.
(h) Borrower has and will maintain, at all times, all franchise,
distributor agreements, licenses, permits, and other rights that are
necessary to the conduct of its business.
(i) All representations and warranties set forth herein will be deemed to
be have been made anew with each Advance and shall be continuing in
effect beyond the termination or expiration of this Floor Plan
Agreement.
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14. COVENANTS. While the Line is in effect, and thereafter while Borrower is
indebted to Bank, Borrower will:
(a) _X_ Provide Bank within twenty (20) days of each month's end, a
company prepared financial statement (including the thirteenth
(13) month statement including all adjustments to net worth) in
accordance with requirements of the franchise(s) for which
Borrower is a dealer.
_X_ Provide Bank within sixty (60) days after Borrower's fiscal
year-end a financial statement compiled by a Certified Public
Accountant acceptable to the Bank.
__ Provide Bank within one-hundred-twenty (120) days after
Borrower's fiscal year-end a financial statement reviewed by a
Certified Public Accountant acceptable to the Bank.
___ Provide Bank within one-hundred-fifty (150) days of Borrower's
fiscal year-end audited financial statements prepared by a
Certified Public Accountant acceptable to the Bank.
In submitting such statements to Bank an authorized officer of Borrower
will certify such statements to be true and accurate, continuing compliance
with all terms and conditions contained herein and in the other Loan
Documents and that no material violation or default exists with any
material agreement.
_X_ As to Guarantors, provide the Bank a copy of each Guarantor's
personal financial statement within thirty (30) days of calendar
year-end in a manner and form acceptable to the Bank.
Additionally, each Guarantor shall provide the Bank a copy of
each Guarantor's federal income tax return and all schedules
thereto within thirty (30) days of filing each return.
(b) Not merge into or consolidate with any other person, firm, corporation
or limited liability company nor sell any substantial part of its
assets to any person, firm, corporation or limited liability company
except in the ordinary course of business;
(c) Not sell or enter into any agreement to sell or deal in new motor
vehicles manufactured by any manufacturer for whom it is not now a
Retailer or Wholesaler, unless approved by Bank in writing which will
not be unreasonably withheld;
(d) Keep all Collateral and inventory insured, by insurers acceptable to
Bank, at all times in an amount at least equal to the amount of debt
to Bank under the Line
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<PAGE>
with deductible amount satisfactory to Bank, and the insurance policy
to contain loss payable clauses to Bank as its interest may appear.
Borrower will deliver original policies or, if permitted by Bank,
certificates of insurance to Bank;
(e) Permit Bank to enter upon the property of Borrower at any time to
examine all Collateral and to examine Borrower's books in connection
therewith.
(f) At time of execution of this Floor Plan Agreement deliver to Bank such
Landlord Waiver and/or Mortgagee Waiver and Estoppel Agreements duly
executed by the appropriate parties in such form as is satisfactory to
Bank and Borrower will thereafter furnish to Bank current executed
copies of the above instruments upon written request of Bank;
(g) Not allow any material change in ownership or management nor enter
into any management agreement pursuant to which any third party
assumes the management of Borrower in anticipation of a sale of
Borrower's business or any material part of its assets without Bank's
prior written approval;
(h) Operate business in compliance with all environmental protection laws
and regulations including applicable local, state, or federal law,
regulations, or rule of common law;
(i) Not allow any liens or encumbrances on any of Borrower's assets or
property without the written consent of Bank;
(j) Borrower and Guarantor shall promptly notify Bank in writing of (i)
any condition, event or act which comes to Borrower's or Guarantor's
attention that would or might materially adversely affect Borrower's
or Guarantor's financial condition or operations, the Collateral, or
Bank's rights under the Guaranty or any Loan Documents, (ii) any
litigation in excess of $25,000.00 filed by or against Borrower or
Guarantor, or (iii) any event that has occurred that would constitute
an event of default under any Loan Documents, including but not
limited to any Guaranty. Identified in Exhibit "A" is lawsuite in
which Borrower and Guarantor are parties which has been disclosed to
Bank.
(k) See Addendum "C" for additional covenants which are a part of this
Agreement for all purposes as if they were copied word for word
herein.
15. EVENTS OF DEFAULT.
The following are events of default hereunder and under the other Loan
Documents: (a) the failure to pay or perform any obligation, liability,
indebtedness or covenant of any Borrower or Guarantor to Bank, or to any
affiliate of Bank, whether under this Floor Plan Agreement, Security
Agreement, Note or any other agreement or instrument
7
<PAGE>
now or hereafter existing, as and when due (whether upon demand, at
maturity or by acceleration); (b) the failure to pay or perform any other
obligation, liability or indebtedness of any Borrower or Guarantor whether
to Bank or some other party, the collateral for which constitutes an
encumbrance on the collateral for this Floor Plan Agreement; (c) a
proceeding being filed or commenced against any Borrower or Guarantor for
dissolution or liquidation, or any Borrower or Guarantor voluntarily or
involuntarily terminating or dissolving or being terminated or dissolved;
(d) insolvency of, business failure of, the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, or an
assignment for the benefit of creditors by, or the filing of a voluntary or
involuntary petition under bankruptcy, insolvency or debtor's relief law or
for any adjustment of indebtedness, composition or extension by or against
any Borrower or Guarantor; (e) any lien, encumbrance or additional security
interest being placed upon any of the Collateral which is security for this
Floor Plan Agreement; (f) acquisition at any time or from time to time of
title to the whole of or any part of the Collateral which is security for
this Floor Plan Agreement by any person, partnership, corporation or other
entity except for sales thereof in the ordinary course of business; (g)
Bank determining that any representation or warranty made by any Borrower
or Guarantor to Bank is, or was, untrue or materially misleading; (h)
failure of any Borrower or Guarantor to timely deliver such financial
statements, including tax returns, and other statements of condition or
other information as Bank shall request from time to time; (i) entry of a
judgment against any Borrower or Guarantor which Bank deems to be of a
material nature, in Bank's sole discretion; (j) the seizure or forfeiture
of, or the issuance of any writ of possession, garnishment or attachment,
or any turnover order for any property of any Borrower or Guarantor; (k)
Bank reasonably deeming itself insecure or its prospects for payment of the
debt impaired for any reason; (1) the determination by Bank that a material
adverse change has occurred in the financial condition of any Borrower or
Guarantor; (m) the failure to comply with any law regulating the operation
of Borrower's business; (n) Guarantor undertakes to terminate or revoke any
guaranty of payment of this Note or defaults in the performance of or
disputes any of his obligations as Guarantor; (o) the inability of the
Borrower or Guarantor to pay debts as they mature owing to Bank or any
other party.
16. REMEDIES. Upon the occurrence of any default hereunder or any of the other
Loan Documents, Bank shall have all of the rights and remedies of a
creditor and, of a secured party under the Uniform Commercial Code as
enacted in the State of Georgia, O.C.G.A ss. 11-9 and all other applicable
law. Without limiting the generality of the foregoing, Bank may, at its
option and without notice or demand: (a) declare any liability of Borrower
under this Agreement or any of the other Loan Documents accelerated and due
and payable at once; and (b) take possession of any Collateral wherever
located, and sell, resell, assign, transfer and deliver all or any part of
said Collateral of Borrower or Guarantor at any public or private sale or
otherwise dispose of any or all of the Collateral in its then condition,
for cash or on credit or for future delivery, and in connection therewith
Bank may impose reasonable conditions upon any
8
<PAGE>
such sale. Bank, unless prohibited by law the provisions of which cannot be
waived, may purchase all or any part of said Collateral to be sold, free
from and in discharge of all trusts, claims, rights of redemption and
equities of the Borrower or Guarantor whatsoever; Borrower and Guarantor
acknowledge and agree that the sale of any Collateral through any
nationally recognized broker-dealer, investment banker or any other method
common in the securities industry shall be deemed a commercially reasonable
sale under the Uniform Commercial Code or any other equivalent statute or
federal law, and expressly waive notice thereof except as provided herein;
and (c) set-off against any and all money owed by Bank in any capacity to
Borrower or Guarantor whether or not due for any Liabilities of the
Borrower to the Bank under this Agreement and the other Loan Documents.
17. ATTORNEY FEES, COST AND EXPENSES. Borrower and/or Guarantor shall pay all
costs of collection and attorney's fees equal to reasonable and actual
attorney's fees, including reasonable attorney's fees in connection with
any suit, mediation or arbitration proceeding, out of court payment
agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or
paid by Bank in enforcing the payment of any Liability or enforcing or
preserving any right or interest of Bank hereunder, including the
collection, preservation, sale or delivery of any Collateral from time to
time pledged to Bank, and after deducting such fees, costs and expenses
from the proceeds of sale or collection, Bank may apply any residue to pay
any of the Liabilities and Guarantor shall continue to be liable for any
deficiency with interest at the rate specified in any instrument evidencing
the Liability or, at the Bank's option, equal to the highest lawful rate,
which shall remain a liability.
18. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Borrower and/or
Guarantor pledged to Bank to secure Borrower's and/or Guarantor's
obligations against prior parties who may be liable in connection
therewith, and Borrower and/or Guarantor hereby agree to take any such
steps. Bank, nevertheless, at any time, may (a) take any action it deems
appropriate for the care or preservation of such property or of any rights
of Borrower and/or Guarantor or Bank therein, (b) demand, sue for, collect
or receive any money or property at any time due, payable or receivable on
account of or in exchange for any property of Borrower and/or Guarantor,
(c) compromise and settle with any person liable on such property, or (d)
extend the time of payment or otherwise change the terms thereof as to any
party liable thereon, all without notice to, without incurring
responsibility to, and without affecting any of the obligations or
liabilities of Borrower and/or Guarantor.
19. TERMINATION. The Line may be terminated at any time by either party with or
without cause upon 30 days' notice in writing to the other. Upon the
occurrence of a default hereunder, Bank shall have the right to terminate
the Line and to mature all debt outstanding hereunder, including principal
and interest, without notice to any person. Termination of the Line
hereunder shall not affect the obligations of Borrower with
9
<PAGE>
respect to any debt incurred prior to termination. All such obligations
shall continue in full force and effect until all debt under the Line is
paid in full.
20. OVERLINE DEBT. In the event debt outstanding under the Line should for any
reason exceed the amount of the Line allowed hereunder, all such debt shall
be payable on demand, but if no demand is made, no later than such time as
may be specified by Bank at the time of the approval of the temporary
overline. The overline debt shall bear interest at the rate specified for
debt under the Line, and shall be governed by all the terms and conditions
of this Agreement and the other Loan Documents and shall be secured by all
Collateral for the Line, and all items of inventory financed by the
overline debt shall secure all debt under the Line including the overline
and be governed by all terms of the Security Agreement, Floor Plan
Agreement and Note. Bank shall have no obligation to permit any overline at
any time but in its sole discretion may do so.
21. REVIEW OF LINE. Bank may, at its option, from time to time review the
credit for performance, pricing, amount of Line, and Borrower's financial
condition.
22. CHANGE IN TERMS. Bank may at its discretion amend or modify any term or
provision of this Floor Plan Agreement, Security Agreement or any other
agreements pertaining to this Agreement, with any change to be effective 15
days after mailing of notice to Borrower.
23. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and each party's respective successors,
heirs, executors, administrators, personal representatives and assigns.
Neither this Floor Plan Agreement nor any interest in it may be assigned or
otherwise voluntarily or involuntarily transferred by Borrower without
Bank's prior written approval.
24. WAIVER. (a) Bank may consent to or waive any action or any failure to act
by Borrower with respect to any obligation of Borrower hereunder. Any
consent or waiver on the part of Bank shall be binding upon Bank only when
in writing and signed by an officer of Bank, and no failure to take action
with respect to any default shall constitute a waiver thereof. No waiver of
any default shall be a waiver of any other or future default of that or any
other nature; (b) Bank shall not be required to proceed first against
Borrower, or any other person, firm or corporation, whether primarily or
secondarily liable, or against any collateral held by it, before resorting
to Guarantor for payment, and Guarantor shall not be entitled to assert as
a defense to the enforceability of the Guaranty any defense of Borrower
with respect to any Liabilities or Obligations.
25. GOVERNING LAW. This Floor Plan Agreement shall be deemed to have been made
in the State of Georgia at the address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of
Georgia, and is performable in the State of Georgia.
10
<PAGE>
26. MEDIATION BINDING ARBITRATION. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this
Agreement or the other Loan Documents by participating in mediation and/or
binding arbitration. Each party agrees that each will bear its respective
expenses related to either mediation and/or arbitration. The parties
further agree if the matter has not been resolved pursuant to mediation
within thirty (30) days of notice to mediate given by either party, the
controversy shall be settled by arbitration and shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.1-16, (or if not applicable, the
applicable state law), and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof. The
parties recognize that Bank could be prejudiced by not being able to
foreclose on property pledged as Collateral to Bank. The parties agree that
nothing in this Agreement shall be deemed to (i) limit the applicability of
any otherwise applicable statutes of limitation or repose and any waivers
contained in this Agreement; or (ii) be a waiver by the Bank of the
protection afforded to it by 12 U.S.C. Sec. 91 or any substantially
equivalent state law; or (iii) limit the right of the Bank hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to
obtain from a court provisional or ancillary remedies such as (but not
limited to) injunctive relief or the appointment of a receiver. The Bank
may exercise such self help rights, foreclose upon such property, or obtain
such provisional or ancillary remedies before, during or after the pendency
of any arbitration proceeding brought pursuant to this agreement. At Bank's
option, foreclosure under a deed of trust or mortgage may be accomplished
by any of the following: the exercise of a power of sale under the deed of
trust or mortgage, or by judicial sale under the deed of trust or mortgage,
or by judicial foreclosure. Neither this exercise of self help remedies nor
the institution or maintenance of an action for foreclosure or provisional
or ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
27. ADDITIONAL TERMS. (a) As used herein, the singular number shall include the
plural (e.g. "Note" means Note or Notes); or (b) In the event that there
are any written terms that may differ between this Floor Plan Agreement and
any other agreements, documents, or negotiations in existence prior to the
execution of this Floor Plan Agreement, Bank and Borrower agree that the
terms of this Floor Plan Agreement shall control and be the final
agreement.
28. MERGER The terms of any commitment letter issued by Bank to Borrower for
this Line are incorporated herein by reference, except to the extent that
such terms are inconsistent with the terms of this Floor Plan Agreement,
Security Agreement or Note. Any such inconsistent terms are of no effect.
This Floor Plan Agreement supersedes any Floor Plan Agreements heretofore
executed by and between Bank and Borrower, and all outstanding Floor Plan
Agreement indebtedness is hereafter subject to all of the terms and
provisions of this Floor Plan Agreement, and the outstanding principal
11
<PAGE>
balance of all such Floor Plan indebtedness is added to the principal
balance of this Floor Plan Agreement.
29. NOTICES. Any notice or other communication required or permitted hereunder
or under any Note or Security Agreement shall be in writing and shall be
delivered personally, sent by facsimile transmission or by first-class,
certified, registered or express mail, or by courier, with postage and
other charges prepaid. Any such notice shall be deemed given when so
delivered personally, by courier or by facsimile transmission, or, if
mailed, five (5) days after the date of deposit in the United States mail,
as follows:
If to Borrower, to:
European Motors of Nashville, LLC
630 Murfreesboro Rd
Nashville, TN 37210
Attention: Nelson E. Bowers, II
Facsimile #__________________________________
If Bank, to:
NationsBank, N.A. (South)
600 Peachtree Street, 17th Floor
Atlanta, Georgia 30308
Attention: Tim Kelley or Bill Brantley
Either Bank or Borrower may, by notice given in accordance with this
provision, designate another address or person for receipt of notices
hereunder.
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<PAGE>
30. FLOOR PLAN COLLATERAL AND/OR INVENTORY INSPECTION. Floor Plan inventory
inspections will be conducted by Bank from time to time at the sole
discretion of Bank. Borrower agrees to pay in full any item or unit of
Collateral that is not located at Borrower's premises or accounted for by
Borrower to Bank Borrower shall make payment to Bank immediately upon
notice of demand being given to Borrower pursuant to paragraph 29 (NOTICES)
of the Floor Plan Agreement.
31. FINAL AGREEMENT. THIS FLOOR PLAN AGREEMENT, THE FLOOR PLAN PROMISSORY NOTE,
THE SECURITY AGREEMENT AND ANY OTHER AGREEMENTS EXECUTED IN CONJUNCTION
WITH THIS FLOOR PLAN REVOLVING LINE OF CREDIT REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Floor Plan Agreement to
be executed under seal on the 17th day of October, 1996.
European Motors of Nashville, LLC (Seal)
NationsBank, N.A. (South) Borrower
Bank
By /s/ Timothy W. Kelley By /s/ Nelson E. Bowers
-------------------------- -------------------------
Timothy W. Kelley Nelson E. Bowers, II
Assistant Vice President Chief Manager
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<PAGE>
ADDENDUM "A"
This Addendum "A" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated October 17,
1996 between Bank and Borrower.
Curtailments. Curtailment payments based upon the original amount advanced with
respect to specific items of Collateral shall be paid on the following types of
units of Collateral based upon either a dollar or percentage amount as billed to
Borrower and payment is due when billed. The Curtailment payment is to be
applied against the original amount advanced for a unit of Collateral. The
Curtailment payment based upon either a dollar or percentage amount is
calculated on the original amount advanced for the unit and not the outstanding
unpaid balance from time to time.
Unit Type Curtailment Amount Curtailment Date Final Payoff Date
- --------- ------------------ ---------------- -----------------
New 10% of original Due 90 days 15 months from
amount financed. prior to maturity. date financed.
Used and 2% of original Due monthly In full at the end
Program amount financed. beginning at the of the 7th month.
end of the 4th month.
Executed under seal this 17th day of October, 1996.
Borrower: European Motors of Nashville, LLC (Seal)
By: /s/ Nelson E. Bowers
- ------------------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
- -------------------------------------------
Timothy W. Kelley, Assistant Vice President
(Name and Title)
<PAGE>
ADDENDUM "B"
This Addendum "B" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated October 17,
1996 between Bank and Borrower.
Floor Plan Sublimits. The following sublimits represent the amount of
outstandings permitted at any one time in connection with the particular type of
Collateral being financed; notwithstanding, the Bank, in it's sole discretion,
may advance from time to time amounts in excess of the sublimit amounts below:
Unit Type Sublimit Amount
- --------- ---------------
New Vehicles $4,500,000.00
Used Vehicles $500,000.00
Executed under seal this 17th day of October, 1996.
Borrower: European Motors of Nashville, LLC (Seal)
By: /s/ Nelson E. Bowers II
- -------------------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
- -------------------------------------------
Timothy W. Kelley, Assistant Vice President
(Name and Title)
<PAGE>
10.20a
NATIONSBANK. N.A. (South)
SECURITY AGREEMENT
(Floor Plan)
Date: October 17, 1996
Between: and
================================================================================
BANK: (SECURED PARTY) DEBTOR: (BORROWER)
NATIONSBANK, N.A. (South) European Motors of Nashville, LLC
600 Peachtree Street 630 Murfreesboro Rd
17th Floor Nashville, Tennessee 37210
Atlanta, Georgia 30308 Davidson County
Fulton County
(address including county) (Name and address, including county)
================================================================================
Debtor is: [ ] Individual [ ] Corporation [ ] Partnership [X] Other -
Limited Liability Corporation
- --------------------------------------------------------------------------------
Address is Debtor's: [ ] Residence [X] Place of Business [ ] Chief Executive
Office if more than one place of business
================================================================================
[This Agreement contains some provisions preceded by boxes. Mark only those
boxes beside provisions which will be applicable to this transaction. A box
which are not marked means that the provision beside it is not applicable to
this transaction.]
SECTION I. CREATION OF SECURITY INTEREST.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged and subject to the applicable terms of a Floor Plan
Agreement, Floor Plan Promissory Note and this Floor Plan Security Agreement,
Debtor hereby grants to Secured Party (Bank) a security interest in the
Collateral described in Section 11 of this Security Agreement to secure
performance and payment of all obligations and indebtedness of Debtor to Bank of
whatever kind and whenever or however created or incurred. Said obligations and
indebtedness includes but are not limited to any and all liabilities, fixed or
contingent, whether arising by notes, discounts, overdrafts, or in any other
manner whatsoever.
SECTION II. COLLATERAL.
The Collateral of this Security Agreement is inventory of the following
description:
[X] New Motor Vehicles (now existing or hereafter acquired)
[X] Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories, now existing or hereafter acquired by
Debtor (Borrower), including any such goods as may be leased or held for
leasing, together with any and all accounts and Proceeds arising from the sale,
lease or disposition of said property and all returned, refused and repossessed
goods, all monies received from manufacturers by way of credits, refunds or
otherwise with respect to Collateral, and all Proceeds thereof (Collateral) to
secure all debt of Debtor (Borrower) to Secured Party (Bank) under any and all
present and future Advances of whatever kind and further including but not
limited to the Line and all other debt of Debtor (Borrower) to Secured Party
(Bank) of any nature now existing or hereafter arising, including but not
limited to debt arising directly between Debtor (Borrower) and Bank or acquired
outright, conditionally or as Collateral security from another by Secured Party,
absolute or contingent, joint or several, secured or unsecured, due or not due,
contractual or tortious, liquidated or unliquidated, arising under the operation
of law or otherwise, direct or indirect, whether incurred directly or as part of
a partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Debtor (Borrower) will
execute and deliver any documents, instruments or agreements required by Secured
Party (Bank) to evidence debt hereunder, grant, perfect and preserve the
security interest, and otherwise carry out the terms of the Floor Plan
Agreement, Floor Plan Note and this Floor Plan Security Agreement. See attached
schedule for additional Collateral, if applicable.
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<PAGE>
The inclusion of Proceeds in this Security Agreement does not authorize
Debtor to sell, dispose of or otherwise use the Collateral in any manner not
specifically authorized by the Floor Plan Agreement or this Security Agreement.
The term "Proceeds" means proceeds as said term is defined in the Uniform
Commercial Code and includes without limitation cash, accounts, general
intangibles, documents, inventory (including trade-ins), instruments, chattel
paper, equipment, and all other property of every kind received upon the sale,
exchange, collection, lease or other disposition of inventory.
SECTION III. PAYMENT OBLIGATIONS OF DEBTOR.
1. Debtor shall pay to Secured Party on demand all expenses and
expenditures, including attorney fees, plus interest thereon at the highest
legal rate per annum, pursuant to the provisions of the Floor Plan Agreement,
Floor Plan Note and this Security Agreement.
2. Debtor shall pay to Secured Party the outstanding indebtedness of Debtor
to Secured Party upon demand or Debtor's default pursuant to the terms and
conditions contained in a Floor Plan Note, Floor Plan Agreement or this Security
Agreement.
SECTION IV. DEBTOR'S REPRESENTATIONS AND WARRANTIES.
1. The representations and warranties contained in a Floor Plan Agreement
between Debtor and Secured Party dated October 17, 1996, are hereby incorporated
by reference for all purposes as if copied herein word for word.
2. Debtor will execute alone or with Secured Party any Financing Statement
or other document or procure any document, and pay all connected costs,
necessary to perfect, continue and protect the security interest under this
Security Agreement against the rights or interest of third persons.
3. Debtor will at all times keep Collateral and its Proceeds separate and
distinct from other property of Debtor and shall keep accurate and complete
records of the Collateral and its Proceeds.
4. Debtor shall pay prior to delinquency all taxes, charges, liens and
assessments against the Collateral, and upon Debtor's failure to do so, Secured
Party at its option may pay any of them and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Such payment shall become part of the indebtedness secured by this Agreement and
shall be paid to Secured Party by Debtor immediately and without demand, with
interest thereon at the highest lawful rate per annum.
5. The Collateral shall remain in Debtor's possession or control at all
times at Debtor's risk of loss; and be kept at the address shown at the
beginning of this Agreement, or at _____________________________________________
________________________________________________________________________________
(No. and Street) (City) (County) (State)
where Secured Party may inspect it at any time. Except for its temporary removal
in connection with its ordinary use, Debtor shall not remove the Collateral from
the above address without obtaining prior written consent from Secured Party.
Debtor shall bear the risk of loss and damage to Collateral at all times.
6. The Collateral will not be misused or abused, wasted or allowed to
deteriorate, except for the ordinary wear and tear of its intended primary use,
and will not be used in violation of any statute or ordinance.
7. The Collateral will not be sold, transferred or disposed of by Debtor or
be subjected to any unpaid charge, including rent and taxes, or to any
subsequent interest of a third person created or suffered by Debtor voluntarily
or involuntarily unless Secured Party consents in advance in writing to such
sale, transfer, disposition, charge, or subsequent interest, or unless otherwise
provided in this Agreement.
8. Debtor will promptly notify Secured Party in writing of any addition to,
change in or discontinuance of: (i) its address as shown at the beginning of
this Security Agreement; (ii) the location of its place of business if it has
one location or its chief executive office if it has more than one place of
business as set forth in this Security Agreement; and (iii) the location of the
office where it keeps its records as set forth in this Security Agreement.
9. If any Collateral is leased or held for lease to customers of Debtor and
is of a type normally used in more than one State (such as automotive equipment,
rolling stock, airplanes, road building equipment, commercial harvesting
equipment, construction machinery and the like), Debtor's place of business if
it has one location or its chief executive office if it has more than one place
of business is the address shown at the beginning of this Agreement.
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<PAGE>
10. The office where Debtor keeps its records is 630 Murfreesboro Rd.,
Nashville, TN 37210 (Davidson County).
11. Debtor shall account fully and faithfully to Secured Party for Proceeds
from disposition of the Collateral in any manner and shall pay or turn over
pursuant to paragraph 5(a) of the Floor Plan Agreement in cash, negotiable
instruments, drafts, assigned accounts or chattel paper, all Proceeds from each
sale to be applied to Debtor's indebtedness to Secured Party, subject, if other
than cash, to final payment or collection.
12. If any Collateral or Proceeds includes obligations of third parties to
Debtor, the transactions giving rise to the Collateral shall conform in all
respects to the applicable State or Federal law including but not limited to
consumer credit law. Debtor shall hold harmless and indemnify Bank against any
cost, loss or expense arising from Debtor's breach of this covenant.
13. Without the written consent of Bank, Debtor shall not change its name,
change its corporate status, use any trade name or engage in any business in
which it was not engaged on the date of this Agreement.
14. Debtor appoints Bank as Debtor's attorney-in-fact with full power in
Debtor's name and behalf to do every act which Debtor is obligated to do or may
be required to do hereunder; however, nothing in this paragraph shall be
construed to obligate Bank to take any action hereunder nor shall Bank be liable
to Debtor for failure to take any action hereunder. This appointment shall be
deemed a power coupled with an interest and shall not be terminable as long as
the obligations are outstanding and shall not terminate on the disability or
incompetence of the Debtor.
15. Debtor will comply with all State and Federal laws and regulations
applicable to its business, whether now in effect or hereafter enacted including
but not limited to the wage and hours laws and relating to the use or disposal
of hazardous materials and wastes.
SECTION V. COVENANTS.
The Covenants contained in a Floor Plan Agreement between Debtor and
Secured Party dated October 17, 1996, are hereby incorporated by reference for
all purposes as if copied word for word herein.
Section VI. EVENTS OF DEFAULT.
Debtor shall be in default under this Security Agreement upon the happening
of any of the following events or conditions (hereinafter called an "Event of
Default"):
1. The occurrence of any events of default referred to in a Floor Plan
Agreement between Debtor and Secured Party dated October 17, 1996, are hereby
incorporated by reference for all purposes as if copied word for word herein.
2. Debtor defaults in the due observance or performance of any terms or
provisions of this Security Agreement or other Loan Documents.
3. If any physical damage, property and/or other insurance, insuring said
Collateral and the respective interests of the parties therein, is cancelled for
any reason and the Debtor fails or refuses to furnish written proof to Secured
Party of his having obtained substitute insurance coverage replacing the
cancelled policies.
SECTION VII. SECURED PARTY'S RIGHTS AND REMEDIES.
A. Rights Exclusive of Default.
(1) This Security Agreement, Secured Party's rights hereunder or the
indebtedness hereby secured may be assigned from time to time, and in any
such case the Assignee shall be entitled to all of the rights, privileges
and remedies granted in this Security Agreement to Secured Party, and
Debtor will assert no claims or defenses it may have against Secured Party
against the Assignee except those granted in this Security Agreement.
(2) At its option, Secured Party may discharge taxes, liens or
security interests or other encumbrances at any time levied or placed on
the Collateral, may pay for insurance on the Collateral and may pay for the
maintenance and preservation of the Collateral. Debtor agrees to reimburse
Secured Party on demand for any payment made, or any expense incurred by
Secured Party pursuant to the foregoing authorization, plus interest
thereon at the highest lawful rate per annum.
(3) Secured Party may execute, sign, endorse, transfer or deliver in
the name of Debtor notes, checks, drafts or other instruments for the
payment of money and receipts, certificates of origin, applications for
certificates of title or any other documents, necessary to evidence,
perfect or realize upon the security interest and obligations created by
this Security Agreement.
(4) Secured Party may notify the account Debtors or obligors of any
accounts, chattel paper, negotiable instruments or other evidences of
indebtedness remitted by Debtor to Secured Party as Proceeds to pay Secured
Party directly.
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<PAGE>
(5) Secured Party may at any time demand, sue for, collect or make any
compromise or settlement with reference to the Collateral as Secured Party,
in its sole discretion, chooses.
(6) Secured Party may enter upon Debtor's premises at any reasonable
time to inspect the Collateral and Debtor's books and records pertaining to
the Collateral; Secured Party may require the Debtor to assemble the
Collateral for such inspection in a reasonably convenient place; and in all
other ways the Debtor shall assist the Secured Party in making such
inspection.
B. Rights in Event of Default.
(1) Upon the occurrence of an Event of Default, or if Secured Party
deems payment of Debtor's obligations to Secured Party to be insecure, and
at any time thereafter, Secured Party may declare all obligations secured
hereby immediately due and payable and shall have the rights and remedies
of a Secured Party under the Uniform Commercial Code as enacted in the
State of Georgia, O.C.G.A. ss.11-9, and all other applicable laws,
including without limitation thereto, the right to sell, lease or otherwise
dispose of any or all of the Collateral and the right to take possession of
the Collateral, and for that purpose Secured Party may enter upon any
premises on which the Collateral or any part thereof may be situated and
remove the same therefrom. Secured Party may require Debtor to assemble the
Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties.
Unless Collateral threatens to decline speedily in value or is a type
customarily sold in a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of
the time after which any private or any other intended disposition thereof
is to be made. The requirements of reasonable notice shall be met as such
notice is mailed, postage prepaid, to the address of Debtor shown at the
beginning of this Security Agreement at least five (5) days before the time
of sale or disposition. After sale, all monies will be applied to amounts
outstanding under the Floor Plan Agreement, the Note and this Security
Agreement, and Debtor will be liable for any remaining deficiencies.
Expenses of retaking, holding, preparing for sale, selling or the like
shall include Secured Party's reasonable attorneys' fees and legal
expenses, plus interest thereon at the highest legal rate per annum. Debtor
shall remain liable for any deficiency.
(2) Secured Party may remedy any default without waiving the default
remedied or without waiving any other prior or subsequent default. Secured
Party may remedy any default and may waive any default without waiving any
other prior or subsequent default.
(3) The remedies of Secured Party hereunder are cumulative, and the
exercise of any one or more of the remedies provided for herein shall not
be construed as a waiver of any of the other remedies of Secured Party.
(4) Debtor hereby waives all rights which Debtor has or may have under
and by virtue of O.C.G.A. ss.44-14, including, without limitation, the
right of Debtor to notice and to a judicial hearing prior to seizure of any
Collateral by Secured Party.
SECTION VIII. ADDITIONAL AGREEMENTS.
1. The terms and conditions contained in a Floor Plan Agreement between
Debtor and Secured Party dated October 17, 1996, are hereby incorporated by
reference for all purposes as if copied word for word herein.
2. The term "Debtor" (Borrower) as used in this instrument shall be
construed as singular or plural to correspond with the number of persons
executing this instrument as Debtor. The pronouns used in this instrument are in
the masculine gender but shall be construed as feminine or neuter as occasion
may require. "Secured Party" (Bank) and "Debtor" as used in this instrument
include, without limitations, the heirs, executors or administrators,
successors, representatives, receivers, trustees and assigns of those parties.
3. Floor Plan inventory inspections will be conducted by Secured Party from
time to time at the sole discretion of Secured Party. Debtor agrees to pay in
full any item or unit of Collateral that is not located at Debtor's premises or
accounted for by Debtor to Secured Party. Debtor shall make payment to Secured
Party (Bank) immediately upon notice of demand being given to Debtor pursuant to
paragraph 29 (NOTICES) of the Floor Plan Agreement.
4. (Write in any additional agreements or conditions): See attached
Schedule, if appropriate.
5. MEDIATION, BINDING ARBITRATION. THE PARTIES WILL ATTEMPT IN GOOD FAITH
TO RESOLVE ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
BY PARTICIPATING IN MEDIATION AND/OR BINDING ARBITRATION. EACH PARTY AGREES THAT
EACH WILL BEAR THEIR RESPECTIVE EXPENSES RELATED TO EITHER MEDIATION OR
ARBITRATION. THE PARTIES FURTHER AGREE IF THE MATTER HAS NOT BEEN RESOLVED
PURSUANT TO MEDIATION WITHIN THIRTY (30) DAYS OF NOTICE TO MEDIATE GIVEN BY
EITHER PARTY, THE CONTROVERSY SHALL BE SETTLED BY ARBITRATION AND SHALL BE
GOVERNED BY THE UNITED STATES ARBITRATION ACT, 9 U.S.C. ss.1-16, (OR IF NOT
APPLICABLE, THE APPLICABLE STATE LAW), AND JUDGMENT UPON THE AWARD RENDERED BY
THE ARBITRATOR MAY BE ENTERED BY ANY
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<PAGE>
COURT HAVING JURISDICTION THEREOF. THE PARTIES RECOGNIZE THAT BANK COULD BE
PREJUDICED BY NOT BEING ABLE TO FORECLOSE ON PROPERTY PLEDGED AS COLLATERAL TO
BANK. THE PARTIES AGREE THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED TO (I)
LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF LIMITATION OR
REPOSE AND ANY WAIVERS CONTAINED IN THIS AGREEMENT; OR (II) BE A WAIVER BY THE
BANK OF THE PROTECTION AFFORDED TO IT BY 12 U.S.C. SEC. 91 OR ANY SUBSTANTIALLY
EQUIVALENT STATE LAW; OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO
EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO
FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN
FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO)
INJUNCTIVE RELIEF OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH
SELF HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS AGREEMENT. AT BANK'S OPTION, FORECLOSURE
UNDER A DEED OF TRUST OR MORTGAGE MAY BE ACCOMPLISHED BY ANY OF THE FOLLOWING:
THE EXERCISE OF A POWER OF SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY
JUDICIAL SALE UNDER THE DEED OF TRUST OR MORTGAGE, OR BY JUDICIAL FORECLOSURE.
NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE
OF AN ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL
CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY
SUCH ACTION, TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING
RESORT TO SUCH REMEDIES.
6. NOTICE OF FINAL AGREEMENT: THIS WRITTEN SECURITY AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed this 17th day of October, 1996
NationsBank, N.A. (South) European Motors of Nashville, LLC (Seal)
Secured Party Debtor
By /s/ Timothy W. Kelley By /s/ Nelson E. Bowers II
------------------------ --------------------------
Timothy W. Kelley Nelson E. Bowers, II
Assistant Vice President Chief Manager
5
NationsBank
NationsBank, N.A. (South) Dated: March 5, 1996
FLOOR PLAN AGREEMENT
This Floor Plan Agreement is entered into by and between NationsBank, N.A
(South) (Bank) 600 Peachtree Street, 17th Floor, Atlanta, Georgia 30308 and
Nelson Bowers Dodge, LLC DBA Dodge of Chattanooga (Borrower) 402 West Martin
Luther King Blvd., Chattanooga, Tennessee 37402.
1. BACKGROUND. Borrower hereby requests Bank to extend to it a line of credit
(Line) to purchase inventory to be secured by Borrower's Collateral
described in paragraph 7 (Collateral). Bank agrees to extend the Line
subject to the terms of this Agreement.
2. THE LINE OF CREDIT. Bank extends to Borrower a Line in the amount of
$3,800,000.00 or such other amount as may be set by Bank from time to time.
Before maturity or demand, Borrower may borrow, repay and reborrow
hereunder at anytime, up to an aggregate amount outstanding at any one time
equal to the principal amount of Note, provided, however, that Borrower is
not in default of any provision of Note, Floor Plan Agreement, Security
Agreement or any other agreement or obligation between Borrower and Bank.
Any sums Bank may Advance in excess of the face amount of the Note shall
also be part of the principal amount the Borrower is obligated to pay Bank
and shall be subject to all the terms of the Note, Security Agreement, and
this Floor Plan Agreement. The Bank's records of the amounts borrowed from
time to time shall be conclusive proof thereof. Borrower acknowledges and
agrees that notwithstanding any provisions of any Note, Floor Plan
Agreement, Security Agreement or any other documents executed in connection
with a Note, Floor Plan Agreement and Security Agreement, the Bank has no
obligation to make any Advance, and that all Advances are at the sole
discretion of Bank.
3. NOTE. Debt under the Line shall be evidenced by Borrower's Floor Plan
Promissory Note (Note).
4. RATE. Debt under the Line shall bear interest as set forth in the Note.
5. DUE DATES.
(a) Unpaid principal and interest hereon shall be due and payable as
set forth in the Note, and as set forth below. Unless Borrower is in
default under the terms of any Security Agreement securing the Note, this
Floor Plan Agreement or any other agreement relating to this Floor Plan
Agreement, upon sale of inventory, Borrower will pay to Bank at the earlier
of Borrower's receipt of payment for
<PAGE>
that item of inventory or three (3) business days after that item of
inventory is delivered to the customer or otherwise disposed of, cash in
the amount equal to the original amount advanced less any curtailment
payments made with respect to the item sold. If Borrower is in default at
time of sale, all proceeds of sale will immediately be remitted to Bank and
applied to debt hereunder.
(b) Curtailment payments based on the original amount advanced with
respect to specific items of inventory shall be paid from time to time by
Borrower as provided for in Addendum "A" attached hereto and made a part
hereof for all purposes as if copied word for word herein.
6. USE OF LINE AND ADVANCES.
(a) The Advances under this Line shall be exclusively for the purpose
of purchasing inventory to be displayed and demonstrated in conjunction
with the sale of the inventory in the ordinary course of Borrower's
business unless otherwise agreed to in writing by Bank. Borrower agrees not
to use the inventory for any other purpose without the prior written
approval of Bank. The term "Advance" as used in this Agreement shall mean
the dollar amount loaned by Bank on a motor vehicle financed under a floor
plan line of credit and includes but is not limited to any charge against,
debit against, draft against, or draw against the line of credit. Advances
under the Line (Advances) shall be made against and in payment of drafts
drawn on Bank, or in accordance with the written request of Borrower
executed by the person signing this Agreement on behalf of Borrower or a
person hereafter designated in writing by Borrower.
(b) Units of inventory which may be presented as Collateral as well as
the amount of outstanding debt permitted at any one time in connection with
the particular type of Collateral being financed shall be in accordance
with Addendum "B".
(c) Bank may reject as Collateral hereunder any item of inventory
which is received by Borrower in damaged condition. Bank has no obligation
to inspect inventory for damage before paying drafts. If Bank has paid a
draft on damaged inventory, Borrower shall direct the manufacturer to
refund all payments directly to Bank. If the manufacturer fails to make the
refund within thirty (30) days, Borrower shall reduce the debt outstanding
under the Line by the amount Advanced against the damaged item.
(d) Borrower will submit or cause to be submitted to Bank invoices or
bills of sale representing the actual cost to Borrower of the inventory.
Bank may advance an amount equal to Borrower's cost (not to exceed NADA
wholesale value in the case of used motor vehicles) or such part of the
cost thereof as Bank elects at its sole discretion. The Advance may be
disbursed to Borrower or the manufacturer or others from whom Borrower
purchases inventory. Presentation of drafts or
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<PAGE>
other requests for payment by manufacturers or others from whom Borrower
purchases inventory shall constitute requests by Borrower that Bank lend
Borrower the amount of such drafts or other requests for payment pursuant
to this Agreement.
(e) A fee in the amount of $0.00 shall be paid by Borrower for each
unit of inventory presented as Collateral to obtain Advances. The fee shall
be paid monthly by Borrower.
7. COLLATERAL. Borrower hereby grants to Bank a security interest in all of
its inventory of:
_X_ New Motor Vehicles (now existing or hereafter acquired)
_X_ Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories added to vehicles, now existing or
hereafter acquired by Borrower, including any such goods as may be leased
or held for leasing, together with any and all accounts and proceeds
arising from the sale, lease or disposition of said property and all
returned, refused and repossessed goods, all monies received from
manufacturers by way of credits, refunds or otherwise with respect to
Collateral, and all proceeds thereof (Collateral) to secure all debt of
Borrower to Bank under any and all present and future Advances of whatever
kind and further including but not limited to the Line and all other debt
and other obligations of Borrower to Bank of any nature now existing or
hereafter arising, including but not limited to debt arising directly
between Borrower and Bank or acquired outright, conditionally or as
Collateral security from another by Bank, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
liquidated or unliquidated, arising under the operation of law or
otherwise, direct or indirect, whether incurred directly or as part of a
partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Borrower will execute
and deliver any documents, instruments or agreements required by Bank to
evidence debt hereunder, grant, perfect and preserve the security interest,
and otherwise carry out the terms of this Agreement. The security interest
herein described is also evidenced by a Security Agreement between Borrower
and Bank, and in the event of any conflict between the terms hereof and the
terms thereof, the terms hereof will apply.
8. IDENTIFICATION OF COLLATERAL. Without limiting the foregoing general grant
of a security interest, as set forth in the Security Agreement, Collateral
subject to the security interest granted herein shall include but not be
limited to (i) inventory listed on invoices submitted to Bank by
manufacturers attached to drafts submitted by manufacturers for payment,
which drafts Bank pays; and/or (ii) inventory in Borrower's possession set
out on a list submitted by Borrower as Collateral for Advances directly to
Borrower.
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<PAGE>
9. TITLE DOCUMENTS. Title documents consisting of manufacturers' certificate
of origin, manufacturers' statement of origin, certificates of title and/or
any and all other title documents for each item of inventory shall be in
the possession of Borrower unless otherwise directed by Bank. In the event
Bank does require possession of title documents, Borrower shall deliver all
such documents to Bank immediately upon demand.
10. PAYMENT OF DRAFTS. From time to time Bank may make Advances hereunder by
direct payment to manufacturers or others, in which event, invoices
submitted by Manufacturers along with drafts paid by Bank shall serve as
evidence of Advances under the Line. Borrower authorizes Bank to pay all
drafts or invoices upon presentation by the manufacturer or others
supplying inventory to Borrower.
11. ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Bank its
attorney-in-fact, to execute, deliver and file from time to time, in the
name of Borrower or Bank, any trust receipts, security agreements,
promissory notes, financing statements, continuation statements and
amendments thereto, and any and all other documents and instruments that
Bank may require in connection with evidencing and securing debt under this
Agreement and carrying out the provisions hereof, which appointment shall
be deemed to be a power coupled with an interest.
12. QUALITY OF INVENTORY. Borrower shall be responsible for the quantity,
quality, condition and value of the inventory selected by Borrower and
financed under this Agreement. Bank shall have no liability of any nature
because of the failure of any inventory to conform to Borrower's
specifications, and any dispute between the manufacturer or others and
Borrower with respect to such inventory shall not affect Borrower's
obligation to Bank to pay amounts Advanced hereunder.
13. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
(a) Borrower has taken all action necessary to make this Agreement and
all other agreements between it and Bank legal, valid and binding
obligations enforceable in accordance with their terms, and Borrower is a:
(i)___ corporation duly organized, existing and in good standing
under the laws of the State of _____________ , that it is licensed to
do business and in good standing in each state in which the property
owned by it or the business transacted by it requires it to be
licensed as a foreign corporation.
(ii) _X_ limited liability company, duly organized, and in good
standing under the laws of the State of Tennessee.
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<PAGE>
(iii)___ partnership composed of________________________________
__________________________________________
__________________________________________
(iv) sole proprietorship owned by ______________________________
__________________________________________
(b) Borrower is not in default with respect to any agreement between
it and Bank on this date.
(c) All Collateral is owned by Borrower free and clear of any security
interests or encumbrances except those granted pursuant hereto.
(d) Borrower is and will hereafter be not in default under any
agreement with any other party, and the execution and performance of this
Agreement will not be a default under any agreement with any other party by
which Borrower or any of Borrower's property is bound.
(e) Borrower does not do financing of any motor vehicle inventory with
any other source or purchase inventory from any seller on credit except as
set out below:
___________________________________________________________________________
___________________________________________________________________________
Borrower shall notify Bank immediately in the event it buys inventory of
motor vehicles on credit or enters into any such inventory financing
arrangement with any other source, giving the name and address of the Bank
or seller and details of the purchase or loan.
(f) All financial and other information Borrowers have heretofore
submitted or may hereafter submit is and will be true, complete, and
correct and reflects or will reflect all direct, indirect, and contingent
liabilities.
(g) There has been no material adverse change in the Borrower's
financial condition and operations since the date of Borrowers most recent
financial statements heretofore submitted.
(h) Borrower has and will maintain, at all times, all franchise,
distributor agreements, licenses, permits, and other rights that are
necessary to the conduct of its business.
(i) All representations and warranties set forth herein will be deemed
to be have been made anew with each Advance and shall be continuing in
effect beyond the termination or expiration of this Floor Plan Agreement.
5
<PAGE>
14. COVENANTS. While the Line is in effect, and thereafter while Borrower is
indebted to Bank, Borrower will:
(a) _X_ Provide Bank within twenty (20) days of each month's end, a
company prepared financial statement (including the thirteenth
(13) month statement including all adjustments to net worth) in
accordance with requirements of the franchise(s) for which
Borrower is a dealer.
_X_ Provide Bank within sixty (60) days after Borrower's fiscal
year-end a financial statement compiled by a Certified Public
Accountant acceptable to the Bank.
__ Provide Bank within one-hundred-twenty (120) days after
Borrower's fiscal year-end a financial statement reviewed by a
Certified Public Accountant acceptable to the Bank.
___ Provide Bank within one-hundred-fifty (150) days of Borrower's
fiscal year-end audited financial statements prepared by a
Certified Public Accountant acceptable to the Bank.
In submitting such statements to Bank, an authorized officer of Borrower
will certify such statements to be true and accurate, continuing compliance
with all terms and conditions contained herein and in the other Loan
Documents and that no material violation or default exists with any
material agreement.
_X_ As to Guarantors, provide the Bank, a copy of each Guarantor's
personal financial statement within thirty (30) days of calendar
year-end in a manner and form acceptable to the Bank.
Additionally, each Guarantor shall provide the Bank a copy of
each Guarantor's federal income tax return and all schedules
thereto within thirty (30) days of filing each return.
(b) Not merge into or consolidate with any other person, firm,
corporation or limited liability company nor sell any substantial part of
its assets to any person, firm, corporation or limited liability company
except in the ordinary course of business;
(c) Not sell or enter into any agreement to sell or deal in new motor
vehicles manufactured by any manufacturer for whom it is not now a Retailer
or Wholesaler, unless approved by Bank in writing which will not be
unreasonably withheld;
6
<PAGE>
(d) Keep all Collateral and inventory insured, by insurers acceptable
to Bank, at all times in an amount at least equal to the amount of debt to
Bank under the Line with deductible amount satisfactory to Bank, and the
insurance policy to contain loss payable clauses to Bank as its interest
may appear. Borrower will deliver original policies or, if permitted by
Bank, certificates of insurance to Bank;
(e) Permit Bank to enter upon the property of Borrower at any time to
examine all Collateral and to examine Borrower's books in connection
therewith.
(f) At time of execution of this Floor Plan Agreement deliver to Bank
such Landlord Waiver and/or Mortgagee Waiver and Estoppel Agreements duly
executed by the appropriate parties in such form as is satisfactory to Bank
and Borrower will thereafter furnish to Bank current executed copies of the
above instruments upon written request of Bank;
(g) Not allow any material change in ownership or management nor enter
into any management agreement pursuant to which any third party assumes the
management of Borrower in anticipation of a sale of Borrower's business or
any material part of its assets without Bank's prior written approval;
(h) Operate business in compliance with all environmental protection
laws and regulations including applicable local, state, or federal law,
regulations, or rule of common law;
(i) Not allow any liens or encumbrances on any of Borrower's assets or
property without the written consent of Bank;
(j) Borrower and Guarantor shall promptly notify Bank in writing of
(i) any condition, event or act which comes to Borrower's or Guarantor's
attention that would or might materially adversely affect Borrower's or
Guarantor's financial condition or operations, the Collateral, or Bank's
rights under the Guaranty or any Loan Documents, (ii) any litigation in
excess of $25,000.00 filed by or against Borrower or Guarantor, or (iii)
any event that has occurred that would constitute an event of default under
any Loan Documents, including but not limited to any Guaranty.
(k) See Addendum "C" for additional covenants which are a part of this
Agreement for all purposes as if they were copied word for word herein.
15. EVENTS OF DEFAULT.
The following are events of default hereunder and under the other Loan
Documents: (a) the failure to pay or perform any obligation, liability,
indebtedness or covenant of any Borrower or Guarantor to Bank, or to any
affiliate of Bank, whether under this Floor Plan Agreement' Security
Agreement, Note or any other agreement or instrument
7
<PAGE>
now or hereafter existing, as and when due (whether upon demand, at
maturity or by acceleration); (b) the failure to pay or perform any other
obligation, liability or indebtedness of any Borrower or Guarantor whether
to Bank or some other party, the collateral for which constitutes an
encumbrance on the collateral for this Floor Plan Agreement; (c) a
proceeding being filed or commenced against any Borrower or Guarantor for
dissolution or liquidation, or any Borrower or Guarantor voluntarily or
involuntarily terminating or dissolving or being terminated or dissolved;
(d) insolvency of, business failure of, the appointment of a custodian,
trustee, liquidator or receiver for or for any of the property of, or an
assignment for the benefit of creditors by, or the filing of a voluntary or
involuntary petition under bankruptcy, insolvency or debtor's relief law or
for any adjustment of indebtedness, composition or extension by or against
any Borrower or Guarantor; (e) any lien, encumbrance or additional security
interest being placed upon any of the Collateral which is security for this
Floor Plan Agreement; (f) acquisition at any time or from time to time of
title to the whole of or any part of the Collateral which is security for
this Floor Plan Agreement by any person, partnership, corporation or other
entity except for sales thereof in the ordinary course of business; (g)
Bank determining that any representation or warranty made by any Borrower
or Guarantor to Bank is, or was, untrue or materially misleading; (h)
failure of any Borrower or Guarantor to timely deliver such financial
statements, including tax returns, and other statements of condition or
other information as Bank shall request from time to time; (i) entry of a
judgment against any Borrower or Guarantor which Bank deems to be of a
material nature, in Bank's sole discretion; (j) the seizure or forfeiture
of, or the issuance of any writ of possession, garnishment or attachment,
or any turnover order for any property of any Borrower or Guarantor; (k)
Bank reasonably deeming itself insecure or its prospects for payment of the
debt impaired for any reason; (1) the determination by Bank that a material
adverse change has occurred in the financial condition of any Borrower or
Guarantor; (m) the failure to comply with any law regulating the operation
of Borrower's business; (n) Guarantor undertakes to terminate or revoke any
guaranty of payment of this Note or defaults in the performance of or
disputes any of his obligations as Guarantor; (o) the inability of the
Borrower or Guarantor to pay debts as they mature owing to Bank or any
other party.
16. REMEDIES. Upon the occurrence of any default hereunder or any of the
other Loan Documents, Bank shall have all of the rights and remedies of a
creditor and, of a secured party under the Uniform Commercial Code as
enacted in the State of Georgia, O.C.G.A ss.11-9 and all other applicable
law. Without limiting the generality of the foregoing, Bank may, at its
option and without notice or demand: (a) declare any liability of Borrower
under this Agreement or any of the other Loan Documents accelerated and due
and payable at once; and (b) take possession of any Collateral wherever
located, and sell, resell, assign, transfer and deliver all or any part of
said Collateral of Borrower or Guarantor at any public or private sale or
otherwise dispose of any or all of the Collateral in its then condition,
for cash or on credit or for future delivery, and in connection therewith
Bank may impose reasonable conditions upon any
8
<PAGE>
such sale. Bank, unless prohibited by law the provisions of which cannot be
waived, may purchase all or any part of said Collateral to be sold, free
from and in discharge of all trusts, claims, rights of redemption and
equities of the Borrower or Guarantor whatsoever; Borrower and Guarantor
acknowledge and agree that the sale of any Collateral through any
nationally recognized broker - dealer, investment banker or any other
method common in the securities industry shall be deemed a commercially
reasonable sale under the Uniform Commercial Code or any other equivalent
statute or federal law, and expressly waive notice thereof except as
provided herein; and (c) set-off against any and all money owed by Bank in
any capacity to Borrower or Guarantor whether or not due for any
Liabilities of the Borrower to the Bank under this Agreement and the other
Loan Documents.
17. ATTORNEY FEES, COST AND EXPENSES. Borrower and/or Guarantor shall pay all
costs of collection and attorney's fees equal to reasonable and actual
attorney's fees, including reasonable attorney's fees in connection with
any suit, mediation or arbitration proceeding, out of court payment
agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or
paid by Bank in enforcing the payment of any Liability or enforcing or
preserving any right or interest of Bank hereunder, including the
collection, preservation, sale or delivery of any Collateral from time to
time pledged to Bank, and after deducting such fees, costs and expenses
from the proceeds of sale or collection, Bank may apply any residue to pay
any of the Liabilities and Guarantor shall continue to be liable for any
deficiency with interest at the rate specified in any instrument evidencing
the Liability or, at the Bank's option, equal to the highest lawful rate,
which shall remain a liability.
18. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Borrower and/or
Guarantor pledged to Bank to secure Borrower's and/or Guarantor's
obligations against prior parties who may be liable in connection
therewith, and Borrower and/or Guarantor hereby agree to take any such
steps. Bank, nevertheless, at any time, may (a) take any action it deems
appropriate for the care or preservation of such property or of any rights
of Borrower and/or Guarantor or Bank therein, (b) demand, sue for, collect
or receive any money or property at any time due, payable or receivable on
account of or in exchange for any property of Borrower and/or Guarantor,
(c) compromise and settle with any person liable on such property, or (d)
extend the time of payment or otherwise change the terms thereof as to any
party liable thereon, all without notice to, without incurring
responsibility to, and without affecting any of the obligations or
liabilities of Borrower and/or Guarantor.
19. TERMINATION. The Line may be terminated at any time by either party with or
without cause upon 30 days' notice in writing to the other. Upon the
occurrence of a default hereunder, Bank shall have the right to terminate
the Line and to mature all debt outstanding hereunder, including principal
and interest, without notice to any person. Termination of the Line
hereunder shall not affect the obligations of Borrower with
9
<PAGE>
respect to any debt incurred prior to termination. All such obligations
shall continue in full force and effect until all debt under the Line is
paid in full.
20. OVERLINE DEBT. In the event debt outstanding under the Line should for any
reason exceed the amount of the Line allowed hereunder, all such debt shall
be payable on demand, but if no demand is made, no later than such time as
may be specified by Bank at the time of the approval of the temporary
overline. The overline debt shall bear interest at the rate specified for
debt under the Line, and shall be governed by all the terms and conditions
of this Agreement and the other Loan Documents and shall be secured by all
Collateral for the Line, and all items of inventory financed by the
overline debt shall secure all debt under the Line including the overline
and be governed by all terms of the Security Agreement, Floor Plan
Agreement and Note. Bank shall have no obligation to permit any overline at
any time but in its sole discretion may do so.
21. REVIEW OF LINE. Bank may, at its option, from time to time review the
credit for performance, pricing, amount of Line, and Borrower's financial
condition.
22. CHANGE IN TERMS. Bank may at its discretion amend or modify any term or
provision of this Floor Plan Agreement, Security Agreement or any other
agreements pertaining to this Agreement, with any change to be effective 15
days after mailing of notice to Borrower.
23. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and each party's respective successors,
heirs, executors, administrators, personal representatives and assigns.
Neither this Floor Plan Agreement nor any interest in it may be assigned or
otherwise voluntarily or involuntarily transferred by Borrower without
Bank's prior written approval.
24. WAIVER. (a) Bank may consent to or waive any action or any failure to act
by Borrower with respect to any obligation of Borrower hereunder. Any
consent or waiver on the part of Bank shall be binding upon Bank only when
in writing and signed by an officer of Bank, and no failure to take action
with respect to any default shall constitute a waiver thereof. No waiver of
any default shall be a waiver of any other or future default of that or any
other nature; (b) Bank shall not be required to proceed first against
Borrower, or any other person, firm or corporation, whether primarily or
secondarily liable, or against any collateral held by it, before resorting
to Guarantor for payment, and Guarantor shall not be entitled to assert as
a defense to the enforceability of the Guaranty any defense of Borrower
with respect to any Liabilities or Obligations.
25. GOVERNING LAW. This Floor Plan Agreement shall be deemed to have been made
in the State of Georgia at the address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of
Georgia, and is performable in the State of Georgia.
10
<PAGE>
26. MEDIATION, BINDING ARBITRATION. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this
Agreement or the other Loan Documents by participating in mediation and/or
binding arbitration. Each party agrees that each will bear its respective
expenses related to either mediation and/or arbitration. The parties
further agree if the matter has not been resolved pursuant to mediation
within thirty (30) days of notice to mediate given by either party, the
controversy shall be settled by arbitration and shall be governed by the
United States Arbitration Act, 9 U.S.C. ss.1-16, (or if not applicable, the
applicable state law), and judgment upon the award rendered by the
Arbitrator may be entered by any court having jurisdiction thereof. The
parties recognize that Bank could be prejudiced by not being able to
foreclose on property pledged as Collateral to Bank. The parties agree that
nothing in this Agreement shall be deemed to (i) limit the applicability of
any otherwise applicable statutes of limitation or repose and any waivers
contained in this Agreement; or (ii) be a waiver by the Bank of the
protection afforded to it by 12 U.S.C. Sec. 91 or any substantially
equivalent state law; or (iii) limit the right of the Bank hereto (a) to
exercise self help remedies such as (but not limited to) setoff, or (b) to
foreclose against any real or personal property collateral, or (c) to
obtain from a court provisional or ancillary remedies such as (but not
limited to) injunctive relief or the appointment of a receiver. The Bank
may exercise such self help rights, foreclose upon such property, or obtain
such provisional or ancillary remedies before, during or after the pendency
of any arbitration proceeding brought pursuant to this agreement. At Bank's
option, foreclosure under a deed of trust or mortgage may be accomplished
by any of the following: the exercise of a power of sale under the deed of
trust or mortgage, or by judicial sale under the deed of trust or mortgage,
or by judicial foreclosure. Neither this exercise of self help remedies nor
the institution or maintenance of an action for foreclosure or provisional
or ancillary remedies shall constitute a waiver of the right of any party,
including the claimant in any such action, to arbitrate the merits of the
controversy or claim occasioning resort to such remedies.
27. ADDITIONAL TERMS. (a) As used herein, the singular number shall include the
plural (e.g. "Note" means Note or Notes); or (b) In the event that there
are any written terms that may differ between this Floor Plan Agreement and
any other agreements, documents, or negotiations in existence prior to the
execution of this Floor Plan Agreement, Bank and Borrower agree that the
terms of this Floor Plan Agreement shall control and be the final
agreement.
28. MERGER. The terms of any commitment letter issued by Bank to Borrower for
this Line are incorporated herein by reference, except to the extent that
such terms are inconsistent with the terms of this Floor Plan Agreement,
Security Agreement or Note. Any such inconsistent terms are of no effect.
This Floor Plan Agreement supersedes any Floor Plan Agreements heretofore
executed by and between Bank and Borrower, and all outstanding Floor Plan
Agreement indebtedness is hereafter subject to all of the terms and
provisions of this Floor Plan Agreement, and the outstanding principal
11
<PAGE>
balance of all such Floor Plan indebtedness is added to the principal
balance of this Floor Plan Agreement.
29. NOTICES. Any notice or other communication required or permitted hereunder
or under any Note or Security Agreement shall be in writing and shall be
delivered personally, sent by facsimile transmission or by first-class,
certified, registered or express mail, or by courier, with postage and
other charges prepaid. Any such notice shall be deemed given when so
delivered personally, by courier or by facsimile transmission, or, if
mailed, five (5) days after the date of deposit in the United States mail,
as follows:
If to Borrower, to:
Nelson Bowers Dodge, LLC
402 West Martin Luther King Blvd.
Chattanooga, TN 37402
Attention: Nelson E. Bowers, II
Facsimile #__________________________
If Bank, to:
NationsBank, N.A. (South)
600 Peachtree Street, 17th Floor
Atlanta, Georgia 30308
Attention: Tim Kelley or Bill Brantley
Either Bank or Borrower may, by notice given in accordance with this
provision, designate another address or person for receipt of notices
hereunder.
12
<PAGE>
30. FLOOR PLAN COLLATERAL AND/OR INVENTORY INSPECTION. Floor Plan inventory
inspections will be conducted by Bank from time to time at the sole
discretion of Bank. Borrower agrees to pay in full any item or unit of
Collateral that is not located at Borrower's premises or accounted for by
Borrower to Bank. Borrower shall make payment to Bank immediately upon
notice of demand being given to Borrower pursuant to paragraph 29 (NOTICES)
of the Floor Plan Agreement.
31. FINAL AGREEMENT. THIS FLOOR PLAN AGREEMENT, THE FLOOR PLAN PROMISSORY NOTE,
THE SECURITY AGREEMENT AND ANY OTHER AGREEMENTS EXECUTED IN CONJUNCTION
WITH THIS FLOOR PLAN REVOLVING LINE OF CREDIT REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Floor Plan Agreement to
be executed under seal on the 5th day of March, 1997.
Nelson Bowers Dodge, LLC (Seal)
NationsBank, N.A. (South) Borrower
Bank
By /s/ Timothy W. Kelley By /s/ Nelson E. Bowers II
-------------------------- -------------------------
Timothy W. Kelley Nelson E. Bowers, II
Assistant Vice President Chief Manager
<PAGE>
ADDENDUM "A"
This Addendum "A" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated March 5,
1997 between Bank and Borrower.
Curtailments. Curtailment payments based upon the original amount advanced with
respect to specific items of Collateral shall be paid on the following types of
units of Collateral based upon either a dollar or percentage amount as billed to
Borrower and payment is due when billed. The Curtailment payment is to be
applied against the original amount advanced for a unit of Collateral. The
Curtailment payment based upon either a dollar or percentage amount is
calculated on the original amount advanced for the unit and not the outstanding
unpaid balance from time to time.
Unit Type Curtailment Amount Curtailment Date Final Payoff Date
New 10% of original Due 90 days 15 months from
amount financed. prior to maturity. date financed.
Used and 2% of original Due monthly In full at the end
Program amount financed. beginning at the of the 7th month.
end of the 4th month.
Executed under seal on the 5th day of March, 1997.
Borrower: Nelson Bowers Dodge, LLC (Seal)
By: /s/ Nelson E. Bowers II
- -------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
- -------------------------------
Timothy W. Kelley, Assistant Vice President
(Name and Title)
<PAGE>
ADDENDUM "B"
This Addendum "B" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated March 5th,
1996 between Bank and Borrower.
Floor Plan Sublimits. The following sublimits represent the amount of
outstandings permitted at any one time in connection with the particular type of
Collateral being financed; notwithstanding, the Bank, in it's sole discretion,
may advance from time to time amounts in excess of the sublimit amounts below:
Unit Type Sublimit Amount
- --------- ---------------
New Vehicles $3,500,000.00
Used Vehicles $300,000.00
Executed under seal on the 5th day of March, 1997.
Borrower: Nelson Bowers Dodge, LLC (Seal)
By: /s/ Nelson E. Bowers II
- -------------------------------
Nelson E. Bowers, II
Chief Manager
(Name and Title)
Approved: NationsBank, N.A. (South)
By: /s/ Timothy W. Kelley
- -------------------------------
Timothy W. Kelley, Assistant Vice President
(Name and Title)
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT [LOGO] CHRYSLER
FINANCIAL
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 15 day of May, 1996, and effective September 1,
1984 or the date hereof, whichever is later, is by and between Lake Norman
Chrysler Plymouth Jeep Eagle, LLC, having its principal place of business at
20435 Chartwell Center Drive, Cornelius, NC 28031 (hereinafter called "Debtor"),
and Chrysler Financial Corporation, a Michigan corporation, having officers
located at 27777 Franklin Road, Southfield, Michigan 48034-8286 (hereinafter
called "Secured Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of Chrysler
Corporation and desires Secured Party to finance the acquisition by Debtor in
the ordinary course of its business of new and unused vehicles sold and
distributed by Chrysler Corporation and/or other authorized sellers and of used
vehicles (all such unused and used vehicles being hereinafter collectively
called the "Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor (1) by agreeing with Chrysler
Corporation to purchase from Chrysler Corporation receivables evidencing credit
sales of Vehicles by Chrysler Corporation to Debtor, and (2) by making loans or
advances to Debtor to finance the acquisition by Debtor of Vehicles from other
sellers.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing as
follows:
(a) to purchase receivables from Chrysler Corporation evidencing credit
sales of Vehicles by Chrysler Corporation to Debtor, at 100% of the
face amount of such receivables; or
(b) by making loans or advances to Debtor to finance the acquisition by
Debtor of Vehicles from sellers thereof, on the terms and conditions
set forth in Paragraph 2.1 herein or as set forth in the Vehicle
financing terms and conditions as they may be made available to Debtor
from time to time by Secured Party.
For the purposes of this Agreement, amounts applied by Secured Party to
acquire Debtor's receivables from Chrysler Corporation as contemplated by
clause (a) are herein called "Receivable Purchase Advances", and loans or
advances provided by Secured Party directly to either Debtor or to the
seller of Vehicles to Debtor as contemplated by clause (b) are herein
called "Direct Loan Advances", and all such amounts, loans and advances
provided by Secured Party contemplated by clause (a) and clause (b) are
herein collectively called "Advances". Debtor acknowledges that (x) the
maximum amount of Advances which will be made by Secured Party hereunder
will be established from time to time by Secured Party in its sole
discretion and (y) all such Advances shall by made on and shall be subject
to the terms and conditions of this Agreement. It is understood and agreed
that the making of any Advance hereunder shall be at the option of the
Secured Party and shall not be obligatory, and that the right of Debtor to
request that Secured Party make Advances may be terminated at any time by
Secured Party at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Receivable Purchase Advance
shall be evidenced by and made against a Credit Sale Agreement of Chrysler
Corporation delivered to Secured Party, and Secured Party shall be entitled
to make Receivable Purchase Advances against such Credit Sale Agreement
appropriately completed and executed on behalf of Debtor by Chrysler
Corporation by facsimile signature or otherwise under Power of Attorney
given by Debtor, without any duty to inquire as to the continued
effectiveness of such power or to verify with Debtor the amount of, or
Vehicles listed upon, such Credit Sale Agreement and each such Credit Sale
Agreement shall evidence the valid and binding payment obligation of
Debtor. Each Direct Loan Advance shall be made at such time as Debtor shall
request in accordance with the then-effective Vehicle financing terms and
conditions referred to above. Debtor will execute and deliver to Secured
Party from time to time its demand promissory notes in aggregate principal
amount equal to that amount agreeed to by Debtor and Secured Party from
time to time, such demand promissory notes (the "Promissory Notes") to
evidence the liability of Debtor to Secured Party on account of all Direct
Loan Advances and to constitute additional evidence of Debtor's obligation
in respect of the receivables underlying the Receivable Purchase Advances.
The maximum liability of Debtor under this Agreement shall at any time be
equal to the aggregate principal amount of all Advances at the time
outstanding hereunder plus interest and such other amounts as may be due
under this Agreement. Debtor will pay to Secured Party on demand the
aggregate principal amount of all Advances from time to time outstanding,
and will pay upon demand the interest due thereon and such other additional
charges as Secured Party shall determine from time to time.
Notwithstanding any inconsistent terms of any agreement between Debtor and
Chrysler Corporation in respect of Debtor's liability under any Credit Sale
Agreement, in consideration of Secured Party's making of Receivable
Purchase Advances and Direct Loan Advances, Debtor will pay to Secured
Party interest at the rate(s) per annum designated by Secured Party from
time to time on the amount of each Advance made by Secured Party hereunder
from the date of such Advance until date of repayment to Secured Party of
the full amount thereof. For the purposes of the preceding sentence, each
Receivable Purchase Advance shall be deemed to have been made by Secured
Party on the date on which payment shall have been made by Secured Party to
Chrysler Corporation for the related receivable of Debtor purchased by
Secured Party from Chrysler Corporation. Secured Party will give notice to
Debtor of the interest rate(s) established by it from time to time under
the terms hereof, and each such notice shall constitute an agreement
between Debtor and Secured Party as to the applicability to the Advances of
the interest rate(s) contained therein, to be applicable from the dates
stated in such notice until such interest rate(s) are changed by subsequent
notice given by Secured Party pursuant to this sentence. All interest
accrued on the Advances shall be payable monthly by Debtor, and shall be
due upon receipt by Debtor of the statement of Secured Party setting forth
the amount of such accrued interest.
84-291-4102 (1/96)
<PAGE>
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof, subject only to any prior security interest in a Vehicle
financed by a Receivable Purchase Advance which has been granted by Debtor
to Chrysler Corporation and assigned by Chrysler Corporation to Secured
Party in connection with the making of such Receivable Purchase Advance.
Further, Debtor also hereby grants to Secured Party a security interest in
and to all Chattel Paper, Accounts whether or not earned by performance and
including without limitations all amounts due from the manufacturer or
distributor of the Vehicles or any of its subsidiaries or affiliates,
Contract Rights, Documents, Instruments, General Intangibles, Consumer
Goods, Inventory of Automotive Parts, Accessories and Supplies, Equipment,
Furniture, Fixtures, Machinery, Tools, and Leasehold Improvements, whether
now owned or hereafter acquired by way of replacement, substitution,
addition or otherwise, together with all additions and accessions thereto
and all proceeds thereof, as additional security for each and every
indebtedness and obligation of Debtor as set forth herein. The security
interest hereby granted shall secure the prompt, timely and full payment of
(1) all Advances, (2) all interest accrued thereon in accordance with the
terms of this Agreement and the Promissory Notes, (3) all other
indebtedness and obligations of Debtor under the Promissory Notes, (4) all
costs and expenses incurred by Secured Party in the collection or
enforcement of the Promissory Notes or of the receivable underlying any
Receivable Purchase Advance or of the obligations of the Debtor under this
Agreement, (5) all monies advanced by Secured Party on behalf of Debtor for
taxes, levies, insurance and repairs to and maintenance of any Vehicle or
other collateral, and (6) each and every other indebtedness or obligation
now or hereafter owing by Debtor to Secured Party including any collection
or enforcement costs and expenses or monies advanced on behalf of Debtor in
connection with any such other indebtedness or obligations. Nothing in this
Agreement shall require Debtor, in respect of any Receivable Purchase
Advance, to proceed first under the security interest created by this
Agreement or first under the security interest granted by Debtor to
Chrysler Corporation to secure the receivable underlying such Receivable
Purchase Advance and assigned by Chrysler Corporation to Secured Party and
the remedies of Secured Party under such security interests shall be
cumulative.
3.1 All said security set forth in Paragraph 3.0 above shall hereinafter
collectively be called "Collateral". Debtor hereby expressly agrees that
the term "proceeds" as used in Paragraph 3.0 above shall include without
limitation all insurance proceeds on the Collateral, money, chattel paper,
goods received in trade including without limitation vehicles received in
trade, contract rights, instruments, documents, accounts whether or not
earned by performance, general intangibles, claims and tort recoveries
relating to the Collateral. Notwithstanding that Advances hereunder are
made from time to time with respect to specific Vehicles, each Vehicle and
the proceeds thereof and all other Collateral hereunder shall constitute
security for all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damages to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party., showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them, except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
- --------------------------------------------------------------------------------
PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may, at its option and
notwithstanding any inconsistent terms in any agreement between Debtor and
Chrysler Corporation and/or Secured Party with respect to the receivable
underlying any Receivable Purchase Advance by Secured Party, terminate this
Agreement, refuse to advance funds hereunder, convert outstanding
installment payment obligations to payment on Vehicle sale obligations, and
declare the aggregate of all Advances outstanding hereunder immediately due
and payable upon the occurrence of any of the following events (each
hereinafter called an "Event of Default"), and that Debtor's liabilities
under this sentence shall constitute additional obligations of Debtor
secured under this Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under
this Agreement or any Promissory Note, or shall fail in the due
performance or compliance with any other term or condition hereof or
thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or a rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business, except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the Uniform
Commercial Code or under any other statute or at common law or in equity or
under this Agreement. Such rights and remedies shall be cumulative. Debtor
hereby agrees that it shall pay all expenses and reimburse Secured Party
for any expenditures, including reasonable attorneys' fees and legal
expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times at Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
<PAGE>
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary, Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party or Debtor, Secured Party and Chrysler
Corporation or Debtor and Chrysler Corporation with respect to the
Receivable underlying any Receivable Purchase Advance by Secured Party
should be construed together as one agreement; provided, however, in the
event of any conflict, the terms and provisions of this Agreement shall
govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below:
<TABLE>
<CAPTION>
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TO DEBTOR TO SECURED PARTY
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<S> <C>
Lake Norman Chrysler Plymouth Jeep Eagle, LLC Chrysler Financial Corporation
20435 Chartwell Center Drive P.O. Box 560217
Cornelius, NC 28031 Charlotte, NC 28256-0217
Attention: Phil M. Gandy, Jr. Attention: Branch Manager
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</TABLE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Lake Norman Chrysler Plymouth Jeep Eagle, LLC
---------------------------------------------
(DEBTOR)
/s/ [illegible] By /s/ Phil M. Gandy, Jr.
- ------------------------------- ----------------------------------------
(WITNESS) Phil M. Gandy, Jr.
/s/ [illegible] Title Member
- ------------------------------- ---------------------------------------
(WITNESS)
CHRYSLER FINANCIAL CORPORATION
By /s/ [illegible]
----------------------------------------
Title Zone Manager
---------------------------------------
PROMISSORY NOTE
- --------------------------------------------------------------------------------
AMOUNT CITY STATE DATE
$2,000,000.00 Cornelius North Carolina May 15, 1996
- --------------------------------------------------------------------------------
ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of
CHRYSLER FINANCIAL CORPORATION, a Michigan Corporation, at its office at 8801
J.M. Keynes Dr., Charlotte, NC 28262 or at such other place as the holder hereof
may direct in writing, the sum of Two Million Dollars ($2,000,000.00), in lawful
money of the United States of America, together with interest thereon from the
date hereof until paid at the rate or rates established from time to time,
pursuant to paragraph 2.0 of that certain Security Agreement and Master Credit
Agreement dated May 15, (yr.) 96, between the undersigned and Chrysler Financial
Corporation, which interest shall be payable monthly in like lawful money;
provided, however, that the rate of interest payable hereunder shall not exceed
the maximum rate of interest permitted by applicable law.
The undersigned agrees to pay reasonable attorneys fees if this note is placed
in the hands of an attorney for collection.
The makers, sureties, guarantors and endorsers hereof severally waive
presentment for payment, protest and notice of protest and non-payment of this
note, and consents to any extension, renewal or postponement of the time of
payment of this note, without notice, at the option of the holder.
- --------------------------------------------------------------------------------
DEALER BY ITS
Lake Norman Chrysler /s/ Philip M. Gandy, Jr. Member
Plymouth Jeep Eagle, LLC Philip M. Gandy, Jr.
- --------------------------------------------------------------------------------
[LOGO] CHRYSLER
FINANCIAL
SECURITY AGREEMENT AND CAPITAL LOAN AGREEMENT
THIS SECURITY AND CAPITAL LOAN AGREEMENT (hereinafter called the "Agreement")
dated this 15 day of May 1996, is by and between LAKE NORMAN DODGE, INC., having
its principal place of business at 20700 TORRENCE CHAPEL RD., PO BOX 457,
CORNELIUS, NC, 28031 (hereinafter called "Borrower"), and Chrysler Financial
Corporation, a Michigan corporation, having offices located at 27777 Franklin
Rd., Southfield, MI 48034 (hereinafter called "Lender").
WHEREAS, Borrower is engaged in business as an authorized motor vehicle dealer,
which includes the sale and service of new and used motor vehicles, parts, and
accessories (which business hereinafter shall be called "Borrower's Business")
and desires to borrow funds from Lender to be used as working capital in the
ordinary course of operating Borrower's Business, or as otherwise agreed to by
Lender in writing; and
WHEREAS, Lender is willing to lend to Borrower said capital funds on the terms
and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration paid by each party to the other, the receipt and sufficiency of
which is hereby acknowledged, and intending to be legally bound hereby, the
parties hereto agree as follows:
SECTION 1.0 DEFINITIONS - When used in this Agreement, the following terms shall
have the following meanings:
"Account" shall mean any right to payment for Goods sold or leased or for
services rendered which is not evidenced by an Instrument of Chattel Paper,
whether or not such account has been earned by performance.
"Affiliate" with respect to Borrower shall mean any person, entity or business
organization which, directly or indirectly, controls, is controlled by or is
under common control with the Borrower.
"Books" shall mean all books, records and correspondence relating to the
Collateral, including but not limited to, all ledgers, computer and automatic
machinery software and programs, printouts and computer runs and other computer
prepared information.
"Chattel Paper" shall mean a writing or writings which evidence both a monetary
obligation and a security interest in or a lease of specific Goods.
"Collateral" shall mean all property and interests in property or rights in
which a security interest is granted by Borrower to Lender in this Agreement
pursuant to Section 3 hereof.
"Commitment Letter" shall mean that certain letter attached hereto, if any,
between Borrower and Lender, setting forth certain terms and conditions of the
Loan.
"Contract Right" shall mean any right of Borrower to payment under a contract
for the sale of Goods or the rendering of services, which right is at the time
not yet earned by performance.
"Documents" shall mean any bill of lading, dock warrant or receipt, warehouse
receipt or order for the delivery of Goods.
"Effective Net Worth" shall mean the reported net worth of Borrower plus
subordinated notes payable and net LIFO reserve, minus Affiliate, officer and
employee receivables, net unamortized leasehold improvements, intangible assets
and all other assets not directly related to Borrower's Business.
"Equipment" shall mean Goods together with any and all accessions, parts and
appurtenances thereto, used or bought for use or hereafter bought for use
primarily in Borrower's Business which are not included in the definition of
Inventory.
"Event of Default" shall mean the occurrence of any of the events as contained
in Section 8 of this Agreement.
"General Intangibles" shall mean any personal property (including things in
action) other than Goods, Accounts, Chattel Paper, Documents, Instruments and
money.
"Goods" shall mean all things which are moveable at the time the security
interest attaches or which are fixtures.
"Instrument" shall mean a negotiable instrument or a security or any other
writing which evidences a right to the payment of money.
"Inventory" shall mean any and all Goods, now owned or hereafter acquired by
Borrower, which are held for sale or lease or are furnished or to be furnished
under a contract or service.
"Obligations" shall mean any and all liability, obligation, or indebtedness owed
pursuant to the terms and conditions of this Agreement and any and all other
agreements, promissory notes, guaranties and contractual arrangements or every
kind and nature between Borrower and Lender, whether now or hereafter in
existence.
"Proceeds" shall mean whatever is received upon the sale, exchange, collection
or other disposition of the Collateral or proceeds, whether cash proceeds or
non-cash proceeds.
"Net Working Capital" shall mean the excess of Borrower's current assets over
Borrower's current liabilities.
SECTION 2.0 THE LOAN
2.1 Lender hereby agrees to loan to Borrower, and Borrower hereby agrees to
borrow from Lender, an amount which shall be evidenced by a promissory note
(the "Note") to be executed by Borrower concurrently herewith, which Note
shall be in substance and form satisfactory to Lender. The amount borrowed
may be increased from time to time upon written request of Borrower
approved by Lender. The initial loan and any new advances evidencing
increases to the initial loan (hereinafter in the aggregate referred to as
the "Loan") shall be subject to the terms and conditions of this Agreement.
The Loan may be prepaid at any time in whole or in part without penalty.
2.2 The Note shall evidence the terms or repayment of the Loan.
The Loan shall bear interest upon the unpaid balance thereof at that rate
of interest stated in the Note.
Principal and interest shall be due and payable on the date(s) and in the
amounts as specified in the Note.
2.3 Borrower and Lender agree that it is their respective intentions, and they
do specifically agree: (a) that this Agreement, the Note issued hereunder,
and any subsequent promissory notes issued hereunder evidencing new
advances, and any subsequent agreements between the parties, provide for
cross collateralization and cross rights to declare a default whereby all
Collateral is security for all Obligations; (b) upon the occurrence of an
Event of Default, all Obligations shall be matured, immediately due and
payable, notwithstanding any maturity date thereof, or agreements thereto,
to the contrary, and (c) that the agreements contained in this Section 2.3
shall be, and are hereby, made a part of all agreements between Borrower
and Lender, whether now or hereafter in existence.
SECTION 3.0 SECURITY
3.1 As security for the prompt and complete payment and performance when due of
all Obligations due Lender, Borrower hereby grants to Lender a continuing
security interest in all of Borrower's right, title and interest in, to and
under the following Collateral, whether now owned or hereafter acquired:
(a) all of Borrower's Accounts, Books, Contract Rights, Documents,
Instruments, Chattel Paper and General Intangibles;
(b) all of Borrower's Equipment, furniture, fixtures, machinery and
supplies;
(c) all of Borrower's Inventory including but not limited to all new and
used motor vehicles and all automotive parts and accessories; and
<PAGE>
(d) all Proceeds and products of any of the foregoing.
3.2 As further and additional security, Borrower hereby assigns to Lender all
credits which are now or hereafter become due to the Borrower from Chrysler
Motors Corporation, its subsidiaries, affiliates or associated companies,
or such other manufacturer from which Borrower purchases its inventory.
SECTION 4.0 BORROWER'S WARRANTIES - To induce Lender to enter into this
Agreement to make the loan contemplated hereby, Borrower represents and warrants
as follows:
4.1 Borrower operates Borrower's Business in the form of business organization
and from the principal place of business as set forth in the introductory
paragraph of this Agreement, and Borrower is in good standing, duly
authorized, licensed and franchised to operate Borrower's Business.
4.2 All balance sheets, statements of profit and loss and other financial data
which have been furnished by Borrower to Lender fairly present the
financial condition of Borrower's Business as of the dates stated therein,
and the results of its operations for the periods for which the same are
furnished; all other information, reports, papers and data furnished to
Lender are accurate and correct in all material respects and complete
insofar as completeness may be necessary to give Lender a true and accurate
knowledge of the subject matter; and there has been no change in the
business, earnings, prospects, assets, liabilities or condition (financial
or otherwise) of Borrower's Business from that set forth in the most recent
financial statements furnished by Borrower to Lender other than changes in
the ordinary course of Borrower's Business, none of which changes have been
materially adverse.
4.3 None of the assets of Borrower's Business is, as of the date hereof,
subject to any mortgage, pledge, lien or encumbrance in favor of anyone
other than Lender except liens of the kind permitted by Section 6.2 hereof,
unless otherwise agreed to by Lender in writing.
4.4 There is not now pending against Borrower, nor, to the knowledge of counsel
to Borrower or Borrower or to the officers, managers or principals of
Borrower's Business, is there threatened any litigation or legal,
administrative or tax proceedings, investigations or other action or
matter, the outcome of which in the opinion of counsel to Borrower or
Borrower or such officers, managers or principals could materially
adversely affect the continued operation or condition (financial or
otherwise) of Borrower's Business.
4.5 Borrower warrants that there exists on the date of this Agreement no Event
of Default and no event which with the lapse of time would become an Event
of Default.
4.6 Borrower warrants that it is and shall remain the lawful owner of the
Collateral, free of all liens and claims whatsoever, other than the
security interest created hereby or pursuant hereto, or specifically
allowed by this Agreement, and has the authority and right to subject the
Collateral to the security interest granted to Lender by this Agreement.
SECTION 5.0 BORROWER'S AFFIRMATIVE COVENANTS - Borrower hereby covenants and
agrees that, for so long as there shall remain any indebtedness hereunder:
5.1 Borrower will maintain the existence in good standing of Borrower's
Business, and continue to keep in full force and effect any and all
licenses, franchises and other authorizations necessary to conduct
Borrower's Business.
5.2 Borrower will keep proper Books of the operations of Borrower's Business
satisfactory to Lender. Borrower will furnish to Lender within 20 days
after the end of each month, for so long as this Agreement shall be
effective, balance sheets and statements of profit and loss for each month
with respect to Borrower's Business (and, upon request of Lender,
Affiliates of Borrower), in such detail as Lender reasonably may require
from time to time; and within 120 days after the close of each of
Borrower's fiscal years hereafter, for so long as this Agreement shall
remain in effect, Borrower will furnish Lender a completed, executed copy
of a report of an examination of the financial affairs of Borrower's
Business (and, upon request of Lender, Affiliates of Borrower) made by
independent certified public accountants selected by Borrower and
acceptable to Lender, such report of Borrower's Business and Affiliates,
where applicable, to be in such detail and with such certification as
Lender reasonably may require from time to time; and Borrower will furnish
such other financial statements as Lender reasonably may require from time
to time. Borrower will permit Lender to inspect and make copies of the
Books of Borrower's Business at all reasonable times and from time to time.
All such balance sheets, statements of profit and loss and other financial
statements as Borrower may furnish hereunder will fairly present the
financial condition of Borrower's Business and Affiliates, where
applicable, as of the dates and for the periods for which the same are
furnished and shall be certified as true and correct by an appropriate
officer of Borrower or Affiliate, as applicable.
5.3 At the time any asset of Borrower's Business is assigned, mortgaged,
pledged or otherwise hypothecated to Lender as security for any Obligation,
Borrower will be the lawful owner thereof; the same being free from all
encumbrances except as specifically stated in the instrument by which the
same shall be so assigned, mortgaged, pledged or otherwise hypothecated;
and the Borrower will warrant and defend the same against all claims and
demands of any kind or nature.
5.4 Borrower promptly will pay when due all contractual obligations calling for
the payment of money, taxes, assessments and charges imposed upon Borrower
and upon Borrower's Business and Borrowers's properties, assets,
operations, products, income or securities and also promptly will pay all
claims which constitute, or, if unpaid, may become a lien, charge or
encumbrance upon Borrower's Business or any of Borrower's properties,
assets, operations, products, income or securities.
5.5 Borrower shall be responsible for all loss and damage to Borrower's
Business and agrees to keep Borrower's Business insured against loss or
damage by fire, theft, collision and vandalism and against such other
losses as Lender may require from time to time. Insurance policies for the
said insurance shall be with such companies and in such amounts and in such
form as shall be satisfactory to Lender. All such policies of insurance
shall contain an endorsement in form and substance satisfactory to Lender,
showing loss payable to Lender as its interest may appear, and a
certificate of insurance evidencing such coverage will be provided to
Lender.
5.6 Borrower will, upon request of Lender, execute such financing statements
and other documents (and pay the cost of filing or recording the same in
all public offices deemed necessary by Lender) and do all such other acts
and things as Lender may from time to time request, to establish and
maintain a valid first perfected security interest in the Collateral. (free
of all other liens and claims whatsoever except as otherwise expressly
provided herein) to secure the payment of the Obligations.
5.7 Borrower will keep, at the address designated above, all Books concerning
the Collateral, which Books will be of such character as will enable Lender
or its designees to determine at any time the status of the Collateral.
5.8 Borrower will, upon request of Lender, stamp on its Books concerning the
Collateral, a notation or other notice(s), in form satisfactory to Lender,
or take such other action to place third parties on notice of the security
interest of Lender in the Collateral.
5.9 Borrower will, upon request of Lender, immediately deliver to Lender,
appropriately endorsed to the order of Lender, any note, trade acceptance,
installment contract, chattel paper or other writing for the payment of
money which shall be received by Borrower and which may at any time
evidence any obligation to Borrower for payment for Goods sold or services
rendered.
5.10 Borrower will not sell, assign, create or permit to exist any lien on or
security interest in any Collateral to or in favor of anyone other than
Lender, other than the sale of Inventory in the ordinary course of
Borrower's Business.
5.11 Borrower will, at Borrower's sole cost and expense, keep the Collateral in
as good and substantial repair and condition as the same is now or at the
time the lien and security interest granted by this Agreement shall attach
thereto, reasonable wear and tear excepted, making repairs and replacements
when and where necessary. Borrower will further take all action necessary
to insure the real estate upon which the Borrower's Business is located
shall be free of hazardous conditions, substances and pollutants of any
kind.
5.12 Borrower shall apply the proceeds of the Loan for the purposes set forth in
this Agreement and shall furnish such evidence thereof as Lender may
request.
5.13 Borrower shall maintain a value of Collateral to Loan ratio as may be
established by Lender in writing from time to time.
<PAGE>
SECTION 6.0 BORROWER'S NEGATIVE COVENANTS - Borrower hereby covenants and agrees
that, for so long as there shall remain any Obligation owing to Lender, it will
not, without the prior written consent of Lender:
6.1 Create or have outstanding any indebtedness for money borrowed other than
from Lender.
6.2 Create, permit or suffer to exist any mortgage, lien or other encumbrance
to be levied upon or become a charge against Borrower's Business or any of
its properties, assets, operations, products, income or securities other
than mortgages, liens or other encumbrances in favor of Lender, liens for
taxes not delinquent of being contested in good faith, liens or mechanics
or materialmen arising in the ordinary course of Borrower's Business with
respect to liabilities which are not overdue or which are being contested
in good faith, and liens resulting from deposits or pledges to secure
payments or worker's compensation, unemployment insurance, old age pensions
or social security.
6.3 Endorse, guarantee or become surety for the payment of any debt or
liability, of any individual, partnership or corporation, directly or
contingently, except for recourse on the obligations of retail purchasers
of Inventory from Borrower and in connection with endorsing checks and
other negotiable instruments for deposit and collection.
6.4 Sell, exchange, transfer or otherwise dispose of any of its properties,
assets, operations or products except in the normal course of Borrower's
Business; consolidate Borrower's Business with or merge Borrower's Business
into any other business concern or permit any other business concern to
consolidate with or merge into Borrower's Business; or sell, exchange,
transfer, lease or otherwise dispose of all or any substantial part or its
capital assets; or make or have outstanding any loan or advance to any
individual, partnership or corporation, purchase any security of any
corporation or invest in the obligations of any individual, partnership or
corporation.
6.5 Make expenditures in any fiscal year in excess of that amount agreed to by
Lender in writing from time to time.
6.6 Permit the Net Working Capital and Effective Net Worth of Borrower's
Business to be less than those amounts agreed to by Lender in writing from
time to time.
6.7 Make any loan to or increase the present salary or drawing account of any
principal, officer or manager of Borrower's Business, directly or
indirectly, or permit any of the foregoing to withdraw from Borrower's
Business money in any manner other than in the normal and usual course of
Borrower's Business.
6.8 Make a distribution of dividends to its stockholders.
SECTION 7.0 OWNERSHIP AND MANAGEMENT OF BORROWER'S BUSINESS
7.1 Lender has elected to enter into this Agreement and to make the Loan
contemplated hereby with reliance and confidence in the integrity and
ability of the persons presently having ownership interest in or being in
the active management and operation of Borrower's Business as disclosed to
Lender concurrently herewith, and in reliance that said persons are and
shall continue to have the same ownership interest in or be in the active
management and operation of Borrower's Business or both, as the case may
be, so long as this Agreement remains effective and the Obligations remain
outstanding.
SECTION 8.0 EVENTS OF DEFAULTS AND REMEDIES
8.1 Each one or more of the following acts or occurences shall constitute and
Event of Default hereunder:
(a) If Borrower fails to make the due and punctual payment of all or any
portion of any payment of principal or interest due or to become due
hereunder or the Note or under any other agreement between Borrower and
Lender, including, without limiting the generality of the foregoing,
failure in the prompt payment of notes evidencing the financing of
Borrower's inventory of new and/or used motor vehicles or any other
Obligations; or
(b) If failure shall be made in the due observance or performance of any
covenant, agreement or condition to be performed by Borrower or any
guarantor hereof, or
(c) If any representative or warranty made by Borrower to Lender shall have
been determined by Lender to be untrue in any material respect as of the
date that any such representation or warranty was made; or
(d) The occurance (i) of Borrower becoming insolvent or bankrupt, or
ceasing, being unable or admitting in writing its inability to pay its
debts as they mature, or making a general assignment for the benefit of, or
entering into any composition or arrangement with creditors (ii) of
proceedings for the appointment of a receiver, trustee, or liquidator of
the Borrower or of a substantial part of its assets, being authorized or
instituted by or against Borrower or (iii) of proceedings under the United
States Bankruptcy Code or other bankruptcy, reorganization, readjustment of
debt, insolvency, dissolution, liquidation or other similar law of any
jurisdiction being authorized or instituted against the Borrower; or
(e) If there is now or shall hereafter be any change in the ownership
interest in or active management and operation of Borrower's Business; or
(f) If Lender deems it is insecure for any reason or Borrower's Business is
in danger of misuse, loss, seizure or confiscation; or
(g) If any judgement against or levy, execution, attachment or other
proceedings are commenced or obtained in connection with a judgment or
otherwise against, or a receiver appointed of, or writ of attachment or
garnishment is issued against the Borrower or a substantial part of the
assets of Borrower; or
(h) If Lender in good faith reasonably believes the margin of Collateral to
the outstanding Obligations is so insufficient that the prospect of payment
is impaired or otherwise insecure; or
(i) The termination of any franchise authorizing Borrower to sell motor
vehicles at the address stated above.
8.2 Upon the existence of an Event of Default, all outstanding Obligations of
Borrower to Lender will (notwithstanding any provisions to the contrary)
without demand or notice of any kind, thereupon immediately become due and
payable, and Lender may, without any notice to Borrower, notify any parties
obligated to Borrower on any of the Collateral to make payment to Lender of
any amounts due or to become due thereunder and enforce collection of any
of the Collateral by suit or otherwise, and surrender, release or exchange
all or any part thereof; or compromise, extend or renew for any period
(whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. Upon request of Lender, Borrower will, at
its own expense, notify any parties obligated to Borrower on any of the
Collateral to make payment to Lender of any amounts due or to become due
thereunder. In addition, Lender may take possession of the Collateral and
any Books concerning same wherever they may be found, with or without
process of law, and may dispose of the Collateral or any portion thereof in
any manner permitted by law. Unless otherwise agreed to by the parties in
writing, any notification of intended disposition of any of the Collateral
required by law shall be deemed reasonably and properly made if given at
least seven days before such disposition.
SECTION 9.0 APPOINTMENT OF LENDER AS ATTORNEY
9.1 When an Event of Default shall occur and be continuing, Borrower hereby
irrevocably appoints Lender as attorney-in-fact with power of substitution
to act for Borrower in Borrower's name or in the name of Lender or
otherwise, for the use and benefit of Lender hereunder, at the expense of
Borrower, provided that in no event shall this appointment impose any duty
on Lender to act initially or thereafter, as this appointment is made
solely to allow Lender to protect its interests in the Collateral from time
to time at its option. This special power of attorney shall include, but
not be limited to, the hereinafter enumerated acts:
(a) to execute and deliver, or otherwise take any action deemed appropriate
by Lender regarding any deed, lease, assignment, security agreement,
certificate of title, chattel mortgage, vehicle registration, bill of
sale, release and such other instruments as may be necessary to sell,
assign, transfer, pledge or otherwise deal with the property of Borrower
which is or shall hereafter become Collateral of Lender under this
Agreement and any amendments hereto;
(b) to demand, collect, receive payment on, release and otherwise take any
action deemed appropriate by Lender regarding all claims or money due or to
become due to the Borrower in connection with the purchase, sale, damage or
destruction of any of the Collateral, to settle and compromise any such
claim, to receive and open any mail addressed to Borrower, and to endorse
checks for collection, settlement, or compromise; and
(c) to prosecute or otherwise take any action deemed appropriate by Lender
in the name of Lender or in the name of Borrower, or otherwise, any action
or proceeding to collect any such claim or to enforce the right of Borrower
for the benefit of Lender.
SECTION 10.0 GENERAL - Borrower and Lender further agree that:
10.1 Lender shall, at all times, have the right to set off and apply any and all
credits, monies or properties of Borrower in Lender's possession or control
against any Obligations of Borrower to Lender. All payments by Borrower or
other funds of Borrower held or received by Lender, other than regular
monthly installments or principal and interest due on the Note, shall be
applied to the last maturing installments under said Note in inverse order
of maturity.
<PAGE>
10.2 The acceptance by Lender of any installment or payment after it becomes due
or the waiver by Lender of any other Event of Default shall not be deemed
to alter or affect Borrower's Obligations and/or Lender's rights with
respect to any subsequent payment or Event of Default.
10.3 All of the agreements, representations and warranties contained in this
Agreement or in any other instrument or document delivered pursuant thereto
shall survive the delivery of the Note and any extensions, renewals or
substitutions thereof shall continue in full force and effect as long as
there shall remain Obligations owing to Lender from Borrower.
10.4 All negotiations, correspondence and memoranda passed between the parties
hereto with regard to the transactions contemplated by this Agreement other
than the Commitment Letter, if any) are merged hereby and this Agreement
cancels and supersedes all prior agreements between the parties with regard
thereto. This Agreement may be assigned, altered, modified or abridged only
by a written instrument duly executed by the authorized representatives of
Lender and Borrower.
10.5 It is intended that this Agreement shall not be in violation of any valid
law applicable hereto now or hereafter from time to time in effect in any
jurisdiction and in event any provision hereof an any way contravenes any
of said laws, this Agreement shall be considered valid except as to such
provisions.
10.6 Any notice given hereunder shall be in writing and given by personal
delivery or shall be sent by U.S. mail, postage prepaid, addressed to the
party to be charged with such notice, at the respective address as set
forth above, or such other address as may be provided in writing.
10.7 This Agreement shall be binding upon and shall inure to the benefit of the
executors, administrators, legal representatives, successors and assigns of
the parties.
10.8 This Agreement, and all rights and obligations hereunder, shall be governed
by the laws of the State in which the Borrower is located, as indicated by
its address set forth above.
10.9 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provisions
hereof or any other document in connection herewith to the contrary, Debtor
shall not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligation hereunder.
SECTION 11.0 AUTHORITY - Borrower shall furnish to Lender upon execution of this
Agreement such proof of its authority to enter into this Agreement, to make the
Note and to deposit the said security with Lender as Lender from time to time
reasonably may request, including, without limiting the generality of the
foregoing, an opinion of Borrower's counsel and, if Borrower is a corporation,
certified copies of resolutions of Borrower's stockholders, board of directors,
or other managers.
SECTION 12.0 WAIVER OF JURY TRIAL - LENDER AND BORROWER ACKNOWLEDGE AND AGREE
THAT THERE MAY BE A CONSTITUTIONAL RIGHT TO A JURY TRIAL IN CONNECTION WITH ANY
CLAIM, DISPUTE OR LAWSUIT ARISING BETWEEN THEM, BUT THAT SUCH RIGHT MAY BE
WAIVED. ACCORDINGLY, THE PARTIES AGREE:
(A) NOTWITHSTANDING SUCH CONSTITUTIONAL RIGHT, IN THIS COMMERCIAL MATTER THE
PARTIES BELIEVE AND AGREE THAT IT SHALL BE IN THEIR BEST INTEREST TO WAIVE
SUCH RIGHT AND, ACCORDINGLY, HEREBY WAIVE SUCH RIGHT TO A JURY TRIAL AND
FURTHER AGREE THAT THE BEST FORUM FOR HEARING ANY CLAIM, DISPUTE OR
LAWSUIT, IF ANY, ARISING IN CONNECTION WITH THIS AGREEMENT OR RELATIONSHIP
BETWEEN LENDER AND BORROWER, INCLUDING, BUT NOT LIMITED TO, IN CONNECTION
WITH THE COLLECTION OF THE LOAN OR OTHER OBLIGATIONS SHALL BE A COURT OF
COMPETENT JURISDICTION SITTING WITHOUT A JURY.
(B) THIS WAIVER OF JURY TRIAL IS FREELY, KNOWINGLY AND VOLUNTARILY GIVEN BY
EACH PARTY, WITHOUT ANY DURESS OR COERCION, AFTER EACH PARTY HAS CONSULTED
WITH ITS COUNSEL AND HAS CAREFULLY AND COMPLETELY READ ALL OF THE TERMS AND
PROVISIONS OF THIS AGREEMENT, SPECIFICALLY INCLUDING THIS WAIVER OF JURY
TRIAL PROVISION.
(C) NEITHER LENDER NOR BORROWER SHALL BE DEEMED TO HAVE RELINQUISHED THIS
PROVISION WAIVING JURY TRIAL EXCEPT BY A WRITING SIGNED BY AN OFFICER OF
LENDER AND BORROWER RELINQUISHING THIS WAIVER OF JURY TRIAL PROVISION.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the date first above written.
LAKE NORMAN DODGE, INC.
BY: [ILLEGIBLE]
--------------------------
Its: Pres.
CHRYSLER FINANCIAL CORPORATION
BY: /s/ T.J Madden T.J. Madden
-----------------------
Its Vice President
[LOGO]CHRYSLER
FINANCIAL
PROMISSORY NOTE
$1,000,000.00 CORNELIUS NORTH CAROLINA
FOR VALUE RECEIVED, LAKE NORMAN DODOGE, INC. (hereinafter called
"Borrower"), promises to pay to the order of Chrysler Financial Corporation
(hereinafter called "Lendor") at its offices at ONE UNIVERSITY PLACE, 8801 J.M.
KEYNES DRIVE, STE. 400, CHARLOTTE, NC, 28262, or at such other place as the
holder hereof from time to time may designate in writing, the principal sum of
ONE MILLION AND 00/100 Dollars ($1,000,000.00) in eighty four (84) equal monthly
installments of ELEVEN THOUSAND NINE HUNDRED FOUR AND 76/100 Dollars
($11,904.76) each, commencing on the 15th day of JULY, 1996 and on the 15th day
of each succeeding month thereafter until the required number of equal monthly
installments has been paid in full, together with interest thereon at that rate
of interest announced by Lender from time to time and in effect on the unpaid
balance outstanding hereunder, with interest after maturity at the highest
lawful contract rate. Accrued interest through the end of each preceding month
shall be due and payable with each installment of principal, provided that all
unpaid interest accrued to the date thereof shall be due and payable with the
last installment of principal.
This Promissory Note evidences borrowing under, and is subject to, the terms of
that certain Security Agreement and Capital Loan Agreement between the Borrower
and Lender dated May 15th, 1996, and the terms, conditions and promises of that
agreement are hereby incorporated in this Promissory Note by reference as fully
as if set out herein.
All parties to this Promissory Note waive presentment for payment, demand,
notice of nonpayment, protest, notice of protest and, without further notice,
hereby consent to renewal, extensions or partial payments, either before or
after maturity.
Nothing herein shall limit any rights granted to Lender by other instrument or
by law.
LAKE NORMAN DODGE, INC.
By: /s/ ILLEGIBLE
----------------------
Its: PRESIDENT
Date: 5-15-96
--------------------
Loan #14394
[LOGO] CHRYSLER
FINANCIAL
PROMISSORY NOTE
$1,000,000.00 CORNELIUS NORTH CAROLINA
FOR VALUE RECEIVED, LAKE NORMAN DODGE, INC. (hereinafter called
"Borrower"), promises to pay to the order of Chrysler Financial Corporation
(hereinafter called "Lender") at its offices at ONE UNIVERSITY PLACE, 8801 J.M.
KEYNES DRIVE, STE. 400, CHARLOTTE, NC, 28262, or at such other place as the
holder hereof from time to time may designate in writing the principal sum of
ONE MILLION AND 00/100 Dollars ($1,000,000.00) in 84 equal monthly installments
of ELEVEN THOUSAND NINE HUNDRED FOUR AND 76/100 Dollars ($11,904.76) each,
commencing on the 15th day of JULY, 1996 and on the 15th day of each succeeding
month thereafter until the required number of equal monthly installments has
been paid in full, together with interest thereon at the rate of interest
announced by Lender from time to time and in effect on the unpaid balance
outstanding hereunder, with interest after maturity at the highest lawful
contract rate. Accrued interest through the end of each preceding month shall be
due and payable with each installment of principal, provided that all unpaid
interest accrued to the date thereof shall be due and payable with the last
installment of principal.
This Promissory Note evidences borrowing under, and is subject to, the terms of
that certain Security Agreement and Capital Loan Agreement between the Borrower
and Lender dated 5-15-1996, and the terms, conditions and promises of that
agreement are hereby incorporated in this Promissory Note by reference as fully
as if set out herein.
All parties to this Promissory Note waive presentment for payment, demand,
notice of nonpayment, protest, notice of protest and, without further notice,
hereby consent to renewal, extensions or partial payments, either before or
after maturity.
Nothing herein shall limit any rights granted to Lender by other instrument or
by law.
LAKE NORMAN DODGE, INC.
By: /s/ ILLEGIBLE
----------------------
Its: PRES.
Date:
--------------------
Loan #14394
84-291 4331 (1/96)
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT [LOGO] CHRYSLER
(Non-Chrysler Corporation Dealer) FINANCIAL
This Security Agreement and Master Credit Agreement {hereinafter called the
"Agreement"), made as of this 15 day of May 1996,; is by and between Lake Norman
Chrysler Plymouth Jeep Eagle, LLC, having its principal place of business at
20435 Chartwell Center Drive, Cornelius, NC 28031 (hereinafter called "Debtor"),
and Chrysler Financial Corporation, a Michigan corporation, having offices
located at 27777 Franklin Rd., Southfield, Michigan 48034-8286 (hereinafter
called "Secured Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of Chrysler
Corporation and desires Secured Party to finance the acquisition by Debtor in
the ordinary course of its business of new and unused vehicles sold and
distributed by Chrysler Corporation and/or other authorized sellers and of used
vehicles (all such unused and used vehicles being hereinafter collectively
called the "Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor by making loans or advances to
Debtor to finance the acquisition by Debtor of Vehicles.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing by
making loans or advances to Debtor to finance the acquisition by Debtor of
Vehicles from sellers thereof, on the terms and conditions set forth in
Paragraph 2.1 herein or as set forth in the Vehicle financing terms and
conditions as they may be made available to Debtor from time to time by
Secured Party.
For the purposes of this Agreement, loans or advances provided by Secured
Party directly to either Debtor or to the seller of Vehicles to Debtor are
herein called "Advances". Debtor acknowledges that (x) the maximum amount
of Advances which will be made by Secured Party hereunder will be
established from time to time by Secured Party in its sole discretion and
(y) all such Advances shall be made on and shall be subject to the terms
and conditions of this Agreement. It is understood and agreed that the
making of any Advance hereunder shall be at the option of Secured Party and
shall not be obligatory, and that the right of Debtor to request that
Secured Party make Advances may be terminated at any time by Secured Party
at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Advance shall be made at such
time as Debtor shall request in accordance with the then-effective Vehicle
financing terms and conditions referred to above. Debtor will execute and
deliver to Secured Party from time to time its demand promissory notes in
aggregate principal amount equal to that amount agreed to by Debtor and
Secured Party from time to time, such demand promissory notes (the
"Promissory Notes") to evidence the liability of Debtor to Secured Party on
account of all Advances. The maximum liability of Debtor under this
Agreement shall at any time be equal to the aggregate principal amount of
all Advances at the time outstanding hereunder plus interest and such other
amounts as may be due under this Agreement. Debtor will pay to Secured
Party on demand the aggregate principal amount of all Advances from time to
time outstanding, and will pay upon demand the interest due thereon and
such other additional charges as Secured Party shall determine from time to
time.
In consideration of Secured Party's making Advances, Debtor will pay to
Secured Party interest at the rate(s) per annum designated by Secured Party
from time to time on the amount of each Advance made by Secured Party
hereunder from the date of such Advance until the date of repayment to
Secured Party of the full amount thereof. Secured Party will give notice to
Debtor of the interest rate(s) established by it from time to time under
the terms hereof, and each such notice shall constitute an agreement
between Debtor and Secured Party as to the applicability to the Advances of
the interest rate(s) contained therein, to be applicable from the dates
stated in such notice until such interest rate(s) are changed by subsequent
notice given by Secured Party pursuant to this sentence. All interest
accrued on the Advances shall be payable monthly by Debtor, and shall be
due upon receipt by Debtor of the statement of Secured Party setting forth
the amount of such accrued interest.
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof. Further, Debtor also hereby grants to Secured Party a
security interest in and to all Chattel Paper, Accounts whether or not
earned by performance and including without limitation all amounts due from
the manufacturer or distributor of the Vehicles or any of its subsidiaries
or affiliates, Contract Rights, Documents, Instruments, General
Intangibles, Consumer Goods, Inventory of Automotive Parts, Accessories and
Supplies, Equipment, Furniture, Fixtures, Machinery, Tools, and Leasehold
Improvements, whether now owned or hereafter acquired by way of
replacement, substitution, addition or otherwise, together with all
additions and accessions thereto and all proceeds thereof, as additional
security for each and every indebtedness and obligation of Debtor as set
forth herein. The security interest hereby granted shall secure the prompt,
timely and full payment of (1) all Advances, (2) all interest accrued
thereon in accordance with the terms of this Agreement and the Promissory
Notes, (3) all other indebtedness and obligations of Debtor under the
Promissory Notes, (4) all costs and expenses incurred by Secured Party in
the collection or enforcement of the Promissory Notes or of the obligations
of the Debtor under this Agreement, {5) all monies advanced by Secured
Party on behalf of Debtor for taxes, levies, insurance and repairs to and
maintenance of any Vehicle or other collateral, and (6) each and every
other indebtedness or obligation now or hereafter owing by Debtor to
Secured Party including any collection or enforcement costs and expenses or
monies advanced on behalf of Debtor in connection with any such other
indebtedness or obligations.
<PAGE>
3.1 All said security set forth in Paragraph 3.0 shall hereinafter collectively
be called "Collateral". Debtor hereby expressly agrees that the term
"proceeds" as used in Paragraph 3.0 shall include without limitation all
insurance proceeds on the Collateral, money, chattel paper, goods received
in trade including without limitation vehicles received in trade, contract
rights, instruments, documents, accounts whether or not earned by
performance, general intangibles, claims and tort recoveries relating to
the Collateral. Notwithstanding that Advances hereunder are made from time
to time with respect to specific Vehicles, each Vehicle and the proceeds
thereof and all other Collateral hereunder shall constitute security for
all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
- --------------------------------------------------------------------------------
PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5.0 Signatory Authorization - debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may terminate this
Agreement, refuse to advance funds hereunder, and declare the aggregate of
all Advances outstanding hereunder immediately due and payable upon the
occurrence of any of the following events {each hereinafter called an
"Event of Default"), and that Debtor's liabilities under this sentence
shall constitute additional obligations of Debtor secured under this
Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under any
other agreement between Secured Party and Debtor, or shall fail in the
due performance or compliance with any other term or condition hereof
or thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or a rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
<PAGE>
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business, except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take immediate
possession of said Vehicles without demand or further notice and without legal
process; and for the purpose and furtherance thereof, Debtor shall, if Secured
Party so requests, assemble the Vehicles and make them available to Secured
Party at a reasonably convenient place designated by Secured Party and Secured
Party shall have the right, and Debtor hereby authorizes and empowers Secured
Party to enter upon the premises wherever said Vehicles may be, to remove same.
In addition, Secured Party or its assigns shall have all the rights and remedies
applicable under the Uniform Commercial Code or under any other statute or at
common law or in equity or under this Agreement. Such rights and remedies shall
be cumulative. Debtor hereby agrees that it shall pay all expenses and reimburse
Secured Party for any expenditures, including reasonable attorneys' fees and
legal expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times as Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties s hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary, Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party should be construed together as one
agreement; provided, however, in the event of any conflict, the terms and
provisions of this Agreement shall govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
<PAGE>
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below.
- --------------------------------------------------------------------------------
TO DEBTOR TO SECURED PARTY
- --------------------------------------------------------------------------------
Lake Norman Chrysler Plymouth Jeep Eagle, LLC Chrysler Financial Corporation
20435 Chartwell Center Drive P.O. Box 560217
Cornelius, NC 28031 Charlotte, NC 28256-0217
Attention: Phil M. Gandy, Jr. Attention: Branch Manager
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
Lake Norman Chrysler Plymouth Jeep Eagle, LLC
---------------------------------------------
(DEBTOR)
/s/ ILLEGIBLE
- ---------------------------- By /s/ Phil M. Gandy, Jr.
(WITNESS) ------------------------------------------
Phil M. Gandy, Jr.
- ---------------------------- Title Member
(WITNESS) ---------------------------------------
CHRYSLER FINANCIAL CORPORATION
By /s/ ILLEGIBLE
------------------------------------------
Title Zone Manager
------------------------------------------
PROMISSORY NOTE - JEEP EAGLE
- --------------------------------------------------------------------------------
AMOUNT CITY STATE DATE
$2,000,000.00 Cornelius North Carolina May 15, 1996
- --------------------------------------------------------------------------------
ON DEMAND, FOR VALUE RECEIVED, the undersigned promise(s) to pay to the order of
CHRYSLER FINANCIAL CORPORATION, a Michigan Corporation, at its office at 8801
J.M. Keynes Dr., Charlotte, NC 28262 or at such other place as the holder hereof
may direct in writing, the sum of Two Million Dollars ($2,000,000.00), in lawful
money of the United States of America, together with interest thereon from the
date hereof until paid at the rate or rates established from time to time,
pursuant to paragraph 2.0 of that certain Security Agreement and Master Credit
Agreement dated May 15, (yr.) 96, between the undersigned and Chrysler Financial
Corporation, which interest shall be payable monthly in like lawful money,
provided, however, that the rate of interest payable hereunder shall not exceed
the maximum rate of interest permitted by applicable law.
The undersigned agrees to pay reasonable attorneys fees if this note is placed
in the hands of an attorney for collection.
The makers, sureties, guarantors and endorsers hereof severally waive
presentment for payment, protest and notice of protest and non-payment of this
note, and consents to any extension, renewal or postponement of the time of
payment of this note, without notice, at the option of the holder.
- --------------------------------------------------------------------------------
DEALER BY ITS
Lake Norman Chrysler /s/ Phil M. Gandy, Jr. Member
Plymouth Jeep Eagle, LLC Phil M. Gandy, Jr.
- --------------------------------------------------------------------------------
NationsBank
NationsBank, N.A. (South) Dated: September 1, 1996
FLOOR PLAN AGREEMENT
This Floor Plan Agreement is entered into by and between NationsBank, N.A
(South) (Bank) 600 Peachtree Street, 17th Floor, Atlanta, Georgia 30308 and Dyer
& Dyer, Inc. 5260 Peachtree Industrial Blvd Chamblee, Georgia 30341 (Borrower).
1. BACKGROUND. Borrower hereby requests Bank to extend to it a line of credit
(Line) to purchase inventory to be secured by Borrower's Collateral
described in paragraph 7 (Collateral). Bank agrees to extend the Line
subject to the terms of this Agreement.
2. THE LINE OF CREDIT. Bank extends to Borrower a Line in the amount of
$8,000,000.00 or such other amount as may be set by Bank from time to time.
Before maturity or demand, Borrower may borrow, repay and reborrow
hereunder at anytime, up to an aggregate amount outstanding at any one time
equal to the principal amount of Note, provided, however, that Borrower is
not in default of any provision of Note, Floor Plan Agreement, Security
Agreement or any other agreement or obligation between Borrower and Bank.
Any sums Bank may Advance in excess of the face amount of the Note shall
also be part of the principal amount the Borrower is obligated to pay Bank
and shall be subject to all the terms of the Note, Security Agreement, and
this Floor Plan Agreement. The Bank's records of the amounts borrowed from
time to time shall be conclusive proof thereof. Borrower acknowledges and
agrees that notwithstanding any provisions of any Note, Floor Plan
Agreement, Security Agreement or any other documents executed in connection
with a Note, Floor Plan Agreement and Security Agreement, the Bank has no
obligation to make any Advance, and that all Advances are at the sole
discretion of Bank.
3. NOTE. Debt under the Line shall be evidenced by Borrower's Floor Plan
Promissory Note (Note).
4. RATE. Debt under the Line shall bear interest as set forth in the Note.
5. DUE DATES.
(a) Unpaid principal and interest hereon shall be due and payable as set
forth in the Note, and as set forth below. Unless Borrower is in
default under the terms of any Security Agreement securing the Note,
this Floor Plan Agreement or any other agreement relating to this
Floor Plan Agreement, upon sale of inventory, Borrower will pay to
Bank at the earlier of Borrower's receipt of payment for that item of
inventory or three (3) business days after that item of inventory is
delivered to the customer or otherwise disposed of, cash in the amount
equal to the original amount advanced less any curtailment payments
made with respect to the item sold. If Borrower is in default at time
of sale, all proceeds of sale will immediately be remitted to Bank and
applied to debt hereunder.
(b) Curtailment payments based on the original amount Advanced with
respect to specific items of inventory shall be paid from time to time
by Borrower as provided for in Addendum "A" attached hereto and made a
part hereof for all purposes as if copied word for word herein.
-1-
<PAGE>
6. USE OF LINE AND ADVANCES.
(a) The Advances under this Line shall be exclusively for the purpose of
purchasing inventory to be displayed and demonstrated in conjunction
with the sale of the inventory in the ordinary course of Borrower's
business unless otherwise agreed to in writing by Bank. Borrower
agrees not to use the inventory for any other purpose without the
prior written approval of Bank. The term "Advance" as used in this
Agreement shall mean the dollar amount loaned by Bank on a motor
vehicle financed under a floor plan line of credit and includes but is
not limited to any charge against, debit against, draft against, or
draw against the line of credit evidenced by a Note. Advances under
the Line (Advances) shall be made against and in payment of drafts
drawn on Bank, or in accordance with the written request of Borrower
executed by the person signing this Agreement on behalf of Borrower
or a person hereafter designated in writing by Borrower.
(b) Units of inventory which may be presented as Collateral as well as the
amount of outstanding debt permitted at any one time in connection
with the particular type of Collateral being financed shall be in
accordance with Addendum "B".
(c) Bank may reject as Collateral hereunder any item of inventory which is
received by Borrower in damaged condition. Bank has no obligation to
inspect inventory for damage before paying drafts. If Bank has paid a
draft on damaged inventory, Borrower shall direct the manufacturer to
refund all payments directly to Bank. If the manufacturer fails to
make the refund within thirty (30) days, Borrower shall reduce the
debt outstanding under the Line by the amount Advanced against the
damaged item.
(d) Borrower will submit or cause to be submitted to Bank invoices or
bills of sale representing the actual cost to Borrower of the
inventory. Bank may advance an amount equal to Borrower's cost (not to
exceed NADA wholesale value in the case of used motor vehicles) or
such part of the cost thereof as Bank elects at its sole discretion.
The Advance may be disbursed to Borrower or the manufacturer or others
from whom Borrower purchases inventory. Presentation of drafts or
other requests for payment by manufacturers or others from whom
Borrower purchases inventory shall constitute requests by Borrower
that Bank lend Borrower the amount of such drafts or other requests
for payment pursuant to this Agreement.
(e) A fee in the amount of $2.50 shall be paid by Borrower for each unit
of inventory presented as Collateral to obtain Advances. The fee shall
be paid monthly by Borrower.
7. COLLATERAL Borrower hereby grants to Bank a security interest in all of its
inventory of:
_X_ New Motor Vehicles (now existing or hereafter acquired)
_X_ Used Motor Vehicles (now existing or hereafter acquired)
including all parts and accessories added to vehicles, now existing or
hereafter acquired by Borrower, including any such goods as may be leased
or held for leasing, together with any and all accounts and proceeds
arising from the sale, lease or disposition of said property and all
returned, refused and repossessed goods, all monies received from
manufacturers by way of credits, refunds or otherwise with respect to
Collateral, and all proceeds thereof (Collateral) to secure all debt of
Borrower to Bank under any and all present and future Advances of whatever
kind and further including but not limited to the Line and all other debt
and other obligations of Borrower to Bank of any nature now existing or
hereafter arising, including but not limited to debt arising directly
between Borrower and Bank or acquired outright, conditionally or as
Collateral security from another by Bank, absolute or contingent, joint or
several, secured or unsecured, due or not due, contractual or tortious,
-2-
<PAGE>
liquidated or unliquidated, arising under the operation of law or
otherwise, direct or indirect, whether incurred directly or as part of a
partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Borrower will execute
and deliver any documents, instruments or agreements required by Bank to
evidence debt hereunder, grant, perfect and preserve the security interest,
and otherwise carry out the terms of this Agreement. The security interest
herein described is also evidenced by a Security Agreement between Borrower
and Bank, and in the event of any conflict between the terms hereof and the
terms thereof, the terms hereof will apply.
8. IDENTIFICATION OF COLLATERAL. Without limiting the foregoing general grant
of a security interest, as set forth in the Security Agreement, Collateral
subject to the security interest granted herein shall include but not be
limited to (i) inventory listed on invoices submitted to Bank by
manufacturers attached to drafts submitted by manufacturers for payment,
which drafts Bank pays; and/or (ii) inventory in Borrower's possession set
out on a list submitted by Borrower as Collateral for Advances directly to
Borrower.
9. TITLE DOCUMENTS. Title documents consisting of manufacturers' certificate
of origin, manufacturers' statement of origin, certificates of title and/or
any and all other title documents for each item of inventory shall be in
the possession of Borrower unless otherwise directed by Bank. In the event
Bank does require possession of title documents, Borrower shall deliver all
such documents to Bank immediately upon demand.
10. PAYMENT OF DRAFTS. From time to time Bank may make Advances hereunder by
direct payment to manufacturers or others, in which event, invoices
submitted by Manufacturers along with drafts paid by Bank shall serve as
evidence of Advances under the Line. Borrower authorizes Bank to pay all
drafts or invoices upon presentation by the manufacturer or others
supplying inventory to Borrower.
11. ATTORNEY-IN-FACT. Borrower hereby irrevocably appoints Bank its
attorney-in-fact, to execute, deliver and file from time to time, in the
name of Borrower or Bank, any trust receipts, security agreements,
promissory notes, financing statements, continuation statements and
amendments thereto, and any and all other documents and instruments that
Bank may require in connection with evidencing and securing debt under this
Agreement and carrying out the provisions hereof, which appointment shall
be deemed to be a power coupled with an interest.
12. QUALITY OF INVENTORY. Borrower shall be responsible for the quantity,
quality, condition and value of the inventory selected by Borrower and
financed under this Agreement. Bank shall have no liability of any nature
because of the failure of any inventory to conform to Borrower's
specifications, and any dispute between the manufacturer or others and
Borrower with respect to such inventory shall not affect Borrower's
obligation to Bank to pay amounts Advanced hereunder.
13. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that:
Borrower is a:
(i) _X_ corporation duly organized, existing and in good standing
under the laws of the State of Georgia , that it is licensed
to do business and in good standing in each state in which
the property owned by it or the business transacted by it
requires it to be licensed as a foreign corporation.
(ii) ___ limited liability company, duly organized, and in good
standing under the laws of the State of _________.
-3-
<PAGE>
(iii) ___ partnership composed of________________________________
_______________________________________________________
_______________________________________________________
(iv) ___ sole proprietorship owned by __________________________
_______________________________________________________
(b) Borrower is not in default with respect to any agreement between it
and Bank on this date.
(c) All Collateral is owned by Borrower free and clear of any security
interests or encumbrances except those granted pursuant hereto.
(d) Borrower is not in default under any agreement with any other party,
and the execution and performance of this Agreement will not be a
default under any agreement with any other party by which Borrower
or any of Borrower's property is bound.
(e) Borrower does not do financing of any motor vehicle inventory with any
other source or purchase inventory from any seller on credit except as
set out below:
None.
Borrower shall notify Bank immediately in the event it buys inventory
of motor vehicles on credit or enters into any such inventory
financing arrangement with any other source, giving the name and
address of the Bank or seller and details of the purchase or loan.
(f) Borrower and Guarantor shall promptly notify Bank in writing of (i)
any condition, event or act which comes to Borrower's or Guarantor's
attention that would or might materially adversely affect Borrower's
or Guarantor's financial condition or operations, the Collateral, or
Bank's rights under the Guaranty or any Loan Documents, (ii) any
litigation filed by or against Borrower or Guarantor, (iii) any event
that has occurred that would constitute an event of default under any
Loan Documents, including but not limited to any Guaranty.
(g) All financial and other information heretofore submitted by Borrower
is true, complete, and correct and reflects all direct, indirect, and
contingent liabilities.
(h) There has been no material adverse change in the Borrower's financial
condition and operations since the date of Borrowers most recent
financial statements heretofore submitted.
(i) Borrower has and will maintain, at all times, all franchise,
distributor agreements, licenses, permits, and other rights that are
necessary to the conduct of our business.
14. COVENANTS. While the Line is in effect, and thereafter while Borrower is
indebted to Bank, Borrower will:
(a) _X_ Provide Bank within twenty (20) days of each month's end, a
company prepared financial statement (including the
thirteenth (13) month statement including all adjustments to
net worth) in accordance with requirements of the
franchise(s) for which Borrower is a dealer.
-4-
<PAGE>
___ Provide within sixty (60) days after Borrower's fiscal
year-end a financial statement compiled by a Certified
Public Accountant acceptable to the Bank.
_X_ Provide within one-hundred-twenty (120) days after
Borrower's fiscal year-end a financial statement audited by
a Certified Public Accountant acceptable to the Bank.
___ Provide within one-hundred-fifty (150) days of Borrower's
fiscal year-end audited financial statements prepared by a
Certified Public Accountant acceptable to the Bank.
In submitting such statements to Bank an authorized officer of Borrower
will certify such statements to be true and accurate, continuing compliance
with all terms and conditions contained herein and that no material
violation or default exists with any material agreement.
_X_ As to Guarantors, provide the Bank a copy of each
Guarantor's personal financial statement within thirty (30)
days of calendar year-end in a manner and form acceptable to
the Bank. Additionally, each Guarantor shall provide the
Bank a copy of each Guarantor's federal income tax return
within thirty (30) days of filing each return.
(b) Not merge into or consolidate with any other person, firm, corporation
or limited liability company nor sell any substantial part of its
assets to any person, firm, corporation or limited liability company
except in the ordinary course of business;
(c) Not sell or enter into any agreement to sell or deal in new motor
vehicles manufactured by any manufacturer for whom it is not now a
Retailer or Wholesaler, unless approved by Bank in writing;
(d) Keep all Collateral and inventory insured, by insurers acceptable to
Bank, at all times in an amount at least equal to the amount of debt
to Bank under the Line with deductible amount satisfactory to Bank,
and the insurance policy to contain loss payable clauses to Bank as
its interest may appear. Borrower will deliver original policies or,
if permitted by Bank, certificates of insurance to Bank;
(e) Permit Bank to enter upon the property of Borrower at any time to
examine all Collateral and to examine Borrower's books in connection
therewith.
(f) At time of execution of this Floor Plan Agreement deliver to Bank such
Landlord Waiver and/or Mortgagee Waiver and Estoppel Agreements duly
executed by the appropriate parties in such form that is satisfactory
to Bank and Borrower will thereafter furnish to Bank current executed
copies of the above instruments upon written request of Bank;
(g) Not allow any material change in ownership or management nor enter
into any management agreement pursuant to which any third party
assumes the management of Borrower in anticipation of a sale of
Borrower's business or any material part of its assets without Bank's
prior written approval;
(h) Operate business in compliance with all environmental protection laws
and regulations including applicable local, state, or federal law,
regulations, or rule of common law;
(i) Not allow any liens or encumbrances on any of Borrower's assets or
property without the written consent of Bank;
(j) See Addendum "C" for additional covenants which are a part of this
Agreement for all purposes as if they were copied word for word
herein.
-5-
<PAGE>
15. EVENTS OF DEFAULT.
The following are events of default hereunder: (a) the failure to pay or
perform any obligation, liability, indebtedness or covenant of any Borrower
or Guarantor to Bank, or to any affiliate of Bank, whether under this Floor
Plan Agreement, Security Agreement, Note or any other agreement or
instrument now or hereafter existing, as and when due (whether upon demand,
at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Borrower or Guarantor
whether to Bank or some other party, the collateral for which constitutes
an encumbrance on the collateral for this Floor Plan Agreement; (c) death
of any Borrower or Guarantor (if an individual), or a proceeding being
filed or commenced against any Borrower or Guarantor for dissolution or
liquidation, or any Borrower or Guarantor voluntarily or involuntarily
terminating or dissolving or being terminated or dissolved; (d) insolvency
of, business failure of, the appointment of a custodian, trustee,
liquidator or receiver for or for any of the property of, or an assignment
for the benefit of creditors by, or the filing of a petition under
bankruptcy, insolvency or debtor's relief law or for any adjustment of
indebtedness, composition or extension by or against any Borrower or
Guarantor; (e) any lien or additional security interest being placed upon
any of the Collateral which is security for this Floor Plan Agreement; (f)
acquisition at any time or from time to time of title to the whole of or
any part of the Collateral which is security for this Floor Plan Agreement
by any person, partnership, corporation or other entity; (g) Bank
determining that any representation or warranty made by any Borrower or
Guarantor to Bank is, or was, untrue or materially misleading; (h) failure
of any Borrower or Guarantor to timely deliver such financial statements,
including tax returns, and other statements of condition or other
information as Bank shall request from time to time; (i) entry of a
judgment against any Borrower or Guarantor which Bank deems to be of a
material nature, in Bank's sole discretion; (j) the seizure or forfeiture
of, or the issuance of any writ of possession, garnishment or attachment,
or any turnover order for any property of any Borrower or Guarantor; (k)
Bank reasonably deeming itself insecure for any reason; (l) the
determination by Bank that a material adverse change has occurred in the
financial condition of any Borrower or Guarantor; (m) the failure to comply
with any law regulating the operation of Borrower's business; (n) Guarantor
undertakes to terminate or revoke any guaranty of payment of this Note or
defaults in the performance of or disputes any of his obligations as
Guarantor; (o) the inability of the Borrower or Guarantor to pay debts as
they mature owing to Bank or any other party.
16. REMEDIES. Upon the occurrence of any default hereunder, Bank shall have all
of the remedies of a creditor and, to the extent applicable, of a secured
party, under all applicable law. Without limiting the generality of the
foregoing, Bank may, at its option and without notice or demand: (a)
declare any liability accelerated and due and payable at once; and (b) take
possession of any Collateral wherever located, and sell, resell, assign,
transfer and deliver all or any part of said Collateral of Borrower or
Guarantor at any public or private sale or otherwise dispose of any or all
of the Collateral in its then condition, for cash or on credit or for
future delivery, and in connection therewith Bank may impose reasonable
conditions upon any such sale. Bank, unless prohibited by law the
provisions of which cannot be waived, may purchase all or any part of said
Collateral to be sold, free from and discharge of all trusts, claims,
rights or redemption and equities of the Borrower or Guarantor whatsoever;
Borrower and Guarantor acknowledge and agree that the sale of any
Collateral through any nationally recognized broker - dealer, investment
banker or any other method common in the securities industry shall be
deemed a commercially reasonable sale under the Uniform Commercial Code or
any other equivalent statute or federal law, and expressly waives notice
thereof except as provided herein; and (c) set-off against any or all
liabilities of Borrower or Guarantor all money owed by Bank in any capacity
to Borrower or Guarantor whether or not due, and also set-off against all
other Liabilities of Borrower or Guarantor to Bank all money owed by Bank
in any capacity to any Borrower or Guarantor, and Bank shall be deemed to
have exercised such right of set-off and to have made a charge against any
such money immediately upon the occurrence of such default although made or
entered on the books subsequent thereto.
-6-
<PAGE>
17. ATTORNEY FEES, COST AND EXPENSES. Borrower and/or Guarantor shall pay all
costs of collection and attorney's fees equal to the greater of (a) fifteen
percent (15%) of the first $500.00 of any Liability due and ten percent
(10%) on the excess of $500.00 Liability due and unpaid if Bank proceeds to
collect such Liability through the services of an attorney at law, whether
through the initiation of legal proceedings or otherwise, plus reasonable
attorney's fees incurred in appellate proceedings, or (b) reasonable
attorney's fees, including reasonable attorney's fees in connection with
any suit, mediation or arbitration proceeding, out of court payment
agreement, trial, appeal, bankruptcy proceedings or otherwise, incurred or
paid by Bank in enforcing the payment of any Liability or enforcing or
preserving any right or interest of Bank hereunder, including the
collection, preservation, sale or delivery of any Collateral from time to
time pledged to Bank, and after deducting such fees, costs and expenses
from the proceeds of sale or collection, Bank may apply any residue to pay
any of the Liabilities and Guarantor shall continue to be liable for any
deficiency with interest at the rate specified in any instrument evidencing
the Liability or, at the Bank's option, equal to the highest lawful rate,
which shall remain a liability.
18. PRESERVATION OF PROPERTY. Bank shall not be bound to take any steps
necessary to preserve any rights in any of the property of Borrower and/or
Guarantor pledged to Bank to secure Borrower's and/or Guarantor's
obligations against prior parties who may be liable in connection
therewith, and Borrower and/or Guarantor hereby agree to take any such
steps. Bank, nevertheless, at any time, may (a) take any action it deems
appropriate for the care or preservation of such property or of any rights
of Borrower and/or Guarantor or Bank therein, (b) demand, sue for, collect
or receive any money or property at any time due, payable or receivable on
account of or in exchange for any property of Borrower and/or Guarantor,
(c) compromise and settle with any person liable on such property, or (d)
extend the time of payment or otherwise change the terms thereof as to any
party liable thereon, all without notice to, without incurring
responsibility to, and without affecting any of the obligations or
liabilities of Borrower and/or Guarantor.
19. TERMINATION. The Line may be terminated at any time by either party with or
without cause upon 30 days' notice in writing to the other. Upon the
occurrence of a default hereunder, Bank shall have the right to terminate
the Line and to mature all debt outstanding hereunder, including principal
and interest, without notice to any person or lapse of time. Termination of
the Line hereunder shall not affect the obligations of Borrower with
respect to any debt incurred prior to termination. All such obligations
shall continue in full force and effect until all debt under the Line is
paid in full.
20. OVERLINE DEBT. In the event debt outstanding under the Line should for any
reason exceed the amount of the Line allowed hereunder, all such debt shall
be payable on demand, but if no demand is made, no later than such time as
may be specified by Bank at the time of the approval of the temporary
overline. The overline debt shall bear interest at the rate specified for
debt under the Line, and shall be governed by all the terms and conditions
of this Agreement and the other Loan Documents and shall be secured by all
Collateral for the Line, and all items of inventory financed by the
overline debt shall secure all debt under the Line including the overline
and be governed by all terms of the Security Agreement, Floor Plan
Agreement and Note. Bank shall have no obligation to permit any overline at
any time but in its sole discretion may do so.
21. REVIEW OF LINE. Bank may, at its option, from time to time review the
credit for performance, pricing, amount of Line, and Borrower's financial
condition.
22. CHANGE IN TERMS. Bank may at its discretion amend or modify any term or
provision of this Floor Plan Agreement, Security Agreement or any other
agreements pertaining to this Agreement, with any change to be effective 15
days after mailing of notice to Borrower.
23. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon each party's respective successors, heirs, executors,
administrators, personal representatives and assigns if
-7-
<PAGE>
applicable. Neither this Floor Plan Agreement nor any interest in it may be
assigned by Borrower without Bank's prior written approval.
24. WAIVER (a) Bank may consent to or waive any action or any failure to act by
Borrower with respect to any obligation of Borrower hereunder. Any consent
or waiver on the part of Bank shall be binding upon Bank only when in
writing and signed by an officer of Bank, and no failure to take action
with respect to any default shall constitute a waiver thereof. No waiver of
any default shall be a waiver of any other or future default of that or any
other nature; (b) Bank shall not be required to proceed first against
Borrower, or any other person, firm or corporation, whether primarily or
secondarily liable, or against any collateral held by it, before resorting
to Guarantor for payment, and Guarantor shall not be entitled to assert as
a defense the enforceability of the Guaranty any defense of Borrower
with respect to any Liabilities or Obligations.
25. GOVERNING LAW. This Floor Plan Agreement shall be deemed to have been made
in the State of Georgia at the address indicated above, and shall be
governed by, and construed in accordance with, the laws of the State of
Georgia, and is performable in the State of Georgia.
26. MEDIATION, BINDING ARBITRATION. The parties will attempt in good faith to
resolve any controversy or claim arising out of or relating to this
Agreement by participating in mediation and/or binding arbitration. Each
party agrees that each will bear their respective expenses related to
either mediation or arbitration. The parties further agree if the matter
has not been resolved pursuant to mediation within thirty (30) days of
notice to mediate given by either party, the controversy shall be settled
by arbitration and shall be governed by the United States Arbitration Act,
9 U.S.C. ss.1-16, and judgment upon the award rendered by the Arbitrator
may be entered by any court having jurisdiction thereof.
27. ADDITIONAL TERMS. (a) As used herein, the singular number shall include the
plural (e.g. "Note" means Note or Notes); or (b) In the event that there
are any written terms that may differ between this Floor Plan Agreement and
any other agreements, documents, or negotiations in existence prior to the
execution of this Floor Plan Agreement, Bank and Borrower agree that the
terms of this Floor Plan Agreement shall control and be the final
agreement.
28. MERGER. The terms of any commitment letter issued by Bank to Borrower
for this Line are incorporated herein by reference, except to the extent
that such terms are inconsistent with the terms of this Floor Plan
Agreement, Security Agreement or Note. Any such inconsistent terms are of
no effect. This Floor Plan Agreement supersedes any Floor Plan Agreements
heretofore executed by and between Bank and Borrower, and all outstanding
Floor Plan Agreement indebtedness is hereafter subject to all of the
terms and provisions of this Floor Plan Agreement, and the outstanding
principal balance of all such Floor Plan indebtedness are added to the
principal balance of this Floor Plan Agreement.
29. NOTICES. Any notice or other communication required or permitted hereunder
or under any Note or Security Agreement shall be in writing and shall be
delivered personally, sent by facsimile transmission or by first-class,
certified, registered or express mail, or by courier, with postage and
other charges prepaid. Any such notice shall be deemed given when so
delivered personally, by courier or by facsimile
-8-
<PAGE>
transmission, or, if mailed, five (5) days after the date of deposit in the
United States mail, as follows:
If to Borrower, to:
Dyer & Dyer, Inc.
5260 Peachtree Industrial Blvd
Chamblee, Georgia 30341
Attention: Richard S. Dyer, Jr.
Facsimile #__________________________________
If Bank, to:
NationsBank, N.A. (South)
600 Peachtree Street, 17th Floor
Atlanta, Georgia 30308-2213
Attention: James A. Dennis
Either Bank or Borrower may, by notice given in accordance with this
provision, designate another address or person for receipt of notices
hereunder.
30. FLOOR PLAN COLLATERAL AND/OR INVENTORY INSPECTION. Floor Plan inventory
inspections will be conducted by Secured Party from time to time at the
sole discretion of Secured Party. Debtor agrees to pay in full any item or
unit of Collateral that is not located at Debtor's premises or accounted
for by Debtor to Secured Party. Debtor shall make payment to Secured Party
(Bank) immediately upon notice of demand being given to Debtor pursuant to
paragraph 29 (NOTICES) of the Floor Plan Agreement.
31. FINAL AGREEMENT. THIS FLOOR PLAN AGREEMENT, FLOOR PLAN PROMISSORY NOTE,
SECURITY AGREEMENT AND ANY OTHER AGREEMENTS EXECUTED IN CONJUNCTION WITH
THIS FLOOR PLAN REVOLVING LINE OF CREDIT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned has caused this Floor Plan Agreement to
be executed under seal on the 9th day of November, 1996.
Dyer & Dyer, Inc.
NationsBank, N.A. (South) Borrower
Bank
By By /s/ Richard S. Dyer Jr.
-------------------------- -------------------------
James A. Dennis, Vice President Richard S. Dyer Jr., President
(Name and Title) (Name and Title)
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<PAGE>
ADDENDUM "A"
This Addendum "A" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated September
1, 1996 between Bank and Borrower.
Curtailments. Curtailment payments based upon the original amount advanced with
respect to specific items of Collateral shall be paid on the following types of
units of Collateral based upon either a dollar or percentage amount as billed to
Borrower and payment is due when billed. The Curtailment payment is to be
applied against the original amount advanced for a unit of Collateral. The
Curtailment payment based upon either a dollar or percentage amount is
calculated on the original amount advanced for the unit and not the outstanding
unpaid balance from time to time.
Unit Type Curtailment Amount Curtailment Date Final Payoff Date
New 10% of original Due 90 days 15 months from
amount financed. prior to maturity. date financed.
Demonstrators 2% of original Due monthly 15 months from
amount financed. beginning in the date financed.
month the vehicle
reached 5,000 miles.
Dated: 11/9/96
Dyer & Dyer, Inc.
------------------------------------
Borrower
By: /s/ Richard S. Dyer, Jr.
-------------------------------
Richard S. Dyer, Jr., President
(Name and Title)
Approved: NationsBank, N.A. (South)
By:
-------------------------------
James A. Dennis, Vice President
(Name and Title)
<PAGE>
ADDENDUM "B"
This Addendum "B" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated September
1, 1996 between Bank and Borrower.
Floor Plan Sublimits. The following sublimits represent the amount of
outstandings permitted at any one time in connection with the particular type of
Collateral being financed; notwithstanding, the Bank, in it's sole discretion,
may advance from time to time amounts in excess of the sublimit amounts below:
Unit Type Sublimit Amount
- --------- ---------------
New $8,000,000.00
Dated: 11/9/96
Dyer & Dyer, Inc.
------------------------------------
Borrower
By: /s/ Richard S. Dyer, Jr.
-------------------------------
Richard S. Dyer, Jr., President
(Name and Title)
Approved: NationsBank, N.A. (South)
By:
-------------------------------
James A. Dennis, Vice President
(Name and Title)
<PAGE>
ADDENDUM "C"
This Addendum "C" to the Floor Plan Agreement shall be and is incorporated by
reference for all purposes as part of the Floor Plan Agreement dated September
1, 1996 between Bank and Borrower.
As used herein, the following defined terms shall have the following meanings:
Working Capital - Current assets minus current liabilities.
Current Assets - Current assets (inclusive of LIFO reserve for new and used
vehicles) less amounts due from officers, stockholders, insiders,
affiliates and employees included as current assets, all computed in
accordance with generally accepted accounting principles.
Current Liabilities - Current liabilities less amounts included as current
liabilities due to officers, stockholders, insiders, affiliates and
employees, which have been expressly subordinated in payment to the Bank
all computed in accordance with generally accepted accounting principles.
Tangible Net Worth - Stated net worth less intangible assets, less
leasehold improvements, less amounts due from officers/affiliates, plus 70%
times LIFO Reserve (new vehicles only), plus Accounts Payable or Notes
Payable to officers/affiliates formally subordination to the Bank.
Inventory Trust Position - Cash, plus contracts in transit, plus accounts
receivable - vehicles (excluding any receivable from finance activities),
new and used inventories (inclusive of LIFO reserves for new and used
vehicles) less new and used Floor Plan liabilities.
Total Liabilities - Total liabilities less amounts payable to officers,
stockholders, insiders, affiliates and employees that are expressly
subordinated in payment to the Bank, all computed in accordance with
generally accepted accounting principles.
Additional Covenants. While the Line is effect, and thereafter while Borrower is
indebted to Bank, Borrower will: (Mark block for applicable covenant)
|_| (1) Maintain Working Capital of not less than $ N/A at all times.
|X| (2) Maintain a ratio of current assets to current liabilities of not less
than 2 to 1.0 at all times.
|_| (3) Maintain Tangible Net Worth of not less than $ N/A at all times.
|X| (4) Not permit the ratio of total liabilities to Tangible Net Worth to
exceed 1.3 to 1.0 at all times.
|_| (5) Maintain a minimum Inventory Trust Position of not less than $ N/A at
all times.
|_| (6) Provide to Bank within N/A days of each month end a monthly
Certificate of Compliance in the form attached hereto as "Exhibit
A-1", signed by a duly authorized representative of Borrower or
Borrower.
|X| (7) Provide to Bank within 120 days of each fiscal year end financial
statements audited by a Certified Public Accountant acceptable to
Bank, to include a balance sheet, operating statement, cash flow
statement and net worth reconciliation. Such audit shall include an
unqualified opinion from such auditor.
|X| (8) Other: (If additional space is needed, attach additional pages to this
Addendum)
<PAGE>
10.25a
NATIONSBANK. N.A. (SOUTH)
SECURITY AGREEMENT
(Floor Plan)
Date September 1, 1996
Between: and
================================================================================
BANK: (SECURED PARTY) DEBTOR: (BORROWER)
NATIONSBANK, N.A. (SOUTH) Dyer & Dyer, Inc.
600 Peachtree Street 17th Floor 5260 Peachtree Industrial Blvd.
Atlanta, Georgia 30308 Chamblee, Georgia 30341
Fulton County Dekalb County
(address including county) Name and address, including county)
================================================================================
Debtor is: [ ] Individual [X] Corporation [ ] Partnership [ ] Other _________
- --------------------------------------------------------------------------------
Address is Debtor's: [ ] Residence [X] Place of Business [ ] Chief Executive
Office if more than one place of business
================================================================================
[This Agreement contains some provisions preceded by boxes. Mark only those
boxes beside provisions which will be applicable to this transaction. A box
which is not marked means that the provision beside it is not applicable to this
transaction.]
SECTION I. CREATION OF SECURITY INTEREST.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged and subject to the applicable terms of a Floor Plan
Agreement, Floor Plan Promissory Note and this Floor Plan Security Agreement,
Debtor hereby grants to Secured Party (Bank) a security interest in the
Collateral described in Section II of this Security Agreement to secure
performance and payment of all obligations and indebtedness of Debtor to Bank of
whatever kind and whenever or however created or incurred. Said obligations and
indebtedness includes but is not limited to any and all liabilities, fixed or
contingent, whether arising by notes, discounts, overdraws, or in any other
manner whatsoever.
SECTION II. COLLATERALS
The Collateral of this Security Agreement is inventory of the following
description:
[X] New Motor Vehicles
[X] Used Motor Vehicles
including all parts and accessories, now existing or hereafter acquired by
Debtor (Borrower), including any such goods as may be leased or held for
leasing, together with any and all accounts and Proceeds arising from the sale,
lease or disposition of said property and all returned, refused and repossessed
goods, all monies received from manufacturers by way of credits, refunds or
otherwise with respect to Collateral, and all Proceeds thereof (Collateral) to
secure all debt of Debtor (Borrower) to Secured Party (Bank) under any and all
future Advances of whatever kind and further including but not limited to the
Line and all other debt of Debtor (Borrower) to Secured Party (Bank) of any
nature now existing or hereafter arising, including but not limited to
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<PAGE>
debt arising directly between Debtor (Borrower) and Bank or acquired outright,
conditionally or as Collateral security from another by Secured Party, absolute
or contingent, joint or several, secured or unsecured, due or not due,
contractual or tortious, liquidated or unliquidated, arising under the operation
of law or otherwise, direct or indirect, whether incurred directly or as part of
a partnership, association or other group, or whether incurred as principal,
surety, indorser, accommodation party or otherwise. Debtor (Borrower) will
execute and deliver any documents, instruments or agreements required by Secured
Party (Bank) to evidence debt hereunder, grant, perfect and preserve the
security interest, and otherwise carry out the terms of the Floor Plan Agreement
and Floor Plan Security Agreement. See attached schedule for additional
Collateral, if applicable.
The inclusion of Proceeds in this Security Agreement does not authorize
Debtor to sell, dispose of or otherwise use the Collateral in any manner not
specifically authorized by the Floor Plan Agreement or this Security Agreement.
The term "Proceeds" means proceeds as said term is defined in the Uniform
Commercial Code and includes without limitation cash, accounts, general
intangibles, documents, inventory (including trade-ins), instruments, chattel
paper, equipment, and all other property of every kind received upon the sale,
exchange, collection, lease or other disposition of inventory.
SECTION III. PAYMENT OBLIGATIONS OF DEBTOR.
1. Debtor shall pay to Secured Party on demand all expenses and
expenditures, including attorney fees, plus interest thereon at the highest
legal rate per annum, pursuant to the provisions of the Floor Plan Agreement,
Floor Plan Note and this Security Agreement.
2. Debtor shall pay to Secured Party the earned outstanding indebtedness of
Debtor to Secured Party upon Debtor's default pursuant to the terms and
conditions contained in a Floor Plan Note, Floor Plan Agreement or this Security
Agreement.
SECTION IV. DEBTOR'S REPRESENTATIONS AND WARRANTIES.
1. The representations and warranties contained in a Floor Plan Agreement
between Debtor and Secured Party dated September 1, 1996, are hereby
incorporated by reference for all purposes as if copied herein word for word.
2. Debtor will execute alone or with Secured Party any Financing Statement
or other document or procure any document, and pay all connected costs,
necessary to protect the security interest under this Security Agreement against
the rights or interest of third persons.
3. Debtor will at all times keep Collateral and its Proceeds separate and
distinct from other property of Debtor and shall keep accurate and complete
records of the Collateral and its Proceeds.
4. Debtor shall pay prior to delinquency all taxes, charges, liens and
assessments against the Collateral, and upon Debtor's failure to do so, Secured
Party at its option may pay any of them and shall be the sole judge of the
legality or validity thereof and the amount necessary to discharge the same.
Such payment shall become part of the indebtedness secured by this Agreement and
shall be paid to Secured Party by Debtor immediately and without demand, with
interest thereon at the highest legal rate per annum.
5. The Collateral shall remain in Debtor's possession or control at all
times at Debtor's risk of loss; and be kept at the address shown at the
beginning of this Agreement, or at _____________________________________________
________________________________________________________________________________
(No. and Street) (City) (County) (State)
where Secured Party may inspect it at any time. Except for its temporary removal
in connection with its ordinary use, Debtor shall not remove the Collateral from
the above address without obtaining prior written consent from Secured Party.
6. The Collateral will not be misused or abused, wasted or allowed to
deteriorate, except for the ordinary wear and tear of its intended primary use,
and will not be used in violation of any statute or ordinance.
7. The Collateral will not be sold, transferred or disposed of by Debtor or
be subjected to any unpaid charge, including rent and taxes, or to any
subsequent interest of a third person created or suffered by Debtor voluntarily
or involuntarily unless Secured Party consents in advance in writing to such
sale, transfer, disposition, charge, or subsequent interest, or unless otherwise
provided in this Agreement.
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4726~47
<PAGE>
8. Debtor will promptly notify Secured Party in writing of any addition to,
change in or discontinuance of: (i) its address as shown at the beginning of
this Security Agreement; (ii) the location of its place of business if it has
one location or its chief executive office if it has more than one place of
business as set forth in this Security Agreement; and (iii) the location of the
office where it keeps its records as set forth in this Security Agreement.
9. If any Collateral is leased or held for lease to customers of Debtor and
is of a type normally used in more than one State (such as automotive equipment,
rolling stock, airplanes, road building equipment, commercial harvesting
equipment, construction machinery and the like), Debtor's place of business if
it has one location or its chief executive office if it has more than one place
of business is the address shown at the beginning of this Agreement.
10. The office where Debtor keeps its records is
5260 Peachtree Industrial Blvd.
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(No. and Street)
Chamblee Dekalb Georgia
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(City) (County) (State)
11. Debtor shall account fully and faithfully to Secured Party for Proceeds
from disposition of the Collateral in any manner and shall pay or turn over
pursuant to paragraph 5(a) of the Floor Plan Agreement in cash, negotiable
instruments, drafts, assigned accounts or chattel paper, all Proceeds from each
sale lo be applied to Debtor's indebtedness to Secured Party, subject, if other
than cash, to final payment or collection.
12. If any Collateral or Proceeds includes obligations of third parties to
Debtor, the transactions giving rise to the Collateral shall conform in all
respects to the applicable State or Federal law including but not limited to
consumer credit law. Debtor shall hold harmless and indemnify Bank against any
cost, loss or expense arising from Debtor's breach of this covenant.
13. Without the written consent of Bank, Debtor shall not change its name,
change its corporate status, use any trade name or engage in any business in
which it was not engaged on the date of this Agreement.
14. Debtor appoints Bank as Debtor's attorney-in-fact with full power in
Debtor's name and behalf to do every act which Debtor is obligated to do or may
be required to do hereunder, however, nothing in this paragraph shall be
construed to obligate Bank to take any action hereunder nor shall Bank be liable
to Debtor for failure to take any action hereunder. This appointment shall be
deemed a power coupled with an interest and shall not be terminable as long as
the obligations are outstanding and shall not terminate on the disability or
incompetence of the Debtor.
15. Debtor will comply with all State and Federal laws and regulations
applicable to its business, whether now in effect or hereafter enacted including
but not limited to the wage and hours laws and relating to the use or disposal
of hazardous materials and wastes.
SECTION V. COVENANTS.
The Covenants contained in a Floor Plan Agreement between Debtor and
Secured Party dated September 1, 1996, are hereby incorporated by reference for
all purposes as if copied word for word herein.
SECTION VI. Events of Default.
Debtor shall be in default under this Security Agreement upon the happening
of any of the following events or conditions (hereinafter called an "Event of
Default"):
1. The Events of Default contained in a Floor Plan Agreement between Debtor
and Secured Party dated September 1, 1996, are hereby incorporated by reference
for all purposes as if copied word for word herein.
2. If any Physical Damage, property and/or other insurance, insuring said
Collateral and the respective interests of the parties therein, is cancelled for
any reason and the Debtor fails or refuses to furnish written proof to Secured
Party of his having obtained substitute insurance coverage replacing the
cancelled policies.
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<PAGE>
SECTION VI. SECURED PARTY'S RIGHTS AND REMEDIES.
A. Rights Exclusive of Default.
(1) This Security Agreement, Secured Party's rights hereunder or the
indebtedness hereby secured may be assigned from time to time, and in any
such case the Assignee shall be entitled to all of the rights, privileges
and remedies granted in this Security Agreement to Secured Party, and
Debtor will assert no claims or defenses he may have against Secured Party
against the Assignee except those granted in this Security Agreement.
(2) At its option, Secured Party may discharge taxes, liens or
security interests or other encumbrances at any time levied or placed on
the Collateral, may pay for insurance on the Collateral and may pay for the
maintenance and preservation of the Collateral. Debtor agrees to reimburse
Secured Party on demand for any payment made, or any expense incurred by
Secured Party pursuant to the foregoing authorization, plus interest
thereon at the highest legal rate per annum.
(3) Secured Party may execute, sign, endorse, transfer or deliver in
the name of Debtor notes, checks, drafts or other instruments for the
payment of money and receipts, certificates of origin, applications for
certificates of title or any other documents, necessary to evidence,
perfect or realize upon the security interest and obligations created by
this Security Agreement.
(4) Secured Party may notify the account Debtors or Obligors of any
accounts, chattel paper, negotiable instruments or other evidences of
indebtedness remitted by Debtor to Secured Party as Proceeds to pay Secured
Party directly.
(5) Secured Party may at any time demand, sue for, collect or make any
compromise or settlement with reference to the Collateral as Secured Party,
in its sole discretion, chooses.
(6) Secured Party may enter upon Debtor's premises at any reasonable
time to inspect the Collateral and Debtor's books and records pertaining to
the Collateral; Secured Party may require the Debtor to assemble the
Collateral for such inspection in a reasonably convenient place; and in all
other ways the Debtor shall assist the Secured Party in making such
inspection.
B. Rights in Event of Default.
(1) Upon the occurrence of an Event of Default, or if Secured Party
deems payment of Debtor's obligations to Secured Party to be insecure, and
at any time thereafter, Secured Party may declare all obligations secured
hereby immediately due and payable and shall have the rights and remedies
of a Secured Party under the Uniform Commercial Code of Georgia, including
without limitation thereto, the right to sell, lease or otherwise dispose
of any or all of the Collateral and the right to take possession of the
Collateral, and for that purpose Secured Party may enter upon any premises
on which the Collateral or any part thereof may be situated and remove the
same therefrom. Secured Party may require Debtor to assemble the Collateral
and make it available to Secured Party at a place to be designated by
Secured Party which is reasonably convenient to both parties. Unless
Collateral threatens to decline speedily in value or is a type customarily
sold in a recognized market, Secured Party will give Debtor reasonable
notice of the time and place of any public sale thereof or of the time
after which any private or any other intended disposition thereof is to be
made. The requirements of reasonable notice shall be met as such notice is
mailed, postage prepaid, to the address of Debtor shown at the beginning of
this Security Agreement at least five (5) days before the time of sale or
disposition. After sale, all monies will be applied to Security Agreement,
and Debtor will be liable for any remaining deficiencies. Expenses of
retaking, holding, preparing for sale, selling or the like shall include
Secured Party's reasonable attorneys' fees and legal expenses, plus
interest thereon at the highest legal rate per annum. Debtor shall remain
liable for any deficiency.
(2) Secured Party may remedy any default and may waive any default
without waiving the default remedied or without waiving any other prior or
subsequent default. '
(3) The remedies of Secured Party hereunder are cumulative, and the
exercise of any one or more of the remedies provided for herein shall not
be construed as a waiver of any of the other remedies of Secured Party.
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<PAGE>
SECTION VII. ADDITIONAL AGREEMENTS.
1. The terms and conditions contained in a Floor Plan Agreement between
Debtor and Secured Party dated September 1, 1996, are hereby incorporated by
reference for all purposes as if copied word for word herein.
2. The term "Debtor" (Borrower) as used in this instrument shall be
construed as singular or plural to correspond with the number of persons
executing this instrument as Debtor. The pronouns used in this instrument are in
the masculine gender but shall be construed as feminine or neuter as occasion
may require. "Secured Party" (Bank) and "Debtor" as used in this instrument
include the heirs, executors or administrators, successors, representatives,
receivers, trustees and assigns of those parties.
3. Floor Plan inventory inspections will be conducted by Secured Party from
time to time at the sole discretion of Secured Party. Debtor agrees to pay in
full any item or unit of Collateral that is not located at Debtor's premises or
accounted for by Debtor to Secured Party. Debtor shall make payment to Secured
Party (Bank) immediately upon notice of demand being given to Debtor pursuant to
paragraph 29 (NOTICES) of the Floor Plan Agreement.
4. (Write in any additional agreements or conditions): See attached
Schedule, if appropriate.
5. MEDIATION, BINDING ARBITRATION. THE PARTIES WILL ATTEMPT IN GOOD FAITH
TO RESOLVE ANY CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
BY PARTICIPATING IN MEDIATION AND/OR BINDING ARBITRATION. EACH PARTY AGREES THAT
EACH WILL BEAR THEIR RESPECTIVE EXPENSES RELATED TO EITHER MEDIATION OR
ARBITRATION. THE PARTIES FURTHER AGREE IF THE MATTER HAS NOT BEEN RESOLVED
PURSUANT TO MEDIATION WITHIN THIRTY (30) DAYS OF NOTICE TO MEDIATE GIVEN BY
EITHER PARTY, THE CONTROVERSY SHALL BE SETTLED BY ARBITRATION AND SHALL BE
GOVERNED BY THE UNITED STATES ARBITRATION ACT, 9 U.S.C. ss.1-16, AND JUDGMENT
UPON THE AWARD RENDERED BY THE ARBITRATOR MAY BE ENTERED BY ANY COURT HAVING
JURISDICTION THEREOF.
6. NOTICE OF FINAL AGREEMENT: THIS WRITTEN SECURITY AGREEMENT REPRESENTS
THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Executed this 9th day of November, 1996
NationsBank, N.A. (South) Dyer &: Dyer. Inc.
Secured Party Debtor
By _______________________________ By ________________________________
James A. Dennis, Vice President Richard S. Dyer. Jr. President
(Print or Type Name and Title) (Print or Type Name and Title)
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84-291-4331 (3/92) [LOGO] CHRYSLER
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT CREDIT
(Non-Chrysler Corporation Dealer)
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 21 day of April, 1995; is by and between CLEVELAND
VILLAGE IMPORTS, INC. dba CLEVELAND VILLAGE HONDA, INC., having its principal
place of business at 2490 South Lee Hwy. - Cleveland, Tn. 37311 (hereinafter
called "Debtor"), and Chrysler Credit Corporation, a Delaware corporation,
having offices located at 27777 Franklin Rd., Southfield, Michigan 48034-8286
(hereinafter called "Secured Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of AMERICAN HONDA
MOTOR CO., INC. and desires Secured Party to finance the acquisition by Debtor
in the ordinary course of its business of new and unused vehicles sold and
distributed by AMERICAN HONDA MOTOR CO., INC. and/or other authorized sellers
and of used vehicles (all such unused and used vehicles being hereinafter
collectively called the "Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor by making loans or advances to
Debtor to finance the acquisition by Debtor of Vehicles.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing by
making loans or advances to Debtor to finance the acquisition by Debtor of
Vehicles from sellers thereof, on the terms and conditions set forth in
Paragraph 2.1 herein or as set forth in the Vehicle financing terms and
conditions as they may be made available to Debtor from time to time by
Secured Party.
For the purposes of this Agreement, loans or advances provided by Secured
Party directly to either Debtor or to the seller of Vehicles to Debtor are
herein called "Advances". Debtor acknowledges that (x) the maximum amount
of Advances which will be made by Secured Party hereunder will be
established from time to time by Secured Party in its sole discretion and
(y) all such Advances shall be made on and shall be subject to the terms
and conditions of this Agreement. It is understood and agreed that the
making of any Advance hereunder shall be at the option of Secured Party and
shall not be obligatory, and that the right of Debtor to request that
Secured Party make Advances may be terminated at any time by Secured Party
at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Advance shall be made at such
time as Debtor shall request in accordance with the then-effective Vehicle
financing terms and conditions referred to above. Debtor will execute and
deliver to Secured Party from time to time its demand promissory notes in
aggregate principal amount equal to that amount agreed to by Debtor and
Secured Party from time to time, such demand promissory notes (the
"Promissory Notes") to evidence the liability of Debtor to Secured Party on
account of all Advances. The maximum liability of Debtor under this
Agreement shall at any time be equal to the aggregate principal amount of
all Advances at the time outstanding hereunder plus interest and such other
amounts as may be due under this Agreement. Debtor will pay to Secured
Party on demand the aggregate principal amount of all Advances from time to
time outstanding, and will pay upon demand the interest due thereon and
such other additional charges as Secured Party shall determine from time to
time.
In consideration of Secured Party's making Advances, Debtor will pay to
Secured Party interest at the rate(s) per annum designated by Secured Party
from time to time on the amount of each Advance made by Secured Party
hereunder from the date of such Advance until the date of repayment to
Secured Party of the full amount thereof. Secured Party will give notice to
Debtor of the interest rate(s) established by it from time to time under
the terms hereof, and each such notice shall constitute an agreement
between Debtor and Secured Party as to the applicability to the Advances of
the interest rate(s) contained therein, to be applicable from the dates
stated in such notice until such interest rate(s) are changed by subsequent
notice given by Secured Party pursuant to this sentence. All interest
accrued on the Advances shall be payable monthly by Debtor, and shall be
due upon receipt by Debtor of the statement of Secured Party setting forth
the amount of such accrued interest.
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof. Further, Debtor also hereby grants to Secured Party a
security interest in and to all Chattel Paper, Accounts whether or not
earned by performance and including without limitation all amounts due from
the manufacturer or distributor of the Vehicles or any of its subsidiaries
or affiliates, Contract Rights, Documents, Instruments, General
Intangibles, Consumer Goods, Inventory of Automotive Parts, Accessories and
Supplies, Equipment, Furniture, Fixtures, Machinery, Tools, and Leasehold
Improvements, whether now owned or hereafter acquired by way of
replacement, substitution, addition or otherwise, together with all
additions and accessions thereto and all proceeds thereof, as additional
security for each and every indebtedness and obligation of Debtor is set
forth herein. The security interest hereby granted shall secure the prompt,
timely and full payment of (1) all Advances, (2) all interest accrued
thereon in accordance with the terms of this Agreement and the Promissory
Notes, (3) all other indebtedness and obligations of Debtor under the
Promissory Notes, (4) all costs and expenses incurred by Secured Party in
the collection or enforcement of the Promissory Notes or of the obligations
of the Debtor under this Agreement, (5) all monies advanced by Secured
Party on behalf of Debtor for taxes, levies, insurance and repairs to and
maintenance of any Vehicle or other collateral, and (6) each and every
other indebtedness or obligation now or hereafter owing by Debtor to
Secured Party including any collection or enforcement costs and expenses or
monies advanced on behalf of Debtor in connection with any such other
indebtedness or obligations.
<PAGE>
3.1 All said security set forth in Paragraph 3.0 shall hereinafter collectively
be called "Collateral". Debtor hereby expressly agrees that the term
"proceeds" as used in Paragraph 3.0 shall include without limitation all
insurance proceeds on the Collateral, money, chattel paper, goods received
in trade including without limitation vehicles received in trade, contract
rights, instruments, documents, accounts whether or not earned by
performance, general intangibles, claims and tort recoveries relating to
the Collateral. Notwithstanding that Advances hereunder are made from time
to time with respect to specific Vehicles, each Vehicle and the proceeds
thereof and all other Collateral hereunder shall constitute security for
all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances -
(If there are any, list them here; if none, so state.)
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PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may terminate this
Agreement, refuse to advance funds hereunder, and declare the aggregate of
all Advances outstanding hereunder immediately due and payable upon the
occurrence of any of the following events (each hereinafter called an
"Event of Default"), and that Debtor's liabilities under this sentence
shall constitute additional obligations of Debtor secured under this
Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under any
other agreement between Secured Party and Debtor, or shall fail in the
due performance or compliance with any other term or condition hereof
or thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or a rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of creditors;
<PAGE>
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business, except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the Uniform
Commercial Code or under any other statute or at common law or in equity or
under this Agreement. Such rights and remedies shall be cumulative. Debtor
hereby agrees that it shall pay all expenses and reimburse Secured Party
for any expenditures, including reasonable attorneys' fees and legal
expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times as Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary, Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party should be construed together as one
agreement; provided, however, in the event of any conflict, the terms and
provisions of this Agreement shall govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
<PAGE>
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below:
- --------------------------------------------------------------------------------
TO DEBTOR TO SECURED PARTY
- --------------------------------------------------------------------------------
CLEVELAND VILLAGE IMPORTS, INC. dba CHRYSLER CREDIT CORPORATION
CLEVELAND VILLAGE HONDA, INC. P.O. Box 80247
2490 South Lee Hwy. Chattanooga, Tn. 37414
Cleveland, Tn. 347411
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
CLEVELAND VILLAGE IMPORTS, INC. dba
CLEVELAND VILLAGE HONDA, INC.
-----------------------------------
(DEBTOR)
/s/ ILLEGIBLE By /s/ Nelson E. Bowers II
- ---------------------------------- -------------------------------
(WITNESS)
Title President
- --------------------------------- ----------------------------
(WITNESS)
CHRYSLER CREDIT CORPORATION
By /s/ ILLEGIBLE
-------------------------------
Title Branch Manager
----------------------------
Jaguar Credit Corporation
AUTOMOTIVE WHOLESALE PLAN
APPLICATION FOR WHOLESALE FINANCING
AND SECURITY AGREEMENT
To: Jaguar Credit Corporation (hereinafter called "JCC ") Date 3/14/95
The undersigned JAGUAR OF CHATTANOOGA LLC (hereinafter called "Dealer") of
5915 Brainerd Road Chattanooga TN 37421
(STREET AND NUMBER) (CITY) (STATE) (ZIP CODE)
hereby requests JCC to establish and maintain for Dealer a wholesale line of
credit to finance new and used automobiles, trucks, other vehicles and other
merchandise for (hereinafter called the "Merchandise") Dealer under the terms of
the JCC Wholesale Plan as set forth in the September, 1993, edition of the JCC
Dealer Manual entitled "Automotive Finance Plans for Dealers" or any subsequent
edition thereof (hereinafter called the "Plan") and in connection therewith to
make advances to or on behalf of Dealer, purchase instalment sale contracts
evidencing the sale of Merchandise to Dealer by the manufacturer, distributor or
other seller thereof, or otherwise extend credit to Dealer. In consideration
thereof Dealer hereby agrees as follows:
1. Advances by JCC
JCC at all times shall have the right in its sole discretion so determine the
extent to which, the terms and conditions on which, and the period for which it
will make advances, purchase such contracts or otherwise extend credit to Dealer
(hereinafter called an "Advance" (individually) or "Advances" (collectively),
under the Plan or otherwise. JCC, at any time and from time to time, in its sole
discretion, establish, rescind or change limits or the extent to which financing
accommodations under the Plan will be made available to Dealer. In connection
with the purchase of any such contract and/or other extension of credit. JCC may
pay to any manufacturer, distributor or other seller of Merchandise the invoice
or contract amount therefor, and be fully protected in relying in good faith
upon any invoice, contract or other advice from such manufacturer distributor or
seller that the Merchandise described therein has been ordered or shipped to
Dealer and that the amount therefor is correctly stated. Any such payment made
by JCC to any such manufacturer, distributor or seller, and any ban or other
extension of credit made by JCC directly to Dealer wish respect to Merchandise
of any type held by Dealer for sale, shall be an Advance made by JCC hereunder
and, except with respect to any Advance that is a purchase of an instalment sale
contract, shall be repayable to Dealer in accordance with the terms hereof. All
rights of JCC and obligations of Dealer with respect to Advances hereunder that
constitute the purchase by JCC of an instalment sale contract shall be pursuant
to the provisions of such contract. From time to time JCC shall furnish
statements to Dealer of Advances made by JCC hereunder. Dealer shall review the
same promptly upon receipt and advise JCC in writing of any discrepancy therein.
If Dealer shall fail to advise JCC of any discrepancy in any such statement
within ten calendar days following the receipt thereof by Dealer, such statement
shall be deemed to be conclusive evidence of advances made by JCC hereunder
unless Dealer or JCC establishes by a preponderance of evidence that such
Advances were not made or were made in different amounts than as set forth in
such statement.
2. Interest and Service and Insurance Flat Charges
Each Advance made by JCC hereunder shall bear interest at the rates established
by JCC from time to time for Dealer, except that any amount not paid when due
hereunder shall bear interest at a rate that is 4 percentage points higher than
the current pre-default rate up to the maximum contract rate permitted by the
law of the state where Dealer maintains his business as set out above. In
addition to interest, the financing of Merchandise under the Plan shall be
subject to service and flat charges established by JCC from time to time for
Dealer. JCC shall advise Dealer in writing from time to time of any change in
the interest rate and service and flat charges applicable so Dealer and
the effective date of such change. Such change shall not become effective,
however, if Dealer elects to terminate this Agreement and pay to JCC the
full unpaid balance outstanding under Dealer's wholesale line of credit
and all other amounts due or to become due hereunder in good funds within ten
calendar days after the receipt of such notice by Dealer.
3. Payments by Dealer
The aggregate amount outstanding from time to time of all Advances made by JCC
hereunder shall constitute a single obligation of Dealer, notwithstanding
Advances are made from time to time. Unless otherwise provided in the promissory
note, instalment sale contract, security agreement or other instrument
evidencing the same from time to time. Dealer shall pay to JCC , upon demand,
the unpaid balance (or so much thereof as may be demanded) of all Advances plus
JCC 'interest and flat charges, with respect thereto, and in any event, without
demand the unpaid balance of the Advance made by JCC hereunder with respect to
an item of the Merchandise at or before the date on which the same is sold,
leased or placed in use by Dealer. Dealer also shall pay to JCC, upon demand,
the full amount of any rebate, refund or other credit received by Dealer with
respect to the Merchandise.
If the promissory note, instalment sale contract, security agreement or other
instrument evidencing an Advance or Advances is payable in one or more
installments, JCC may from time to time in its sole discretion, extend any
instalment due thereunder on a month-to-month basis, and, except as provided
below or in any instalment sale contract. JCC' failure to demand any such
instalment when due shall be deemed to be a one month extension of the same. Any
such extension, however, shall not obligate JCC to grant an extension in the
future or waive JCC' right to demand payment when due. Following the sale, lease
or use date of an item of the Merchandise, no instalment shall be deemed
extended without JCC' specific written consent, and Dealer agrees to pay the
same, as required, without demand.
4. JCC' Security Interest
As security for all Advances now or hereafter made by JCC hereunder, and for the
observance and performance of all other obligations of Dealer to JCC in
connection with the wholesale financing of Merchandise for Dealer, Dealer hereby
grants to JCC a security interest in all motor vehicles and vehicles of all
types, all motor vehicle parts and accessories inventory, and all equipment,
wherever located, whether now owned or hereafter acquired, and all accounts,
notes receivable, insurance proceeds, chattel paper, instruments and documents
relating thereto and proceeds thereof; all accounts and general intangibles
including sums receivable from vendors by way of holdbacks, rebates, refunds,
discounts, bonuses
<PAGE>
and the like. All fixtures and furniture.
5. Dealer's Possession and Safe of Merchandise
Dealer's possession of the Merchandise financed shall be for the sole purpose of
storing and exhibiting the same for safe or lease in the ordinary course of
Dealer's business. Dealer shall keep the Merchandise brand new and subject to
inspection by JCC and free from all taxes, liens and encumbrances, and any sums
of money that may be paid by JCC in release or discharge of any taxes, liens or
encumbrances on the Merchandise or on any documents executed in connection
therewith shall be paid by Dealer to JCC upon demand. Except as may be necessary
to remove or transport the same from a freight depot to Dealer's place of
business, Dealer shall not use or operate, or permit the use or operation of,
the Merchandise for demonstration or otherwise without the express prior written
consent of JCC in each case, and shall not in any event use the Merchandise
illegally or improperly. Dealer shall not mortgage, pledge or loan any of the
Merchandise, and shall not transfer or otherwise dispose of the same except by
sale or lease in the ordinary course of Dealer's business. Any and all proceeds
of any sale, lease or other disposition of the Merchandise by Dealer shall be
received and held by Dealer in trust for JCC and shall be fully, faithfully and
promptly accounted for and remitted by Dealer to JCC to the extent of Dealer's
obligation to JCC with respect to the Merchandise. As used in this paragraph 5,
(a) "sale in the ordinary course of Dealer's business" shall include only (i) a
bona fide retail safe to a purchaser for his own use at the fair market value of
the Merchandise sold, and (ii) an occasional sale of such Merchandise to another
dealer at a price not less than Dealer's cost of the Merchandise sold, unless
such sale is a part of a plan or scheme to liquidate all or any portion of
Dealer's business, and (b) "lease in the ordinary course of Dealer's business"
shall include only a bona fide-lease to a lessee for his own use at a fair
rental value of the Merchandise leased.
6. Risk of Loss and Insurance Requirements
The Merchandise shall be at Dealer's sole risk of any loss or damage to the same
except to the extent of any insurance proceeds actually received by JCC with
respect thereto under insurance obtained by JCC pursuant to the Plan. Dealer
shall indemnify JCC against all claims for injury or damage to persons or
property caused by the use, operation or holding of the Merchandise and, if
requested to do so by JCC, maintain at its own expense liability insurance in
connection therewith in such form and amounts as JCC may reasonably require from
time to time. In addition, Dealer shall insure each them of the Merchandise that
is or may be used for demonstration or operated for any other purpose against
loss due to collision, subject in each case to the deductible amounts and
limitations set forth in the Plan.
7. Credits
All funds or other property belonging to JCC and received by Dealer shall be
received by Dealer in trust for JCC and shall be remitted to JCC forthwith. JCC,
at all times, shall have a right to offset and apply any and all credits, monies
or properties of Dealer in JCC possession or control against any obligation of
Dealer to JCC.
8. Information Concerning Dealer
To induce JCC to extend financing accommodations hereunder, Dealer has submitted
information concerning its business organization and financial condition, and
certifies that the same is complete to, true and correct in all respects and
that the financial information contained therein and any that may be furnished
to JCC from time to time hereafter does and shall fairly present the financial
condition of Dealer in accordance with generally accepted accounting principles
applied on a consistent basis Dealer agrees to notify JCC promptly of any
material change in its business organization or financial condition or in any
information relating thereto previously furnished to JCC Dealer acknowledges and
intends that JCC shall rely, and shall have the right to rely, on such
information in extending and continuing to extend financing accommodations to
Dealer. Dealer hereby authorized JCC from time to time and at all reasonable
times to examine, appraise and verity the existence and condition of ail
Merchandise, documents, commercial or other paper and other property in which
JCC has or has had any title, title retention, lien, security or other interest,
and all of Dealer's books and records in any way relating to its business.
9. Default
The following shall constitute an Event of Default hereunder:
(a) Dealer shall fail to promptly pay any amount now or hereafter owing to JCC
as and when the same shall become due and payable, or
(b) Dealer shall fail to duly observe or perform any other obligation secured
hereby, or
(c) any representation made by Dealer to JCC shall prove to have been false or
misleading in any material respect as of the date on which the same was made, or
(d) a proceeding in bankruptcy, insolvency or receivership shall be instituted
by or against Dealer or Dealer's property.
Upon the occurrence of an Event of Default, JCC may accelerate, and declare
immediately due and payable, all or any part of the unpaid balance of all
Advances made hereunder together with accrued interest and flat charges, without
notice to anyone. In addition, JCC may take immediate possession of all property
in which it has a security interest hereunder, without demand or other notice
and without legal process. For this purpose and in furtherance thereof, if JCC
so requests, Dealer shall assemble such property and make it available to JCC at
a reasonably convenient place designated by JCC, and JCC shall have the right,
and Dealer hereby authorizes and empowers JCC , its agents or representatives,
to enter upon the premises wherever such property may be and remove same. In the
event JCC acquires possession of such property or any portion thereof, as
hereinbefore provided, JCC may, in its sole discretion (i) sell the same, or any
portion thereof, after five days' written notice, at public or private sale for
the account of Dealer, (ii) declare this agreement, all wholesale transactions
and Dealer's obligations in connection therewith to be terminated and canceled
and retain any sums of money that may have been paid by Dealer in connection
therewith, and (iii) enforce any other remedy that JCC may have under applicable
law. Dealer agrees that the sale by JCC of any new and unused property
repossessed by PRIMUS to the manufacturer, distributor or seller thereof, or to
any person designated by such manufacturer, distributor or seller, at the
invoice cost thereof to Dealer less any credits granted to Dealer with respect
thereto and reasonable costs of transportation and reconditioning, shall be
deemed to be a commercially reasonable means of disposing of the same. Dealer
further agrees that if JCC shall solicit bids from three or more other dealers
in the type of property repossessed by JCC hereunder, any sale by JCC of such
property in bulk or in parcels to the bidder submitting the highest cash bid
therefor also shall be deemed to be a commercially reasonable means of disposing
of the same. Dealer understands and agrees, however, that such means of disposal
shall not be exclusive, and that JCC shall have the right to dispose of any
property repossessed hereunder by any commercially reasonable means. Dealer
agrees to pay reasonable attorney's fees and legal expenses incurred by JCC in
connection with the repossession and safe of any such property. JCC' remedies
hereunder are cumulative and may be enforced successively or concurrently.
10. General
Dealer waives the benefit of all homestead and exemption laws and agrees that
the acceptance by JCC of any payment after it may have become due or the waiver
by JCC of any other default shall not be deemed to after or affect Dealer's
obligations or JCC right with respect to any subsequent payment or default.
<PAGE>
Neither this agreement, nor any other agreement Dealer and JCC, or between
Dealer and any manufacturer, distributor or seller that has been assigned to
JCC, nor any funds payable by JCC to Dealer, shall be assigned by Dealer without
the express prior written consent of JCC in each case.
Any provision hereof prohibited by any applicable law shall be ineffective to
the extent of such prohibition without invalidating the remaining provisions
hereof. Except as herein provided, no modification hereof may be made except by
a written instrument duly executed by, or pursuant to the express written
authority of an executive officer of JCC.
Dealer shall execute and deliver to JCC promissory notes or other evidences of
Dealer's indebtedness hereunder, security agreements, trust receipts, chattel
mortgages or other security instruments and any other documents which JCC may
reasonably request to confirm Dealer's obligations to JCC and to confirm JCC '
security interest in the Merchandise financed by JCC under the Plan or in any
other property as provided hereunder, and in such event the terms and conditions
hereof shall be deemed to be incorporated therein. JCC security or other
interest in any the Merchandise shall not be impaired by the delivery to Dealer
of Merchandise or of bills of lading, certificates of origin, invoices or other
documents pertaining thereto or by the payment by Dealer of any curtailment,
security or other deposit or portion of the amount financed. The execution by
Dealer or on Dealer's behalf of any document for the amount of any credit
extended shall be deemed evidence of Dealer's obligation and not payment
thereof. JCC may, for and in the name of Dealer, endorse and assign any
obligation transferred to JCC by Dealer and any check or other medium of payment
intended to apply upon such obligation. JCC may complete any blank space and
fill in omitted information on any document or paper furnished to it by Dealer.
Unless the context otherwise clearly requires, the terms used herein shall be
given the same meaning as ascribed to them under the provisions of the Uniform
Commercial Code. Section headings are inserted for convenience only and shall
not affect any construction or interpretation of this agreement.
This agreement shall be interpreted in accordance with the laws of the state of
the Dealer's place of business set out above.
11. Acceptance and Termination
Dealer waives notice of JCC' acceptance of this agreement and agrees that it
shall be deemed accepted by JCC at the time JCC shall first extend credit to
Dealer under the Plan. This agreement shall be binding on Dealer and JCC and
their respective successors and assigns from the date thereof until terminated
by receipt of a written notice by either party from the other, except that any
such termination shall not relieve either party from any obligation incurred
prior to the effective date thereof.
Witness or Attest: JAGUAR OF CHATTANOOGA LLC
-----------------------------
(DEALERS EXACT BUSINESS NAME)
/s/ Donald C. Walker By /s/ Nelson E. Bowers II Title Pres
- -------------------- ----------------------- -------
<PAGE>
POWER OF ATTORNEY FOR WHOLESALE
KNOW ALL MEN BY THESE PRESENTS: That the undersigned dealer does hereby make,
constitute and appoint T.S. Murphy, D.J. Jansen, and S.M. Mankin all of
Nashville, Tennessee and each of them and any other officer or employee of
Jaguar Credit Corporation, a New York corporation of Nashville, Tennessee, its
true and lawful attorneys with full power of substitution, for and in its name,
stead and behalf, to prepare, make, execute, acknowledge and deliver to Jaguar
Credit Corporation from time to time promissory notes or other evidences of
indebtedness, bearing such rate of interest as Jaguar Credit Corporation may
require from time to time, and trust receipts, chattel mortgages and other title
retention or security instruments necessary or appropriate in connection with
the wholesale financing by Jaguar Credit Corporation of merchandise for the
undersigned Dealer under the terms of the Jaguar Credit Corporation Automotive
Wholesale Plan, and generally to perform all acts and to do all things necessary
or appropriate in discharge of the power hereby conferred, including the making
of affidavits and the acknowledging of instruments, as if fully done by the
undersigned dealer, and each of the said attorneys hereby is further authorized
and empowered in the discharge of the power hereby conferred to execute any
instruments by means of either a manual, imprinted or other facsimile signature
or by completing a printed form to which an imprinted or other facsimile
signature is then affixed.
This Power of Attorney is executed by the undersigned dealer to induce Jaguar
Credit Corporation to make advances for merchandise to be acquired by the
undersigned dealer and recognizes that such advances are made to manufacturers,
distributors and other sellers of such merchandise at places other than the
undersigned dealer's place of business, and that it is impractical for the
undersigned Dealer to execute the promissory notes, trust receipts, chattel
mortgages and other title, retention or security instruments necessary or
appropriate in connection with such advances without unduly delaying the
delivery of such merchandise to the undersigned dealer. Accordingly, this Power
of Attorney may be revoked by the undersigned dealer only by notice in writing
addressed to Jaguar Credit Corporation, Nashville. Tennessee by registered mail,
return receipt requested, stating an effective date on or after the receipt
thereof by Jaguar Credit Corporation.
Dated this 14 day of MARCH , 1995
Witness or Attest: JAGUAR OF CHATTANOOGA LLC
-----------------------------
(DEALERS EXACT BUSINESS NAME)
/s/ Donald C. Walker By /s/ Nelson E. Bowers II Title Pres
- -------------------- ----------------------- -------
State of ___________________________
ss.
County of __________________________
On this ___ day of______________, 19__, before me, the undersigned Notary
Public, personally appeared _________________________ who acknowledged himself
to be the ___________________________ of JAGUAR OF CHATTANOOGA LLC
(TITLE) (DEALERS NAME)
the grantor of the foregoing Power of Attorney, and that he, being authorized so
to do, executed the foregoing Power of Attorney for the purposes therein
contained, by signing the name of the said grantor by himself in the capacity
indicated.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
_______________________________________________
NOTARY PUBLIC
(NOTARY'S SEAL)
My commission expires __________________________
<PAGE>
CERTIFIED COPY OF RESOLUTION OF BOARD OF GOVERNORS
The undersigned hereby certifies that he is the Secretary of
JAGUAR OF CHATTANOOGA LLC of 5915 Brainerd Road, Chattanooga, TN 37421
(DEALERS EXACT COMPANY NAME) (DEALERS ADDRESS)
and that the following is a true, correct and complete copy of resolutions
adopted by the board of governors of the said company at a meeting duly called
and held on MARCH 14, 1995 at which a quorum was present and voting, and that
said resolutions are unchanged and are now in full force and effect:
RESOLVED, That the officers of this company be, and each hereby is, authorized
and empowered to execute and deliver on behalf of this company an Application
for Wholesale Financing to Jaguar Credit Corporation of Nashville, Tennessee, in
such form and upon such terms and conditions as the said Jaguar Credit
Corporation may require, and to execute and deliver from time to time promissory
notes or other evidences of indebtedness, bearing such rate of interest as the
said Jaguar Credit Corporation may require from time to time, and trust
receipts, chattel mortgages and other title retention or security instruments
as, and in such form as, the said Jaguar Credit Corporation may require,
evidencing any financing extended by the said Jaguar Credit Corporation to this
company under the terms of the Jaguar Credit Corporation Automotive Wholesale
Plan.
FURTHER RESOLVED. That T.S. Murphy, D.J. Jansen, and S.M. Mankin all of
Nashville, Tennessee, and each of them and any other officer or employee of the
said Jaguar Credit Corporation be and each of them hereby is constituted and
appointed an attorney-in-fact of this company for the purposes set forth in the
Power of Attorney presented to this board of governors this date, with full
power of substitution, and the officers of this company are, and each of them
hereby is, authorized and empowered to execute a formal Power of Attorney in
such form.
FURTHER RESOLVED. That the officers of this company be, and each hereby is,
authorized and empowered to do all other things and to execute all other
instruments and documents necessary or appropriate in the premises.
IN WITH WHEREOF I have hereunto set my hand and affixed the seal of the said
company this 14 day of March, 1995
/s/ Donald C. Walker
- --------------------
SECRETARY
(COMPANY SEAL)
STATE OF NORTH CAROLINA ASSIGNMENT OF
JOINT VENTURER INTEREST IN
CHARTOWN
COUNTY OF MECKLENBURG A NORTH CAROLINA JOINT VENTURE
THIS ASSIGNMENT OF JOINT VENTURER INTEREST (the "Assignment"), entered
into as of this 30th day of June, 1997, by and between TOWN AND COUNTRY FORD,
INC., a North Carolina corporation (the "Assignor"), and SONIC FINANCIAL
CORPORATION, a North Carolina limited liability company (the "Assignee").
RECITALS
1. Chartown, a North Carolina joint venture ("Chartown"), was formed on
December 18, 1984 by Joint Venture Agreement, as amended on April 24, 1987,
December 7, 1988 and March 2, 1995, and amended and restated on March 3, 1995,
and further amended on June 30, 1997 (as amended, the "Chartown Joint Venture
Agreement").
2. As of the date of this Assignment, the Assignor holds a 50% interest
in the profits and losses of Chartown and had a capital account balance as of
December 31, 1996 of $[0.00].
3. The Assignor desires to assign all of its interest in Chartown (the
"Interest") to the Assignee and to withdraw as a Joint Venturer of Chartown.
4. The Assignee agrees to accept the Assignment of the Assignor's
interest in Chartown and to assume all the liabilities of the Assignor with
respect to the Interest.
5. SMDA Properties LLC, a North Carolina limited liability company
("LLC") that is the sole Joint Venturer of Chartown other than the Assignor, is
willing to consent to the Assignment and to have the Chartown Joint Venture
Agreement amended to the extent necessary to reflect the Assignment and the
withdrawal of the Assignor as a Joint Venturer of Chartown.
NOW THEREFORE, in consideration of the premises and of the mutual
covenants and conditions set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, it
is hereby agreed as follows:
The Assignor hereby assigns the Interest to the Assignee, its
successors and assigns. The Interest includes, but is not limited to, all of the
Assignor's capital account and rights to distributions of cash and property and
allocations of profits accruing after the close of business on June 30, 1997.
Commencing after the close of business on June 30, 1997, the Assignee shall have
the right to receive from Chartown all of the distributions and the share of
income, profits or other compensation to which the Assignor would otherwise be
entitled and all of the rights relating to the Assignor's capital account in
Chartown and all other rights of the Assignor in Chartown under the Chartown
1
<PAGE>
Joint Venture Agreement and applicable law and shall become a substitute Joint
Venturer of Chartown in place of the Assignor.
The Assignor hereby covenants that it shall execute all further title
certificates, or other evidences of ownership as may be necessary to vest title
to the Interest in the Assignee or its successors or assigns.
IN WITNESS WHEREOF, the Assignor has signed and sealed this Assignment
effective this the 30th day of June, 1997.
ASSIGNOR:
ATTEST: TOWN AND COUNTRY FORD, INC.
By: By: /s/ William R. Brooks
Title: William R. Brooks, Vice President
[Corporate Seal]
The undersigned, being the Assignee, hereby accepts the assignment of
the Interest and agrees to be bound by the provisions of the Chartown Joint
Venture Agreement with respect to the Interest hereby assigned to it. In
consideration of this Assignment, the Assignee hereby assumes all obligations
and liabilities of the Assignor with respect to the Interest and with respect to
Chartown. Additionally, the Assignee hereby agrees to indemnify and hold the
Assignor harmless from and against any and all demands, claims, actions, suits,
liabilities, damages, losses, judgments, costs and expenses (including
reasonable attorneys' fees and court costs), whether known or unknown, relating
to, resulting from or arising out of Chartown or the Assignor's ownership of the
Interest. In particular, and without limiting the foregoing, the Assignee agrees
to indemnify and hold Assignor harmless from and against any tax liability of
any type, whether known or unknown, relating to, resulting from or arising out
of the Transfers.
ASSIGNEE:
ATTEST: SONIC FINANCIAL CORPORATION
By: By: /s/ William R. Brooks
Title: William R. Brooks, Vice President
[Corporate Seal]
2
<PAGE>
The undersigned, being the sole Joint Venturer of Chartown other than
the Assignor, hereby consents to the Assignment and to the amendment of the
Chartown Joint Venture Agreement to reflect the Assignment and the withdrawal of
the Assignor as a Joint Venturer of Chartown.
JOINT VENTURER:
SMDA PROPERTIES LLC
By: /s/ O. Bruton Smith
O. Bruton Smith, Member
By: SONIC FINANCIAL CORPORATION, Member
By: /s/ William R. Brooks
William R. Brooks, Vice President
3
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") made this _____day of
_______________, 1997 between SONIC AUTOMOTIVE, INC. its successors or assigns,
subsidiary corporations or affiliates (collectively, the "Employer") and O.
BRUTON SMITH ("Employee").
R E C I T A L S
WHEREAS, Employer desires to retain the services of Employee; and
WHEREAS, Employee is prepared to perform those duties as set forth in
this Agreement.
NOW, THEREFORE, the parties intending to be legally bound agree as
follows:
1. Term of Employment. Employer hereby employs Employee, and
Employee hereby accepts employment from Employer for the period commencing
effective upon consummation of the initial public offering of Employer (the
"Commencement Date") and ending three (3) years thereafter, unless sooner
terminated (the "Employment Period").
2. Duties of Employee. Employee shall be employed by Employer
as its Chief Executive Officer and shall report directly to the Company's Board
of Directors. Employee's duties shall include, but not be limited to, rendering
such services as the Board of Directors may, from time to time, assign to
Employee. Employee shall devote approximately fifty percent (50%) of his working
time to the performance of the his duties for Employer.
3. Compensation. For all services rendered by Employee under this
Agreement, he shall be entitled to compensation in accordance with the
following:
(a) Base Salary. During the Employment Period, the
Employee shall receive an annual base salary ("Annual Base Salary") of Three
Hundred Fifty Thousand and NO/100 Dollars ($350,000.00), which shall be paid in
equal monthly installments in the amount of Twenty-Nine Thousand One Hundred
Sixty-Six and 66/100 Dollars ($29,166.66).
(b) Additional Salary and Bonus. In addition to the
Annual Base Salary, Employer shall pay to the Employee such additional amounts
as may be determined and ratified from time to time by the Compensation
Committee of Employer's Board of Directors.
4. Fringe Benefits. During the Employment Period, Employee shall
receive fringe benefits in keeping with those provided to other similarly
situated employees of Employer.
5. Termination of Employment. Employee shall serve at the leisure of
the Board of Directors and Employee's employment may be terminated by the Board
of Directors at any time.
1
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6. Restrictive Covenants. For purposes of this Agreement,
"Restrictive Covenants" mean the provisions of this paragraph 6. It is
stipulated and agreed that Employer is engaged in the business of owning and
operating automobile and/or truck dealerships, which business includes, without
limitation, the marketing, selling and leasing of new and used vehicles and the
servicing of automobiles and trucks (the "Business"). It is further stipulated
and agreed that as a result of Employee's employment by Employer, and as a
result of Employee's continued employment hereunder, Employee has and will have
access to valuable, highly confidential, privileged and proprietary information
relating to Employer's Business. The unauthorized use or disclosure by Employee
of any of the Confidential Information (the "Confidential Information") would
seriously damage Employer in its Business. In consideration of the provisions of
this paragraph 6, and the compensation and benefits referred to in paragraphs 3
and 4 hereof, Employee agrees as follows:
(a) During the term of this Agreement and after its
termination or expiration for any reason, Employee will not, without Employer's
prior written consent, use, disclose, or make accessible to any third person or
entity, any aspect of the Confidential Information.
(b) During the term of this Agreement and for a
period of two years after the date of the expiration or termination of this
Agreement for any reason (the "Restrictive Period"), Employee shall not,
directly or indirectly:
(i) Employ or solicit the employment of any
person who at any time during the twelve (12)
calendar months immediately preceding the termination
or expiration of this Agreement for any reason was
employed by Employer;
(ii) Provide or solicit the provision of
products or services, similar to those provided by
Employer to any person or entity within the
"Restricted Territory", as hereinafter defined, who
purchased or leased automobiles, trucks or services
from Employer at any time during the twelve (12)
calendar months immediately preceding the termination
or expiration of this Agreement for any reason;
(iii) Interfere or attempt to interfere with
the terms or other aspects of the relationship
between Employer and any person or entity from whom
Employer has purchased automobiles, trucks, parts,
supplies, inventory or services at any time during
the twelve (12) calendar months immediately preceding
the termination or expiration of this Agreement for
any reason;
(iv) Engage in competition with Employer or
its respective successors and assigns by engaging,
directly or indirectly, in a business involving the
sale or leasing of automobiles or trucks or which is
otherwise substantially similar to the Business,
within the "Restricted Territory", as hereinafter
defined; or
2
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(v) Provide information to, solicit or sell
for, organize or own any interest in (either directly
or thorough any parent, affiliate or subsidiary
corporation, partnership, or other entity), or become
employed or engaged by, or act as agent for, any
person, corporation or other entity that is directly
or indirectly engaged in a business in the
"Restricted Territory", as hereinafter defined, which
is substantially similar to the Business or
competitive with Employer's business; provided,
however, that nothing herein shall preclude the
Employee from holding not more than three percent
(3%) of the outstanding shares of any publicly held
company which may be so engaged in a trade or
business identical or similar to the Business of the
Employer. As used herein, "Restricted Territory"
means:
(1) all Standard Metropolitan Statistical Areas,
as determined by the United States Office of
Management and Budget, in which Employer has
an office, store or other place of business
on the date of the expiration or termination
of this Agreement for any reason.
(2) all counties in which Employer has an
office, store or other place of business on
the date of the expiration or termination of
this Agreement for any reason.
7. Remedies. It is stipulated that a breach by
Employee of the Restrictive Covenants would cause irreparable damage to Employer
and that Employer, in addition to other remedies, shall be entitled to an
injunction restraining Employee from violating or continuing any violation of
such Restrictive Covenants.
8. Entire Agreement. This Agreement contains the
entire agreement of the parties hereto, and shall not be modified or changed in
any respect except by a writing executed by the parties hereto.
9. Governing Law; Forum. This Agreement and any
dispute arising from it shall be governed by and construed according to the laws
of the State of North Carolina.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to
be effective as of the date first above written.
EMPLOYEE:
(SEAL)
O. Bruton Smith
EMPLOYER:
SONIC AUTOMOTIVE, INC.
By: ____________________________________
Title: ____________________________________
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EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
by and among
SONIC AUTO WORLD, INC.,
LAKE NORMAN DODGE, INC.,
LAKE NORMAN CHRYSLER-PLYMOUTH-JEEP-EAGLE LLC,
QUINTON M. GANDY
and
PHIL M. GANDY, JR.
-----------------------------------------------------
Dated as of May 27, 1997
================================================================================
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TABLE OF CONTENTS
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Page
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Article 1 - Purchase and Sale of Assets; Assumption of Liabilities.......................................1
1.1 Agreement of Purchase and Sale.........................................................1
1.2 Assumed Liabilities....................................................................2
1.3 Purchase Price; Allocation.............................................................2
1.4 Instruments of Conveyance and Transfer; Further Assurances; Access.....................4
1.5 Offers of Employment to Sellers' Employees.............................................5
Article 2 - Closing......................................................................................5
Article 3 - Representations, Warranties and Covenants of the Sellers.....................................5
3.1 Organization; Good Standing; Qualifications............................................5
3.2 Authority; Consents; Enforceability....................................................6
3.3 Investments............................................................................7
3.4 Financial Statements...................................................................7
3.5 Absence of Certain Changes.............................................................7
3.6 Material Contracts.....................................................................9
3.7 Title to Purchased Assets and Related Matters.........................................11
3.8 Real Property of the Sellers..........................................................11
3.9 Machinery, Equipment, Etc.............................................................12
3.10 Inventories of the Sellers...........................................................13
3.11 Accounts Receivable of the Sellers...................................................13
3.12 Approvals, Permits and Authorizations................................................13
3.13 Compliance with Laws.................................................................14
3.14 Insurance............................................................................14
3.15 Taxes................................................................................15
3.16 Litigation...........................................................................16
3.17 Powers of Attorney...................................................................16
3.18 Broker's and Finder's Fees...........................................................16
3.19 Employee Relations...................................................................16
3.20 Compensation.........................................................................17
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc..........................17
3.22 Certain Liabilities..................................................................17
3.23 No Undisclosed Liabilities...........................................................18
3.24 Certain Transactions.................................................................18
3.25 Business Generally...................................................................18
3.26 Employee Benefits....................................................................18
3.27 Sellers and Shareholders Not Foreign Persons.........................................19
3.28 Suppliers and Customers..............................................................20
3.29 Environmental Matters................................................................20
3.30 Bank Accounts and Safe Deposit Boxes.................................................22
3.31 Warranties...........................................................................22
3.32 Interest in Competitors and Related Entities.........................................22
3.33 Availability of Sellers' Employees...................................................22
3.34 Misstatements and Omissions..........................................................23
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Article 4 - Representations and Warranties of the Buyer.................................................23
4.1 Organization and Good Standing........................................................23
4.2 Authority; Consents; Enforceability...................................................23
4.3 Broker's and Finder's Fees............................................................24
4.4 Litigation............................................................................24
4.5 Misstatements or Omissions............................................................24
Article 5 - Pre-closing Covenants of the Shareholders and the Sellers...................................24
5.1 Provide Access to Information; Cooperation with Buyer.................................24
5.2 Operation of Business of the Sellers..................................................25
5.3 Other Changes.........................................................................26
5.4 Additional Information................................................................26
5.5 Publicity.............................................................................26
5.6 Other Negotiations....................................................................27
5.7 Closing Conditions....................................................................27
5.8 Environmental Audit...................................................................27
5.9 Hart-Scott-Rodino Compliance..........................................................28
5.10 .....................................................................................28
Article 6 - Pre-closing Covenants of the Buyer..........................................................28
6.1 Publicity; Disclosure.................................................................28
6.2 Closing Conditions....................................................................29
6.3 Application to Chrysler Corporation...................................................29
6.4 Hart-Scott-Rodino Compliance..........................................................29
Article 7 - Conditions Precedent to Obligations of the Buyer............................................29
7.1 Representations and Warranties........................................................29
7.2 Performance of Obligations of the Sellers.............................................29
7.3 Closing Certificate...................................................................29
7.4 Opinion of Counsel....................................................................30
7.5 Supporting Documents..................................................................30
7.6 Bill of Sale, Etc.....................................................................30
7.7 Dealership Leases and Consulting Agreements...........................................31
7.8 Books and Records.....................................................................31
7.9 Change of Name of Sellers; Use of Sellers' Name by Buyer..............................31
7.10 Consents.............................................................................31
7.11 No Litigation........................................................................31
7.12 Authorizations.......................................................................32
7.13 [Intentionally left blank]...........................................................32
7.14 Approval of Legal Matters............................................................32
7.15 [Intentionally left blank]...........................................................32
7.16 [Intentionally left blank]...........................................................32
7.17 Hart-Scott-Rodino Waiting Period.....................................................32
7.18 IPO..................................................................................32
7.19 Certification of Used Car Inventories................................................32
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Article 8 - Conditions Precedent to Obligations of the Sellers..........................................33
8.1 Representations and Warranties........................................................33
8.2 Performance of Obligations of the Buyer...............................................33
8.3 Closing Certificate...................................................................33
8.4 Payment of Purchase Price.............................................................33
8.5 Opinion of Counsel....................................................................33
8.6 Supporting Documents..................................................................33
8.7 Approval of Legal Matters.............................................................34
8.8 No Litigation.........................................................................34
8.9 Hart-Scott-Rodino Waiting Period......................................................34
Article 9 - Transfer Taxes; Proration of Charges........................................................35
9.1 Certain Taxes and Fees................................................................35
9.2 Proration of Certain Charges..........................................................35
Article 10 - Survival of Representations and Warranties; Indemnification................................35
10.1 Survival of Representations and Warranties...........................................35
10.2 Agreement to Indemnify by the Sellers................................................35
10.3 Agreement to Indemnify by the Buyer..................................................36
10.4 Claims for Indemnification...........................................................37
10.5 Procedures Regarding Third Party Claims..............................................37
10.6 Effectiveness........................................................................38
Article 11 - Termination and Termination Fee............................................................39
11.1 Payment of Buyer's Termination Fee; Sellers' Exclusive Remedy;
Buyer's Ability to Terminate........................................................39
11.2 Payment of Sellers' Termination Fee..................................................39
11.3 Security for Termination Fees........................................................40
11.4 Effect of Termination................................................................41
Article 12 - Guaranty of Shareholders...................................................................41
12.1 Guaranty.............................................................................41
12.2 Notice to the Shareholders...........................................................41
12.3 Absoluteness of Guaranty.............................................................41
12.4 Guaranty Not Affected................................................................41
12.5 Waiver...............................................................................42
12.6 No Subrogation.......................................................................42
12.7 Reinstatement........................................................................43
12.8 Effectiveness........................................................................43
Article 13 - Additional Covenants and Agreements........................................................43
13.1 Non-Competition Covenant.............................................................43
13.2 Bulk Sales Compliance................................................................44
13.3 Additional Agreements on Vehicles....................................................44
13.4 Additional Agreements on Health Care Continuation Coverage Costs.....................44
13.5 Expenses Associated with Preparation of Financial Statements.........................45
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Article 14 - Miscellaneous Provisions...................................................................45
14.1 Access to Books and Records after Closing............................................45
14.2 Confidentiality......................................................................45
14.3 Remedies.............................................................................45
14.4 Notices..............................................................................46
14.5 Parties in Interest; No Third Party Beneficiaries....................................47
14.6 Assignability........................................................................47
14.7 Entire Agreement; Amendment..........................................................47
14.8 Headings.............................................................................47
14.9 Counterparts.........................................................................47
14.10 Governing Law.......................................................................48
14.11 Knowledge...........................................................................48
14.12 Jurisdiction; Arbitration...........................................................48
14.13 Waivers.............................................................................49
14.14 Severability........................................................................49
14.15 Expenses............................................................................49
14.16 Regarding Termination Fees..........................................................49
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 27th day of May, 1997, by and among SONIC AUTO WORLD, INC., a
Delaware corporation (the "Buyer"), LAKE NORMAN CHRYSLER-PLYMOUTH-JEEP-EAGLE
LLC, a North Carolina limited liability company (the "LLC"), LAKE NORMAN DODGE,
INC., a North Carolina corporation and a member of the LLC (the "Corporation"
and collectively with the LLC, the "Sellers"), QUINTON M. GANDY, a shareholder
of the Corporation and a member of the LLC ("QMG") and PHIL M. GANDY, JR., a
shareholder of the Corporation ("PMG", and together with QMG, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Buyer desires to purchase, or to cause a wholly-owned
subsidiary of Buyer to purchase, from the Sellers substantially all of the
assets and properties of the Sellers relating to their respective businesses and
operations, subject to certain exceptions as hereinafter specified, and to
assume, or to cause a wholly-owned subsidiary of Buyer to assume, certain
liabilities of each of the Sellers, all upon the terms and conditions
hereinafter set forth; and
WHEREAS, the Sellers are willing to sell, transfer, convey, assign and
deliver the same to the Buyer, or a wholly-owned subsidiary of the Buyer, upon
the terms and conditions hereinafter set forth; and
WHEREAS, the Shareholders desire that the foregoing be effected.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
representations, warranties, covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
1.1 Agreement of Purchase and Sale. On the terms and subject to the
conditions of this Agreement and in reliance upon the representations and
warranties contained herein and non-competition covenant and agreement herein of
the Sellers and the Shareholders, at the Closing (as such term is defined in
Article 2 hereof), the Sellers shall sell, transfer, convey, assign and deliver
(or cause to be sold, transferred, conveyed, assigned and delivered) to the
Buyer, and the Buyer shall purchase and accept delivery of, all of the Sellers'
right, title and interest in and to all of the assets of the Sellers of every
kind, character and description, tangible or intangible, real, personal or
mixed, and wherever located, including, without limitation, all of the Sellers'
right, title and interest in and to the names "Lake Norman Dodge, Inc." and
"Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC", and all variations thereof, but
excluding, however, the assets described on Schedule 1.1 (the "Excluded Assets")
(said assets, other than the Excluded Assets, constituting the "Purchased
Assets"). The Purchased Assets will be sold free and clear of all mortgages,
deeds of trust, liens,
<PAGE>
pledges, charges, security interests, contractual restrictions, claims or
encumbrances of any kind or character (collectively, "Encumbrances"), other than
those Encumbrances set forth on Schedule 3.7 which secure indebtedness (and only
such indebtedness) included in the Assumed Liabilities (as defined below).
1.2 Assumed Liabilities. On the terms and subject to the conditions of this
Agreement and in reliance upon the representations and warranties contained
herein, at the Closing the Buyer shall assume and undertake to perform all of
the liabilities and obligations of each of the Sellers (the "Assumed
Liabilities"), but excluding, however, the liabilities and obligations
specifically described on Schedule 1.2 (such liabilities and obligations being
hereinafter referred to as the "Excluded Liabilities").
1.3 Purchase Price; Allocation.
(a) Purchase Price. In addition to the assumption by the Buyer of the
Assumed Liabilities, as full consideration to be paid by the Buyer for the
Purchased Assets, the Buyer shall pay to the Sellers the aggregate purchase
price of (i) Fifteen Million, Two-Hundred Thousand Dollars ($15,200,000) (the
"Cash Consideration"), plus (ii) the positive Net Book Value (as defined below)
of the Purchased Assets, not to exceed Three Million Dollars ($3,000,000), on
the date of the Closing (the "Adjustment Amount" and together with the Cash
Consideration, the "Purchase Price"). The Cash Consideration, plus the sum of
Two Million Five Hundred Thousand Dollars ($2,500,000) (the "Initial Adjustment
Amount Payment") shall be payable to the Sellers at Closing by wire transfer of
immediately available funds to the accounts of the Sellers, which shall be
designated by the Sellers in writing at least one full Business Day prior to the
Closing Date. The sum of Five Hundred Thousand Dollars ($500,000) (the "Escrowed
Adjustment Amount") shall be placed in escrow under arrangements acceptable to
both parties of the Closing Date. For purposes of this Agreement, a "Business
Day" is a day other than a Saturday, a Sunday or a day on which banks are
required or authorized to be closed in the State of North Carolina.
(aa) Installment Method. Notwithstanding the foregoing, the Sellers may, by
notice to the Buyer not later than four Business Days prior to Closing, elect to
receive payment of the Cash Consideration and Initial Adjustment Amount Payment
in two installments, the first such installment being in an amount specified in
such notice and payable on the Closing Date and the second such installment
being payable on or before January 1, 1998. If Sellers elect to receive payments
in installments pursuant to this paragraph, at the Closing, the Buyer shall pay
the first installment in cash and shall execute and deliver to the Sellers a
promissory note for the principal amount of the second installment (after
deduction of all letter of credit issuance fees and expenses (including
associated attorneys' fees) actually payable to the issuer of the letter of
credit securing such promissory note). Such promissory note shall bear interest
at a rate equal to the same rate the Buyers would be able to obtain by investing
an amount equal to the principal amount of the note in the letter of credit
bank's money market funds and shall be secured by an irrevocable letter of
credit authorizing Sellers to draw thereon upon certification to the issuer
thereof that Buyer has failed to pay such note when due. Such promissory note
and letter of credit shall be on terms and pursuant to written documents
mutually agreed by Sellers and Buyer.
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(b) Adjustment Procedures. The Buyer will prepare an unaudited combined
balance sheet (the "Closing Balance Sheet") of the Sellers as of the Closing
Date, consisting of a computation of the book value as of the Closing Date of
the Purchased Assets (excluding goodwill and other intangible assets) less the
book value of the Assumed Liabilities, all as determined in accordance with
generally accepted accounting principles applied consistently with the Financial
Statements (as defined in Section 3.4(a)); provided, however, that: inventory
shall be valued on a FIFO basis; the GE Shareholder Payments (as defined in
Section 3.4(b)) shall be excluded; and there shall be included such reserves
and/or write-offs for doubtful accounts receivable and bad debts and for
damaged, spoiled, obsolete or slow-moving inventory as shall be consistent with
the Seller's past year-end practices. The net book value reflected on the
Closing Balance Sheet is hereinafter called the "Net Book Value". The Buyer will
deliver the Closing Balance Sheet to the Sellers within 30 days after the
Closing Date. If within 30 days following delivery of the Closing Balance Sheet
(or the next Business Day if such 30th day is not a Business Day), the Sellers
have not given Buyer notice of their objection to the computation of the Net
Book Value as set forth in the Closing Balance Sheet (such notice must contain a
statement of the basis of the Seller's objection), then the Net Book Value
reflected in the Closing Balance Sheet will be deemed mutually agreed by the
Buyer and the Sellers and will be used in computing the Adjustment Amount. If
the Sellers give such notice of objection, then the issues in dispute will be
submitted to a "Big Six" accounting firm, other than Deloitte & Touche LLP,
mutually acceptable to the Buyer and the Sellers (the "Accountants") for
resolution. If issues in dispute are submitted to the Accountants for
resolution, (i) each party will furnish to the Accountants such workpapers and
other documents and information relating to the disputed issues as the
Accountants may request and are available to the party or its Subsidiaries (or
its independent public accountants), and will be afforded the opportunity to
present to the Accountants any material relating to the determination and to
discuss the determination with the Accountants; (ii) the Accountants will be
instructed to determine the Net Book Value based upon their resolution of the
issues in dispute; (iii) such determination by the Accountants of the Net Book
Value, as set forth in a notice delivered to both parties by the Accountants,
will be binding and conclusive on the parties; and (iv) the Buyer and the
Sellers shall each bear 50% of the fees of the Accountants for such
determination unless the determination by the Accountants results in an increase
of the Adjustment Amount by more than 10% over the Adjustment Amount based upon
the Net Book Value reflected on the Closing Balance Sheet prepared by the Buyer,
in which case the Buyer shall pay all fees of the Accountant.
To the extent that the Net Book Value, as mutually agreed by the parties or
as determined by the Accountants, exceeds the Initial Adjustment Amount Payment,
the Buyer shall be obligated to pay the amount of such excess, up to the amount
of the Escrowed Adjustment Amount, promptly to the Sellers, one-half to the
Corporation and one-half to the LLC. In furtherance of such obligation of the
Buyer, the parties shall execute and deliver to the escrow agent with whom the
Escrowed Adjustment Amount is on deposit a joint instruction to pay such excess
to the Sellers, with any remaining balance of the Escrowed Adjustment Amount to
be paid to the Buyer. To the extent that the Net Book Value, as mutually agreed
by the parties or as determined by the Accountants, is less than the Initial
Adjustment Amount Payment, the Sellers shall be obligated, jointly and
severally, to pay the amount of such shortfall in the Net Book Value promptly to
the Buyer. In furtherance of such obligation of the Sellers, the parties shall
execute and deliver to the escrow agent with whom
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the Escrowed Adjustment Amount is on deposit a joint instruction to pay up to
the entire amount of the Escrowed Adjustment Amount to the Buyer. To the extent
that the amount of such shortfall in the Net Book Value shall exceed the
Escrowed Adjustment Amount, the Sellers shall be obligated, jointly and
severally, to pay such excess amount of shortfall promptly to the Buyer. Any
interest earned on the Escrowed Amount shall be paid to the Buyer or the Sellers
in proportion to the respective principal amounts of the Escrowed Adjustment
Amount received by each of them.
(c) Allocation. The allocation of the Purchase Price and the Assumed
Liabilities among the Purchased Assets is to be mutually agreed by the Sellers
and the Buyer at the Closing; provided that (i) the amount allocated to the
covenants set forth in Section 13.1 shall be $10,000, (ii) the aggregate
allocation between the Corporation and the LLC shall be equal, and (iii) the
aggregate allocation to the Purchased Assets (other than goodwill) shall not
exceed the Adjustment Amount computed in paragraph (b) above.
1.4 Instruments of Conveyance and Transfer; Further Assurances; Access.
(a) Instruments of Conveyance and Transfer. At the Closing, each of the
Sellers shall deliver to the Buyer a Bill of Sale and Assignment, substantially
in the form of Exhibit 1.4(a) (the "Bill of Sale") and such other endorsements,
certificates of title, assignments and other good and sufficient instruments of
conveyance and transfer, as shall be necessary to vest in the Buyer good, valid,
marketable and insurable title to the Purchased Assets in accordance herewith.
Simultaneously therewith, the Sellers shall take all steps as may be required to
transfer to the Buyer actual possession and exclusive operating control of the
Purchased Assets.
(b) Consulting Agreements. At the Closing, the Shareholders will enter into
consulting agreements with the Buyer on terms reasonably satisfactory to the
Shareholders and the Buyer (the "Consulting Agreements") pursuant to which the
Shareholders will provide part-time consulting services (including advertising
and promotional assistance) to the Buyer on an as needed basis.
(c) Dealership Leases. At the Closing, the Shareholders will enter into
leases to the Buyer's wholly-owned subsidiary (with the guaranty of the Buyer or
other security required by the terms of the leases), as lessee, regarding the
real properties associated with the Sellers' dealership businesses,
substantially in the form of Exhibit 1.4(c) (the "Dealership Leases").
(d) Further Assurances. The Sellers further agree that, from and after the
Closing, they will execute and deliver to the Buyer such additional instruments
and documents and take such further action as the Buyer may reasonably require
in order to more fully vest, record and/or perfect the Buyer's title to, or
interest in, the Purchased Assets.
(e) Shareholders' Covenant to Close. The Shareholders further covenant and
agree to take all necessary officer, director and stockholder or member actions
to cause the Sellers to perform their obligations at and prior to the Closing,
as contemplated by this Agreement.
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1.5 Offers of Employment to Sellers' Employees. On or prior to the date of
the Closing, the Buyer may offer employment to such of the Sellers' employees as
the Buyer shall select, such employment to begin on or after the date of the
Closing and to be upon such terms and conditions as determined by the Buyer in
its sole discretion, but the Buyer has no obligation to employ any person.
ARTICLE 2
CLOSING
The sale and purchase of the Purchased Assets contemplated hereby shall
take place at a closing (the "Closing") at the offices of Parker, Poe, Adams &
Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina, at 10:00 a.m.
local time on the fifth (5th) Business Day, or such shorter period as the Buyer
may choose, following the date the Buyer gives notice of the Closing to the
Sellers, but in no event later than September 30, 1997, unless another date or
place is agreed to in writing by the Sellers and the Buyer. The date on which
the Closing actually occurs is hereinafter referred to as the "Closing Date".
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLERS
The Sellers, jointly and severally, hereby represent and warrant to the
Buyer as follows:
3.1 Organization; Good Standing; Qualifications. The Corporation is a
corporation duly organized, validly existing and in good standing under the laws
of the State of North Carolina. The Corporation is not required to be qualified
as a foreign corporation in any jurisdiction. The LLC is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of North Carolina. The LLC has not been dissolved, its articles of
organization have not been revoked or suspended, it has not been merged into
another limited liability company in a transaction in which it was not the
survivor, and, if its term of duration is limited, its term has not expired. The
LLC is not required to be qualified as a foreign limited liability company in
any jurisdiction.
3.2 Authority; Consents; Enforceability.
(a) Authority. Each of the Sellers has full organizational power and
authority to carry on its business as now conducted, to execute and deliver this
Agreement and the other agreements, documents and instruments contemplated
hereby, to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery by
each of the Sellers of this Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation by each of the Sellers of the
transactions contemplated hereby and thereby and the performance by each of the
Sellers of its
5
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obligations hereunder and thereunder have been duly and validly authorized by
all necessary organizational action, including, without limitation, all
necessary shareholder or member action, as the case may be. The execution and
delivery by each of the Sellers of this Agreement and the other agreements,
documents and instruments contemplated hereby, the consummation of the
transactions contemplated hereby and thereby and the performance by each of the
Sellers of its obligations hereunder and thereunder do not and will not, except
as set forth on Schedule 3.2(a), (i) conflict with or violate any of the
provisions of the articles of incorporation or by-laws, each as amended, of the
Corporation, (ii) conflict with or violate any of the provisions of the articles
of organization or operating agreement, each as amended, of the LLC, (iii)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to either of the Sellers, the
Purchased Assets or the Assumed Liabilities, (iv) violate or conflict with the
terms of, or result in the acceleration of, any indebtedness or obligation of
either of the Sellers under, or violate or conflict with or result in a breach
of, or constitute a default under, any Material Contract, as defined in Section
3.6, to which either of the Sellers is a party or by which either of the Sellers
or any of the Purchased Assets or Assumed Liabilities are bound or affected, or
(v) result in the creation or imposition of any Encumbrance upon any of the
Purchased Assets.
(b) Consents. Except as set forth in Schedule 3.2(b), no consent,
authorization or approval of, or notice to, or filing or registration with, any
governmental body or authority, or any other third party, is required in
connection with the execution and delivery by either of the Sellers of this
Agreement and the other agreements, documents and instruments to be executed and
delivered in connection herewith, the consummation of the transactions
contemplated hereby and thereby and the performance by each of the Sellers of
its obligations hereunder or thereunder. Upon receipt from the Buyer of a notice
that the Buyer anticipates the Closing to occur within approximately 30 days
from the date of such notice (the "30-Day Notice"), the Sellers shall commence
reasonable commercial efforts to obtain all consents, authorizations, approvals,
notices, filings and registrations set forth on Schedule 3.2(b). The Buyer shall
reasonably cooperate with the Sellers in such efforts by them. Originals or
certified copies thereof, to the extent available, will have been delivered to
the Buyer prior to the Closing.
(c) Enforceability. This Agreement constitutes, and all instruments of
conveyance and other agreements, documents and instruments to be executed and
delivered by each of the Sellers in connection herewith shall, when so executed
and delivered, constitute, the legal, valid and binding obligations of each of
the Sellers, enforceable against each of the Sellers in accordance with their
respective terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
3.3 Investments. Other than the Corporation's membership interest in the
LLC and customary investments of cash in marketable securities or as set forth
on Schedule 3.3, neither Seller owns, directly or indirectly, any shares of
capital stock or other equity ownership or proprietary or membership interest in
any corporation, limited liability company, partnership, association, trust,
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joint venture or other entity, nor has any commitment to contribute to the
capital of, make loans to, or share in the losses of, any enterprise.
3.4 Financial Statements. (a) The Sellers have delivered to the Buyer prior
to the date hereof:
(i) The reviewed but unaudited balance sheets for the Sellers on a
combined basis as of December 31, 1996, and the related reviewed but
unaudited statements of income, stockholders' equity and changes in cash
flows of the Sellers on a combined basis for the fiscal year then ended
(including the notes thereto and any other information included therein),
accompanied, in each case, by the report of Dellinger & Deese PLLC, the
Sellers' independent certified public accountants (collectively, the
"Annual Financial Statements"); and
(ii) The unaudited balance sheet of the Sellers on a combined basis as
of March 31, 1997 and the related unaudited statements of income,
stockholders' equity and changes in cash flow for the three month period
then ended (collectively, the "Interim Financial Statements"), as certified
by each of the Sellers' respective President and Manager, as the case may
be, (the Annual Financial Statements and the Interim Financial Statements
are hereinafter collectively referred to as the "Financial Statements").
(b) The Financial Statements (i) include the payments by Dealer Financial
Services, Inc. and GE Capital Corporation to the Shareholders (as reported on
Internal Revenue Service Forms 1099) pursuant to which the Shareholders receive
commissions on General Electric service contracts sold by the Sellers (the "GE
Shareholder Payments"), (ii) are in accordance with the books and records of the
Sellers, which books and records are true, correct and complete in all material
respects, (iii) fully and fairly present the financial condition and results of
the operations of the Sellers as of and for the periods indicated, and (iv) have
been prepared in accordance with generally accepted accounting principles
consistently applied, except as set forth on Schedule 3.4.
3.5 Absence of Certain Changes. Since December 31, 1996 the Sellers have
operated their businesses in the ordinary course and, except as set forth on
Schedule 3.5, there has not been incurred, nor has there occurred:
(a) Any (i) damage, destruction or loss not covered by insurance, or (ii)
any damage, destruction or loss covered by insurance and in excess of one
million dollars ($1,000,000), in either case adversely affecting the Purchased
Assets or the business of either of the Sellers;
(b) Except for such liens as may be disclosed on Schedule 3.7, any sale,
transfer, pledge or other disposition of any tangible or intangible assets of
the either of the Sellers (except sales of vehicle and parts inventory in the
ordinary course of business) having an aggregate book value of $75,000 or more;
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(c) Any termination, amendment, cancellation or waiver of any Material
Contract (as defined in Section 3.6 hereof) or any termination, amendment,
cancellation or waiver of any material rights or claims of either of the Sellers
under any Material Contract (except in each case in the ordinary course of
business and consistent with past practices);
(d) Any material change in the accounting methods, procedures or practices
followed by either of the Sellers or any change in depreciation or amortization
policies or rates theretofore adopted by the Sellers;
(e) Except as may be disclosed on Schedules 3.8(b), 3.9(b), 3.22 and 3.23,
any obligation or liability for indebtedness for (i) borrowed money (or the
guaranty thereof), or (ii) the deferred purchase price of assets or for the
leasing of real or personal property requiring total payments in any single
instance in excess of $10,000 incurred by either of the Sellers (whether jointly
or severally) to any person or entity;
(f) Any material change in policies, operations or practices with respect
to business operations followed by either of the Sellers, including, without
limitation, with respect to selling methods, returns, discounts or other terms
of sale, or with respect to the policies, operations or practices of the Sellers
concerning the employees of the Sellers;
(g) Any statute, rule, regulation or order adopted or promulgated which
materially and adversely affects the Purchased Assets or the business of the
Sellers or the ability of the Sellers to enter into valid, binding and
enforceable agreements;
(h) Any capital appropriation or expenditure or commitment therefor on
behalf of the Sellers in excess of $50,000 individually, or $100,000 in the
aggregate;
(i) Any general uniform increase, other than in the ordinary course of
business, in the compensation of employees of either of the Sellers (including,
without limitation, any increase, other than in the ordinary course of business,
pursuant to any bonus, incentive pay system, pension, profit-sharing, defined
compensation or other plan or commitment) (other than any bonus which is fully
paid and satisfied prior to Closing), or any increase in excess of $25,000 in
any such compensation payable to any individual officer, director, consultant or
agent thereof, or any loans or commitments therefor made by either of the
Sellers to any persons, including any officers, directors, stockholders,
employees, consultants or agents of the Sellers or any of their affiliates;
(j) Any account receivable in excess of $50,000 or note receivable in
excess of $50,000 owing to either of the Sellers which (i) has been written off
as uncollectible, in whole or in part, (ii) has had asserted against it any
claim, refusal or right of setoff, or (iii) the account or note debtor has
refused to, or threatened not to, pay for any reason, or such account or note
debtor has become insolvent or bankrupt;
(k) Any other change in the condition (financial or otherwise), business
operations, assets, earnings, business or prospects of either of the Sellers
which has, or could
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reasonably be expected to have, a material adverse effect on the Purchased
Assets or the business or operations of the Sellers; or
(l) Any agreement, whether in writing or otherwise, by either of the
Sellers to take or do any of the actions enumerated in this Section 3.5.
3.6 Material Contracts.
(a) List of Material Contracts. Set forth on Schedule 3.6(a) is a list of
all of the following contracts, agreements, documents, instruments,
understandings or arrangements, written or oral, relating to the Purchased
Assets or the Assumed Liabilities, other than vehicle and parts purchase and
sale contracts made in the ordinary course of business (collectively, the
"Material Contracts"):
(i) purchase or sales orders and other contracts for the sale of goods
or services in excess of $50,000 individually;
(ii) purchase orders or contracts involving the expenditure of more
than $50,000 in any instance for the purchase of materials, supplies,
equipment or services and which are not cancelable within thirty (30) days
without penalty;
(iii) contracts which have a term in excess of one (1) year and
involve the expenditure of more than $75,000;
(iv) contracts and agreements relating to the leasing (as lessor or
lessee) or to the conditional purchase or sale by the Sellers of any
property, real, personal or mixed and pursuant to which the Sellers'
outstanding obligations exceed $10,000;
(v) contracts, commitments and arrangements with any governmental
body, agency or authority;
(vi) indentures, mortgages, deeds of trust, promissory notes, loan
agreements, capital leases (except to the extent covered in (iv) above),
security agreements or other agreements or commitments for the borrowing of
money, or the deferred purchase price of assets (except to the extent
covered in (iv) above), or which otherwise evidence indebtedness of the
Sellers for borrowed money or which create an Encumbrance on any of the
Purchased Assets;
(vii) guarantees of the obligations of a third party or agreements to
indemnify third parties;
(viii) agreements which restrict the Sellers from doing business with
any other person or entity in any geographic area or from producing or
selling any product;
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(ix) contracts or agreements with any of the Shareholders or any
affiliate (as defined below) of any of the Shareholders;
(x) license agreements (as licensee or licensor) with third parties;
(xi) employment, severance, change of control, parachute, or
consulting agreements or arrangements and collective bargaining agreements
and other related agreements, other than oral at-will arrangements with any
employees the termination of which will not require the payment of any
money;
(xii) distributor, dealer, sales, advertising, agency, manufacturer's
representative, franchise or similar agreements or any other contract
relating to the payment of a commission, including, but not limited to, all
agreements with Chrysler Corporation, General Motors Corporation or other
vehicle manufacturer or distributor;
(xiii) profit-sharing, deferred compensation, bonus, incentive, stock
option, pension, retirement, stock purchase, hospitalization, insurance or
similar plan, agreement or policy, formal or informal, funded or unfunded,
providing benefits to any current or former director, officer, shareholder
or employee;
(xiv) any agreement, arrangement, commitment or understanding for the
sale of any of the Purchased Assets, outside the ordinary course of
business; and
(xv) any other agreement, understanding or arrangement, written or
oral, which, in the judgment of the Sellers and the Shareholders, is
material to the business of the Sellers, the Purchased Assets or the
Assumed Liabilities and not otherwise described in this Section 3.6.
True copies of all written Material Contracts and written summaries of all
oral Material Contracts described or required to be described on Schedule 3.6(a)
will be delivered to the Buyer or its counsel promptly after the date hereof.
For purposes of this Agreement, an "affiliate" is any person or entity which,
directly or indirectly through one or more intermediaries, controls, is
controlled by or is under common control with a person or entity and the concept
of "control" means the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such person or entity,
whether through the ownership of voting securities, by contract or otherwise.
(b) Performance, Defaults, Enforceability. Except as set forth on Schedule
3.6(b), the Sellers have in all material respects performed all of their
obligations required to be performed by them to the date hereof, and are not in
default or alleged to be in default in any material respect, under any Material
Contract, and there exists no event, condition or occurrence which, after notice
or lapse of time or both, would constitute such a default. Except as set forth
on Schedule 3.6(b), to the knowledge of the Sellers, no other party to any
Material Contract is in default in any respect of any of its obligations
thereunder. Each of the Material Contracts is valid and in
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full force and effect, and, except as set forth in Schedule 3.6(b), the transfer
and assignment to the Buyer of all of the Material Contracts, will not (i)
require the consent of any party thereto or (ii) constitute an event permitting
termination thereof.
3.7 Title to Purchased Assets and Related Matters. The Sellers have good,
marketable and insurable title to all of the tangible Purchased Assets, free and
clear of all Encumbrances, except those described on Schedule 3.7 or another
schedule hereto and liens for taxes not yet due and payable, liens of
materialmen, mechanics and the like, incurred and discharged in the ordinary
course of business, and liens in the ordinary course of business in connection
with workers' compensation, unemployment insurance and the like. Except as set
forth in Schedule 3.7 or another schedule hereto, the Purchased Assets: (i)
include all properties and assets (real, personal and mixed, tangible and
intangible, and all leases, licenses and other agreements) utilized by the
Sellers in carrying on their business in the ordinary course; (ii) are in the
exclusive possession and control of the Sellers and no person or entity other
than the Sellers are entitled to possession of any portion of the Purchased
Assets; and (iii) do not include any contracts for future services, prepaid
items or deferred charges the full value or benefit of which will not be usable
by or transferable to the Buyer.
3.8 Real Property of the Sellers.
(a) Owned Real Property. The Sellers do not own and have never owned any
real property.
(b) Leased Premises. Schedule 3.8(b) contains a complete list and
description (including buildings and other structures thereon) of all real
property of which the Sellers are individually or jointly tenants (herein
collectively the "Leased Premises"), true and complete copies of the leases
thereof (except existing leases to be replaced by the Dealership Leases) have
been delivered to the Buyer. Except as set forth in Schedule 3.8(b), the Leased
Premises are in good physical condition and repair, except for ordinary wear and
tear and any damage, destruction or loss which would not be a breach of the
Sellers' representations and warranties contained in Section 3.5(a) above. The
Sellers have no knowledge of any event or condition which currently exists which
would create a legal or other impediment to the use of the Leased Premises as
currently used, or would increase the additional charges or other sums payable
by the tenant under any of the leases (together with the Dealership Leases, the
"Leases") (including, without limitation, any pending tax reassessment or other
special assessment affecting the Leased Premises). Except as set forth in
Schedule 3.8(b), the improvements and building systems which comprise a part of
the Leased Premises as to which the Sellers are responsible for the maintenance
and repair thereof are in good condition, maintenance and repair, except for
ordinary wear and tear and any damage, destruction or loss which would not be a
breach of the Sellers' representations and warranties contained in Section
3.5(a) above. Except for easements and restrictions of record, there is no
person or entity other than the Sellers in or entitled to possession of the
Leased Premises.
(c) Easements, Etc. The Leased Premises have sufficient easements and
rights, including, but not limited to, easements for power lines, water lines,
sewers, roadways and
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other means of ingress and egress, to conduct the businesses the Sellers now
conduct, all such easements and rights are unconditional appurtenant rights to
the Leased Premises for terms not less than those of the Leases, including
without limitation, renewal periods with respect to the Leased Premises, and
none of such easements or rights are subject to any forfeiture or divestiture
rights.
(d) Condemnation. Neither the whole nor any portion of any of the Leased
Premises has been condemned, expropriated, ordered to be sold or otherwise taken
by any public authority, with or without payment or compensation therefor, and
the Sellers do not know of any such condemnation, expropriation, sale or taking,
or have any grounds to anticipate that any such condemnation, expropriation,
sale or taking is threatened or contemplated. The Sellers have no knowledge of
any pending assessments which would affect the Leased Premises.
(e) Zoning, Etc. Except as set forth in Schedule 3.8(e), none of the Leased
Premises is in violation of any public or private restriction or any law or any
building, zoning, health, safety, fire or other law, ordinance, code or
regulation, and, except as set forth on Schedule 3.8(e), no notice from any
governmental body has been served upon the Sellers or upon any of the Leased
Premises claiming any violation of any building, zoning, health, safety, fire or
other law, ordinance, code or regulation or requiring or calling to the
attention of the Sellers the need for any work, repair, construction,
alterations or installation on or in connection with said properties, with which
the Sellers have not complied.
Notwithstanding anything to the contrary contained herein, all representations
and warranties of the Sellers in this Section 3.8 are made to the knowledge of
the Sellers insofar as such representations and warranties relate to Leased
Premises not owned by the Sellers, the Shareholders or their respective
affiliates.
3.9 Machinery, Equipment, Etc.
(a) Owned Equipment. Schedule 3.9(a) sets forth a list of all material
machinery, equipment, tools, motor vehicles, furniture and fixtures owned by the
Sellers and included in the Purchased Assets (collectively, the "Owned
Equipment").
(b) Leased Equipment. Schedule 3.9(b) contains a list of all personal
property leases or other agreements, whether written or oral, having total
remaining payments in excess of $10,000 and under which the Sellers individually
or jointly are lessees of or hold or operate any items of machinery, equipment,
motor vehicles, furniture and fixtures or other property owned by any third
party (collectively the "Leased Equipment").
(c) Maintenance of Equipment. Except as set forth on Schedule 3.9(c), the
Owned Equipment and the Leased Equipment is in good operating condition,
maintenance and repair in accordance with industry standards, except for
ordinary wear and tear and any damage, destruction or loss which would not be a
breach of the Sellers' representations and warranties contained in Section
3.5(a) above.
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3.10 Inventories of the Sellers. All inventories of the Sellers included in
the Purchased Assets consist in all material respects of items of a quality and
quantity usable and salable in the normal course of their businesses at the
values at which such inventories are carried, are generally sufficient to do
business in the ordinary course, and the levels of inventories are consistent
with the levels maintained by the Sellers in the ordinary course consistent with
past practices and the Sellers' obligations under their agreements with Chrysler
Corporation or other vehicle manufacturer or distributor. The values at which
such inventories are carried are based on (a) the LIFO method in the case of new
vehicle inventory, and (b) the FIFO method in the case of used vehicles and
spare parts inventories, and are stated in accordance with generally accepted
accounting principles consistently applied by the Sellers at the lower of
historic cost or market.
3.11 Accounts Receivable of the Sellers. The Sellers have delivered to the
Buyer a true and correct aged list of all unpaid accounts receivable of the
Sellers as of May 1, 1997. All accounts receivable of the Sellers included in
the Purchased Assets will constitute legal, valid and binding and enforceable
claims with respect to which the rendition of services or the sale of goods has
been completed in bona fide transactions in the ordinary course of business, are
collectible at the aggregate recorded amounts thereof, subject to the Sellers'
customary bad debt write-off which would, but for the Closing, be taken at the
end of 1997, in the ordinary course of the Sellers' business, and are not
subject to any known offsets or counterclaims.
3.12 Approvals, Permits and Authorizations. Set forth on Schedule 3.12 is a
list of all governmental licenses, permits, certificates of inspection, other
authorizations, filings and registrations which are necessary in all material
respects for the Sellers to own the Purchased Assets and to operate their
businesses as presently conducted (collectively, the "Authorizations"). All
Authorizations have been duly and lawfully secured or made by the Sellers and
are in full force and effect. There is no proceeding pending or overtly
threatened or, to the Sellers' knowledge, any basis for a claim, to revoke or
limit any Authorization. From the date hereof to and including the Closing Date,
the Sellers will make all reasonable commercial efforts to maintain the
Authorizations. As of the Closing, all Authorizations will be transferred
pursuant to this Agreement to the Buyer to the extent permitted by law. Upon
receipt of the 30-Day Notice, the Sellers will take all reasonable commercial
steps to obtain, and will cooperate with the Buyer to obtain, all consents and
approvals required to effect such transfer. With respect to renewal of
Authorizations, the Sellers have made, in a timely manner, all filings, reports,
notices and other communications with the appropriate governmental body, and
have otherwise taken, in a timely manner, all other action, known or anticipated
to be required to be taken by the Sellers, reasonably necessary to secure the
renewal of the respective Authorizations prior to the date of their respective
expirations.
3.13 Compliance with Laws. The Sellers have conducted their operations and
businesses in all material respects in compliance with, and all of the Purchased
Assets comply in all material respects with, (i) all applicable laws, rules and
regulations (including, without limitation, any laws, rules and regulations
relating to anticompetitive practices, contracts, discrimination, employee
benefits, employment, health, safety, and zoning, but excluding Environmental
Laws which are the subject of Section 3.29 hereof) and (ii) all applicable
orders, rules, writs, judgments, injunctions, decrees and ordinances. The
Sellers have not received any currently pending
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notification of any asserted present or past failure by them to comply with such
laws, rules or regulations, or such orders, rules, writs, judgments,
injunctions, decrees or ordinances. Set forth on Schedule 3.13 are all orders,
writs, judgments, injunctions, decrees or other awards of any court or any
governmental instrumentality presently applicable to the Purchased Assets or the
Sellers or their businesses and operations. The Sellers have delivered to the
Buyer copies of all reports, if any, of the Sellers required to be prepared by
the Sellers within the last 2 years under the Federal Occupational Safety and
Health Act of 1970, as amended, and under all other applicable health and safety
laws and regulations. The deficiencies, if any, noted on such reports or any
deficiencies noted by inspection through the Closing Date have been, or as of
the Closing Date, will have been, corrected by the Sellers.
3.14 Insurance.
(a) Schedule 3.14(a) of this Agreement sets forth a list of all policies of
liability, theft, fidelity, life, fire, product liability, workmen's
compensation, health and any other insurance and bonds maintained by, or on
behalf of, the Sellers on their properties, operations, inventories, assets,
businesses or personnel (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims in excess of $5,000 thereunder).
Each such insurance policy identified therein is and shall remain in full force
and effect on and as of the Closing Date (subject to cancellation immediately
thereafter unless continued by the Buyer) and the Sellers are not in default
with respect to any provision contained in any such insurance policy and have
not failed to give any notice or present any claim under any such insurance
policy in a due and timely fashion. No notice of cancellation or termination has
been received with respect to any such policy. The Sellers have not, during the
last three (3) fiscal years, been denied or had revoked or rescinded any policy
of insurance.
(b) Set forth on Schedule 3.14(b) is a summary of information pertaining to
property damage and personal injury claims in excess of $5,000 against either of
the Sellers during the past five (5) years, all of which are fully satisfied or
are being defended by the insurance carrier and involve no exposure to the
Sellers.
3.15 Taxes.
(a) All federal, state and local tax returns and reports required as of the
date hereof to be filed by the Sellers for taxable periods ending prior to the
date hereof have been duly and timely filed (after giving effect to applicable
extension periods) by the Sellers with the appropriate governmental agencies,
and all such returns and reports are true, correct and complete.
(b) All federal, state and local income, profits, franchise, sales, use,
occupation, property, excise, payroll, withholding, employment, estimated and
other taxes of any nature, including interest, penalties and other additions to
such taxes ("Taxes"), payable by, or due from, the Sellers for all periods prior
to the date hereof have been fully paid or adequately reserved for by the
Sellers or, with respect to Taxes required to be accrued, the Sellers have
properly accrued or will properly accrue such Taxes in the ordinary course of
business consistent with past practice
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of the Sellers, in all cases except to the extent (i) the requirement to pay or
accrue such tax is unknown to the Sellers and immaterial as to amount and (ii)
being contested in good faith by appropriate proceedings with adequate reserves
therefor.
(c) The federal income tax returns of the Sellers have not been examined by
the Internal Revenue Service ("IRS") since the taxable period ended December 31,
1993. Except as set forth on Schedule 3.15, the Sellers have not received any
notice of any assessed or proposed claim or deficiency against it in respect of,
or of any present dispute between it and any governmental agency concerning, any
Taxes. Except as set forth on Schedule 3.15, no examination or audit of any tax
return or report of either of the Sellers by any applicable taxing authority is
currently in progress and there are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax return or
report of the Sellers. Copies of all federal, state and local tax returns and
reports required to be filed by the Sellers for the years ended December 31,
1995 and 1994, together with all schedules and attachments thereto, have been
previously delivered to the Buyer.
(d) The Corporation, with the consent of the Shareholders, has validly
elected under Subchapter S of the Internal Revenue Code of 1986, as amended (the
"Code"), to be taxed as a small business corporation for the Corporation's
taxable year beginning January 1, 1987, and such tax election has continued
uninterrupted for that time and is still in effect and will remain in effect
through the Closing. The Corporation and the Shareholders from the date hereof
though the Closing will not cause or allow the Corporation's election to be
taxed as a small business corporation under Subchapter S of the Code to
terminate and will not perform or fail to perform any act which might jeopardize
the continued validity of said election through such date.
(e) The Sellers are not now, and have never been, members of a consolidated
group for federal income tax purposes or a consolidated, combined or similar
group for state tax purposes. No consent under Code Section 341 has been made
affecting the Sellers. Neither of the Sellers is a party to any agreement or
arrangement that would result in the payment of any "excess parachute payments"
under Code Section 280G. Except as set forth on Schedule 3.15, the Sellers are
not required to make any adjustment under Code Section 481(a). No power of
attorney relating to Taxes is currently in effect affecting the Sellers.
3.16 Litigation. Except as set forth in Schedule 3.16, there are no
actions, suits, claims, investigations or legal or administrative or arbitration
proceedings pending or overtly threatened, against the Sellers with respect to
the Purchased Assets or the Assumed Liabilities or the businesses of the
Sellers, other than customer complaints in the ordinary course of business.
Except as set forth on Schedule 3.6(b), the Sellers know of no basis for the
institution of any such action, suit, claim, investigation or proceeding. The
Sellers are not now under any judgment, order, writ, injunction, decree, award
or other similar command of any court, administrative agency or other
governmental authority applicable to the businesses of the Sellers or any of the
Purchased Assets or Assumed Liabilities.
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3.17 Powers of Attorney. Except as set forth on Schedule 3.17, there are no
persons, firms, associations, corporations, business organizations or other
entities holding general or special powers of attorney from the Sellers other
than the registered corporate agents of the Sellers in the State of North
Carolina and powers of attorney granted under and embodied in the written terms
of the Material Contracts.
3.18 Broker's and Finder's Fees. The Sellers have not incurred any
liability to any broker, finder or agent or any other person or entity for any
fees or commissions with respect to the transactions contemplated by this
Agreement, and the Sellers hereby agree to assume all liability to any such
broker, finder or agent or any other person or entity claiming any such fee or
commission.
3.19 Employee Relations. The Sellers employ a total of 226 employees as of
May 14, 1997. Except as set forth in Schedule 3.19: (a) the Sellers are not
delinquent in the payment (i) to or on behalf of any past or present employees
of any wages, salaries, commissions, bonuses, benefit plan contributions or
other compensation for all periods prior to the date hereof or the date of the
Closing, as the case may be, (ii) of any amount which is due and payable to any
state or state fund pursuant to any workers' compensation statute, rule or
regulation or any amount which is due and payable to any workers' compensation
claimant or any other party arising under or with respect to a claim that has
been filed under state statutes and approved in the ordinary course in
accordance with the Sellers' policies regarding workers' compensation and/or any
applicable state statute or administrative procedure; (b) there is no material
unfair labor practice charge or complaint against the Sellers pending before the
National Labor Relations Board, and, to the knowledge of the Sellers, none is
threatened; (c) there is no labor strike, dispute, slowdown or stoppage actually
in progress or, to the knowledge of the Sellers, threatened against the Sellers;
(d) there are no collective bargaining agreements currently in effect between
the Sellers and labor unions or organizations representing any employees of the
Sellers; (e) no collective bargaining agreement is currently being negotiated by
the Sellers; (f) there are no union organizational drives in progress and there
has been no formal or informal request to the Sellers for collective bargaining
or for an employee election from any union or from the National Labor Relations
Board; (g) no union representation or jurisdictional dispute or question exists
respecting the employees of the Sellers; (h) no material grievance or
arbitration proceedings are pending and no claim therefor has been asserted
against the Sellers; and (i) no material dispute exists between either of the
Sellers and any of their sales representatives or, to the knowledge of the
Sellers, between any such sales representatives with respect to territory,
commissions, products or any other terms of their representation.
3.20 Compensation. Schedule 3.20 contains a schedule of all employees
(including sales representatives) and consultants of the Sellers whose
individual cash compensation for the year ended December 31, 1996, or projected
for the year ended December 31, 1997, is in excess of $100,000, together with
the amount of total compensation paid to each such person for the twelve month
period ended December 31, 1996 and the current aggregate base salary or hourly
rate (including any incentive pay system, bonus or commission) for each such
person.
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3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.
(a) Except as set forth on Schedule 3.21, there are no patents, trademarks,
trade names, service marks, service names and registered copyrights, which are
material to the Sellers' businesses, and there are no applications therefor or
licenses thereof, inventions, computer software, logos, or slogans, which are
owned or leased by the Sellers or used in the conduct of the Sellers' business.
Except as set forth on Schedule 3.21, the Sellers are not individually or
jointly a party to, and do not pay a royalty to anyone under, any license or
similar agreement. There is no existing claim, or, to the knowledge of the
Sellers, any basis for any claim, against the Sellers that any of their
operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that either of the
Sellers is wrongfully or otherwise using the property rights of others. To the
Sellers' knowledge, no third party is violating the Sellers' intangible property
rights.
(b) The Sellers are the owners of the names "Lake Norman Dodge, Inc." and
"Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC" in the State of North Carolina
and, to the knowledge of the Sellers, no person uses, or has the right to use,
such name or any derivation thereof in connection with the manufacture, sale,
marketing or distribution of products or services commonly associated with an
automobile dealership in North Carolina.
3.22 Certain Liabilities.
(a) Part 1 of Schedule 3.22 sets forth a true and complete aged listing of
all accounts payable owing by the Sellers as of May 1,1997. All accounts payable
by the Sellers to third parties as of the date hereof arose in the ordinary
course of business and none are delinquent or past due, except as may be noted
on such Schedule and except to the extent payment thereof is being disputed in
an appropriate manner and the disputed amounts are adequately reserved on the
respective Sellers' books of account.
(b) Part 2 of Schedule 3.22 sets forth a list of all indebtedness of the
Sellers as of the close of business on the day preceding the date hereof (other
than accounts payable) including, without limitation, money borrowed, the
deferred purchase price of assets, letters of credit and capitalized leases,
indicating, in each case, the name or names of the lender, the date of maturity,
the rate of interest, any prepayment penalties or premiums and the unpaid
principal amount of such indebtedness as of such date.
3.23 No Undisclosed Liabilities. The Sellers do not have any material
liabilities or obligations of any nature, known or unknown, fixed or contingent,
matured or unmatured, other than those (a) reflected in the Financial
Statements, (b) incurred in the ordinary course of business since the date of
the Financial Statements, (c) fully insured by third party insurance carriers,
or (d) disclosed specifically on Schedule 3.23.
3.24 Certain Transactions. Except as set forth in Schedule 3.24, there are
no transactions between any Seller and any of the Shareholders (including the
Shareholders' affiliates),
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or the Sellers' or Shareholders' (including the Shareholders' affiliates)
directors, officers or salaried employees, or the family members or affiliates
of any of the above (other than for services as employees, officers and
directors), including, without limitation, any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any of the Shareholders, or any such officer, director or salaried
employee, family member, or affiliate or any corporation, partnership, trust or
other entity in which such family member, affiliate, officer, director or
employee has a substantial interest or is a shareholder, officer, director,
trustee or partner.
3.25 Business Generally. The Sellers have not agreed to sell the Purchased
Assets to the Buyer based in whole or in part on the knowledge of any
information concerning the Sellers which has, or could reasonably be expected to
have, a material adverse effect on the businesses and operations of the Sellers,
taken as a whole, and which has not been disclosed to the Buyer hereunder.
3.26 Employee Benefits.
(a) Schedule 3.26 lists each "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained by the Sellers or to which the Sellers contribute or are
required to contribute and also lists each deferred compensation plan, bonus
plan, severance plan, stock option plan, "phantom" stock plan, employee stock
purchase plan, cafeteria plan, and each other employee benefit plan, agreement,
arrangement, policy or commitment of the Sellers, whether formal or informal,
written or oral, funded or unfunded, covering employees or former employees of
the Seller (each such plan being hereinafter called an "Employee Benefit Plan").
For this purpose and for the purpose of all of the representations in this
Section 3.26, the term Sellers shall include the Shareholders and all entities
which by reason of common control are treated together with the Sellers and/or
Shareholders as a single employer in accordance with Section 414 of the Internal
Revenue Code (the "Code").
(b) The Sellers do not maintain or contribute to, and have never maintained
or contributed to, an Employee Benefit Plan subject to Title IV of ERISA or a
"multiemployer plan" (as defined in Section 3(37) of ERISA).
(c) Each Employee Benefit Plan and any related trust agreements or annuity
contracts (or any other funding instruments) has been administered and
maintained to date in substantial compliance with the provisions of its terms,
ERISA and the Code, where required, and all other applicable laws, rules and
regulations; and a favorable determination as to the qualification under the
Code of each Employee Benefit Plan intended to be so qualified, and each
amendment thereto, has been made by the IRS.
(d) No Employee Benefit Plan is funded by means of a VEBA or is otherwise
subject to the funding rules of Sections 419 and 419A of the Code. The Sellers
comply and have substantially complied with the health care continuation
coverage (COBRA) requirements of Section 4980B of the Code and Sections 601-608
of ERISA and any applicable state health care continuation coverage
requirements. Sellers have made no promises or incurred any liability,
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pursuant to an Employee Benefit Plan or otherwise, to provide medical or other
welfare benefits to retired or former employees of the Sellers (other than COBRA
or state mandated continuation coverage, where applicable).
(e) To the knowledge of the Sellers, neither the Sellers nor any plan
fiduciary of any Employee Benefit Plan has engaged in any transaction which
would result in any tax, penalty or liability for prohibited transactions under
ERISA or the Code nor have any plan fiduciaries breached any of their
responsibilities or obligations imposed upon fiduciaries under Title I of ERISA
which may result in any claim being made under or by or on behalf of any
Employee Benefit Plan by any party with standing to make such claim. No
litigation concerning any Employee Benefit Plan is pending or, to the Sellers'
knowledge, threatened or probable of assertion, nor, to the knowledge of the
Sellers, is there outstanding any complaint to the Department of Labor
concerning any such plan.
(f) True and complete copies of each Employee Benefit Plan, related trust
agreements or annuity contracts (or any other funding instruments), most recent
Summary Plan Descriptions thereof, all records concerning any IRS or Department
of Labor audit, if any, of the same or of deductions for contributions thereto,
the three most recent Annual Reports on Form 5500 Series required to be filed
with any governmental agency for each Employee Benefit Plan and annual financial
statements for the last three (3) plan years of any Employee Benefit Plan,
together with test results demonstrating compliance with coverage and either
contributions or benefits non-discrimination, as required by the Code, have
heretofore been delivered by the Sellers to the Buyer.
(g) All Employee Benefit Plans, related trust agreements or annuity
contracts (or any other funding instruments) are legally valid and binding and
in full force and effect, and there are no material defaults thereunder. None of
the rights of the Sellers thereunder will be impaired by the consummation of the
transactions contemplated by this Agreement.
3.27 Sellers and Shareholders Not Foreign Persons. Neither the Sellers nor
any of the Shareholders is a "foreign person" as that term is defined in the
Code and the regulations promulgated pursuant thereto, and the Buyer has no
obligation under Section 1445 of the Code to withhold or pay over to the IRS any
part of the "amount realized" (as such term is defined in the regulations issued
under Section 1445 of the Code) by the Sellers and/or the Shareholders in the
transactions contemplated hereby.
3.28 Suppliers and Customers. Except as set forth in Schedule 3.28, the
Sellers are not required to provide bonding or any other security arrangements
in connection with any transactions with any of its respective customers or
suppliers. Except as disclosed on Schedule 3.28, to the knowledge of the
Sellers, no material supplier or creditor intends or has threatened to terminate
or modify any of their respective relationships with the Sellers.
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3.29 Environmental Matters.
(a) For purposes of this Section 3.29, the following terms shall have the
following meaning:
(i) "Environmental Law" means all present and future federal, state
and local laws, statutes, regulations, rules, ordinances and common law,
and all judgments, decrees, orders, agreements, or permits, issued,
promulgated, approved or entered thereunder by any government authority
relating to pollution, Hazardous Materials, worker safety or protection of
human health or the environment.
(ii) "Hazardous Material" means any waste, pollutant, chemical,
hazardous material, hazardous substance, toxic substance, hazardous waste,
special waste, solid waste, petroleum or petroleum-derived substance or
waste (regardless of specific gravity), or any constituent or decomposition
product of any such pollutant, material, substance or waste, including, but
not limited to, any hazardous substance or constituent contained within any
waste and any other pollutant, material, substance or waste regulated under
or as defined by any Environmental Law.
(b) The Sellers have obtained all permits, licenses and other
authorizations or approvals required under Environmental Laws for the conduct
and operation of the Purchased Assets in all material respects ("Environmental
Permits"). All such Environmental Permits are in good standing, the Sellers are
and have been in compliance in all material respects with the terms and
conditions of all such Environmental Permits, and no appeal or any other action
is pending or threatened to revoke any such Environmental Permit.
(c) Except as may be disclosed in the environmental reports referred to in
Section 3.29(l), the Sellers and the Purchased Assets are and have been in
compliance in all material respects with all Environmental Laws.
(d) Except as may be disclosed in the environmental reports referred to in
Section 3.29(l), neither the Sellers nor the Shareholders has received any
written or oral order, notice, complaint, request for information, claim, demand
or other communication from any government authority or other person, whether
based in contract, tort, implied or express warranty, strict liability, or any
other common law theory, or any criminal or civil statute, arising from or with
respect to (i) the presence of any Hazardous Material or any other environmental
condition or a release or threatened release on, in or under the Leased Premises
or any other property formerly owned, used or leased by the Sellers, (ii) any
other circumstances forming the basis of any actual or alleged violation by the
Sellers of any Environmental Law or any liability of the Sellers under any
Environmental Law, (iii) any remedial or removal action required to be taken by
the Sellers under any Environmental Law, or (iv) any harm, injury or damage to
real or personal property, natural resources, the environment or any person
alleged to have resulted from the foregoing, nor are the Sellers aware of any
facts which might reasonably give rise to such notice or communication. The
Sellers have not entered into any agreements concerning any removal or
remediation of Hazardous Materials
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(e) No lawsuits, claims, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other actions are pending or
overtly threatened under any Environmental Law with respect to the Sellers or
the Leased Premises.
(f) Except as may be disclosed in the environmental reports referred to in
Section 3.29(l) or as disclosed on Schedule 3.29, no Hazardous Materials are or
have been released, discharged, spilled or disposed of onto, or migrated onto,
the Leased Premises or any other property previously owned, operated or leased
by the Sellers, and no environmental condition exists (including, without
limitation, the presence, release, threatened release or disposal of Hazardous
Materials) related to the Leased Premises, to any property previously owned,
operated or leased by the Sellers, or to the Sellers' past or present
operations, which would constitute a violation of any Environmental Law or
otherwise give rise to costs, liabilities or obligations under any Environmental
Law.
(g) Neither the Sellers nor any of their predecessors in interest has
transported or disposed of, or arranged for the transportation or disposal of,
any Hazardous Materials to any location (i) which is listed on the National
Priorities List, the CERCLIS list under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any similar
federal, state or local list, (ii) which is the subject of any federal, state or
local enforcement action or other investigation, or (iii) about which the
Sellers or the Shareholders have received or have reason to expect to receive a
potentially responsible party notice or other notice under any Environmental
Law.
(h) No environmental lien has attached or is threatened to be attached to
the Leased Premises.
(i) No employee of the Sellers in the course of his or her employment with
the Sellers has been exposed to any Hazardous Materials or other substance,
generated, produced or used by the Sellers which could give rise to any material
claim (whether or not such claim has been asserted) against the Sellers.
(j) Except as set forth on Schedule 3.29(j) and except as may be disclosed
in the environmental reports referred to in Section 3.29(l), the Property does
not contain any: (i) septic tanks into which process wastewater or any Hazardous
Materials have been disposed; (ii) asbestos; (iii) polychlorinated biphenyls
(PCBs); (iv) underground injection or monitoring wells; or (v) underground
storage tanks.
(k) Except as provided in the written terms of the Material Contracts, the
Sellers have not agreed to assume, defend, undertake, guarantee, or provide
indemnification for, any liability, including without limitation any obligation
for corrective or remedial action, of any other person under any Environmental
Law for environmental matters or conditions.
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(l) Except as set forth on Schedule 3.29(l), to the knowledge of the
Sellers, there have been no environmental studies or reports made relating to
the Leased Premises or any other property or facility previously owned, operated
or leased by the Sellers.
(m) Notwithstanding anything to the contrary contained herein, all
representations and warranties of the Sellers in paragraphs (e) through (j) and
(l) of this Section 3.29 are made to the knowledge of the Sellers insofar as
such representations and warranties relate to real property not owned by the
Sellers, the Shareholders or their respective affiliates.
3.30 Bank Accounts and Safe Deposit Boxes. Schedule 3.30 lists all bank
accounts, credit cards and safe deposit boxes in the name of, or controlled by,
the Sellers, and details about the persons having access to or authority over
such accounts, credit cards and safe deposit boxes.
3.31 Warranties. Set forth on Schedule 3.31 are descriptions or copies of
the forms of all express, unexpired warranties and disclaimers of warranty made
by the Sellers (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties) to
customers or users of the vehicles, parts, products or services of the Sellers.
Except for no more than $300,000 per year of warranty repairs and accommodations
made for customers in the ordinary course of business, there has been no breach
of warranty or breach of representation claim against the Sellers during the
past five years which has resulted in any cost, expenditure or exposure to the
Seller of more than $10,000 individually.
3.32 Interest in Competitors and Related Entities. Except as set forth on
Schedule 3.32, no Shareholder and no affiliate of any Shareholder (i) has any
direct or indirect interest in any person or entity engaged or involved in any
business which is competitive with the business of the Sellers, (ii) has any
direct or indirect interest in any person or entity which is a lessor of assets
or properties to, material supplier of, or provider of services to, the Sellers,
or (iii) has a beneficial interest in any contract or agreement to which either
of the Sellers is a party; provided, however, the foregoing representation and
warranty shall not apply to any person or entity, or any interest or agreement
with any person or entity, which is a publicly held corporation in which the
Shareholders individually and collectively own less than 3% of the issued and
outstanding voting stock.
3.33 Availability of Sellers' Employees. There have been no actions taken
by the Sellers, their affiliates, or any of their respective shareholders,
officers, directors, members, managers or employees, to discourage, or in any
way prevent, any of the employees of the Sellers from being hired by the Buyer
after Closing.
3.34 Misstatements and Omissions. No representation or warranty made by the
Sellers in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Sellers or any of the Shareholders
pursuant hereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
such representation or warranty or such statement not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authority; Consents; Enforceability.
(a) Authority. The Buyer has full corporate power and authority to execute
and deliver the Agreement and the other agreements and documents and instruments
contemplated hereby, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery by the Buyer of this Agreement and the other agreements, documents
and instruments contemplated hereby, the consummation by the Buyer of the
transactions contemplated hereby and thereby and the performance by the Buyer of
its obligations hereunder and thereunder have been duly and validly authorized
by all necessary corporate action on the part of the Buyer. The execution and
delivery by the Buyer of this Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation by the Buyer of the
transactions contemplated hereby and thereby and the performance by the Buyer of
its obligations hereunder and thereunder will not (i) conflict with or violate
any of the provisions of the Certificate of Incorporation or By-laws of the
Buyer, (ii) violate any law, ordinance, rule or regulation or any judgment,
order, writ, injunction or decree or similar command of any court administrative
or governmental agency or other body applicable to the Buyer or any of its
assets, or (iii) violate or conflict with the terms of, or result in the
acceleration of, any indebtedness or obligation of the Buyer under, or violate
or conflict with or result in a breach by the Buyer of, or constitute a default
under, any material instrument, agreement or indenture or any mortgage, deed of
trust or similar contract to which the Buyer is a party or by which the Buyer or
any of its assets may be otherwise bound or affected.
(b) Consents. Except as set forth in Schedule 4.2(b), no consent,
authorization or approval of, or notice to, or filing or registration with, any
governmental body or authority, or any other third party, is required in
connection with the execution and delivery by the Buyer of this Agreement and
the other agreements, documents and instruments to be executed and delivered in
connection herewith, the consummation by the Buyer of the transactions
contemplated hereby and thereby and the performance by the Buyer of its
obligations hereunder and thereunder. The Buyer shall use reasonable commercial
efforts to obtain all consents, authorizations, approvals, notices, filings and
registrations set forth on Schedule 4.2(b). The Sellers shall reasonably
cooperate with the Buyer in such efforts by it.
(c) Enforceability. This Agreement constitutes, and all other agreements,
documents and instruments to be executed and delivered by the Buyer in
connection herewith shall, when so executed and delivered, constitute, the
legal, valid and binding obligations of the Buyer, enforceable against the Buyer
in accordance with their respective terms, except to the extent that
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enforceability may be limited by bankruptcy, insolvency and other similar laws
affecting the enforcement of creditors' rights generally.
4.3 Broker's and Finder's Fees. The Buyer has not incurred any liability to
any broker, finder or agent or any other person or entity for any fees or
commissions with respect to the transactions contemplated by this Agreement, and
the Buyer hereby agrees to assume all liability to any such broker, finder or
agent or any other person or entity claiming any such fee or commission.
4.4 Litigation. There are no actions, suits, claims, investigations or
legal or administrative or arbitration proceedings pending or, to the Buyer's
knowledge, threatened or probable of assertion, against the Buyer before any
court, governmental or administrative agency or other body relating to this
Agreement and/or the transactions contemplated hereby. The Buyer is not now
under any judgment, order, writ, injunction, decree or other similar command of
any court, administrative agency or other governmental agency which relate to
this Agreement and/or the transactions contemplated hereby.
4.5 Misstatements or Omissions. No representation or warranty made by the
Buyer in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Buyer to the Sellers and/or the
Shareholders pursuant hereto, contains or will contain an untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make such representation or warranty or such statement not misleading.
ARTICLE 5
PRE-CLOSING COVENANTS
OF THE SHAREHOLDERS AND THE SELLERS
The Sellers and the Shareholders hereby, jointly and severally, covenant
and agree that from and after the date hereof until the Closing:
5.1 Provide Access to Information; Cooperation with Buyer.
(a) Access. Subject to the Buyer's compliance with Section 14.2, the
Sellers shall afford to the Buyer, its attorneys, accountants, and such other
representatives of the Buyer as the Buyer shall designate to the Sellers in
writing, free and full access at all reasonable times, and upon reasonable prior
notice, to the Purchased Assets and the properties, books and records of the
Sellers, and to interview personnel, suppliers and customers of the Sellers, in
order that the Buyer may have full opportunity to make such investigation
(hereinafter referred to as the "Buyer's due diligence") as it shall reasonably
desire of the Purchased Assets (including, without limitation, any appraisals or
inspections thereof), Assumed Liabilities and the businesses and operations of
the Sellers, provided, however that, unless the Sellers shall otherwise consent,
until the transaction has been publicly announced (a) the Buyer's due diligence
shall be conducted off-site and not at the Sellers' premises, except in the
context of any Environmental Audit as provided under Section 5.8
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or any physical inspection of the roof, walls and systems of the Sellers'
premises, and (b) the Buyer's discussions with the Sellers' personnel shall be
limited to discussions with PMG, QMG, Phil M. (Bunky) Gandy, III, James Pentalow
and the Sellers' accountants and attorneys. In addition, the Sellers shall
provide to the Buyer and its representatives such additional financial and
operating data and other information in respect of the Purchased Assets, Assumed
Liabilities and the business and properties of the Sellers as the Buyer shall
from time to time reasonably request.
(b) Cooperation in IPO Preparation. The Sellers and Shareholders shall
cooperate with the Buyer in the preparation of any description of the
transactions contemplated by this Agreement deemed by the Buyer, in its sole
discretion, as necessary for the completion of any registration statement,
prospectus or amendment or supplement thereto prepared in connection with the
closing of the Initial Public Offering ("IPO") of the Buyer's securities.
(c) Cooperation in Obtaining Buyer's Consents. The Sellers and Shareholders
shall use reasonable best efforts in cooperating with the Buyer in the
preparation of and delivery to Chrysler Corporation, as soon as practicable
after the date hereof, of an application and other information necessary to
obtain Chrysler Corporation's consent to or the approval of the transactions
contemplated by this Agreement in satisfaction of the conditions expressed in
Section 7.10.
5.2 Operation of Business of the Sellers. At all times before the Closing,
the Sellers shall (a) maintain their corporate existence in good standing, (b)
operate their businesses substantially as presently operated and only in the
ordinary course and consistent with past operations and, except as set forth on
Schedule 5.2, their obligations under any existing agreements with Chrysler
Corporation, (c) use their reasonable, commercial best efforts to preserve
intact their present business organizations and employees and their
relationships with persons having business dealings with them, including, but
not limited to, Chrysler Corporation and any floor plan financing creditors, (d)
comply in all material respects with all applicable laws, rules and regulations,
(e) maintain their insurance coverages as currently maintained, (f) pay all
Taxes, charges and assessments when due, subject to any valid objection or
contest of such amounts asserted in good faith and adequately reserved against,
(g) make all debt service payments when contractually due and payable, (h) pay
all accounts payable and other current liabilities when due, except as set forth
on Schedule 5.2, (i) maintain the Welfare Benefit Plans and Pension Benefit
Plans, if any, (j) except as set forth on Schedules 3.8(b) and 3.9(b), maintain
the property, plant and equipment included in the Purchased Assets in good
operating condition, ordinary wear and tear excepted, (k) as of the Closing
Date, not maintain any used cars in inventory for longer than 90 days, (l)
maintain their books and records of account in the usual, regular and ordinary
manner, and (m) use their reasonable efforts to encourage such personnel of the
Sellers as the Buyer may designate in writing to become employees of the Buyer
after the date of the Closing.
5.3 Other Changes. The Sellers shall not, without the prior written consent
of the Buyer, (a) issue any debt or equity security or any options or warrants,
(b) enter into any subscriptions, agreements, plans or other commitments
pursuant to which the Sellers are or may become obligated to issue any shares of
its capital stock or any securities convertible into shares of
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their capital stock or membership interests, as the case may be, (c) otherwise
change or modify their capital structure, (d) engage in any reorganization or
similar transaction, (e) agree to take any of the foregoing actions, (f) enter
into any contract, agreement, undertaking or commitment which would have been
required to be set forth in Schedule 3.6(a) if in effect on the date hereof or
enter into any contract, agreement, undertaking or commitment which cannot be
assigned to the Buyer or a permitted assignee of the Buyer, or (g) take, cause,
agree to take or cause, or permit to occur any of the actions or events set
forth in clauses (b), (d), (e), (f), (h), (i), item (i) of clause (j), or (l) of
Section 3.5 of this Agreement. The Sellers will not agree to any termination,
amendment, cancellation or waiver of any Material Contract, or to any
termination, amendment, cancellation or waiver of any material rights or claims
of either of the Sellers under any Material Contract, where the effect of any
such termination, amendment, cancellation or waiver would be to materially and
adversely affect the Purchased Assets or the ability of the Sellers to
consummate the transactions at the Closing under this Agreement.
5.4 Additional Information. The Sellers shall furnish to the Buyer such
additional information with respect to any matters or events arising or
discovered subsequent to the date hereof which, if existing or known on the date
hereof, would have rendered any representation or warranty made by the Sellers
or any information contained in any Schedule hereto or in other information
supplied in connection herewith then inaccurate or incomplete. The receipt of
such additional information by the Buyer shall not operate as a waiver by the
Buyer of the obligation of the Sellers to satisfy the conditions to Closing set
forth in Section 7.1 hereof; provided, however, if such information shall be
furnished to the Buyer in a writing which shall also specifically refer to one
or more representations and warranties of the Sellers contained herein which in
the absence of such information is inaccurate or incomplete, then if the Buyer
waives the condition to Closing set forth in said Section 7.1 hereof and elects
to close the transactions contemplated hereunder, the furnishing of such
additional information shall be deemed to have amended as of the Closing any
such representation and warranty so specifically referred to by the Sellers.
Notwithstanding the foregoing, the Sellers may amend the Schedules prepared by
it and attached hereto at any time during the twenty (20) day period after the
date hereof by delivering copies of such amendments, as marked to show changes,
to the Buyer and its attorneys. Such amendments shall be incorporated as part of
this Agreement and shall be deemed to amend the representation and warranty to
which any such schedule relates so long as Buyer does not elect to terminate
this Agreement pursuant to Section 11.1 on or prior to the Early Termination
Date (as defined in Section 11.1).
5.5 Publicity. Except as may be required by law or as necessary in
connection with the transactions contemplated hereby, the Sellers shall not (i)
make any press release or other public announcement relating to this Agreement
or the transactions contemplated hereby, without the prior written approval of
the Buyer and (ii) otherwise disclose the existence and nature of their
discussions or negotiations regarding the transactions contemplated hereby to
any person or entity other than their accountants, attorneys and similar
professionals, all of whom shall be subject to the nondisclosure obligations set
forth in this Section 5.5, Section 6.1 and Section 14.2, as agents of the
Sellers and the Shareholders, as the case may be. Notwithstanding anything
herein to the contrary, each party (i) will hold, and will use its reasonable
best efforts to cause its officers, directors, employees, lenders, accountants,
representatives, agents, consultants and advisors to hold, in strict
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confidence all information (other than such information as may be publicly
available) furnished to such party by the other party in connection with the
transactions contemplated by this Agreement (collectively, the "Information");
and (ii) will not, without the prior written consent of the party owning such
information and except as may be required to be disclosed in any registration
statement filed by the Buyer in connection with the IPO, release or disclose any
information to any other person, except to such party's officers, directors,
employees, lenders, attorneys, accountants, representatives, agents, consultants
and advisors who need to know the Information in connection with the
consummation of the transactions contemplated by this Agreement, who are
informed of the confidential nature of the Information, and who agree to be
bound by the terms and conditions of this Section 5.5. In the event any party or
any Person to whom a party transmits the Information pursuant to this Agreement
becomes legally compelled to disclose any of the Information, such party will
provide the other party that owns such Information with prompt notice so that
the owning party may seek a protective order or other appropriate remedy. If the
transactions contemplated by this Agreement are not consummated, all tangible
embodiments of the Information will be returned to the party that is the source
of such Information immediately upon such party's request.
5.6 Other Negotiations. Neither the Sellers nor any of the Shareholders
shall pursue, initiate, encourage or engage in any negotiations or discussions
with, or provide any information to, any other person or entity (other than the
Buyer and its representatives and Affiliates) regarding the sale of the assets,
capital stock or membership interests of the Sellers or any merger or
consolidation or similar transaction involving the Sellers, until 5:00 p.m.
Eastern Time on September 30, 1997.
5.7 Closing Conditions. The Sellers shall use all reasonable best efforts
to satisfy promptly the conditions to Closing set forth in Article 7 hereof
required herein to be satisfied by the Sellers.
5.8 Environmental Audit. The Sellers shall allow an environmental
consulting firm selected by the Buyer (the "Environmental Auditor") to have
prompt access to the Property in order to conduct an environmental
investigation, satisfactory to the Buyer in scope (such scope being sufficient
to result in a Phase I environmental audit report and a Phase II environmental
audit report, if desired by the Buyer), of, and to prepare a report with respect
to, the Property (the "Environmental Audit"). The Buyer hereby initially
designates Law Engineering as the Environmental Auditor. The Sellers shall
provide to the Environmental Auditor: (i) reasonable access to all of their
existing records concerning the matters which are the subject of the
Environmental Audit; and (ii) reasonable access to the employees of the Sellers
and the last known addresses of former employees of the Sellers who are most
familiar with the matters which are the subject of the Environmental Audit (the
Sellers agreeing to use reasonable efforts to have such former employees respond
to any reasonable requests or inquiries by the Environmental Auditor). The
Sellers shall otherwise cooperate with the Environmental Auditor in connection
with the Environmental Audit. The Buyer and the Sellers shall each bear 50% of
the costs, fees and expenses incurred in connection with the preparation of the
Environmental Audit.
5.9 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Sellers shall cooperate
with the Buyer and shall
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promptly file Notification and Report Forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
5.10 Additional Covenants with Respect to Governmental Requirements. Prior
to the Closing, the Sellers shall deliver to the Buyer the following material in
a form and content satisfactory to the Buyer and its counsel:
(a) A copy of a duly issued permanent, unconditional certificate of
occupancy with respect to the LLC's principal facility on Chartwell Drive,
together with written confirmation from the applicable governmental
authority that no fines, penalties or other amounts are or may become
payable on account of the circumstances described in the initial paragraph
of Schedule 3.8(e); and
(b) Written confirmation from the Town of Cornelius that the site
leased by the LLC from Lake-Side Automotive, Inc. is not in violation of
the Land Development Code and that no fines, penalties or other amounts are
or may become payable on account of the circumstances described in the
second paragraph of Schedule 3.8(e).
ARTICLE 6
PRE-CLOSING COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
6.1 Publicity; Disclosure. Before the filing by the Buyer of any
registration statement regarding the IPO and except as may be required by law or
as necessary in connection with the transactions contemplated hereby, the Buyer
shall not (i) make any press release or other public announcement relating to
this Agreement or the transactions contemplated hereby, without the prior
written approval of the Sellers and the Shareholders, or (ii) otherwise disclose
the existence and nature of its discussions or negotiations regarding the
transactions contemplated hereby to any person or entity other than its
accountants, attorneys and similar professionals, all of whom shall be subject
to the nondisclosure obligations set forth in this Section 6.1 and Sections 5.5
and 14.2, as agents of the Buyer. Subject to the Buyer's legal obligations and
the advice of its IPO underwriters, the Buyer shall submit to the Sellers for
their pre-approval (such approval shall not be unreasonably withheld) of the
content of any disclosures in the IPO context about the transactions
contemplated hereby.
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6.2 Closing Conditions. The Buyer shall use all reasonable best efforts to
satisfy promptly the conditions to Closing set forth in Article 8 hereof
required herein to be satisfied by the Buyer.
6.3 Application to Chrysler Corporation. Subject to the reasonable
cooperation of the Sellers, the Buyer shall provide to Chrysler Corporation no
later than 30 days after the execution and delivery of this Agreement any
application or other information necessary to satisfy the conditions of Section
7.10.
6.4 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Buyer shall cooperate
with the Sellers and shall promptly file Notification and Report Forms under the
HSR Act with the FTC and the Antitrust Division and respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation, and Buyer shall pay all filing fees in
connection therewith.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement at the Closing and the
consummation by the Buyer of the transactions contemplated hereby are subject to
the satisfaction or fulfillment by the Sellers, prior to or at the Closing, of
each of the following conditions, unless waived by the Buyer:
7.1 Representations and Warranties. The representations and warranties made
by the Sellers in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date as though such representations and warranties were made at and as of such
times.
7.2 Performance of Obligations of the Sellers. The Sellers shall have
performed and complied with all their covenants, agreements, obligations and
restrictions pursuant to this Agreement required to be performed or complied
with prior to or at the Closing.
7.3 Closing Certificate. The Sellers shall have delivered a certificate,
signed by each of the Sellers' respective President and Manager, as the case may
be, and dated the date of the Closing, certifying to the satisfaction of the
conditions set forth in Sections 7.1 and 7.2 hereof.
7.4 Opinion of Counsel. The Buyer shall have received an opinion of
Robinson, Bradshaw & Hinson, P.A., counsel to the Sellers, dated the date of the
Closing, in a form reasonably acceptable to the Buyer and its counsel.
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7.5 Supporting Documents. The Buyer shall have received from the Sellers
the following:
(a) A copy of the Articles of Incorporation of the Corporation and all
amendments thereto, certified as of a recent date by the Secretary of State of
the State of North Carolina and a copy of the Articles of Organization of the
LLC and all the amendments thereto, certified as of a recent date by the
Secretary of State of the State of North Carolina;
(b) One or more certificates of the Secretary of State of the State of
North Carolina dated as of a recent date as to the due incorporation or
organization and good standing of the Sellers, and stating that the Sellers owe
no franchise taxes in such state and listing all charter documents of the
Sellers on file with said official;
(c) Certificates of the Secretary or an Assistant Secretary of the
Corporation, and of the Manager of the LLC, and dated the date of the Closing
and certifying (i) that attached thereto is a true, complete and correct copy of
the By-laws of the Corporation or the Operating Agreement of the LLC as in
effect on the date of such certification, (ii) that the Articles of
Incorporation of the Corporation and the Articles of Organization and the
Operating Agreement of the LLC have not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to Subsection (a)
above, (iii) that attached thereto are true, complete and correct copies of the
resolutions duly adopted by the Board of Directors of the Corporation, the
Managers of the LLC, the shareholders of the Corporation and the members of the
LLC approving the transactions contemplated hereby and authorizing the
execution, delivery and performance by the Sellers of this Agreement and the
sale and transfer of the Purchased Assets as in effect on the date of such
certification, and (iv) as to the incumbency and signatures of those officers
and managers of the Sellers executing any instrument or other document delivered
in connection with such transactions;
(d) Uniform Commercial Code Search Reports on Form UCC-11 with respect to
the Sellers from the states and local jurisdictions where the principal places
of business of the Sellers and the Purchased Assets are located; and
(e) Such reasonable additional supporting documents and other information
as the Buyer or its counsel may reasonably request.
7.6 Bill of Sale, Etc. The Buyer shall have received from the Sellers a
duly executed Bill of Sale and all necessary deeds, assignments, documents and
instruments to effect the transfers, conveyances and assignments to the Buyer
referred to in Article 1 hereof, free and clear of all Encumbrances, except as
permitted by Section 1.1 hereof, and the Sellers shall have taken such action as
shall be necessary to put the Buyer in actual possession and exclusive control
of each of the Purchased Assets (including, without limitation, the delivery of
keys).
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7.7 Dealership Leases and Consulting Agreements. The Buyer shall have
received Dealership Leases, duly executed by the lessors thereunder, and
Consulting Agreements from the Shareholders.
7.8 Books and Records. The Buyer shall have received all books and records
of, or pertaining to, the businesses of the Sellers and the Purchased Assets and
Assumed Liabilities, except the corporate minute books and stock or membership
interest record books of the Sellers, which are not required to be transferred
to the Buyer pursuant to Section 1.1 hereof.
7.9 Change of Name of Sellers; Use of Sellers' Name by Buyer. At the
Closing, the Sellers shall deliver to the Buyer all documents, including,
without limitation resolutions of the Board of Directors or Managers and the
shareholders or members, as the case may be, of the Sellers, necessary to effect
a change of corporate and limited liability company names of the Sellers after
the Closing to names other than "Lake Norman Dodge, Inc." and "Lake Norman
Chrysler-Plymouth-Jeep-Eagle LLC" or any variation thereof, which names shall be
sufficiently different from the name of the Buyer and "Lake Norman Dodge, Inc."
and "Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC" as to distinguish them upon
the records in the office of the Secretary of State of North Carolina from such
names. The Sellers shall also have delivered to the Buyer at the Closing a
written consent to the use by the Buyer or any parent, subsidiary or affiliate
of the Buyer, or any successor or assignee of any thereof, of the names "Lake
Norman Dodge, Inc." and "Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC" or any
variant thereof and an agreement satisfactory to the Buyer that the Sellers will
not use the names "Lake Norman Dodge, Inc." and "Lake Norman
Chrysler-Plymouth-Jeep-Eagle LLC" or any variant thereof except to the extent
necessary for the winding down of the affairs of the Corporation and the LLC.
7.10 Consents. The Buyer shall have received duly executed copies of all
consents, authorizations, approvals, notices, registrations and filings referred
to in Schedules 3.2(b) and 3.6(b), which are required to consummate the
transactions contemplated hereby, and including, but not limited to, the consent
of Chrysler Corporation to the transactions contemplated hereby.
7.11 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in a violation of
any law, rule, decree or regulation of any governmental authority having
appropriate jurisdiction and no order, decree or ruling of any governmental
authority or court shall have been entered challenging the legality, validity or
propriety of, or otherwise relating to, this Agreement or the transactions
contemplated hereby or prohibiting, restraining or otherwise preventing the
consummation of the transactions contemplated hereby.
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7.12 Authorizations. The Buyer shall have received in its name all
authorizations of the types referred to in Section 3.12 of this Agreement and
the Sellers shall have provided reasonable commercial assistance to the Buyer or
assisted the Buyer in obtaining or making all such Authorizations.
7.13 [Intentionally left blank]
7.14 Approval of Legal Matters. The form of all instruments, certificates
and documents to be executed and delivered by the Sellers to the Buyer pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
7.15 [Intentionally left blank]
7.16 [Intentionally left blank]
7.17 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act, shall have expired without any indication by the Department of
Justice or the Federal Trade Commission that either of them intends to challenge
the transactions contemplated hereby, or, if any such challenge or investigation
is made or commenced, the conclusion of such challenge or investigation permits
the transactions contemplated hereby in all material respects.
7.18 IPO. The Buyer shall have closed its IPO.
7.19 Certification of Used Car Inventories. The President of the
Corporation and the Manager of the LLC shall have delivered to the Buyer at the
Closing certificates as of the Closing Date to the effect that neither of the
Sellers has any used car or truck that has been in inventory for more than
ninety (90) days.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SELLERS
The obligations of the Sellers under this Agreement at the Closing and the
consummation by the Sellers of the transactions contemplated hereby are subject
to the satisfaction or fulfillment by the Buyer, prior to or at the Closing, of
each of the following conditions, unless waived by the Sellers:
8.1 Representations and Warranties. The representations and warranties made
by the Buyer in this Agreement shall be true and correct in all material
respects at and
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as of the date of this Agreement and at and as of the date of the Closing as
though such representations and warranties were made at and as of such times.
8.2 Performance of Obligations of the Buyer. The Buyer shall have performed
and complied with all its covenants, agreements, obligations and restrictions
pursuant to this Agreement required to be performed or complied with prior to or
at the Closing.
8.3 Closing Certificate. The Buyer shall have delivered a certificate,
signed by the Buyer's President and dated the date of the Closing, certifying to
the satisfaction of the conditions set forth in Sections 8.1 and 8.2.
8.4 Payment of Purchase Price. The Buyer shall have tendered to the Sellers
payment of the Cash Consideration and the Initial Adjustment Amount Payment (or
the applicable consideration under Section 1.3 (aa)) and shall have tendered
payment of the Escrowed Adjustment Amount to the escrow agent therefor.
8.5 Opinion of Counsel. The Sellers shall have received an opinion of
Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the date of
the Closing, in a form reasonably acceptable to the Sellers and their counsel.
8.6 Supporting Documents. The Sellers shall have received the following:
(a) A copy of the Certificate of Incorporation of the Buyer, and all
amendments thereto, certified as of a recent date by the Secretary of State of
the State of Delaware;
(b) A certificate of the Secretary of State of the State of Delaware dated
as of a recent date as to the due incorporation and good standing of the Buyer;
(c) A certificate of the Secretary or an Assistant Secretary of the Buyer
dated the date of the Closing, and certifying (i) that attached thereto is a
true, complete and correct copy of the By-laws of the Buyer as in effect on the
date of such certification, (ii) that the Certificate of Incorporation of the
Buyer has not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to Subsection (a) above, (iii) that attached
thereto are true, complete and correct copies of the resolutions duly adopted by
the Board of Directors of the Buyer approving the transactions contemplated
hereby and authorizing the execution, delivery and performance by the Buyer of
this Agreement as in effect on the date of such certification, and (iv) as to
the incumbency and signatures of certain officers of the Buyer executing any
instrument or other document delivered in connection with such transactions; and
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(d) Copies of all authorizations, consents, approvals, notices, filings and
registrations referred to in Section 4.2(b) hereof.
8.7 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed and/or delivered by the Buyer to the Sellers
pursuant to this Agreement and all legal matters in respect of the transactions
as herein contemplated shall be reasonably satisfactory to the Sellers and its
counsel, none of whose approval shall be unreasonably withheld or delayed.
8.8 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in the violation of
any law, rule, decree or regulation of any governmental authority having
appropriate jurisdiction, and no order, decree or ruling of any governmental
authority or court shall have been entered challenging the legality, validity or
propriety of, or otherwise relating to, this Agreement or the transactions
contemplated hereby or prohibiting, restraining or otherwise preventing the
consummation of the transactions contemplated hereby.
8.9 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication by the Antitrust Division
or the FTC that either of them intends to challenge the transactions
contemplated hereby, or, if any such challenge or investigation is made or
commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
ARTICLE 9
TRANSFER TAXES; PRORATION OF CHARGES
9.1 Certain Taxes and Fees. All sales, transfer, documentary, stamp,
recording and other similar taxes and/or fees which may be due or payable in
connection with the sale of the Purchased Assets pursuant hereto shall be borne
by the Sellers.
9.2 Proration of Certain Charges. The following taxes, charges and payments
("Charges") shall, to the extent not reflected in the Closing Date Balance
Sheet, be prorated on a per diem basis and apportioned between the Sellers and
the Buyer as of the date of the Closing: personal property, use, intangible
taxes, utility charges, rental or lease charges, license fees, general
assessments imposed with respect to the Purchased Assets, employee payrolls and
insurance premiums. The Sellers shall be liable for that portion of the Charges
relating to, or arising in respect of, periods on or prior to the Closing Date
and the Buyer shall be liable for that portion of the Charges relating to, or
arising in respect of, any period after the Closing Date.
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ARTICLE 10
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. All statements contained
in any schedule or certificate delivered hereunder or in connection herewith by
or on behalf of any of the parties pursuant to this Agreement shall be deemed
representations and warranties by the respective parties hereunder unless
otherwise expressly provided herein. The representations and warranties of the
Sellers and the Buyer contained in this Agreement, including those contained in
any Schedule or certificate delivered hereunder or in connection herewith, shall
survive the Closing * with the exception of the representations and warranties
contained in the first sentence of Section 3.7 and in Sections 3.15 and 3.26,
which shall survive the Closing * . As to each representation and warranty of
the parties hereto, the date to which such representation and warranty shall
survive is hereinafter referred to as the "Survival Date."
10.2 Agreement to Indemnify by the Sellers. Subject to the terms and
conditions of Sections 10.4 and 10.5, the Sellers hereby agree, jointly and
severally, to indemnify and save the Buyer, its affiliates, and their respective
shareholders, officers, directors, employees, successors and assigns (each, a
"Buyer Indemnitee") harmless from and against, for and in respect of, any and
all demands, judgments, injuries, penalties, damages, losses, obligations,
liabilities, claims, actions or causes of action, encumbrances, costs, expenses
, (including, without limitation, reasonable attorneys' fees and expert witness
fees) suffered, sustained, incurred or required to be paid by any Buyer
Indemnitee (collectively,
* Confidential portions omitted and filed separately with the Commission.
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"Buyer's Damages") arising out of, based upon, resulting from, in connection
with or as a result of:
(a) any fraud or the untruth, inaccuracy or breach of any representation
and warranty of the Sellers contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in connection
herewith;
(b) the breach or nonfulfillment of any covenant or agreement of the
Sellers contained in this Agreement or in any other agreement document or
instrument delivered hereunder or pursuant hereto; or
(c) the defense by the Buyer of any claim by any person against the Buyer
or the Purchased Assets under any federal or state bankruptcy, insolvency or
other similar law seeking to avoid or otherwise set aside the transfer of any of
the Purchased Assets pursuant to this Agreement, whether or not settled, and
whether or not the Buyer is successful in the defense of such claim, except in
all cases to the extent such claim arises under any Assumed Liability.
Except to the extent Buyer's Damages arise out of (i) the Sellers' fraud,
(ii) the Excluded Liabilities, or (iii) the Sellers' obligations under Section
1.3: (a) the Sellers have no obligation to pay Buyer's Damages, and the Buyer
shall have no right of indemnification, unless Buyer's Damages exceed a
cumulative aggregate total of * , and, (b) to the extent Buyer's Damages exceed
a cumulative aggregate total of * , the Sellers shall be obligated to indemnify
for Buyer's Damages in excess of * , subject to a maximum indemnification
obligation of an aggregate of * . To the extent that Buyer's Damages result from
any fraudulent conduct on the Sellers' part or from the Excluded Liabilities or
from the Sellers' obligations under Section 1.3, the indemnification amounts
payable by Sellers under this Section 10.2 shall not be to such * threshold and
shall be up to the full amount of Buyer's Damages without restriction. The
parties hereby acknowledge that the above stated figure of * was established to
facilitate the administration of claims for indemnification by the Buyer.
Accordingly, such figure is not intended by any of the parties as, and shall not
be construed or interpreted as, an expression or understanding of the parties in
respect of the term "material" or the concept of materiality as used in this
Agreement.
10.3 Agreement to Indemnify by the Buyer. Subject to the terms and
conditions of Sections 10.4 and 10.5, the Buyer hereby agrees to indemnify and
save the Sellers and the Shareholders (each, a "Seller Indemnitee") harmless
from and against, for and in respect of, any and all demands, judgments,
injuries, penalties, damages, losses, obligations, liabilities, claims, actions
or causes of action, encumbrances, costs and expenses (including, without
limitation, reasonable attorneys' fees and expert witness fees) suffered,
sustained, incurred or required to be paid by any Seller Indemnitee
(collectively, "Sellers' Damages") arising out of, based upon, in connection
with or as a result of:
* Confidential portions omitted and filed separately with the Commission.
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(a) any fraud or the untruth, inaccuracy or breach of any representation
and warranty of the Buyer contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in connection
herewith;
(b) the breach or nonfulfillment of any covenant or agreement of the Buyer
contained in this Agreement or in any other agreement, document or instrument
delivered hereunder or pursuant hereto; or
(c) the assertion against the Sellers of any of the Assumed Liabilities,
including any claims, liabilities or obligations arising from the Sellers'
operation of their dealership businesses, regardless of whether such claims,
liabilities or obligations arise before or after the Closing Date, provided that
such claims, liabilities or obligations are not the subject of a claim for
indemnification by a Buyer Indemnitee under Section 10.2.
10.4 Claims for Indemnification. No claim for indemnification with respect
to a breach of a representation and warranty shall be made under this Agreement
after the applicable Survival Date unless prior to such Survival Date the Buyer
Indemnitee or the Seller Indemnitee, as the case may be, shall have given the
Sellers or the Buyer, as the case may be, written notice of such claim for
indemnification based upon actual loss sustained, or potential loss anticipated,
as a result of the existence of any claim, demand, suit or cause of action
against such Buyer Indemnitee or Seller Indemnitee, as the case may be.
10.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Sellers and Shareholders with respect to indemnification
hereunder regarding claims by third persons shall be as follows:
(a) Promptly after receipt by any Buyer Indemnitee or Seller Indemnitee, as
the case may be, of notice of the commencement of any action or proceeding
(including, without limitation, any notice relating to a tax audit) or the
assertion of any claim by a third person, which the person receiving such notice
has reason to believe may result in a claim by it for indemnity pursuant to this
Agreement, such person (the "Indemnified Party") shall give notice of such
action, proceeding or claim to the party against whom indemnification pursuant
hereto is sought (the "Indemnifying Party"), setting forth in reasonable detail
the nature of such action or claim, including copies of any written
correspondence from such third person to such Indemnified Party.
(b) The Indemnifying Party shall be entitled, at its own expense, to
participate in the defense of such action, proceeding or claim, and, if (i) the
action, proceeding or claim involved seeks (and continues to seek) solely
monetary damages, (ii) the Indemnifying Party confirms, in writing, its
obligation hereunder to indemnify and hold harmless the Indemnified Party with
respect to such damages in their entirety pursuant to Sections 10.2 or 10.3, as
the case may be, and (iii) the Indemnifying Party shall have made provision
which, in the reasonable judgment of the Indemnified Party, is adequate to
satisfy any adverse judgment as a result of its indemnification obligation with
respect to such action,
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proceeding or claim, then the Indemnifying Party shall be entitled to assume and
control such defense with counsel chosen by the Indemnifying Party and approved
by the Indemnified Party, which approval shall not be unreasonably withheld or
delayed. The Indemnified Party shall be entitled to participate therein after
such assumption, the costs of such participation following such assumption to be
at its own expense. Upon assuming such defense, the Indemnifying Party shall
have full rights to enter into any monetary compromise or settlement which is
dispositive of the matters involved; provided, that such settlement is paid in
full by the Indemnifying Party and will not have any direct or indirect
continuing material adverse effect upon the Indemnified Party.
(c) With respect to any action, proceeding or claim as to which (i) the
Indemnifying Party does not have the right to assume the defense or (ii) the
Indemnifying Party shall not have exercised its right to assume the defense, the
Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld or
delayed. The Indemnifying Party shall be entitled to participate in the defense
of such action, the cost of such participation to be at its own expense. The
Indemnifying Party shall be obligated to pay the reasonable attorneys' fees and
expenses of the Indemnified Party to the extent that such fees and expenses
relate to claims as to which indemnification is due under Sections 10.2 or 10.3,
as the case may be. The Indemnified Party shall have full rights to dispose of
such action; provided, however, in the event that the Indemnified Party shall
settle or compromise any claims involved in the action insofar as they relate
to, or arise out of, the same facts as gave rise to any claim for which
indemnification is due under Sections 10.2 or 10.3, as the case may be, the
Indemnified Party shall obtain the prior written consent of the Indemnifying
Party, which consent shall not be unreasonably withheld or delayed.
(d) Both the Indemnifying Party and the Indemnified Party shall cooperate
fully with one another in connection with the defense, compromise or settlement
of any such claim, proceeding or action, including, without limitation, by
making available to the other all pertinent information and witnesses within its
control.
(e) Any Indemnified Party shall be entitled (but shall not be obligated) to
make a setoff and reduction of any amounts owed by such Indemnified Party to any
Indemnifying Party equal to Buyer's Damages where the Indemnified Party is a
Buyer Indemnitee or Sellers' Damages where the Indemnified Party is a Seller
Indemnitee.
10.6 Effectiveness. The provisions of this Article 10 shall be effective
upon consummation of the Closing, and prior to the Closing, shall have no force
and effect.
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ARTICLE 11
TERMINATION AND TERMINATION FEE
11.1 Payment of Buyer's Termination Fee; Sellers' Exclusive Remedy; Buyer's
Ability to Terminate.
(a) Payment of Buyer's Termination Fee. If the Closing does not occur on or
before September 30, 1997 for any reason other than (i) (A) fraud or bad faith
on the part of the Sellers or the Shareholders or (B) the failure to satisfy, or
the non-fulfillment of, the conditions precedent to the Buyer's Closing
conditions stated in Sections 7.1, 7.2 or 7.3 or (to the extent not included in
Sections 7.1, 7.2 or 7.3) in Sections 7.6, 7.7 (insofar as it relates to the
Dealership Leases), 7.8, 7.9, or 7.17, or (ii) the failure of Chrysler
Corporation to consent to or approve of the transactions contemplated hereby,
then the Buyer shall pay to the order of the Sellers in immediately available
funds a termination fee (the "Buyer's Termination Fee") equal to $1,500,000. If
the Closing does not occur on or before September 30, 1997 because of the
failure of Chrysler Corporation to consent to or approve of the transactions
contemplated hereby, then the Buyer shall pay in immediately available funds a
Buyer's Termination Fee equal to $1,000,000. The Buyer's Termination Fee, if
any, shall be payable on the second Business Day following September 30, 1997
and, subject to any award of fees and expenses in the event the Seller's
entitlement to the Buyer's Termination Fee is subject to a dispute under Section
14.12, shall be the Sellers' sole and exclusive remedy for any failure, for
whatever reason, of the Closing to occur on or before September 30, 1997. Unless
otherwise provided in this Agreement, the Sellers and the Shareholders are not
entitled to specific performance of any provision of this Agreement. Upon
payment of the Buyer's Termination Fee, this Agreement shall terminate, except
as provided in Section 11.4.
(b) Buyer's Ability to Terminate Without Liability. Notwithstanding the
foregoing provisions of this Section 11.1, (i) until the earlier of (A) 30 days
after the execution and delivery of this Agreement by the Buyer and (B) the date
the Buyer files a registration statement with the Securities and Exchange
Commission in connection with the IPO, or (ii) if, prior to the filing of any
registration statement in connection with the IPO, either the Antitrust Division
or the FTC makes a "second request" for performance under the HSR Act or
indicates that it will be challenging or investigating the transactions
contemplated hereby, the Buyer may terminate this Agreement without any
liability or other obligation therefor, including, but not limited to, any
obligations to pay any Buyer's Termination Fee under this Section 11.1 or to
indemnify any Seller Indemnitee under Section 10.3. The date of termination
hereunder shall be referred to herein as the "Early Termination Date".
11.2 Payment of Sellers' Termination Fee.
(a) Sellers' Termination Fee. If the Closing does not occur on or before
September 30, 1997 because of any (i) fraud or bad faith on the part of the
Sellers
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or the Shareholders or (ii) the failure to satisfy, or the non-fulfillment of,
the conditions precedent to the Buyer's Closing conditions stated in Sections
7.1, 7.2 or 7.3 or (to the extent not included in Sections 7.1, 7.2 or 7.3) in
Sections 7.6, 7.7 (insofar as it relates to the Dealership Leases), 7.8, 7.9 ,
or 7.17, then the Sellers shall pay to the order of the Buyer in immediately
available funds a termination fee on September 30, 1997 (the "Sellers'
Termination Fee") equal to $250,000. The Sellers' Termination Fee, if any, shall
be payable on the second Business Day following September 30, 1997 and shall be
the exclusive remedy of the Buyer unless there is fraud on the Sellers' or the
Shareholders' part or the Sellers or the Shareholders shall have failed to
comply with their material covenants, agreements and obligations under this
Agreement required to be performed or complied with before or at the Closing.
Upon payment of the Sellers' Termination Fee, this Agreement shall terminate,
except as provided in Section 11.4.
(b) Termination of Agreement by Buyer. Notwithstanding the provisions of
Section 11.2(a), if the Buyer shall terminate this Agreement pursuant to Section
11.1(b) above, the Seller shall have no obligation to pay the Sellers'
Termination Fee under this Section 11.2 or to indemnify the Buyer under Section
10.2.
11.3 Security for Termination Fees.
(a) Buyer's Termination Fee Security. As of the date of this Agreement, the
Buyer shall either (i) deposit into escrow with any nationally recognized
banking organization the full amount of the Buyer's Termination Fee, the terms
of such escrow being in accordance with the terms of Exhibit 11.3(a) and
otherwise pursuant to such written agreements and documents acceptable to both
parties (the "Buyer's Escrow") or (ii) procure an irrevocable standby letter of
credit drawn on a bank reasonably acceptable to the Sellers, or other security
satisfactory to the Sellers, securing the payment of the full amount of the
Buyer's Termination Fee, the terms of such letter of credit being in accordance
with the terms of Exhibit 11.3(a) and otherwise pursuant to such written
agreements and documents acceptable to both parties (the "Buyer's Letter of
Credit" and together with the Buyer's Escrow, the "Buyer's Termination Fee
Security"). If the Closing occurs, all amounts held under the Buyer's Escrow may
be applied toward payment of the Purchase Price. The Buyer shall pay all
expenses and costs associated with the Buyer's Termination Fee Security. The
Sellers agree not to make any draw under the Buyer's Termination Fee Security
unless and until the Sellers shall be entitled to payment of the Buyer's
Termination Fee in accordance with Section 11.1.
(b) Sellers' Termination Fee Security. As of the date of this Agreement,
the Sellers shall either (i) deposit into escrow with any nationally recognized
banking organization the full amount of Sellers' Termination Fee, the terms of
such escrow being in accordance with the terms of Exhibit 11.3(b) and otherwise
pursuant to such written agreements and documents acceptable to both parties
(the "Sellers' Escrow") or (ii) procure an irrevocable standby letter of credit
drawn on a bank reasonably acceptable to the Buyer, or other security
satisfactory to the Buyer, securing the payment of the full amount of the
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Sellers' Termination Fee, the terms of such letter of credit being in accordance
with the terms of Exhibit 11.3(b) and otherwise pursuant to such written
agreements and documents acceptable to both parties (the "Sellers' Letter of
Credit" and together with the Sellers' Escrow, the "Sellers' Termination Fee
Security"). The Sellers shall pay all expenses and costs associated with the
Sellers' Termination Fee Security. The Buyer agrees not to make any draw under
the Sellers' Termination Fee Security unless and until the Buyer shall be
entitled to payment of the Sellers' Termination Fee in accordance with Section
11.2.
11.4 Effect of Termination. In the event that this Agreement is
terminated as contemplated by this Article 11, this Agreement shall be of no
further force or effect and neither party shall have any further liabilities or
obligations hereunder, except as specifically provided under this Article 11,
and provided that the provisions of Sections 5.5, 14.2, 14.4, 14.7, 14.11, 14.12
and 14.13 shall survive such termination. Upon any such termination, each party
will authorize the cancellation of any outstanding letters of credit and/or
escrow arrangements established pursuant to this Article 11.
ARTICLE 12
GUARANTY OF SHAREHOLDERS
12.1 Guaranty. The Shareholders hereby guarantee the due and punctual
payment, observance and performance by the Sellers of each and all of the
obligations and liabilities of the Sellers under this Agreement and all other
agreements, documents and instruments to be executed and delivered by the
Sellers pursuant to, or in connection with, this Agreement (collectively, the
"Other Agreements"), including, without limitation, the Sellers' obligation to
indemnify and save the Buyer harmless, in accordance with the provisions of
Article 10 of this Agreement. All of the foregoing liabilities and obligations
of the Sellers under this Agreement and the Other Agreements, together with any
and all reasonable fees, costs and expenses (including, without limitation,
attorneys' fees) which may be paid or incurred by the Buyer in enforcing or
collecting liabilities and obligations of the Shareholders under this Guaranty,
are hereinafter called, collectively, the "Guaranteed Obligations" and,
individually, a "Guaranteed Obligation."
12.2 Notice to the Shareholders. The Shareholders hereby agree that if any
Guaranteed Obligation is not paid, observed or performed, as the case may be,
when and as due, the Buyer may notify the Shareholders of such non-performance,
whereupon the Shareholders shall cause the Sellers to promptly pay, observe or
perform or the Shareholders will promptly pay, observe or perform, as the case
may be, such Guaranteed Obligation.
12.3 Absoluteness of Guaranty. The obligations of the Shareholders under
this Guaranty shall be absolute and unconditional, present and continuing,
irrespective of any bankruptcy proceeding involving the Sellers or any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of or
termination of the existence of the Sellers, or any circumstance which might
constitute a legal or equitable discharge of a guarantor.
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12.4 Guaranty Not Affected. Each of the Shareholders hereby consents and
agrees that, at any time and from time to time:
(a) the time, manner, place and/or terms and conditions of payment,
observance or performance of all or any of the Guaranteed Obligations may be
extended, amended, modified or changed pursuant to agreement between the Buyer
and the Sellers;
(b) any action may be taken under or in respect of this Agreement or any of
the Other Agreements, and the exercise of any remedy, power or privilege
thereunder may be waived, omitted or not enforced;
(c) the time for performance of or compliance with any term, obligation,
covenant or agreement on the part of the Sellers to be performed or observed by
the Sellers under this Agreement or any of the Other Agreements may be extended,
or such performance or compliance waived, or failure in or departure from such
performance or compliance consented to; and
(d) this Agreement and/or any of the Other Agreements may be amended or
modified in any respect by the parties thereto, all in such manner and upon such
terms as the parties thereto may deem proper, and without notice to or further
assent from the Shareholders, and all without affecting this Guaranty or the
obligations of the Shareholders hereunder, which shall continue in full force
and effect until all of the Guaranteed Obligations and all obligations of the
Shareholders hereunder shall have been fully paid, observed and performed.
Notwithstanding the provisions of this Article XII, the Shareholders shall have
the benefit of any and all defenses to the payment or performance of the
Guaranteed Obligations available to the Sellers, such that the obligations of
the Shareholders under this Article 12 shall be no greater than the obligations
of the Sellers with respect to the obligations of the Seller which constitute
the Guaranteed Obligations.
12.5 Waiver. Each of the Shareholders hereby waives notice of acceptance of
this Guaranty, presentment, demand, protest, or (except as set forth in Section
12.2 hereof) any notice of any kind whatsoever, with respect to any or all of
the Guaranteed Obligations, and promptness in making any claim or demand
hereunder; and no act or omission of any kind shall in any way affect or impair
this Guaranty. Each of the Shareholders, except as set forth in Section 12.2
hereof, also waives any requirement, and any right to require, that any right or
power be exercised or any action be taken against the Sellers or any other
person or entity or any assets for any of the Guaranteed Obligations.
12.6 No Subrogation. Notwithstanding any payment, observance or performance
made by the Shareholders pursuant to this Article 12, until all obligations of
the Sellers to the Buyer have been paid in full, the Shareholders hereby waive
any and all
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rights of subrogation to all of the Buyer's rights against the Sellers and any
and all rights of reimbursement, assignment, indemnification or implied contract
or any similar rights against the Sellers or against any endorser or other
guarantor of all or any part of any obligations of the Sellers to the Buyer with
respect to any liabilities of the Shareholders under this Article 12. If,
notwithstanding the foregoing, any amount shall be paid to the Shareholders on
account of any subrogation rights at any time when all of the obligations of the
Sellers to the Buyer shall not have been paid in full, such amount shall be held
by the Shareholders in trust for the Buyer, segregated from other funds of the
Shareholders, and shall, forthwith upon receipt by the Shareholders, be turned
over to the Buyer in the exact form received by the Shareholders (duly endorsed
by the Shareholders to the Buyer, if required), to be applied against the
obligations of the Sellers to the Buyer, whether matured or unmatured, in such
order as the Buyer may determine.
12.7 Reinstatement. This Guaranty shall continue to be effective or be
reinstated, as the case may be, if at any time payment, observance or
performance, or any part thereof, of any of the Guaranteed Obligations is
rescinded or must otherwise be restored or returned by the Buyer upon the
insolvency, bankruptcy or reorganization of the Sellers, all as though such
payment, observance or performance had not been made.
12.8 Effectiveness. The obligations of the Shareholders under this Article
12 shall be effective upon the consummation of the Closing; prior to the
Closing, the provisions of this Article 12 shall be of no force or effect. The
obligations of each Shareholder hereunder shall be joint and several; however,
the maximum liability of each Shareholder hereunder shall be limited to the
maximum amount of the Purchase Price paid by the Buyer.
ARTICLE 13
ADDITIONAL COVENANTS AND AGREEMENTS
13.1 Non-Competition Covenant. Because the sale of the Purchased Assets
involves the sale of the goodwill of the Sellers, the Shareholders and the
Sellers covenant and agree that they will not, either directly or indirectly,
alone or with others, either as an employee, owner, partner, agent, stockholder,
member, director, officer or otherwise, enter into or engage in, or provide
financing to, the business of operating a Chrysler, Plymouth, Dodge or
Jeep-Eagle car or truck dealership (the "Competitive Business") within
Mecklenburg County, North Carolina or any county in North or South Carolina that
is contiguous with Mecklenburg County, North Carolina (the "Restrictive Area")
for a period of three years after the Closing Date (the "Restrictive Period").
Neither the Shareholders nor the Sellers will individually, collectively or in
conjunction with others, directly or indirectly, within the Restrictive Area,
(i) for the Restrictive Period, solicit or accept any Competitive Business from
any person or entity which was a customer of the Sellers during the 12 months
prior to the date of Closing; or (ii) for a period of one year after the Closing
Date, directly or indirectly solicit or hire any employee of the Buyer or
encourage any such employee to
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leave such employment unless such employee has already terminated such
employment with the Buyer or the Buyer and the Seller have mutually agreed in
advance to the solicitation or employment. Notwithstanding the foregoing, direct
family relations of QMG and PMG, except for Phil M. (Bunky) Gandy, are excluded
from the operation of clause (ii) of the preceding sentence unless such relative
shall have executed an employment agreement with the Buyer, in which case said
clause (ii) shall apply for a period equal to the term of such employment
agreement. The Sellers and the Shareholders also agree that in the event of
breach of these covenants, the Buyer may protect its property rights in the
goodwill of the Purchased Assets by injunction or otherwise.
13.2 Bulk Sales Compliance. The Buyer hereby waives compliance by the
Sellers with the provisions of any applicable bulk sales law, and the parties
acknowledge that such compliance shall not be a condition precedent to the
Closing.
13.3 Additional Agreements on Vehicles. The Buyer agrees to provide the
Shareholders personally (and not for commercial resale) the right to purchase
during each year after the Closing Date, for ten years, 14 vehicles (including
trucks) from the Buyer or one of Buyer's wholly-owned subsidiaries at the
Buyer's or its subsidiary's actual cost (equal to factory invoice less (i)
factory holdback, (ii) dealer rebates, and (iii) any other factory incentive.
13.4 Additional Agreements on Health Care Continuation Coverage Costs.
Subject to the terms and conditions of this Section 13.4, the Buyer agrees to
pay premiums to provide continuing health insurance coverage for the
Shareholders and also for their eligible spouses and dependents who were covered
under the Sellers' health plans for the three month period immediately preceding
the date of this Agreement (the "Eligible Dependents"). Health insurance
coverage shall be provided to the Shareholders and their Eligible Dependents to
the extent such coverage is available to and subject to the terms and conditions
applicable to management employees of the Buyer and their dependents under
Buyer's health plan. Each Shareholder and Eligible Dependent shall have the
opportunity to elect to have such continuation coverage provided through the
reimbursement of premiums under a separate individual insurance policy purchased
by the Shareholder or Eligible Dependent for a period not to exceed two years
and up to the cost of COBRA premiums under the Buyer's health plan.
Alternatively, to the extent a Shareholder or Eligible Dependent is a COBRA
qualified beneficiary, such Shareholder or Eligible Dependent shall have the
opportunity to elect to receive COBRA continuation coverage for the applicable
period under Buyer's health plan and Buyer will pay the premiums for such COBRA
continuation coverage; provided, however, that in the event a Shareholder's or
Eligible Dependent's COBRA continuation coverage extends beyond eighteen months,
Buyer will pay the premiums only for an additional six months (so that Buyer
will pay premiums for a maximum of two years) and the Shareholder or Eligible
Dependent will be liable and responsible for all premiums due for coverage after
such time. Notwithstanding the foregoing, if a Shareholder elects to receive
COBRA continuation coverage, the two year reimbursement option previously
described will not be available to the Shareholder's
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Eligible Dependents, and if an Eligible Dependent elects to receive COBRA
continuation coverage, the two year reimbursement option will not be available
to the Shareholder through which the Eligible Dependent is claiming coverage or
any of that Shareholder's other Eligible Dependents. Notwithstanding the
foregoing, Buyer's obligation under this Section 13.4 with respect to a
Shareholder or Eligible Dependent shall end in the event that the Shareholder or
Eligible Dependent becomes eligible for Part A or Part B of Medicare or becomes
eligible to participate in another group health plan or policy. Each Shareholder
shall have sole responsibility for any income tax liabilities arising out of the
Buyer's payment or reimbursement of health care coverage premiums for the
Shareholder and his Eligible Dependents and the benefits of such coverage.
13.5 Expenses Associated with Preparation of Financial Statements. The
Buyer agrees to pay at Closing all costs and expenses incurred by Seller, if
any, for the preparation of the Interim Financial Statements and the Closing
Balance Sheet. The Buyer also agrees to pay any incremental additional cost of
combining the financial data relating to the GE Shareholder Payments with the
financial data from the Sellers' other operations to produce the Financial
Statements. The Sellers agree to pay all other costs and expenses associated
with the preparation of the Financial Statements.
ARTICLE 14
MISCELLANEOUS PROVISIONS
14.1 Access to Books and Records after Closing. The Buyer shall, for a
period of seven years following the Closing, give, and shall cause to be given,
to the Sellers and its authorized representatives such access, during normal
business hours and upon prior notice, to such books and records constituting
part of the Purchased Assets as shall be reasonably necessary for the Sellers in
connection with the preparation and filing of the Sellers' tax returns for
periods prior to the Closing, and to make extracts and copies of such books and
records at the expense of the Sellers.
14.2 Confidentiality. Notwithstanding anything herein to the contrary,
after the Closing, each party shall hold in strict confidence documents and
information concerning the other, the other's affiliates and their respective
businesses and properties (including that of the Sellers) and the transactions
contemplated hereby, except that either party may disclose such documents and
information to (i) any governmental authority reviewing the transactions
contemplated hereby or as required in either party's judgment pursuant to
federal or state laws; (ii) such persons as are required to have such
information in either party's good faith judgment in order to assist either
party in consummating the transactions contemplated hereby, and except that upon
the Closing, the Buyer may disclose such documents and information to such
persons as it may desire in order to carry on the business heretofore conducted
by the Sellers, or (iii) in connection with the pursuit or defense of any claim
between parties arising under this Agreement.
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14.3 Remedies. Unless otherwise provided in Article 11 of this Agreement,
each of the parties to this Agreement is entitled to all remedies in the event
of breach provided at law or in equity, specifically including, but not limited
to, specific performance.
14.4 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by telecopier or by a nationally recognized overnight
courier, postage prepaid, and shall be deemed to have been duly given when so
delivered personally or sent by telecopier, with receipt confirmed, or one (1)
Business Day after the date of deposit with such nationally recognized overnight
courier. All such notices, claims, certificates, requests, demands and other
communications shall be addressed to the respective parties at the addresses set
forth below or to such other address as the person to whom notice is to be given
may have furnished to the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Auto World, Inc.
P.O. Box 18747
5401 East Independence
Charlotte, North Carolina 28218
Telecopier No.: (704) 532-3312
Attention: Theodore Wright
with a copy to:
Parker, Poe Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopier No.: (704) 334-4706
Attention: Edward W. Wellman, Jr., Esq.
If to the Sellers, to the addresses of each of the Shareholders below
If to the Shareholders, to:
Mr. Quinton M. Gandy and Mr. Phil M. Gandy, Jr.
123 Bridgeport Drive 2120 Captiva Court
Mooresville, North Carolina 28115 Cornelius, North Carolina 28031
Telecopier No.: (704) 892-9695 Telecopier No.: (704) 892-9695
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in either case, with a copy to:
Robinson, Bradshaw & Hinson, P.A.
1900 Independence Center
101 North Tryon Street
Charlotte, North Carolina 28246
Telecopier No.: (704) 378-4000
Attention: Karen Gledhill, Esq.
The Buyer, the Sellers or the Shareholders may change the address or
telecopier number to which such communications are to be directed by giving
written notice to the others in the manner provided in this Agreement.
14.5 Parties in Interest; No Third Party Beneficiaries.
(a) Subject to Section 14.6 hereof, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
(b) Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon or give to any employee of the Sellers or the Buyer,
or any other person, firm, corporation or legal entity, other than the parties
hereto and their successors and permitted assigns, any rights, remedies or other
benefits under or by reason of this Agreement.
14.6 Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties, provided that
Buyer may assign its rights under the Agreement (a) at any time after the date
hereof, to any affiliate of Buyer presently existing or hereafter formed, and
(b) at any time after the Closing, to any person or entity that shall acquire
all or substantially all of the assets of the Buyer; provided, however, that no
such assignment by the Buyer shall release it from its obligations hereunder
without the consent of the Sellers and the Shareholders.
14.7 Entire Agreement; Amendment. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire understanding
of the parties hereto with respect to its subject matter. There are no
representations, promises, warranties, covenants or undertakings other than as
expressly set forth herein or therein. This Agreement supersedes all prior
agreements and understandings between the parties hereto with respect to its
subject matter, including, without limitation, the Letter of Intent dated April
18, 1997, as supplemented by an Addendum dated April 25, 1997 and an Addendum
dated May 9, 1997. This Agreement may be amended or modified only by a written
instrument duly executed by the parties hereto, and any condition to a party's
obligations hereunder may only be waived in writing by such party.
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14.8 Headings. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
14.9 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
14.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina, without giving effect
to its principles of conflicts of law.
14.11 Knowledge. Whenever any representation or warranty of the Sellers
contained herein or in any other document executed and delivered in connection
herewith is based upon the knowledge of the Sellers, such knowledge shall be
deemed to mean (a) matters actually known to either of the Shareholders or to
Phil M. (Bunky) Gandy III or Jim Pentalow, or (ii) information of which any of
such persons would reasonably be expected to be aware in the prudent discharge
of his duties in the ordinary course of business (including consultation with
legal counsel).
14.12 Jurisdiction; Arbitration. (a) Subject to the other provisions of
this Section 14.12, any judicial proceeding brought with respect to this
Agreement must be brought in any court of competent jurisdiction in the State of
North Carolina, and, by execution and delivery of this Agreement, each party (i)
accepts, generally and unconditionally, the exclusive jurisdiction of such
courts and any related appellate court, and irrevocably agrees to be bound by
any judgment rendered thereby in connection with this Agreement, and (ii)
irrevocably waives any objection it may now or hereafter have as to the venue of
any such suit, action or proceeding brought in such court or that such court is
an inconvenient forum.
(b) Any dispute, claim or controversy arising out of or relating to this
Agreement, or the interpretation or breach hereof (including, without
limitation, any of the foregoing based upon a claim to any termination fee
hereunder), shall be resolved by binding arbitration under the commercial
arbitration rules of the American Arbitration Association (the "AAA Rules") to
the extent such AAA Rules are not inconsistent with this Agreement. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
and order its enforcement, as the case may be. The demand for arbitration shall
be made by any party hereto within a reasonable time after the claim, dispute or
other matter in question has arisen, and in any event shall not be made after
the date when institution of legal proceedings, based on such claim, dispute or
other matter in question, would be barred by the applicable statute of
limitations. The arbitration panel shall consist of three (3) arbitrators, one
of whom shall be appointed by each party hereto within thirty (30) days after
any request for arbitration hereunder. The two arbitrators thus appointed shall
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choose the third arbitrator within thirty (30) days after their appointment;
provided, however, that if the two arbitrators are unable to agree on the
appointment of the third arbitrator within 30 days after their appointment,
either arbitrator may petition the American Arbitration Association to make the
appointment. The place of arbitration shall be Charlotte, North Carolina. The
arbitrators shall be instructed to render their decision within sixty (60) days
after their selection and to allocate all costs and expenses of such arbitration
(including legal and accounting fees and expenses of the respective parties) to
the parties in the proportions that reflect their relative success on the merits
(including the successful assertion of any defenses).
(c) Nothing contained in this Section 14.12 shall prevent any party hereto
from seeking any equitable relief to which it would otherwise be entitled from a
court of competent jurisdiction in the State of North Carolina.
14.13 Waivers. Any party to this Agreement may, by written notice to the
other parties hereto, waive any provision of this Agreement from which such
party is entitled to receive a benefit. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach of such provision or any other provision of this
Agreement.
14.14 Severability. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
14.15 Expenses. Except as otherwise set forth herein, each party shall be
responsible for its own legal fees and other costs and expenses incurred in
connection with this Agreement and the negotiation and consummation of the
transactions contemplated hereby.
14.16 Regarding Termination Fees. In the event that the Buyer's Termination
Fee or the Sellers' Termination Fee were determined by any court or other
tribunal to constitute liquidated damages, the Buyer and the Sellers hereby
acknowledge and agree that (a) they reasonably anticipate that the damages for
the matters contemplated by Sections 11.1 and 11.2 will be difficult to
ascertain because of their indefiniteness or uncertainty and (b) the Buyer's
Termination Fee and the Sellers' Termination Fee are reasonable estimates of
such damages. Notwithstanding the foregoing, this Section 14.16 shall in no way
prevent any party hereto from seeking any other legal or equitable remedies to
which it would otherwise be entitled hereunder. The provisions of this Section
14.16 shall also survive any termination of this Agreement as contemplated by
Article 11 hereof.
[Signatures begin on following page.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day, month and year first above written.
SONIC AUTO WORLD, INC.
By: /s/ Bryan Scott Smith
-------------------------------
Name: Bryan Scott Smith
Title: Chief Executive Officer
LAKE NORMAN DODGE, INC.
By: /s/ Phil M. Gandy, Jr.
-------------------------------
Name: Phil M. Gandy, Jr.
Title: President
LAKE NORMAN CHRYSLER-PLYMOUTH- JEEP-
EAGLE LLC
By: /s/ Quinton M. Gandy
-------------------------------
Name: Quinton M. Gandy
Title: Manager
/s/ Quinton M. Gandy
-----------------------------------
Quinton M. Gandy
/s/ Phil M. Gandy, Jr.
-----------------------------------
Philip M. Gandy, Jr.
50
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List of Schedules
Schedule 1.1 - Excluded Assets
Schedule 1.2 - Excluded Liabilities
Schedule 3.2(a) - Required Authorizations to Agreement
Schedule 3.2(b) - Required Consents to Agreement
Schedule 3.3 - Investments
Schedule 3.4 - Exceptions to Financial Statements of the Sellers
Schedule 3.5 - Certain Changes
Schedule 3.6(a) - Material Contracts
Schedule 3.6(b) - Required Consents for Sale of Purchased Assets
and Transfer of Assumed Liabilities
Schedule 3.7 - Encumbrances
Schedule 3.8(b) - Leased Premises & Condition Exceptions
Schedule 3.8(e) - Zoning
Schedule 3.9(a) - Owned Equipment
Schedule 3.9(b) - Leased Equipment
Schedule 3.9(c) - Maintenance of Machinery and Equipment
Schedule 3.12 - Approvals, Permits and Authorizations
Schedule 3.13 - Compliance with Laws
Schedule 3.14(a) - Insurance Policies
Schedule 3.14(b) - Property Damage and Personal Injury Claims
Schedule 3.15 - Taxes
Schedule 3.16 - Litigation
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Schedule 3.17 - Powers of Attorney
Schedule 3.19 - Employee Relations
Schedule 3.20 - Compensation
Schedule 3.21 - Patents; Trademarks; Trade Names; Copyrights;
Licenses; Etc.
Schedule 3.22 - Accounts Payable and Indebtedness
Schedule 3.23 - Other Liabilities
Schedule 3.24 - Affiliate Transactions
Schedule 3.26 - Employee Benefits
Schedule 3.28 - Suppliers and Customers
Schedule 3.29 - Hazardous Materials
Schedule 3.29(j) - Environmental Conditions
Schedule 3.29(l) - Environmental Studies and Reports
Schedule 3.30 - Bank Accounts and Safe Deposit Boxes
Schedule 3.31 - Warranties
Schedule 3.32 - Interests in Competitors
Schedule 4.2(b) - Buyer Consents
Schedule 5.2 - Operation of Business
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List of Exhibits
Exhibit 1.4(a)-1 - Bill of Sale and Assignment/Corporation
Exhibit 1.4(a)-2 - Bill of Sale and Assignment/LLC
Exhibit 1.4(c) - Forms of Dealership Leases
Exhibit 11.3(a) - Terms of Letter of Credit - Buyer's Termination
Fee Security
Exhibit 11.3(b) - Terms of Letter of Credit - Sellers' Termination
Fee Security
1
================================================================================
ASSET PURCHASE AGREEMENT
by and among
SONIC AUTO WORLD, INC.,
KIA OF CHATTANOOGA, LLC,
EUROPEAN MOTORS OF NASHVILLE, LLC,
EUROPEAN MOTORS, LLC,
JAGUAR OF CHATTANOOGA LLC,
CLEVELAND CHRYSLER-PLYMOUTH-JEEP EAGLE LLC,
NELSON BOWERS DODGE, LLC,
CLEVELAND VILLAGE IMPORTS, INC.,
SATURN OF CHATTANOOGA, INC.,
NELSON BOWERS FORD, L.P.,
NELSON E. BOWERS II,
JEFFREY C. RACHOR,
AND THE OTHER SHAREHOLDERS NAMED HEREIN
Dated as of June 24, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 - Purchase and Sale of Assets; Assumption of Liabilities.............1
1.1 Agreement of Purchase and Sale....................................1
1.2 Assumed Liabilities...............................................1
1.3 Purchase Price; Allocation........................................2
1.4 Instruments of Conveyance and Transfer; Dealership Leases;
Employment Agreement.........................................4
1.5 Offers of Employment to Sellers' Employees........................5
Article 2 - Closing............................................................5
Article 3 - Representations and Warranties of the Sellers......................6
3.1 Organization; Good Standing; Qualifications.......................6
3.2 Authority; Consent................................................6
3.3 Ownership; Investments............................................6
3.4 Financial Statements..............................................7
3.5 Absence of Certain Changes........................................7
3.6 Material Contracts................................................8
3.7 Title to Purchased Assets and Related Matters.....................9
3.8 Real Property of the Sellers......................................9
3.9 Machinery, Equipment, Etc.........................................9
3.10 Inventories of the Sellers......................................10
3.11 Accounts Receivable of the Sellers..............................10
3.12 Approvals, Permits and Authorizations...........................10
3.13 Compliance with Laws............................................10
3.14 Insurance.......................................................11
3.15 Taxes...........................................................11
3.16 Litigation......................................................11
3.17 Powers of Attorney..............................................12
3.18 Broker's and Finder's Fees......................................12
3.19 Employee Relations..............................................12
3.20 Compensation....................................................12
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.....12
3.22 Accounts Payable................................................13
3.23 No Undisclosed Liabilities......................................13
3.24 Certain Transactions............................................13
3.25 Business Generally..............................................13
3.26 Employee Benefits...............................................13
3.27 Sellers and Shareholders Not Foreign Persons....................14
3.28 Suppliers and Customers.........................................14
3.29 Environmental Matters...........................................15
3.30 Bank Accounts and Safe Deposit Boxes............................16
3.31 Warranties......................................................16
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3.32 Interest in Competitors and Related Entities....................17
3.33 Availability of Sellers' Employees..............................17
3.34 Misstatements and Omissions.....................................17
Article 4 - Representations and Warranties of the Buyer.......................17
4.1 Organization and Good Standing...................................17
4.2 Authority; Consents; Enforceability..............................17
4.3 Broker's and Finder's Fees.......................................18
4.4 Litigation.......................................................18
4.5 Misstatements or Omissions.......................................18
Article 5 - Pre-closing Covenants of the Shareholders and the Sellers.........18
5.1 Provide Access to Information; Cooperation with Buyer............19
5.2 Operation of Business of the Sellers.............................19
5.3 Other Changes....................................................20
5.4 Additional Information...........................................20
5.5 Publicity........................................................20
5.6 Other Negotiations...............................................20
5.7 Closing Conditions...............................................21
5.8 Environmental Audit..............................................21
5.9 Hart-Scott-Rodino Compliance.....................................21
5.10 Audit of Sellers at Buyer's Expense.............................21
Article 6 - Pre-closing Covenants of the Buyer................................21
6.1 Publicity; Disclosure............................................21
6.2 Closing Conditions...............................................22
6.3 Application to Automobile Manufactures and Distributors. .......22
6.4 Hart-Scott-Rodino Compliance.....................................22
Article 7 - Conditions Precedent to Obligations of the Buyer..................22
7.1 Representations and Warranties...................................22
7.2 Performance of Obligations of the Sellers........................22
7.3 Closing Certificate..............................................22
7.4 Opinions of Counsel..............................................23
7.5 Supporting Documents.............................................23
7.6 Bills of Sale, Etc...............................................23
7.7 Dealership Leases and Other Agreements...........................24
7.8 Books and Records................................................24
7.9 Change of Name of Sellers; Use of Sellers' Name by Buyer.........24
7.10 Consents........................................................24
7.11 No Litigation...................................................24
7.12 Authorizations..................................................25
7.13 No Material Adverse Change or Undisclosed Liability.............25
7.14 Approval of Legal Matters.......................................25
7.15 Adverse Laws....................................................25
7.16 Hart-Scott-Rodino Waiting Period................................25
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Article 8 - Conditions Precedent to Obligations of the Sellers................25
8.1 Representations and Warranties...................................25
8.2 Performance of Obligations of the Buyer..........................25
8.3 Closing Certificate..............................................26
8.4 Payment of Purchase Price........................................26
8.5 Opinion of Counsel...............................................26
8.6 Supporting Documents.............................................26
8.7 Approval of Legal Matters........................................26
8.8 Dealership Leases; Other Agreements; Guaranty....................26
8.9 No Litigation....................................................26
8.10 Hart-Scott-Rodino Waiting Period................................27
8.11 Releases of Shareholders........................................27
Article 9 - Transfer Taxes....................................................27
9.1 Certain Taxes and Fees...........................................27
Article 10 - Survival of Representations and Warranties; Indemnification......27
10.1 Survival of Representations and Warranties......................27
10.2 Agreement to Indemnify by the Sellers and Shareholders..........28
10.3 Agreement to Indemnify by the Buyer.............................28
10.4 Claims for Indemnification......................................29
10.5 Procedures Regarding Third Party Claims.........................29
10.6 Effectiveness...................................................30
10.7 Certain Provisions Relating to Claims for Buyer's Damages.......30
Article 11 - Termination and Termination Fee..................................31
11.1 Termination.....................................................31
11.2 Procedure and Effect of Termination.............................32
Article 12 - Miscellaneous Provisions.........................................32
12.1 Access to Books and Records after Closing.......................32
12.2 Notices.........................................................33
12.3 Parties in Interest; No Third Party Beneficiaries...............35
12.4 Assignability...................................................35
12.5 Entire Agreement; Amendment.....................................35
12.6 Headings........................................................35
12.7 Counterparts....................................................35
12.8 Governing Law...................................................35
12.9 Knowledge.......................................................35
12.10 Jurisdiction; Arbitration......................................36
12.11 Waivers........................................................36
12.12 Severability...................................................37
12.13 Expenses.......................................................37
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 24th day of June, 1997, by and among SONIC AUTO WORLD, INC., a
Delaware corporation (the "Buyer"), KIA OF CHATTANOOGA, LLC, a Tennessee limited
liability company, EUROPEAN MOTORS OF NASHVILLE, LLC, a Tennessee limited
liability company, EUROPEAN MOTORS, LLC, a Tennessee limited liability company,
JAGUAR OF CHATTANOOGA LLC, a Tennessee limited liability company, CLEVELAND
CHRYSLER-PLYMOUTH-JEEP EAGLE LLC, a Tennessee limited liability company, NELSON
BOWERS DODGE, LLC, a Tennessee limited liability company (collectively, the
"LLCs"), CLEVELAND VILLAGE IMPORTS, INC., a Tennessee corporation, SATURN OF
CHATTANOOGA, INC., a Tennessee corporation (collectively, the "Corporations"),
NELSON BOWERS FORD, L.P., a Tennessee limited partnership (the "Partnership" and
together with the LLCs and the Corporations, the "Sellers"), NELSON E. BOWERS
II, a shareholder of the Corporations and a member of the LLCs, JEFFREY C.
RACHOR, a shareholder of certain of the Corporations and a member of certain of
the LLCs, and the other persons who are signatories to this Agreement and who
are shareholders, members or partners, as the case may be, of the respective
Sellers (collectively, the "Shareholders").
W I T N E S S E T H:
In consideration of the mutual representations, warranties, covenants and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
1.1 Agreement of Purchase and Sale. On the terms and subject to the
conditions of this Agreement, at the Closing (as defined in Article 2 hereof),
the Sellers shall sell, transfer, convey, assign and deliver (or cause to be
sold, transferred, conveyed, assigned and delivered) to the Buyer, and the Buyer
shall purchase and accept delivery of, all of the Sellers' right, title and
interest in and to all of the assets of the Sellers of every kind, character and
description, tangible or intangible, real, personal or mixed, and wherever
located, including, without limitation, the assets described on Schedule 1.1(a),
but excluding, however, the assets described on Schedule 1.1(b) (the "Excluded
Assets"); said assets, other than the Excluded Assets, are hereinafter called
the "Purchased Assets". The Purchased Assets will be sold free and clear of all
mortgages, deeds of trust, liens, pledges, charges, security interests,
contractual restrictions, claims or encumbrances of any kind or character
(collectively, "Encumbrances"), other than the Encumbrances set forth on
Schedule 1.1(c) (the "Permitted Encumbrances").
1.2 Assumed Liabilities. On the terms and subject to the conditions of this
Agreement and in reliance upon the representations and warranties contained
herein, at the Closing the Buyer shall assume and undertake to perform all of
the liabilities and obligations of the Sellers
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specifically described on Schedule 1.2 (the "Assumed Liabilities"). Except for
the Assumed Liabilities, the Buyer shall not assume, and the Sellers shall
retain and remain responsible for, any and all liabilities and obligations of
the Sellers of any nature whatsoever, whether past, current or future, whether
accrued, contingent, known or unknown (such retained liabilities and obligations
being hereinafter called the "Retained Liabilities").
1.3 Purchase Price; Allocation.
(a) Purchase Price. In addition to the assumption by the Buyer of the
Assumed Liabilities, as the full consideration to be paid by the Buyer for the
Purchased Assets, the Buyer shall pay to the Sellers the aggregate purchase
price of (i) $23,000,000, minus the Rental Cost Adjustment (as defined in
Section 1.3(c) below) (as so adjusted, the "Base Price"), plus (ii) the positive
Net Book Value (as defined in Section 1.3(d) below), not to exceed $10,500,000
(the "Adjustment Amount" and, together with the Base Price, the "Purchase
Price").
(b) Payment of Purchase Price. The Purchase Price shall be paid as follows:
(1) The Base Price, plus $4,500,000 (the "Initial Adjustment Amount
Payment") shall be payable to the Sellers at Closing by wire transfer of
immediately available funds to the account or accounts of the Sellers,
which shall be designated by the Sellers in writing at least one full
Business Day prior to the Closing Date, in the percentage shares specified
in Schedule 1.3(e). The sum of $1,000,000 (the "Escrowed Adjustment
Amount") shall be placed in escrow with Chicago Title Insurance Company,
c/o Milligan Reynolds Title Agency, Inc. (the "Escrow Agent"), by the Buyer
in accordance with the escrow agreement in the form of Exhibit 1.3(A), with
such other changes thereto as the Escrow Agent shall reasonably request
(the "Escrow Agreement"). The Initial Adjustment Amount Payment and the
Escrowed Adjustment Amount are sometimes hereinafter collectively referred
to as the "Initial Adjustment Amount." For purposes of this Agreement, a
"Business Day" is a day other than a Saturday, a Sunday or a day on which
banks are required to be closed in the State of North Carolina.
(2) At the Closing, the Buyer shall execute and deliver to the
respective Sellers one or more promissory notes in the form of Exhibit
1.3(B) (the "Notes"). The Notes shall: be in an aggregate principal amount
of $5,000,000 less the amount, if any, by which the Net Book Value shall be
less than $10,500,000; bear interest on the outstanding principal amount
thereof at the prime rate from time to time as announced by NationsBank,
N.A. (Carolinas) in Charlotte, North Carolina, less 0.5% per annum; be
payable in twenty-eight equal quarterly installments; and be subject to
offset as provided therein, all as more particularly provided in said
Exhibit 1.3(B). The Notes shall be guaranteed by Sonic Financial Corp.
pursuant to a Guaranty in the form of Exhibit 1.3(C) (the "Guaranty").
(c) Rental Cost Adjustment. The amount of the rental cost adjustment shall
be determined prior to the Closing in accordance with the procedures set forth
in Schedule 1.3(c) (the "Rental Cost Adjustment").
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(d) Adjustment Amount Procedures.
(1) Not later than 60 days after the Closing Date, the Sellers, acting
through Nelson E. Bowers, II, as agent for the Sellers (the "Sellers' Agent"),
will prepare and deliver to the Buyer an unaudited balance sheet (the "Closing
Balance Sheet") of the Sellers as of the Closing Date, consisting of a
computation of the tangible book value as of the Closing Date of the Purchased
Assets (excluding goodwill and other intangible assets) less the book value as
of the Closing Date of the Assumed Liabilities, all as determined in accordance
with generally accepted accounting principles; provided, however, that:
inventory shall be valued on a FIFO basis; and there shall be included
appropriate reserves and/or write-offs for doubtful accounts receivable and bad
debts and for damaged, spoiled, obsolete or slow-moving inventory. The
preparation of the Closing Balance Sheet shall include a physical inventory as
of the Closing Date and the Buyer shall have the right to have a representative
present at such inventory. The Buyer shall also have the right to review the
Sellers' and their accountants' work papers related to such preparation. The
tangible net book value reflected on the Closing Balance Sheet is hereinafter
called the "Net Book Value". If within 30 days following delivery of the Closing
Balance Sheet (or the next Business Day if such 30th day is not a Business Day),
the Buyer has not given the Sellers' Agent notice of the Buyer's objection to
the computation of the Net Book Value as set forth in the Closing Balance Sheet
(such notice to contain a statement in reasonable detail of the nature of the
Buyer's objection), then the Net Book Value reflected in the Closing Balance
Sheet will be deemed mutually agreed by the Buyer and the Sellers and will be
used in computing the Adjustment Amount. If the Buyer shall have given such
notice of objection in a timely manner, then the issues in dispute will be
submitted to a "Big Six" accounting firm mutually acceptable to the Buyer and
the Sellers' Agent (the "Accountants") for resolution. If issues in dispute are
submitted to the Accountants for resolution, (i) each party will furnish to the
Accountants such workpapers and other documents and information relating to the
disputed issues as the Accountants may request and are available to the party or
its subsidiaries (or its independent public accountants), and will be afforded
the opportunity to present to the Accountants any material relating to the
determination and to discuss the determination with the Accountants; (ii) the
Accountants will be instructed to determine the Net Book Value based upon their
resolution of the issues in dispute; (iii) such determination by the Accountants
of the Net Book Value, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (iv) the Buyer
and the Sellers shall each bear 50% of the fees and expenses of the Accountants
for such determination. If issues in dispute are submitted to the Accountants,
any portion of the Escrowed Adjustment Amount in excess of that which, based
upon such issues in dispute, would be necessary to satisfy any potential Net
Book Value Shortfall (as hereinafter defined) shall be released to the Sellers'
Agent within 5 Business Days after the submission of such issues to the
Accountants, and the Sellers' Agent and the Buyer shall execute and deliver to
the Escrow Agent a joint instruction to such effect.
(2) To the extent that the Net Book Value, as deemed mutually agreed by the
parties or as determined by the Accountants, as aforesaid, exceeds the Initial
Adjustment Amount Payment, the Buyer shall be obligated to pay the amount of
such excess, up to the amount of the Escrowed Adjustment Amount, promptly to the
Sellers. In furtherance of such obligation of the Buyer, the parties shall
execute and deliver to the Escrow Agent a joint instruction to pay such
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excess to the Sellers in the percentage shares set forth in Schedule 1.3(e),
with any remaining balance of the Escrowed Adjustment Amount to be paid to the
Buyer. To the extent that the Net Book Value, as deemed mutually agreed by the
parties or as determined by the Accountants, as aforesaid, exceeds the Initial
Adjustment Amount, the Buyer shall be obligated to pay the amount of such
excess, up to $5,000,000, pursuant to the provisions of the Notes. To the extent
that the Net Book Value, as deemed mutually agreed by the parties or as
determined by the Accountants, as aforesaid, is less than the Initial Adjustment
Amount (the "Net Book Value Shortfall"), the Sellers shall be obligated to pay
the amount of the Net Book Value Shortfall promptly to the Buyer. In furtherance
of such obligation of the Sellers, the parties shall execute and deliver to the
Escrow Agent a joint instruction to pay up to the entire amount of the Escrowed
Adjustment Amount to the Buyer. To the extent that the amount of the Net Book
Value Shortfall shall exceed the Escrowed Adjustment Amount, the Sellers shall
be obligated to pay such excess amount of the Net Book Value Shortfall promptly
to the Buyer. Any interest earned on the Escrowed Adjustment Amount shall be
paid to the Buyer or the Sellers, as the case may be, in proportion to the
respective principal amounts of the Escrowed Adjustment Amount received by each
of them.
(e) Allocation. The allocation of the Purchase Price and the Assumed
Liabilities as among the respective Sellers and as to the Purchased Assets shall
be as set forth in Schedule 1.3(e).
1.4 Instruments of Conveyance and Transfer; Dealership Leases; Employment
Agreement.
(a) Instruments of Conveyance and Transfer. At the Closing, each of the
Sellers shall deliver to the Buyer a Bill of Sale and Assignment, substantially
in the form of Exhibit 1.4(A) (the "Bills of Sale"), and such other instruments
of assignment, conveyance and transfer, as shall be necessary to vest in the
Buyer good title to the Purchased Assets in accordance herewith. Simultaneously
therewith, the Sellers shall take all steps as may be required to transfer to
the Buyer actual possession and exclusive operating control of the Purchased
Assets.
(b) Employment Agreements. At the Closing, Nelson E. Bowers, II and Jeffrey
C. Rachor (the "Principals") will enter into employment agreements with the
Buyer, substantially in the forms of Exhibits 1.4(B)(1) and (2) (the "Employment
Agreements").
(c) Dealership Leases. At the Closing, Nelson E. Bowers, II or his
affiliates will enter into leases with the Buyer, as lessee, regarding the
Leased Premises (as defined in Section 3.8(a) below) owned by them, such leases
to be substantially in the form of Exhibit 1.4(C) (the "Dealership Leases"). For
purposes of this Agreement, the term "affiliate" shall mean any entity directly
or indirectly controlling, controlled by or under common control with the
specified person, whether by stock ownership, agreement or otherwise, or any
parent, child or sibling of such specified person and the concept of "control"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
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(d) Non-Competition Agreement. At the Closing, the Sellers and the
Shareholders will enter into a non-competition agreement with the Buyer in
substantially in the form of Exhibit 1.4(D) (the "Non-Competition Agreement").
(e) Further Assurances. The Sellers further agree that, from and after the
Closing, they will execute and deliver to the Buyer such additional instruments
and documents and take such further action as the Buyer may reasonably request
in order to more fully vest, record and/or perfect the Buyer's title to, or
interest in, the Purchased Assets.
(f) Shareholders' Covenant to Close. The Shareholders further covenant and
agree to take all necessary officer, director and stockholder, partner or member
actions to cause the Sellers to perform their obligations at and prior to the
Closing, as contemplated by this Agreement.
1.5 Offers of Employment to Sellers' Employees. On or before the Closing
Date, the Buyer may offer employment to such of the Sellers' employees as the
Buyer shall select, in its sole discretion, such employment to begin on or after
the date of the Closing and to be upon such terms and conditions as determined
by the Buyer in its sole discretion, but the Buyer has no obligation to employ
any person, except the Principals pursuant to the terms of the Employment
Agreements. Notwithstanding the foregoing, the Buyer agrees to offer employment
to a sufficient number of the Sellers' employees to avoid triggering any notice
requirements under the Worker Adjustment Retraining Notification Act, 29 U.S.C.
ss. 2101 et seq. (the "Warn Act").
ARTICLE 2
CLOSING
The sale and purchase of the Purchased Assets contemplated hereby shall
take place at a closing (the "Closing") at the offices of Grant, Konvalinka &
Harrison, P.C., Republic Centre, Ninth Floor, 633 Chestnut Street, Chattanooga,
Tennessee, at 10:00 a.m. local time on the fifth (5th) Business Day, or such
shorter period as the Buyer may choose, following the date the Buyer gives
notice of the Closing to the Sellers, but in no event earlier than October 20,
1997 or later than October 31, 1997 or such later date as shall be necessary to
finalize the determination of the Rental Cost Adjustment (October 31, 1997 or
such later date being hereinafter called the "Closing Date Deadline"), unless
another date or place is agreed to in writing by the Sellers and the Buyer. The
date on which the Closing actually occurs is hereinafter referred to as the
"Closing Date".
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers hereby represent and warrant to the Buyer as follows:
3.1 Organization; Good Standing; Qualifications. Each of the Sellers is a
corporation, limited liability company or limited partnership duly organized,
validly existing and in good standing under the laws of the State of Tennessee.
Each of the Sellers is qualified as foreign corporation, limited liability
company or limited partnership and in good standing in the jurisdictions listed
with respect to it on Schedule 3.1, which jurisdictions are the only
jurisdictions where the nature of such Seller's business and its assets require
such qualification except where the failure to be so qualified will not have a
material adverse effect on the Purchased Assets, or on the financial condition,
business or operations of the Sellers taken as a whole.
3.2 Authority; Consent. Each of the Sellers has full corporate, limited
liability company or limited partnership, as the case may be, power and
authority to carry on its business as now conducted, to execute and deliver this
Agreement and the other agreements, documents and instruments contemplated
hereby, to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. The execution and delivery by
each of the Sellers of this Agreement and the other agreements, documents and
instruments contemplated hereby, the consummation by each of the Sellers of the
transactions contemplated hereby and thereby and the performance by each of the
Sellers of its obligations hereunder and thereunder: (i) have been duly and
validly authorized by all necessary corporate, limited liability company or
limited partnership, as the case may be, action, including, without limitation,
all necessary shareholder, member or partner action, as the case may be; and
(ii) do not and will not, except as set forth on Schedule 3.2, (A) conflict with
or violate any of the provisions of the certificate of incorporation, by-laws,
articles of organization, operating agreement, or limited partnership agreement,
as the case may be, each as amended, with respect to any of the Sellers, (B)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to any of the Sellers, the
Purchased Assets or the Assumed Liabilities, (C) violate or conflict with the
terms of, or result in the acceleration of, any indebtedness or obligation of
either of the Sellers under, or violate or conflict with or result in a breach
of, or constitute a default under, any material instrument, agreement or
indenture or any mortgage, deed of trust or similar contract to which either of
the Sellers is a party or by which either of the Sellers or any of the Purchased
Assets or Assumed Liabilities are bound or affected, (D) result in the creation
or imposition of any Encumbrance upon any of the Purchased Assets, or (E)
require the consent, authorization or approval of, or notice to, or filing or
registration with, any governmental body or authority, or any other third party.
3.3 Ownership; Investments.
(a) Ownership. All issued and outstanding shares of capital stock of the
Corporations, all limited liability company interests of the LLCs and all
partnership interests of the Partnership, are held of record and beneficially by
the Shareholders, free and clear of any
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Encumbrances. Schedule 3.3(a) hereto sets forth a list of all Sellers and their
respective stockholders, members or partners, indicating in each case the
respective percentage ownership interests thereof. No Seller has any outstanding
securities or other instruments, agreements or arrangements of any character or
nature whatsoever under which such Seller is or may be obligated to issue any
shares of its capital stock (in the case of the Corporation) or admit any person
as a member or partner (in the case of the LLCs or the Partnership).
(b) Investments. Except as set forth on Schedule 3.3(b), the Sellers do not
own, directly or indirectly, any shares of capital stock or other equity
ownership or proprietary or membership interest in any corporation, limited
liability company, partnership, association, trust, joint venture or other
entity, and they do not have any commitment to contribute to the capital of,
make loans to, or share in the losses of, any enterprise.
3.4 Financial Statements. The Sellers have delivered to the Buyer prior to
the date hereof: (a) The unaudited balance sheets for the Sellers as of December
31, 1996, and the related unaudited statements of income, stockholders' equity,
members' equity or partners' equity, as the case may be, and changes in cash
flows of the Sellers for the fiscal year then ended (including the notes thereto
and any other information included therein), (collectively, the "Annual
Financial Statements"); and (b) The unaudited balance sheets of the Sellers as
of March 31, 1997 and the related unaudited statements of income, stockholders'
equity, members' equity or partners' equity, as the case may be, and changes in
cash flow for the three month period then ended (collectively, the "Interim
Financial Statements"); (the Annual Financial Statements and the Interim
Financial Statements are hereinafter collectively referred to as the "Financial
Statements"). The Financial Statements (i) are in accordance with the books and
records of the Sellers, which books and records are true, correct and complete
in all material respects, (ii) fully and fairly present the financial condition
and results of the operations of the Sellers as of and for the periods
indicated, and (iii) have been prepared in accordance with generally accepted
accounting principles consistently applied, except as set forth on Schedule 3.4.
3.5 Absence of Certain Changes. Since December 31, 1996 the Sellers have
operated their businesses in the ordinary course, consistent with past practices
and, except as set forth on Schedule 3.5 or as reflected in the Interim
Financial Statements, there has not been incurred, nor has there occurred: (a)
Any damage, destruction or loss (whether or not covered by insurance) adversely
affecting the Purchased Assets or the business of any of the Sellers in excess
of $100,000; (b) Any sale, transfer, pledge or other disposition of any tangible
or intangible assets of any of the Sellers (except sales of vehicles and parts
inventory in the ordinary course of business) having an aggregate book value of
$100,000 or more; (c) Any termination, amendment, cancellation or waiver of any
Material Contract (as defined in Section 3.6 hereof) or any termination,
amendment, cancellation or waiver of any rights or claims of any of the Sellers
under any Material Contract (except in each case in the ordinary course of
business and consistent with past practices); (d) Any change in the accounting
methods, procedures or practices followed by any of the Sellers or any change in
depreciation or amortization policies or rates theretofore adopted by the
Sellers; (e) Any material change in policies, operations or practices with
respect to business operations followed by any of the Sellers, including,
without limitation, with respect to selling methods, returns, discounts
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or other terms of sale, or with respect to the policies, operations or practices
of the Sellers concerning the employees of the Sellers or the employee benefit
plans of the Sellers; (f) Any capital appropriation or expenditure or commitment
therefor on behalf of the Sellers in excess of $100,000 individually, or
$200,000 in the aggregate; (g) Any general uniform increase, other than in the
ordinary course of business, in the cash or other compensation of employees of
any of the Sellers, or any increase in excess of $50,000 in any such
compensation payable to any individual officer, director, consultant or agent
thereof, or any loans or commitments therefor made by any of the Sellers to any
persons, including any officers, directors, stockholders, employees, consultants
or agents of the Sellers or any of their affiliates; (h) Any account receivable
in excess of $100,000 or note receivable in excess of $100,000 owing to any of
the Sellers which (i) has been written off as uncollectible, in whole or in
part, (ii) has had asserted against it any claim, refusal or right of setoff, or
(iii) the account or note debtor has refused to, or threatened not to, pay for
any reason, or such account or note debtor has become insolvent or bankrupt; (i)
any write-down or write-up of the value of any inventory or equipment of the
Sellers or any increase in inventory levels in excess of historical levels for
comparable periods; (j) Any other change in the condition (financial or
otherwise), business operations, assets, earnings, business or prospects of any
of the Sellers which has, or could reasonably be expected to have, a material
adverse effect on the Purchased Assets, or on the business or operations of the
Sellers taken as a whole; or (k) Any agreement, whether in writing or otherwise,
by either of the Sellers to take or do any of the actions enumerated in this
Section 3.5.
3.6 Material Contracts.
(a) List of Material Contracts. Set forth on Schedule 3.6(a) is a list of
all contracts, agreements, documents, instruments, guarantees, plans,
understandings or arrangements, written or oral, which are material to the
business of the Sellers, as currently conducted or to the Purchased Assets or
the Assumed Liabilities (collectively, the "Material Contracts"). True copies of
all written Material Contracts and written summaries of all oral Material
Contracts described or required to be described on Schedule 3.6(a) have been
furnished to the Buyer.
(b) Performance, Defaults, Enforceability. The Sellers have in all material
respects performed all of their obligations required to be performed by them to
the date hereof, and are not in default or alleged to be in default in any
material respect, under any Material Contract, and, to the knowledge of the
Sellers, there exists no event, condition or occurrence which, after notice or
lapse of time or both, would constitute such a default. To the knowledge of the
Sellers, no other party to any Material Contract is in default in any respect of
any of its obligations thereunder. Each of the Material Contracts is valid and
in full force and effect and enforceable against the parties thereto in
accordance with their respective terms, except where any lack of validity or
enforceability would not have a material adverse effect on the Purchased Assets,
or on the financial condition, business or operations of the Sellers taken as a
whole, and, except as set forth in Schedule 3.6(b), the transfer and assignment
to the Buyer of all of the Material Contracts, will not (i) require the consent
of any party thereto or (ii) constitute an event permitting termination thereof.
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3.7 Title to Purchased Assets and Related Matters. The Sellers
have good and valid title to all of the Purchased Assets, free and clear of all
Encumbrances, except those described on Schedule 3.7. Except as set forth in
Schedule 3.7, the Purchased Assets (including, without limitation, the Material
Contracts) and the Leased Premises (as defined in Section 3.8 below) include all
properties and assets (real, personal and mixed, tangible and intangible, and
all leases, licenses and other agreements) utilized by the Sellers in carrying
on their business in the ordinary course. Except as set forth on Schedule 3.7,
the Purchased Assets (i) are in the exclusive possession and control of the
Sellers and no person or entity other than the Sellers is entitled to possession
of any portion of the Purchased Assets; and (ii) do not include any contracts
for future services, prepaid items or deferred charges the full value or benefit
of which will not be usable by or transferable to the Buyer, or any goodwill,
organizational expense or other similar intangible asset.
3.8 Real Property of the Sellers.
(a) Leased Premises. Schedule 3.8(a) contains a complete list and
description (including buildings and other structures thereon and the name of
the owner thereof) of all real property which is used by the Sellers in their
respective businesses and operations, indicating which parcels of such real
property are to be leased under the Dealership Leases to the Buyer and which
parcels are subject to existing leases which are to be assigned to the Buyer
(such existing leases being hereinafter called the "Existing Leases"). All such
real property on Schedule 3.8(a) is hereinafter collectively called either the
"Real Property" or the "Leased Premises". True, correct and complete copies of
all Existing Leases have been delivered to the Buyer.
(b) Easements, etc. The Real Property enjoys all easements and rights of
way over the property of others necessary for the operation of the Sellers'
businesses. No portion of the Real Property has been condemned or otherwise
taken by any public authority, and the Sellers have no knowledge of any pending
or threatened condemnation or taking thereof. None of the buildings or
improvements on the Real Property encroaches on any adjoining property or on any
easements or rights of way. The Sellers have no knowledge of any event or
condition which currently exists which would create a legal or other impediment
to the use of the Real Property as currently used, or would increase the
additional charges or other sums payable by the tenant under any of the
Dealership Leases or the Existing Leases (including, without limitation, any
pending tax reassessment or other special assessment affecting the Real
Property). The buildings and improvements (including building systems) which
comprise a part of the Real Property are in good condition, maintenance and
repair, ordinary wear and tear excepted. There is no person or entity other than
the Sellers in or entitled to possession of the Real Property. Notwithstanding
the terms of this paragraph (b), all of the representations and warranties
contained in this paragraph (b) are made to the knowledge of the Sellers insofar
as they relate to Real Property which is not owned by the Sellers or any of
their affiliates.
3.9 Machinery, Equipment, Etc. Schedule 3.9(a) sets forth a list of all
material machinery, equipment, tools, motor vehicles, furniture and fixtures
owned by the Sellers and included in the Purchased Assets, including which items
are owned by the Sellers and which items are leased to the Sellers
(collectively, the "Equipment"). With respect to Equipment which is leased,
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Schedule 3.9(a) also contains a list of all leases or other agreements, whether
written or oral, relating thereto. The Equipment is in good operating condition,
maintenance and repair in accordance with industry standards taking into account
the age thereof and ordinary wear and tear excepted.
3.10 Inventories of the Sellers. All inventories of the Sellers included in
the Purchased Assets consist of items of a quality and quantity usable and
salable in the normal course of their businesses, are generally sufficient to do
business in the ordinary course, and the levels of inventories are consistent
with the levels maintained by the Sellers in the ordinary course consistent with
past practices and the Sellers' obligations under their agreements with all
applicable vehicle manufacturers or distributors.
3.11 Accounts Receivable of the Sellers. All accounts receivable of the
Sellers included in the Purchased Assets are collectible at the aggregate
recorded amounts thereof, subject to adjustments for doubtful accounts
consistent with the Sellers' past year-end practices, in the ordinary course of
the Sellers' business, and are not subject to any known offsets or
counterclaims.
3.12 Approvals, Permits and Authorizations. Set forth on Schedule 3.12 is a
list of all governmental licenses, permits, certificates of inspection, other
authorizations, filings and registrations which are necessary for the Sellers to
own the Purchased Assets and to operate their businesses as presently conducted,
except where the failure to have or maintain any of the foregoing would not have
a material adverse effect on the Purchased Assets, or on the financial
condition, business or operations of the Sellers taken as a whole (collectively,
the "Authorizations"). All Authorizations have been duly and lawfully secured or
made by the Sellers and are in full force and effect. There is no proceeding
pending or, to the Sellers' knowledge, threatened or probable of assertion, to
revoke or limit any Authorization. Except as indicated on Schedule 3.12, all
Authorizations may be lawfully transferred to the Buyer as contemplated by this
Agreement and, except as indicated on Schedule 3.12, none of the transactions
contemplated by this Agreement will terminate, violate or limit the
effectiveness, either by virtue of the terms thereof or because of the
non-assignability thereof, of any Authorization.
3.13 Compliance with Laws. The Sellers have conducted their operations and
businesses in compliance with, and all of the Purchased Assets and Leased
Premises comply with (i) all applicable laws, rules, regulations and codes
(including, without limitation, any laws, rules, regulations and codes relating
to anticompetitive practices, contracts, discrimination, employee benefits,
employment, health, safety, fire, building and zoning, but excluding
Environmental Laws which are the subject of Section 3.29 hereof) and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances,
except where the failure to comply would not have a material adverse effect on
the Purchased Assets, or on the financial condition, business or operations of
the Sellers taken as a whole. The Sellers have not received any notification of
any asserted present or past failure by them to comply with such laws, rules or
regulations, or such orders, rules, writs, judgments, injunctions, decrees or
ordinances. Set forth on Schedule 3.13 are all orders, writs, judgments,
injunctions, decrees and other awards of any court or any governmental
instrumentality applicable to the Purchased Assets or the Sellers or their
businesses and operations. The Sellers have delivered to the Buyer copies of all
reports, if any, of the Sellers required under the Federal
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Occupational Safety and Health Act of 1970, as amended, and under all other
applicable health and safety laws and regulations. The deficiencies, if any,
noted on such reports or any deficiencies noted by inspection through the
Closing Date have been corrected by the Sellers.
3.14 Insurance.
(a) Schedule 3.14(a) of this Agreement sets forth a list of all policies of
liability, theft, fidelity, life, fire, product liability, workmen's
compensation, health and any other insurance and bonds maintained by, or on
behalf of, the Sellers on their properties, operations, inventories, assets,
businesses or personnel (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims in excess of $5,000 thereunder).
Each such insurance policy identified therein is and shall remain in full force
and effect on and as of the Closing Date and the Sellers are not in default in
any material respect with respect to any provision contained in any such
insurance policy and have not failed to give any notice or present any claim
under any such insurance policy in a due and timely fashion. The insurance
maintained by, or on behalf of, the Sellers is adequate in accordance with the
standards of business of comparable size in the industry in which the Sellers
operate and no notice of cancellation or termination has been received with
respect to any such policy. The Sellers have not, during the last three (3)
fiscal years, been denied or had revoked or rescinded any policy of insurance.
(b) Set forth on Schedule 3.14(b) is a summary of information pertaining to
property damage and personal injury claims in excess of $5,000 against any of
the Sellers during the past three (3) years, all of which are fully satisfied or
are being defended by the insurance carrier and involve no exposure to the
Sellers.
3.15 Taxes. All federal, state and local tax returns and reports required
as of the date hereof to be filed by the Sellers for taxable periods ending
prior to the date hereof have been duly and timely filed by the Sellers with the
appropriate governmental agencies, and all federal, state and local income,
profits, franchise, sales, use, occupation, property, excise, payroll,
withholding, employment, estimated and other taxes of any nature, including
interest, penalties and other additions to such taxes ("Taxes") shown to be due
on such tax returns have been paid and the respective Sellers will pay all Taxes
ultimately determined by any taxing authority to have been required to be shown
on such tax returns. All Taxes for all periods arising on or prior to the
Closing Date for which tax returns are not required to be filed prior to the
Closing Date have been adequately reserved for by the Sellers or, with respect
to Taxes required to be accrued, the Sellers have properly accrued or will
properly accrue such Taxes in the ordinary course of business consistent with
past practice of the Sellers. Saturn of Chattanooga made a valid election to be
treated as an "S Corporation" for federal income tax purposes which election has
been continuously in effect since May 10, 1990.
3.16 Litigation. Except as set forth in Schedule 3.16, there are no
actions, suits, claims, investigations or legal or administrative or arbitration
proceedings pending, or to the Sellers' knowledge, threatened or probable of
assertion, against the Sellers with respect to the Purchased Assets or the
Assumed Liabilities or the businesses of the Sellers. The Sellers know of no
basis for
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the institution of any such suit or proceeding. The Sellers are not now under
any judgment, order, writ, injunction, decree, award or other similar command of
any court, administrative agency or other governmental authority applicable to
the businesses of the Sellers or any of the Purchased Assets or Assumed
Liabilities.
3.17 Powers of Attorney. Except as set forth in Schedule 3.17, there are no
persons, firms, associates, corporations, business organizations or other
entities holding general or special powers of attorney from the Sellers.
3.18 Broker's and Finder's Fees. Except for Stephens Inc., the Sellers have
not incurred any liability to any broker, finder or agent or any other person or
entity for any fees or commissions with respect to the transactions contemplated
by this Agreement, and the Sellers hereby agree to assume all liability to any
such broker, finder or agent or any other person or entity claiming any such fee
or commission.
3.19 Employee Relations. The Sellers employ a total of approximately 350
employees as of the date hereof. Except as set forth in Schedule 3.19: (a) the
Sellers are not delinquent in the payment (i) to or on behalf of any past or
present employees of any cash or other compensation for all periods prior to the
date hereof or the date of the Closing, as the case may be, (ii) of any amount
which is due and payable to any state or state fund pursuant to any workers'
compensation statute, rule or regulation or any amount which is due and payable
to any workers' compensation claimant; (b) there are no collective bargaining
agreements currently in effect between the Sellers and labor unions or
organizations representing any employees of the Sellers; (c) no collective
bargaining agreement is currently being negotiated by the Sellers; (d) to the
knowledge of the Sellers, there are no union organizational drives in progress
and there has been no formal or informal request to the Sellers for collective
bargaining or for an employee election from any union or from the National Labor
Relations Board; and (e) no dispute exists between either of the Sellers and any
of their sales representatives or, to the knowledge of the Sellers, between any
such sales representatives with respect to territory, commissions, products or
any other terms of their representation.
3.20 Compensation. Schedule 3.20 contains a schedule of all employees
(including sales representatives) and consultants of the Sellers whose
individual cash compensation for the year ended December 31, 1996, or projected
for the year ended December 31, 1997, is in excess of $100,000, together with
the amount of total compensation paid to each such person for the twelve month
period ended December 31, 1996 and the current aggregate base salary or hourly
rate (including any bonus or commission) for each such person.
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc. Except as
set forth on Schedule 3.21, there are no patents, trademarks, trade names,
service marks, service names and registered copyrights which are material to the
Sellers' businesses and there are no applications therefor or licenses thereof,
inventions, computer software, logos or slogans, which are owned or leased by
the Sellers or used in the conduct of the Sellers' business. The Sellers are not
individually or jointly a party to, nor pay a royalty to anyone under, any
license or similar
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agreement. There is no existing claim, or, to the knowledge of the Sellers, any
basis for any claim, against the Sellers that any of their operations,
activities or products infringe the patents, trademarks, trade names, copyrights
or other property rights of others or that any of the Sellers is wrongfully or
otherwise using the property rights of others. The Sellers are the owners of the
names set forth on Schedule 3.21 (the "Proprietary Names") in the State of
Tennessee and, to the knowledge of the Sellers, no person uses, or has the right
to use, such name or any derivation thereof in connection with the manufacture,
sale, marketing or distribution of products or services commonly associated with
an automobile dealership.
3.22 Accounts Payable. All accounts payable of the Sellers to third parties
as of the date hereof arose in the ordinary course of business and none are
delinquent or past due.
3.23 No Undisclosed Liabilities. The Sellers do not have any material
liabilities or obligations of any nature, known or unknown, fixed or contingent,
matured or unmatured, other than those (a) reflected in the Financial
Statements, (b) incurred in the ordinary course of business since the date of
the Financial Statements and of the type and kind reflected in the Financial
Statements, or (c) disclosed specifically on Schedule 3.23.
3.24 Certain Transactions. Except as set forth in Schedule 3.24, there are
no contracts, agreements or other arrangements between the Sellers and any of
the Shareholders (including the Shareholders' affiliates), or the Sellers' or
Shareholders' (including the Shareholders' affiliates) directors, officers or
salaried employees, or the family members or affiliates of any of the above
(other than for services in the ordinary course as employees, officers and
directors).
3.25 Business Generally. The Sellers are not aware of the existence of any
conditions, including, without limitation, any actual or potential competitive
factors in the markets in which the Sellers participate, and which could
reasonably be expected to have a material adverse effect on the businesses and
operations of the Sellers, and which have not been disclosed to the Buyer, other
than general business and economic conditions affecting the industry and markets
in which the Sellers participate.
3.26 Employee Benefits.
(a) The Sellers have listed on Schedule 3.26(a) and have delivered to the
Buyer true and complete copies of all Employee Plans (as defined below) and
related documents, established, maintained or contributed to by the Seller
(which shall include for this purpose and for the purpose of all of the
representations in this Section 3.26, the Shareholders and all employers,
whether or not incorporated, that are treated together with the Sellers as a
single employer with the meaning of Section 414 of the Code). The term "Employee
Plan" shall include all plans described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and also shall
include, without limitation, any deferred compensation, stock, employee or
retiree pension benefit, welfare benefit or other similar fringe or employee
benefit plan, program, policy, contract or arrangement, written or oral,
qualified or nonqualified, funded or unfunded, foreign or
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domestic, covering employees or former employees of the Sellers and maintained
or contributed to by the Sellers.
(b) Where applicable, each Employee Plan (i) has been administered in
material compliance with the terms of such Employee Plan and the requirements of
ERISA and the Code; and (ii) is in material compliance with the reporting and
disclosure requirements of ERISA and the Code. The Sellers do not maintain or
contribute to, and have never maintained or contributed to, an Employee Plan
subject to Title IV of ERISA or a "multiemployer plan." There are no facts
relating to any Employee Plan that (i) have resulted in a "prohibited
transaction" of a material nature or have resulted or is reasonably likely to
result in the imposition of a material excise tax, penalty or liability pursuant
to Section 4975 of the Code, (ii) have resulted in a material breach of
fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii) have
resulted or could result in any material liability (whether or not asserted as
of the date hereof) of the Sellers or any ERISA affiliate pursuant to Section
412 of the Code arising under or related to any event, act or omission occurring
on or prior to the date hereof. Each Employee Plan that is intended to qualify
under Section 401(a) or to be exempt under Section 501(c)(g) of the Code is so
qualified or exempt as of the date hereof in each case as such Employee Plan has
received favorable determination letters from the Internal Revenue Service with
respect thereto. To the knowledge of the Sellers, the amendments to and
operation of any Employee Plan subsequent to the issuance of such determination
letters do not adversely affect the qualified status of any such Employee Plan.
No Employee Plan has an "accumulated funding deficiency" as of the date hereof,
whether or not waived, and no waiver has been applied for. The Sellers have made
no promises or incurred any liability under any Employee Plan or otherwise to
provide health or other welfare benefits to former employees of the Sellers,
except as specifically required by law. There are no pending or, to the best
knowledge of the Sellers, threatened claims (other than routine claims for
benefit) or lawsuits with respect to any of Sellers' Employee Plans. As used in
this Section 3.26, all technical terms enclosed in quotation marks shall have
the meaning set forth in ERISA.
3.27 Sellers and Shareholders Not Foreign Persons. Neither the Sellers nor
any of the Shareholders is a "foreign person" as that term is defined in the
Code and the regulations promulgated pursuant thereto, and the Buyer has no
obligation under Section 1445 of the Code to withhold or pay over to the IRS any
part of the "amount realized" (as such term is defined in the regulations issued
under Section 1445 of the Code) by the Sellers and/or the Shareholders in the
transactions contemplated hereby.
3.28 Suppliers and Customers. The Sellers are not required to provide
bonding or any other security arrangements in connection with any transactions
with any of its respective customers or suppliers. To the knowledge of the
Sellers, no such supplier, customer or creditor intends or has threatened, or
reasonably could be expected, to terminate or modify any of their respective
relationships with the Sellers.
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3.29 Environmental Matters.
(a) For purposes of this Section 3.29, the following terms shall have the
following meaning: (i) "Environmental Law" means all present federal, state and
local laws, statutes, regulations, rules, ordinances and common law, and all
judgments, decrees, orders, agreements, or permits, issued, promulgated,
approved or entered thereunder by any government authority relating to
pollution, Hazardous Materials, or protection of human health or the
environment. (ii) "Hazardous Materials" means any waste, pollutant, chemical,
hazardous material, hazardous substance, toxic substance, hazardous waste,
special waste, solid waste, petroleum or petroleum-derived substance or waste
(regardless of specific gravity), or any constituent or decomposition product of
any such pollutant, material, substance or waste, including, but not limited to,
any hazardous substance or constituent contained within any waste and any other
pollutant, material, substance or waste regulated under or as defined by any
Environmental Law.
(b) The Sellers have obtained all material permits, licenses and other
authorizations or approvals required under Environmental Laws for the conduct
and operation of the Purchased Assets ("Environmental Permits"). All such
Environmental Permits are in good standing, the Sellers are and have been in
compliance in all material respects with the terms and conditions of all such
Environmental Permits, and no appeal or any other action is pending or, to the
knowledge of the Sellers, threatened to revoke any such Environmental Permit.
(c) Except as set forth in Schedule 3.29, the Sellers and the Purchased
Assets are and have been in compliance in all material respects with all
Environmental Laws.
(d) Except as set forth in Schedule 3.29, neither the Sellers nor the
Shareholders has received any written order, notice, complaint, request for
information, claim, demand or other communication from any government authority
or other person, whether based in contract, tort, implied or express warranty,
strict liability, or any other common law theory, or any criminal or civil
statute, arising from or with respect to (i) the presence, release or threatened
release of any Hazardous Material or any other environmental condition on, in or
under the Real Property, (ii) any other circumstances forming the basis of any
actual or alleged violation by the Sellers of any Environmental Law or any
liability of the Sellers under any Environmental Law, (iii) any remedial or
removal action required to be taken by the Sellers under any Environmental Law,
or (iv) any harm, injury or damage to real or personal property, natural
resources, the environment or any person alleged to have resulted from the
foregoing, nor are the Sellers aware of any facts which might reasonably give
rise to such notice or communication. To the knowledge of the Sellers, none of
the Sellers has entered into any agreement concerning any removal or remediation
of Hazardous Materials.
(e) Except as set forth in Schedule 3.29, no lawsuits, claims, civil
actions, criminal actions, administrative proceedings, investigations or
enforcement or other actions are pending or, to the knowledge of the Sellers,
threatened under any Environmental Law with respect to the Sellers or the Real
Property.
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(f) Except as set forth in Schedule 3.29, to the knowledge of the Sellers,
no Hazardous Materials are or have been released, discharged, spilled or
disposed of onto, or migrated onto, the Real Property or any other property
previously owned, operated or leased by the Sellers, and no environmental
condition exists (including, without limitation, the presence, release,
threatened release or disposal of Hazardous Materials) related to the Real
Property, to any property previously owned, operated or leased by the Sellers,
or to the Sellers' past or present operations, which would constitute a
violation of any Environmental Law or otherwise give rise to costs, liabilities
or obligations under any Environmental Law.
(g) Except as set forth in Schedule 3.29, neither the Sellers nor, to the
knowledge of the Sellers, any of their predecessors in interest has transported
or disposed of, or arranged for the transportation or disposal of, any Hazardous
Materials to any location (i) which is listed on the National Priorities List,
the CERCLIS list under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any similar federal, state or local
list, (ii) which is the subject of any federal, state or local enforcement
action or other investigation, or (iii) about which the Sellers or the
Shareholders have received or, to the knowledge of the Sellers, expect to
receive a potentially responsible party notice or other notice under any
Environmental Law.
(h) No environmental lien has attached or, to the knowledge of the Sellers,
is threatened to be attached to the Real Property.
(i) [Intentionally Deleted]
(j) Except as set forth on Schedule 3.29, none of the Sellers or their
respective affiliates has installed or operated on the Real Property and, to the
knowledge of the Sellers, the Real Property does not contain, any: (i) septic
tanks into which process wastewater or any Hazardous Materials have been
disposed; (ii) asbestos; (iii) polychlorinated biphenyls (PCBs); (iv)
underground injection or monitoring wells; or (v) underground storage tanks.
(k) [Intentionally Deleted]
(l) Except as set forth on Schedule 3.29, to the knowledge of the Sellers,
there have been no environmental studies or reports made relating to the Real
Property or any other property or facility previously owned, operated or leased
by the Sellers.
3.30 Bank Accounts and Safe Deposit Boxes. Schedule 3.30 lists all bank
accounts, credit cards and safe deposit boxes in the name of, or controlled by,
the Sellers, and details about the persons having access to or authority over
such accounts, credit cards and safe deposit boxes.
3.31 Warranties. Set forth on Schedule 3.31 are descriptions or copies of
the forms of all express warranties and disclaimers of warranty made by the
Sellers (separate and distinct from any applicable manufacturers', suppliers' or
other third-parties' warranties or disclaimers of warranties) during the past
five (5) years to customers or users of the vehicles, parts, products or
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services of the Sellers. There have been no breach of warranty or breach of
representation claims against the Sellers during the past five (5) years which
have resulted in any cost, expenditure or exposure to the Sellers more than
$100,000 individually or in the aggregate.
3.32 Interest in Competitors and Related Entities. Except as set forth on
Schedule 3.32, no Shareholder and no affiliate of any Shareholder (i) has any
direct or indirect interest in any person or entity engaged or involved in any
business which is competitive with the business of the Sellers, (ii) has any
direct or indirect interest in any person or entity which is a lessor of assets
or properties to, material supplier of, or provider of services to, the Sellers,
or (iii) has a beneficial interest in any contract or agreement to which either
of the Sellers are a party; provided, however, the foregoing representation and
warranty shall not apply to any person or entity, or any interest or agreement
with any person or entity, which is a publicly held corporation in which the
Shareholders individually and collectively own less than 3% of the issued and
outstanding voting stock.
3.33 Availability of Sellers' Employees. Except as set forth in Schedule
3.33, there have been no actions taken by the Sellers, their affiliates, or any
of their respective shareholders, officers, directors, members, partners,
managers or employees, to discourage, or in any way prevent, any of the
employees of the Sellers from being hired by the Buyer after Closing, and as of
the Closing each of the Sellers' employees will be available without penalty for
employment by the Buyer.
3.34 Misstatements and Omissions. No representation or warranty made by the
Sellers in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Sellers or any of the Shareholders
pursuant hereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
such representation or warranty or such statement not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authority; Consents; Enforceability.
(a) Authority. The Buyer has full corporate power and authority to execute
and deliver the Agreement and the other agreements and documents and instruments
contemplated hereby, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The execution
and delivery by the Buyer of this Agreement and the other agreements, documents
and instruments contemplated hereby, the consummation by the Buyer of the
transactions contemplated hereby and thereby and the performance by the Buyer
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of its obligations hereunder and thereunder: (i) have been duly and validly
authorized by all necessary corporate action on the part of the Buyer; and (ii)
do not and will not, except as set forth on Schedule 4.2(a), (A) conflict with
or violate any of the provisions of the Certificate of Incorporation or By-laws
of the Buyer, (B) violate any law, ordinance, rule or regulation or any
judgment, order, writ, injunction or decree or similar command of any court
administrative or governmental agency or other body applicable to the Buyer or
any of its assets, or (C) violate or conflict with the terms of, or result in
the acceleration of, any indebtedness or obligation of the Buyer under, or
violate or conflict with or result in a breach by the Buyer of, or constitute a
default under, any material instrument, agreement or indenture or any mortgage,
deed of trust or similar contract to which the Buyer is a party or by which the
Buyer or any of its assets may be otherwise bound or affected; or (D) require
the consent, authorization or approval of, or notice to, or filing or
registration with, any governmental body or authority, or any other third party.
4.3 Broker's and Finder's Fees. The Buyer has not incurred any liability to
any broker, finder or agent or any other person or entity for any fees or
commissions with respect to the transactions contemplated by this Agreement, and
the Buyer hereby agrees to assume all liability to any such broker, finder or
agent or any other person or entity claiming any such fee or commission.
4.4 Litigation. There are no actions, suits, claims, investigations or
legal or administrative or arbitration proceedings pending or, to the Buyer's
knowledge, threatened or probable of assertion, against the Buyer before any
court, governmental or administrative agency or other body relating to this
Agreement and/or the transactions contemplated hereby. The Buyer is not now
under any judgment, order, writ, injunction, decree or other similar command of
any court, administrative agency or other governmental agency which relate to
this Agreement and/or the transactions contemplated hereby.
4.5 Misstatements or Omissions. No representation or warranty made by the
Buyer in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Buyer to the Sellers and/or the
Shareholders pursuant hereto, contains or will contain an untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make such representation or warranty or such statement not misleading.
ARTICLE 5
PRE-CLOSING COVENANTS
OF THE SHAREHOLDERS AND THE SELLERS
The Sellers hereby covenant and agree that from and after the date hereof
until the Closing:
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5.1 Provide Access to Information; Cooperation with Buyer.
(a) Access. The Sellers shall afford to the Buyer, its attorneys,
accountants, and such other representatives of the Buyer as the Buyer shall
designate to the Sellers, free and full access at all reasonable times, and upon
reasonable prior notice, to the Purchased Assets and the properties, books and
records of the Sellers, and to interview personnel, suppliers and customers of
the Sellers, in order that the Buyer may have full opportunity to make such
investigation as it shall reasonably desire of the Purchased Assets, Assumed
Liabilities and the businesses and operations of the Sellers. In addition, the
Sellers shall provide to the Buyer and its representatives such additional
financial and operating data and other information in respect of the Purchased
Assets, Assumed Liabilities and the business and properties of the Sellers as
the Buyer shall from time to time reasonably request.
(b) Cooperation in IPO Preparation. At the Buyer's expense, the Sellers and
Shareholders shall cooperate with the Buyer in the preparation of any
description of the transactions contemplated by this Agreement deemed by the
Buyer, in its sole discretion, as necessary for the completion of any
registration statement, prospectus or amendment or supplement thereto prepared
in connection with the closing of the Initial Public Offering ("IPO") of the
Buyer's securities.
(c) Cooperation in Obtaining Consents. The Sellers and Shareholders shall
use reasonable best efforts in cooperating with the Buyer in the preparation of
and delivery to all applicable automobile manufacturers or distributors, as soon
as practicable after the date hereof, of an application and other information
necessary to obtain such automobile manufacturer's or distributor's consent to
or the approval of the transactions contemplated by this Agreement as
contemplated by Section 7.10.
5.2 Operation of Business of the Sellers. At all times before the Closing,
the Sellers shall (a) maintain their corporate, limited liability company or
limited partnership, as the case may be, existence in good standing, (b) operate
their businesses substantially as presently operated and only in the ordinary
course and consistent with past operations and their obligations under any
existing agreements with all applicable automobile manufacturers or
distributors, (c) use their reasonable best efforts to preserve intact their
present business organizations and employees and their relationships with
persons having business dealings with them, including, but not limited to, all
applicable automobile manufacturers or distributors and any floor plan financing
creditors, (d) comply in all material respects with all applicable laws, rules
and regulations, (e) maintain their insurance coverages, (f) file all tax
returns when due and pay all Taxes, charges and assessments reflected thereon as
due and payable, as well as any Taxes ultimately determined by any taxing
authority to be due and payable, and make all proper accruals for Taxes not yet
due and payable, (g) make all debt service payments when contractually due and
payable, (h) pay all accounts payable and other current liabilities when due,
(i) maintain the Employee Plans, (j) maintain the property, plant and equipment
included in the Purchased Assets in good operating condition in accordance with
industry standards taking into account the age thereof, (k) maintain their books
and records of account in the usual, regular and ordinary manner, (l) use their
reasonable best efforts to encourage
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such personnel of the Sellers as the Buyer may designate in writing to become
employees of the Buyer after the date of the Closing, and (m) use their
reasonable best efforts to pay dividends and make distributions only to the
extent that such payment or making will, as nearly as possible, result in a Net
Book Value of not less than $10,500,000.
5.3 Other Changes. The Sellers shall not, without the prior written consent
of the Buyer (a) engage in any reorganization or similar transaction, (b) agree
to take any of the foregoing actions, (c) enter into any contract, agreement,
undertaking or commitment which would have been required to be set forth in
Schedule 3.6(a) if in effect on the date hereof or enter in to any contract,
agreement, undertaking or commitment which cannot be assigned to the Buyer or a
permitted assignee of the Buyer, or (d) take, cause, agree to take or cause, or
permit to occur any of the actions or events set forth in Section 3.5 of this
Agreement.
5.4 Additional Information. The Sellers shall furnish to the Buyer such
additional information with respect to any matters or events arising or
discovered subsequent to the date hereof which, if existing or known on the date
hereof, would have rendered any representation or warranty made by the Sellers
or any information contained in any Schedule hereto or in other information
supplied in connection herewith then inaccurate or incomplete. The receipt of
such additional information by the Buyer shall not operate as a waiver by the
Buyer of the obligation of the Sellers to satisfy the conditions to Closing set
forth in Section 7.1 hereof; provided, however, if such information shall be
furnished to the Buyer in a writing which shall also specifically refer to one
or more representations and warranties of the Sellers contained herein which in
the absence of such information is inaccurate or incomplete, then if the Buyer
waives in writing the condition to Closing set forth in said Section 7.1 hereof
and elects to close the transactions contemplated hereunder, the furnishing of
such additional information shall be deemed to have amended as of the Closing
any such representation and warranty so specifically referred to by the Sellers.
5.5 Publicity. Except as may be required by law or as necessary in
connection with the transactions contemplated hereby, the Sellers shall not (i)
make any press release or other public announcement relating to this Agreement
or the transactions contemplated hereby, without the prior written approval of
the Buyer and (ii) otherwise disclose the existence and nature of their
discussions or negotiations regarding the transactions contemplated hereby to
any person or entity other than their accountants, attorneys and similar
professionals, all of whom shall be subject to this nondisclosure obligation as
agents of the Sellers and the Shareholders, as the case may be. The Sellers and
the Shareholders shall cooperate with the Buyer in the preparation and
dissemination of any public announcements of the transactions contemplated by
this Agreement.
5.6 Other Negotiations. Neither the Sellers nor any of the Shareholders
shall pursue, initiate, encourage or engage in any negotiations or discussions
with, or provide any information to, any person or entity (other than the Buyer
and its representatives and affiliates) regarding the sale of the assets,
capital stock or membership interests of any of the Sellers or any merger or
consolidation or similar transaction involving any of the Sellers.
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5.7 Closing Conditions. The Sellers shall use all reasonable best efforts
to satisfy promptly the conditions to Closing set forth in Article 7 hereof
required herein to be satisfied by the Sellers.
5.8 Environmental Audit. The Sellers shall allow an environmental
consulting firm selected by the Buyer (the "Environmental Auditor") to have
prompt access to the Real Property in order to conduct an environmental
investigation, satisfactory to the Buyer in scope (such scope being sufficient
to result in a Phase I environmental audit report and a Phase II environmental
audit report, if desired by the Buyer), of, and to prepare a report with respect
to, the Property (the "Environmental Audit"). The Sellers shall provide to the
Environmental Auditor: (i) reasonable access to all of their existing records
concerning the matters which are the subject of the Environmental Audit; and
(ii) reasonable access to the employees of the Sellers and the last known
addresses of former employees of the Sellers who are most familiar with the
matters which are the subject of the Environmental Audit (the Sellers agreeing
to use reasonable efforts to have such former employees respond to any
reasonable requests or inquiries by the Environmental Auditor). The Sellers
shall otherwise cooperate with the Environmental Auditor in connection with the
Environmental Audit, it being understood that the Buyer shall bear all of the
costs, fees and expenses incurred in connection with the preparation of the
Environmental Audit.
5.9 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Sellers shall promptly
prepare and file Notification and Report Forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") with the Federal
Trade Commission (the "FTC") and respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional information or documentation.
5.10 Audit of Sellers at Buyer's Expense. The Sellers shall allow,
cooperate with and assist Buyer's accountants, and shall instruct the Seller's
accountants to cooperate, in the preparation of audited financial statements of
the Sellers as necessary for the IPO; provided that the expense of such audit
shall be borne by the Buyer.
ARTICLE 6
PRE-CLOSING COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
6.1 Publicity; Disclosure. Except as may be required by law or as necessary
in connection with the transactions contemplated hereby or in connection with
the preparation and filing of any registration statement regarding the IPO, the
Buyer shall not (i) make any press release or other public announcement relating
to this Agreement or the transactions contemplated hereby, without the prior
written approval of the Sellers and the Shareholders, or (ii) otherwise disclose
the existence and nature of its discussions or negotiations regarding the
transactions contemplated
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hereby to any person or entity other than its accountants, attorneys and similar
professionals, all of whom shall be subject to this nondisclosure obligation as
agents of the Buyer. The Buyer shall cooperate with the Sellers and the
Shareholders in the preparation and dissemination of any public announcements of
the transactions contemplated by this Agreement. Subject to the Buyer's legal
obligations and the advice of its IPO underwriters, the Buyer shall submit to
the Sellers for their pre- approval (such approval shall not be unreasonably
withheld) of the content of any disclosures in the IPO context about the
transactions contemplated hereby.
6.2 Closing Conditions. The Buyer shall use all reasonable best efforts to
satisfy promptly the conditions to Closing set forth in Article 8 hereof
required herein to be satisfied by the Buyer.
6.3 Application to Automobile Manufactures and Distributors. Subject to the
reasonable cooperation of the Sellers, the Buyer shall provide to all applicable
automobile manufacturers and distributors promptly after the execution and
delivery of this Agreement any application or other information with respect to
such application necessary in connection with the seeking of the consents of
such manufacturers and distributors contemplated by Section 7.10.
6.4 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Buyer shall promptly
prepare and file Notification and Report Forms under the HSR Act with the FTC
and respond as promptly as practicable to all inquiries received from the FTC or
the Antitrust Division for additional information or documentation, and Buyer
shall pay all filing fees in connection therewith.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement at the Closing and the
consummation by the Buyer of the transactions contemplated hereby are subject to
the satisfaction or fulfillment by the Sellers, prior to or at the Closing, of
each of the following conditions, unless waived in writing by the Buyer:
7.1 Representations and Warranties. The representations and warranties made
by the Sellers in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date as though such representations and warranties were made at and as of such
times.
7.2 Performance of Obligations of the Sellers. The Sellers shall have
performed and complied with all their covenants, agreements, obligations and
restrictions pursuant to this Agreement required to be performed or complied
with prior to or at the Closing.
7.3 Closing Certificate. The Sellers shall have delivered a certificate,
signed by each of the Sellers' respective Presidents, General Partners or
Managers, as the case may be, and dated
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the Closing Date, certifying to the satisfaction of the conditions set forth in
Sections 7.1 and 7.2 hereof.
7.4 Opinions of Counsel. The Buyer shall have received an opinion of Grant,
Konvalinka & Harrison, P.C., counsel to the Sellers, and Miller & Martin,
counsel to The John T. Lupton Trust u/w Thomas Cartter Lupton, each dated the
Closing Date, in form and substance reasonably acceptable to the Buyer and its
counsel.
7.5 Supporting Documents. The Buyer shall have received from the Sellers
the following:
(a) To the extent applicable, one or more certificates of the
Secretary of State of the State of Tennessee dated as of a recent date as
to the due incorporation or organization and existence of the Sellers;
(b) To the extent applicable, one or more certificates of officials
from the jurisdictions listed on Schedule 3.1 hereto as to the good
standing of the Sellers in such jurisdictions;
(c) A certificate of the Secretary, an Assistant Secretary, General
Partner or Manager, as appropriate, of each of the Sellers dated the
Closing Date and certifying (i) that attached thereto are true, complete
and correct copies of the certificates of incorporation and by-laws of the
Corporations, the certificate of limited partnership and the agreement of
limited partnership of the Partnership or the operating agreements of the
LLCs, as applicable, each as amended to and as in effect on the date of
such certification, (ii) that attached thereto are true, complete and
correct copies of the resolutions duly adopted by the Boards of Directors
and shareholders of the Corporations, the General Partner and (if
applicable) the limited partners of the Partnership and the Manager and (if
applicable) the members of the LLCs, approving the transactions
contemplated hereby and authorizing the execution, delivery and performance
by the Sellers of this Agreement and the sale and transfer of the Purchased
Assets, as in effect on the date of such certification, and (iii) as to the
incumbency and signatures of those officers of the Sellers executing any
instrument or other document delivered in connection with such
transactions;
(d) Uniform Commercial Code Search Reports on Form UCC-11 with respect
to each of the Sellers from the states and local jurisdictions where the
principal places of business of the Sellers and the Purchased Assets are
located; and
(e) Such reasonable additional supporting documents and other
information as the Buyer or its counsel may reasonably request.
7.6 Bills of Sale, Etc. The Buyer shall have received from the respective
Sellers duly executed Bills of Sale and all necessary deeds, assignments,
documents and instruments to effect the transfers, conveyances and assignments
to the Buyer referred to in Article 1 hereof, and the Sellers shall have taken
such action as shall be necessary to put the Buyer in actual possession
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and exclusive control of each of the Purchased Assets (including, without
limitation, the delivery of keys).
7.7 Dealership Leases and Other Agreements. The Buyer shall have received
the Dealership Leases, the Employment Agreements and the Non-Competition
Agreement, duly executed by the parties thereto other than the Buyer.
7.8 Books and Records. The Buyer shall have received all books and records
of, or pertaining to, the businesses of the Sellers and the Purchased Assets and
Assumed Liabilities, except to the extent included in the Excluded Assets.
7.9 Change of Name of Sellers; Use of Sellers' Name by Buyer. The Sellers
shall have delivered to the Buyer all documents, including, without limitation,
resolutions of the Board of Directors, General Partner or Managers and the
shareholders, partners or members, as the case may be, of the Sellers, necessary
to effect a change of names of the Sellers after the Closing to names other than
the Proprietary Names or any variation thereof which names shall be sufficiently
different from the name of the Buyer and the Proprietary Names as to distinguish
them upon the records in the office of the Secretary of State of Tennessee from
such names. The Sellers shall also have delivered to the Buyer a written consent
to the use by the Buyer or any parent, subsidiary or affiliate of the Buyer, or
any successor or assignee of any thereof, of the Proprietary Names or any
variant thereof and an agreement satisfactory to the Buyer that the Sellers will
not use the Proprietary Names or any variant thereof, except as may be necessary
for the winding up of the affairs of the Sellers.
7.10 Consents. The Buyer shall have received duly executed copies of all
consents, authorizations, approvals, notices, registrations and filings referred
to in Schedules 3.2 and 3.6(b), which are required for the Sellers to consummate
the transactions contemplated hereby, and including, but not limited to, the
consents of all applicable automobile manufacturers and distributors; provided,
however, the receipt of any such consent, authorization or approval relative to
the transfer of the Saturn of Chattanooga, Inc. dealership agreement shall not
be a condition to closing so long as the Buyer and the applicable Seller shall
have entered into a mutually satisfactory arrangement (to be negotiated in good
faith) whereby the business and assets of such Seller included in the Purchased
Assets will be operated by such Seller or the Buyer for the account of the
Buyer.
7.11 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in a violation of
any law, rule, decree or regulation of any governmental authority having
appropriate jurisdiction, and no order, decree or ruling of any governmental
authority or court shall have been entered challenging the legality, validity or
propriety of this Agreement or the transactions contemplated hereby or
prohibiting, restraining or otherwise preventing the consummation of the
transactions contemplated hereby.
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7.12 Authorizations. The Buyer shall have received evidence of the transfer
to the Buyer of all Authorizations referred to in Section 3.12 of this Agreement
or, to the extent the Authorizations are not transferrable, the Sellers shall
have effectively obtained or made on behalf of the Buyer, or assisted the Buyer
in obtaining or making, all such Authorizations.
7.13 No Material Adverse Change or Undisclosed Liability. There shall have
been no material adverse change or development in (a) the business, prospects,
properties, earnings, results of operations or financial condition of the
Sellers taken as a whole, (b) the Purchased Assets taken as a whole, or (c) the
Assumed Liabilities taken as a whole.
7.14 Approval of Legal Matters. The form of all instruments, certificates
and documents to be executed and delivered by the Sellers to the Buyer pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
7.15 Adverse Laws. No statute, rule, regulation or order shall have been
adopted or promulgated which materially adversely affects the Purchased Assets,
the Assumed Liabilities or the businesses of the Sellers.
7.16 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication by the Antitrust Division
or the FTC that either of them intends to challenge the transactions
contemplated hereby or, if any such challenge or investigation is made or
commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SELLERS
The obligations of the Sellers under this Agreement at the Closing and the
consummation by the Sellers of the transactions contemplated hereby are subject
to the satisfaction or fulfillment by the Buyer, prior to or at the Closing, of
each of the following conditions, unless waived in writing by the Sellers:
8.1 Representations and Warranties. The representations and warranties made
by the Buyer in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date as though such representations and warranties were made at and as of such
times.
8.2 Performance of Obligations of the Buyer. The Buyer shall have performed
and complied with all its covenants, agreements, obligations and restrictions
pursuant to this Agreement required to be performed or complied with prior to or
at the Closing.
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8.3 Closing Certificate. The Buyer shall have delivered a certificate,
signed by the Buyer's President and dated the Closing Date, certifying to the
satisfaction of the conditions set forth in Sections 8.1 and 8.2 hereto.
8.4 Payment of Purchase Price. The Buyer shall have: tendered to the
Sellers payment of the Base Price and the Initial Adjustment Amount Payment;
placed into escrow the Escrowed Adjustment Amount; and tendered the Notes,
executed by the Buyer, to the respective Sellers.
8.5 Opinion of Counsel. The Sellers shall have received an opinion of
Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the Closing
Date, in form and substance reasonably acceptable to the Sellers and the
Shareholders and their counsel.
8.6 Supporting Documents. The Sellers shall have received the following:
(a) A certificate of the Secretary of State of the State of Delaware
dated as of a recent date as to the due incorporation and good standing of
the Buyer;
(b) A certificate of the Secretary or an Assistant Secretary of the
Buyer dated the Closing Date, and certifying (i) that attached thereto is a
true, complete and correct copy of the certificate of incorporation and
by-laws of the Buyer, as amended and as in effect on the date of such
certification, (ii) that attached thereto are true, complete and correct
copies of the resolutions duly adopted by the Board of Directors of the
Buyer approving the transactions contemplated hereby and authorizing the
execution, delivery and performance by the Buyer of this Agreement, as in
effect on the date of such certification, and (iii) as to the incumbency
and signatures of certain officers of the Buyer executing any instrument or
other document delivered in connection with such transactions; and
(c) Copies of all authorizations, consents, approvals, notices,
filings and registrations referred to in Section 4.2(a) hereof.
8.7 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed and/or delivered by the Buyer to the Sellers
pursuant to this Agreement and all legal matters in respect of the transactions
as herein contemplated shall be reasonably satisfactory to the Sellers, the
Shareholders and their respective counsel, none of whose approval shall be
unreasonably withheld or delayed.
8.8 Dealership Leases; Other Agreements; Guaranty. The Sellers' Agent shall
have received the Dealership Leases and the Employment Agreements, duly executed
by the Buyer, and all of the Sellers shall have received the Guaranty, duly
executed by Sonic Financial Corp.
8.9 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages
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in respect thereof, or involving a claim that consummation thereof would result
in a violation of any law, rule, decree or regulation of any governmental
authority having appropriate jurisdiction, and no order, decree or ruling of any
governmental authority or court shall have been entered challenging the
legality, validity or propriety of this Agreement or the transactions
contemplated hereby or prohibiting, restraining or otherwise preventing the
consummation of the transactions contemplated hereby.
8.10 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication by the Antitrust Division
or the FTC that either of them intends to challenge the transactions
contemplated hereby, or, if any such challenge or investigation is made or
commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
8.11 Releases of Shareholders. The Buyer shall have, with the reasonable
cooperation of the Sellers, used its reasonable best efforts to obtain the
release of the Shareholders from any guarantees of obligations of the Sellers
included in the Assumed Liabilities, it being understood that the Shareholders
will otherwise be indemnified, pursuant to Section 10.3(c) hereof, against any
liability incurred by them under such guarantees of such Assumed Liabilities.
ARTICLE 9
TRANSFER TAXES
9.1 Certain Taxes and Fees. All sales, transfer, documentary, stamp,
recording and other similar taxes and/or fees and Taxes which may be due or
payable in connection with the sale of the Purchased Assets pursuant hereto
shall be borne equally as between the Buyer (50%) and the Sellers (50%).
ARTICLE 10
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. All statements contained
in any schedule or certificate delivered hereunder or in connection herewith by
or on behalf of any of the parties pursuant to this Agreement shall be deemed
representations and warranties by the respective parties hereunder unless
otherwise expressly provided herein. The representations and warranties of the
Sellers and the Buyer contained in this Agreement, including those contained in
any Schedule or certificate delivered hereunder or in connection herewith, shall
survive the Closing * with the exception of (a) the representations and
warranties of the Sellers contained in Section 3.29, which shall survive the
Closing * , and (b) the representations and warranties of the Sellers contained
in Sections 3.7, 3.15 and 3.23, which shall survive the Closing * . As to each
* Confidential portions omitted and filed separately with the Commission.
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representation and warranty of the parties hereto, the date to which such
representation and warranty shall survive is hereinafter referred to as the
"Survival Date."
10.2 Agreement to Indemnify by the Sellers and Shareholders. Subject to the
terms and conditions of Sections 10.4, 10.5 and 10.7 hereof, each of the Sellers
and the Shareholders hereby agrees to indemnify and save the Buyer, its
affiliates, and their respective shareholders, officers, directors, employees,
successors and assigns (each, a "Buyer Indemnitee") harmless from and against,
for and in respect of, any and all demands, judgments, injuries, penalties,
fines, damages, losses, obligations, liabilities, claims, actions or causes of
action, encumbrances, costs, expenses (including, without limitation, reasonable
attorneys' fees, consultants' fees and expert witness fees), suffered,
sustained, incurred or required to be paid by any Buyer Indemnitee
(collectively, "Buyer's Damages") arising out of, based upon, in connection with
or as a result of:
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Sellers contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in
connection herewith; provided, however, (i) the Sellers and the
Shareholders shall have no obligation to pay Buyer's Damages pursuant to
this Subsection 10.2(a) unless and until (and only to the extent that) all
claims with respect of Buyer's Damages exceed a cumulative aggregate total
of * and (ii) the maximum indemnification obligation of the Sellers and the
Shareholders for Buyer's Damages pursuant to this Subsection 10.2(a) shall
be an aggregate total of * ;
(b) the breach or nonfulfillment of any covenant or agreement of any
of the Sellers contained in this Agreement or in any other agreement
document or instrument delivered hereunder or pursuant hereto;
(c) the assertion against any Buyer Indemnitee or any of the Purchased
Assets of any liability or obligation arising out of or based upon the
ownership or operation, prior to the Closing, of the Purchased Assets and
the Leased Premises including, without limitation, any of the Retained
Liabilities, but excluding, however, any of the Assumed Liabilities; or
(d) all claims of creditors asserted by reason of the parties'
non-compliance with any applicable bulk sales laws.
10.3 Agreement to Indemnify by the Buyer. Subject to the terms and
conditions of Sections 10.4 and 10.5 hereof, the Buyer hereby agrees to
indemnify and save the Sellers and the Shareholders (each, a "Seller
Indemnitee") harmless from and against, for and in respect of, any and all
demands, judgments, injuries, penalties, damages, losses, obligations,
liabilities, claims, actions or causes of action, encumbrances, costs and
expenses (including, without limitation, reasonable attorneys' fees and expert
witness fees) suffered, sustained, incurred or required to be paid by any Seller
Indemnitee arising out of, based upon, in connection with or as a result of:
* Confidential portions omitted and filed separately with the Commission.
28
<PAGE>
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Buyer contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in
connection herewith;
(b) the breach or nonfulfillment of any covenant or agreement of the
Buyer contained in this Agreement or in any other agreement, document or
instrument delivered hereunder or pursuant hereto;
(c) the assertion against any Seller Indemnitee of any of the Assumed
Liabilities; or
(d) the assertion against any Seller Indemnitee of any claims,
liabilities, or obligations arising from the Buyer's operation of the
Purchased Assets and the Leased Premises after the Closing Date, except to
the extent that such claims, liabilities or obligations arise out of or are
based upon the Retained Liabilities.
10.4 Claims for Indemnification. No claim for indemnification with respect
to a breach of a representation and warranty shall be made under this Agreement
after the applicable Survival Date unless prior to such Survival Date the Buyer
Indemnitee or the Seller Indemnitee, as the case may be, shall have given the
Sellers or the Buyer, as the case may be, written notice of such claim for
indemnification based upon actual loss sustained, or potential loss anticipated,
as a result of the existence of any claim, demand, suit or cause of action
against such Buyer Indemnitee or Seller Indemnitee, as the case may be.
10.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Sellers and the Shareholders with respect to
indemnification hereunder regarding claims by third persons shall be as follows:
(a) Promptly after receipt by any Buyer Indemnitee or Seller
Indemnitee, as the case may be, of notice of the commencement of any action
or proceeding (including, without limitation, any notice relating to a tax
audit) or the assertion of any claim by a third person, which the person
receiving such notice has reason to believe may result in a claim by it for
indemnity pursuant to this Agreement, such person (the "Indemnified Party")
shall give notice of such action, proceeding or claim to the party against
whom indemnification pursuant hereto is sought (the "Indemnifying Party"),
setting forth in reasonable detail the nature of such action or claim,
including copies of any written correspondence from such third person to
such Indemnified Party.
(b) The Indemnifying Party shall be entitled, at its own expense, to
participate in the defense of such action, proceeding or claim, and, if (i)
the action, proceeding or claim involved seeks (and continues to seek)
solely monetary damages, (ii) the Indemnifying Party confirms, in writing,
its obligation hereunder to indemnify and hold harmless the Indemnified
Party with respect to such damages in their entirety pursuant to Sections
10.2 or 10.3 hereof, as the case may be, and (iii) the Indemnifying Party
shall have made provision which, in the reasonable judgment of the
Indemnified Party, is adequate to satisfy any adverse judgment as a result
of its
29
<PAGE>
indemnification obligation with respect to such action, proceeding or
claim, then the Indemnifying Party shall be entitled to assume and control
such defense with counsel chosen by the Indemnifying Party and approved by
the Indemnified Party, which approval shall not be unreasonably withheld or
delayed. The Indemnified Party shall be entitled to participate therein
after such assumption, the costs of such participation following such
assumption to be at its own expense. Upon assuming such defense, the
Indemnifying Party shall have full rights to enter into any monetary
compromise or settlement which is dispositive of the matters involved;
provided, that such settlement is paid in full by the Indemnifying Party
and will not have any direct or indirect continuing material adverse effect
upon the Indemnified Party.
(c) With respect to any action, proceeding or claim as to which (i)
the Indemnifying Party does not have the right to assume the defense or
(ii) the Indemnifying Party shall not have exercised its right to assume
the defense, the Indemnified Party shall assume and control the defense of
and contest such action, proceeding or claim with counsel chosen by it and
approved by the Indemnifying Party, which approval shall not be
unreasonably withheld. The Indemnifying Party shall be entitled to
participate in the defense of such action, the cost of such participation
to be at its own expense. The Indemnifying Party shall be obligated to pay
the reasonable attorneys' fees and expenses of the Indemnified Party to the
extent that such fees and expenses relate to claims as to which
indemnification is due under Sections 10.2 or 10.3 hereof, as the case may
be. The Indemnified Party shall have full rights to dispose of such action
and enter into any monetary compromise or settlement; provided, however, in
the event that the Indemnified Party shall settle or compromise any claims
involved in the action insofar as they relate to, or arise out of, the same
facts as gave rise to any claim for which indemnification is due under
Sections 10.2 or 10.3 hereof, as the case may be, it shall act reasonably
and in good faith in doing so.
(d) Both the Indemnifying Party and the Indemnified Party shall
cooperate fully with one another in connection with the defense, compromise
or settlement of any such claim, proceeding or action, including, without
limitation, by making available to the other all pertinent information and
witnesses within its control.
10.6 Effectiveness. The provisions of this Article 10 shall be effective
upon consummation of the Closing, and prior to the Closing, shall have no force
and effect.
10.7 Certain Provisions Relating to Claims for Buyer's Damages.
(a) With respect to any claim by a Buyer Indemnitee or Buyer Indemnitees
for indemnification hereunder, the Buyer, on behalf of such Buyer Indemnitee or
Buyer Indemnitees, shall first exercise its right of postponement and offset and
reduction under the Notes (and/or draw against the Escrowed Adjustment Amount
(in the case of a right to payment under Section 1.3(d)(2)). Any such right of
postponement, offset and reduction under the Notes shall be made pro rata
according to the outstanding principal balances of the Notes, except in a case
(such as the bankruptcy of a particular payee under the Notes) where such right
is stayed or otherwise prohibited by law or order of a court of competent
jurisdiction, in which case such right shall be exercised pro rata according to
the outstanding principal balances of the Notes as to which there
30
<PAGE>
shall be no such stay or prohibition. The exercise of such right against the
Notes shall be made without regard to whether the claim or claims giving rise to
indemnification are attributable to any particular Seller or group of Sellers,
and/or their respective Shareholders.
(b) To the extent that any Buyer Indemnitee or Buyer Indemnitees shall have
claims for Buyer's Damages which exceed that which can be satisfied by the
exercise of rights under paragraph (a) above, such Buyer Indemnitee or Buyer
Indemnitees shall only be entitled to seek indemnification from the Seller or
Sellers, and their respective Shareholders, to whom the breach or the facts or
circumstances giving rise to such claims are attributable. In such a situation,
the liability of any such Seller and its Shareholders shall be joint and several
as between such Seller and such Shareholders, however the liability of such
Shareholders as among themselves shall be several in proportion to their
respective stockholder, membership or partnership interests, as the case may be,
in such Seller.
ARTICLE 11
TERMINATION AND TERMINATION FEE
11.1 Termination. Notwithstanding any other provision herein contained to
the contrary, this Agreement may be terminated at any time prior to the Closing
Date as follows:
(a) This Agreement may be terminated by written consent of the parties
hereto;
(b) The Buyer may terminate this Agreement by giving written notice to
the Sellers at any time prior to the Closing (1) in the event the Sellers
have breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, provided that the Buyer shall
have notified the Sellers of the breach and the breach shall have continued
without cure or remedy for a period of thirty (30) days after the notice of
breach, or (2) if the Closing shall not have occurred on or before the
Closing Date Deadline by reason of the failure of any condition precedent
under Article 7 hereof other than any condition contained in Sections 7.4,
7.11, 7.13(a) or (b), 7.14, 7.15, or 7.16 (provided, however, that the
Buyer may not terminate under this subsection (b) if the Buyer is in breach
of any material representation, warranty, or covenant of the Buyer
contained in this Agreement);
(c) The Sellers may terminate this Agreement by giving written notice
to the Buyer at any time prior to the Closing (1) in the event the Buyer
has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, provided that the Sellers shall
have notified the Buyer of the breach and the breach has continued without
cure or remedy for a period of thirty (30) days after the notice of breach,
or (2) if the Closing shall not have occurred on or before the Closing Date
Deadline by reason of the failure of any condition precedent under Article
8 hereof other than any condition contained in Sections 8.5, 8.7, 8.9,
8.10, or 8.11 (provided, however, that the Sellers may not terminate under
this subsection (c) if any Seller is in breach of any material
representation, warranty, or covenant contained in this Agreement);
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<PAGE>
(d) The Buyer may terminate this Agreement if, after any initial HSR
Act filing, the FTC makes a "second request" for information, or the FTC or
the Antitrust Division challenges the transactions contemplated hereby;
provided that the Buyer delivers written notice to the Sellers of its
termination hereunder within fifteen (15) days of the Buyer's receipt of
such second request or of notice of such challenge; or
(e) The Buyer may terminate this Agreement within thirty (30) days of
the date hereof if, and only if, the Buyer is not satisfied, in its
reasonable discretion, with the results of any environmental audit or other
environmental investigation undertaken with respect to the Real Property.
11.2 Procedure and Effect of Termination. If either party terminates this
Agreement pursuant to Section 11.1 above, all rights and obligations of the
parties hereunder shall terminate without any liability of any party to any
other party except as set forth below:
(a) If this Agreement is terminated by the Buyer pursuant to the
provisions of Section 11.1(b) above, then the Sellers shall, on demand of
the Buyer, promptly pay to the Buyer in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$500,000 (the "Sellers' Termination Fee").
(b) If this Agreement is terminated by the Sellers pursuant to the
provisions of Section 11.1(c) above, then the Buyer shall, upon demand of
the Sellers, promptly pay to the Sellers in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$1,500,000 (the "Buyer's Termination Fee"). The Buyer's Termination Fee
shall be guaranteed by Sonic Financial Corp. pursuant to the Guaranty in
the form of Exhibit 1.3(C) hereto.
The respective rights of the parties to terminate this Agreement under
Sections 11.1(b) or 11.1(c), as the case may be, and to be paid the
Sellers' Termination Fee or the Buyer's Termination Fee, as the case may
be, shall be the respective parties' sole and exclusive remedies for
damages; in the event of such termination by either party, such party shall
have no right to equitable relief for any breach or alleged breach of this
Agreement, other than for specific performance for the payment of the
Sellers' Termination Fee or the Buyer's Termination Fee, as the case may
be.
(c) Except as specifically provided in this Section 11.2, nothing
contained in this Section 11.2 shall prevent any party from seeking any
equitable relief to which it would otherwise be entitled in the event of
breach by the other party.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 Access to Books and Records after Closing. The Buyer shall, following
the Closing, give, and shall cause to be given, to the Sellers and its
authorized representatives such
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access, during normal business hours and upon prior notice, to such books and
records constituting part of the Purchased Assets as shall be reasonably
necessary for the Sellers in connection with the preparation and filing of the
Sellers' tax returns for periods prior to the Closing, and to make extracts and
copies of such books and records at the expense of the Sellers.
12.2 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by telecopier or by a nationally recognized overnight
courier, postage prepaid, and shall be deemed to have been duly given when so
delivered personally or sent by telecopier, with receipt confirmed, or one (1)
Business Day after the date of deposit with such nationally recognized overnight
courier. All such notices, claims, certificates, requests, demands and other
communications shall be addressed to the respective parties at the addresses set
forth below or to such other address as the person to whom notice is to be given
may have furnished to the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Auto World, Inc.
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28218
Telecopier No.: (704) 532-3312
Attention: Theodore Wright
with a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopier No.: (704) 334-4706
Attention: Edward W. Wellman, Esq.
If to the Sellers or the Sellers' Agent, to the Sellers c/o The Bowers
Transportation Group, LLC at the following address:
Bowers Transportation Group, LLC
c/o Grant, Konvalinka & Harrison, P.C.
900 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Telecopier No.: (423) 756-6518
Attention: John Konvalinka, Esq.
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If to the Shareholders, to:
Mr. Nelson E. Bowers, II
c/o Grant, Konvalinka & Harrison, P.C.
900 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37402
Telecopier No.: (423) 756-6518
Mr. Jeffrey C. Rachor
c/o Grant, Konvalinka & Harrison, P.C.
900 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37402
Telecopier No: (423) 756-6518
Mr. John T. Lupton
702 Tallan Building
Two Union Square
Chattanooga, Tennessee 37402
Telecopier No: (423) 757-0504
in either case, with a copy to:
Grant, Konvalinka & Harrison, P.C.
900 Republic Centre
633 Chestnut Street
Chattanooga, Tennessee 37450
Telecopier No.: (423) 756-6518
Attention: John Konvalinka, Esq.
and:
Miller & Martin
Suite 1000 Volunteer Building
832 Georgia Avenue
Chattanooga, Tennessee 37402
Telecopier No.: (423) 785-8480
Attention: Joel W. Richardson, Jr., Esq.
The Buyer, the Sellers or the Shareholders may change the address or
telecopier number to which such communications are to be directed by giving
written notice to the others in the manner provided in this Agreement.
34
<PAGE>
12.3 Parties in Interest; No Third Party Beneficiaries.
(a) Subject to Section 12.4 hereof, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
(b) Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon or give to any employee of the Sellers, or any other
person, firm, corporation or legal entity, other than the parties hereto and
their successors and permitted assigns, any rights, remedies or other benefits
under or by reason of this Agreement.
(c) In the case of any Shareholder who is acting in the capacity of a
trustee or in any other fiduciary capacity, the terms, conditions and
obligations of this Agreement shall inure to the benefit of and be binding upon
both the Shareholder and the trust estate represented by such Shareholder, but
such Shareholder acting as a trustee or other fiduciary shall not be personally
liable with respect to the terms, conditions and obligations of this Agreement.
12.4 Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties, provided that
Buyer may assign its rights under the Agreement to any affiliate of Buyer
presently existing or hereafter formed and to any person or entity that shall
acquire all or substantially all of the assets of the Buyer; provided, however,
that no such assignment by the Buyer shall release it from its obligations
hereunder without the consent of the Sellers.
12.5 Entire Agreement; Amendment. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire understanding
of the parties hereto and supersedes all prior agreements and understandings
between the parties hereto with respect to its subject matter. This Agreement
may be amended or modified only by a written instrument duly executed by the
parties hereto.
12.6 Headings. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
12.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Tennessee, without giving effect to its
principles of conflicts of law.
12.9 Knowledge. Whenever any representation or warranty of the Sellers
contained herein or in any other document executed and delivered in connection
herewith is based upon the
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<PAGE>
knowledge of the Sellers, such knowledge shall be deemed to include the actual
knowledge, if any, of any of the Sellers or any of the Shareholders, as well as
information of which Nelson E. Bowers II or Jeffrey C. Rachor would reasonably
be expected to be aware in the prudent discharge of his duties in the ordinary
course of business (including consultation with legal counsel) on behalf of the
Sellers.
12.10 Jurisdiction; Arbitration. (a) Subject to the other provisions of
this Section 12.10, any judicial proceeding brought with respect to this
Agreement must be brought in any court of competent jurisdiction in the State of
Tennessee, and, by execution and delivery of this Agreement, each party (i)
accepts, generally and unconditionally, the exclusive jurisdiction of such
courts and any related appellate court, and irrevocably agrees to be bound by
any judgment rendered thereby in connection with this Agreement, and (ii)
irrevocably waives any objection it may now or hereafter have as to the venue of
any such suit, action or proceeding brought in such court or that such court is
an inconvenient forum.
(b) Any dispute, claim or controversy arising out of or relating to this
Agreement, or the interpretation or breach hereof (including, without
limitation, any of the foregoing based upon a claim to any termination fee
hereunder), shall be resolved by binding arbitration under the commercial
arbitration rules of the American Arbitration Association (the "AAA Rules") to
the extent such AAA Rules are not inconsistent with this Agreement. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
and order its enforcement, as the case may be. The demand for arbitration shall
be made by any party hereto within a reasonable time after the claim, dispute or
other matter in question has arisen, and in any event shall not be made after
the date when institution of legal proceedings, based on such claim, dispute or
other matter in question, would be barred by the applicable statute of
limitations. The arbitration panel shall consist of three (3) arbitrators, one
of whom shall be appointed by each party hereto within thirty (30) days after
any request for arbitration hereunder. The two arbitrators thus appointed shall
choose the third arbitrator within thirty (30) days after their appointment;
provided, however, that if the two arbitrators are unable to agree on the
appointment of the third arbitrator within 30 days after their appointment,
either arbitrator may petition the American Arbitration Association to make the
appointment. The place of arbitration shall be Atlanta, Georgia. The arbitrators
shall be instructed to render their decision within sixty (60) days after their
selection and to allocate all costs and expenses of such arbitration (including
legal and accounting fees and expenses of the respective parties) to the parties
in the proportions that reflect their relative success on the merits (including
the successful assertion of any defenses).
(c) Nothing contained in this Section 12.10 shall (i) prevent any party
hereto from seeking any equitable relief to which it would otherwise be entitled
from a court of competent jurisdiction, or (ii) prevent the Buyer from enforcing
its rights under the Non- Competition Agreement in the State of North Carolina.
12.11 Waivers. Any party to this Agreement may, by written notice to the
other parties hereto, waive any provision of this Agreement from which such
party is entitled to receive
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<PAGE>
a benefit. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of such provision or any other provision of this Agreement.
12.12 Severability. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
12.13 Expenses. Except as otherwise set forth herein, each party shall be
responsible for its own legal fees and other costs and expenses incurred in
connection with this Agreement and the negotiation and consummation of the
transactions contemplated hereby.
[Signatures begin on following page]
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day, month and year first above written.
THE BUYER: SONIC AUTO WORLD, INC.
By: /s/ Bryan Scott Smith
------------------------------
Name: Bryan Scott Smith
Title: Chief Executive Officer
THE SELLERS: KIA OF CHATTANOOGA, LLC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: Chief Manager
EUROPEAN MOTORS OF NASHVILLE, LLC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: Chief Manager
EUROPEAN MOTORS, LLC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: Chief Manager
SP-1
<PAGE>
JAGUAR OF CHATTANOOGA LLC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: Chief Manager
CLEVELAND CHRYSLER-PLYMOUTH-JEEP
EAGLE LLC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: Chief Manager
NELSON BOWERS DODGE, LLC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: Chief Manager
CLEVELAND VILLAGE IMPORTS, INC.
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: President
SATURN OF CHATTANOOGA, INC.
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: President
SP-2
<PAGE>
NELSON BOWERS FORD, L.P.
By: Nebco of Southeast Tennessee, Inc.
Its: General Partner
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: President
THE SHAREHOLDERS: /s/ Neslon E. Bowers, II (SEAL)
------------------------------
NELSON E. BOWERS, II
/s/ Jeffrey C. Rachor (SEAL)
------------------------------
JEFFREY C. RACHOR
/s/ Paul W. Painter, Sr., Trustee (SEAL)
------------------------------
Paul W. Painter, Sr., Trustee
/s/ Danny McVay (SEAL)
------------------------------
DANNY McVAY
/s/ Frank E. Fowler, II (SEAL)
------------------------------
FRANK E. FOWLER, II
/s/ Dewayne B. McCamish (SEAL)
------------------------------
DEWAYNE B. McCAMISH
/s/ Rex Allen (SEAL)
------------------------------
REX ALLEN
SP-3
<PAGE>
NEBCO OF SOUTHEAST TENNESSEE, INC.
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: President
INFINITI OF CHATTANOOGA, INC
By: /s/ Neslon E. Bowers, II
------------------------------
Name: Nelson E. Bowers, II
Title: President
/s/ John T. Lupton (SEAL)
------------------------------
JOHN T. LUPTON
JOHN T. LUPTON TRUST U/W THOMAS
CARTTER LUPTON
By: /s/ John T. Lupton, Trustee
------------------------------
John T. Lupton, Trustee
By: /s/ Joel W. Richardson, Jr., Trustee
------------------------------------
Joel W. Richardson, Jr., Trustee
By: /s/ David S. Gonzenbach, Trustee
------------------------------------
David S. Gonzenbach, Trustee
SP-4
<PAGE>
List of Schedules
-----------------
Schedule 1.1(a) - Purchased Assets
Schedule 1.1(b) - Excluded Assets
Schedule 1.1(c) - Permitted Encumbrances
Schedule 1.2 - Assumed Liabilities
Schedule 1.3(c) - Rental Cost Adjustment Procedures
Schedule 1.3(e) - Allocation of Purchase Price and Assumed
Liabilities
Schedule 3.1 - Jurisdictions of Foreign Qualification of
Sellers
Schedule 3.2 - Required Authorizations and Consents to
Agreement
Schedule 3.3(a) - Ownership Interests in Sellers
Schedule 3.3(b) - Investments
Schedule 3.4 - Financial Statements of the Sellers
Schedule 3.5 - Certain Changes
Schedule 3.6(a) - Material Contracts
Schedule 3.6(b) - Required Consents for Transfers of Material
Contracts
Schedule 3.7 - Encumbrances
Schedule 3.8(a) - Real Property; Leased Premises
Schedule 3.9(a) - Equipment
Schedule 3.12 - Approvals, Permits and Authorizations
Schedule 3.13 - Compliance with Laws
Schedule 3.14(a) - Insurance Policies
<PAGE>
Schedule 3.14(b) - Property Damage and Personal Injury
Claims
Schedule 3.16 - Litigation
Schedule 3.17 - Powers of Attorney
Schedule 3.19 - Employee Relations
Schedule 3.20 - Compensation
Schedule 3.21 - Patents; Trademarks; Trade Names;
Copyrights; Licenses; Etc. and Proprietary
Names
Schedule 3.23 - Other Liabilities
Schedule 3.24 - Affiliate Transactions
Schedule 3.26 - Employee Plans
Schedule 3.29 - Environmental Matters
Schedule 3.30 - Bank Accounts and Safe Deposit Boxes
Schedule 3.31 - Warranties
Schedule 3.32 - Interests in Competitors
Schedule 3.33 - Availability of Sellers' Employees
Schedule 4.2(a) - Buyer Consents
<PAGE>
List of Exhibits
----------------
Exhibit 1.3(A) - Form of Escrow Agreement
Exhibit 1.3(B) - Form of Notes
Exhibit 1.3(C) - Form of Guaranty by Sonic Financial Corporation
Exhibit 1.4(A) - Form of Bills of Sale and Assignment
Exhibit 1.4(B)(1) - Form of Employment Agreement -- Bowers
Exhibit 1.4(B)(2) - Form of Employment Agreement -- Rachor
Exhibit 1.4(C) - Form of Dealership Leases
Exhibit 1.4(D) - Form of Non-Competition Agreement
STOCK PURCHASE AGREEMENT
BETWEEN
SONIC AUTO WORLD, INC.
AND
KEN MARKS, JR., O.K. MARKS, SR. and MICHAEL J. MARKS
DATED AS OF JULY 29, 1997
<PAGE>
TABLE OF CONTENTS
Page
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ARTICLE 1 - Purchase and Sale.............................................. 1
1.1 Agreement of Purchase and Sale .................................. 1
1.2 Purchase Price .................................................. 1
1.3 Delivery of the Shares .......................................... 3
1.4 Dealership Lease; Guaranty; Employment Agreement;
Non-Competition Agreement ....................................... 3
ARTICLE 2 - Closing........................................................ 4
ARTICLE 3 - Representations and Warranties of the Sellers.................. 4
3.1 Ownership of Shares............................................. 4
3.2 Sellers' Power and Authority; Consents and Approvals............ 4
3.3 Execution and Enforceability.................................... 4
3.4 Litigation Regarding Sellers.................................... 5
3.5 Interest in Competitors and Related Entities; Certain
Transactions.................................................... 5
3.6 Sellers Not Foreign Persons..................................... 5
3.7 Organization; Good Standing; Qualifications; and Power.......... 5
3.8 Capitalization.................................................. 6
3.9 Subsidiaries and Investments.................................... 6
3.10 No Violation; Conflicts......................................... 6
3.11 Title to Assets; Related Matters................................ 6
3.12 Possession...................................................... 7
3.13 Financial Statements............................................ 7
3.14 Accounts Receivable............................................. 7
3.15 Inventories..................................................... 7
3.16 Real Property; Machinery and Equipment.......................... 8
3.17 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc..... 9
3.18 Certain Liabilities............................................. 9
3.19 No Undisclosed Liabilities...................................... 9
3.20 Absence of Changes.............................................. 9
3.21 Tax Matters..................................................... 10
3.22 Compliance with Laws, Etc....................................... 11
3.23 Litigation Regarding the Corporation............................ 11
3.24 Permits, Etc.................................................... 11
3.25 Employees; Labor Relations...................................... 12
3.26 Compensation.................................................... 12
3.27 Employee Benefits............................................... 12
3.28 Powers of Attorney.............................................. 13
3.29 Material Agreements............................................. 13
3.30 Brokers' or Finders' Fees, Etc.................................. 14
3.31 Bank Accounts, Credit Cards, Safe Deposit Boxes
and Cellular Telephones......................................... 14
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3.32 Insurance....................................................... 14
3.33 Warranties...................................................... 14
3.34 Directors and Officers.......................................... 14
3.35 Suppliers and Customers......................................... 14
3.36 Environmental Matters........................................... 15
3.37 Business Generally.............................................. 16
3.38 Misstatements and Omissions..................................... 17
ARTICLE 4 - Representations and Warranties of the Buyer.................... 17
4.1 Organization and Good Standing.................................. 17
4.2 Buyer's Power and Authority; Consents and Approvals............. 17
4.3 Execution and Enforceability.................................... 17
4.4 Litigation Regarding Buyer...................................... 17
4.5 No Violation; Conflicts......................................... 18
4.6 Financing....................................................... 18
4.7 Brokers' or Finders' Fees, Etc.................................. 18
4.8 Misstatements and Omissions..................................... 18
ARTICLE 5 - Pre-Closing Covenants of the Sellers........................... 18
5.1 Provide Access to Information; Cooperation with Buyer........... 18
5.2 Operation of Business of the Corporation........................ 19
5.3 Books of Account................................................ 19
5.4 Employees....................................................... 19
5.5 Issuance of Securities.......................................... 19
5.6 Other Changes................................................... 20
5.7 Additional Information.......................................... 20
5.8 Publicity....................................................... 20
5.9 Other Negotiations.............................................. 20
5.10 Closing Conditions.............................................. 20
5.11 Environmental Audit............................................. 20
5.12 Audited Financial Statements.................................... 21
5.13 Hart-Scott-Rodino............................................... 21
ARTICLE 6 - Pre-Closing Covenants of Buyer................................. 21
6.1 Publicity....................................................... 21
6.2 Closing Conditions.............................................. 21
6.3 Application to Automobile Manufacturers and Distributors........ 21
6.4 Hart-Scott-Rodino............................................... 22
ARTICLE 7 - Conditions to Obligations of the Buyer at the Closing.......... 22
7.1 Representations and Warranties.................................. 22
7.2 Performance of Obligations of the Sellers....................... 22
7.3 Closing Documentation........................................... 22
7.4 Approval of Legal Matters....................................... 23
7.5 No Litigation................................................... 23
7.6 No Material Adverse Change or Undisclosed Liability............. 24
7.7 No Adverse Laws................................................. 24
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7.8 Affiliate Transactions.......................................... 24
7.9 Escrow Agreement................................................ 24
7.10 Execution of Dealership Lease................................... 24
7.11 Employment Agreement............................................ 24
7.12 Non-Competition Agreement....................................... 24
7.13 Cancellation of Stock Options................................... 24
7.14 Return of Letter of Credit. ................................... 24
7.15 Hart-Scott-Rodino Waiting Period................................ 24
ARTICLE 8 - Conditions to Obligations of the Sellers at the Closing........ 25
8.1 Representations and Warranties.................................. 25
8.2 Performance of Obligations of the Buyer......................... 25
8.3 Closing Documentation........................................... 25
8.4 Approval of Legal Matters....................................... 26
8.5 No Litigation................................................... 26
8.6 Dealership Lease; Guaranty...................................... 26
8.7 Escrow Agreement................................................ 26
8.8 Employment Agreement............................................ 26
8.9 Hart-Scott-Rodino Waiting Period................................ 26
ARTICLE 9 - Survival of Representations and Warranties, Indemnification,
Etc............................................................. 26
9.1 Survival........................................................ 26
9.2 Agreement to Indemnify by Sellers............................... 27
9.3 Agreement to Indemnify by Buyer................................. 28
9.4 Claims for Indemnification...................................... 28
9.5 Procedures Regarding Third Party Claims......................... 28
9.6 Effectiveness................................................... 29
ARTICLE 10 - Termination................................................... 30
10.1 Termination..................................................... 30
10.2 Procedure and Effect of Termination............................. 30
10.3 Payment of Buyer's Termination Fee; Sellers' Exclusive Remedy... 30
10.4 Payment of Sellers' Termination Fee; Buyer's Election of
Remedies........................................................ 31
ARTICLE 11 - Certain Taxes and Expenses.................................... 31
11.1 Certain Taxes and Expenses...................................... 31
ARTICLE 12 - Certain Post-Closing Covenants................................ 31
12.1 Change of Corporation's Name.................................... 31
12.2 Stay-on Bonuses to Employees of Corporation..................... 31
ARTICLE 13 - Miscellaneous................................................. 32
13.1 Certain Tax Returns............................................. 32
13.2 Parties in Interest; No Third-Party Beneficiaries............... 32
13.3 Entire Agreement; Amendments.................................... 32
13.4 Assignment...................................................... 32
13.5 Remedies........................................................ 32
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13.6 Headings........................................................ 32
13.7 Notices......................................................... 33
13.8 Counterparts.................................................... 34
13.9 Governing Law................................................... 34
13.10 Waivers......................................................... 34
13.11 Severability.................................................... 34
13.12 Knowledge....................................................... 34
13.13 Jurisdiction; Arbitration....................................... 34
13.14 Power of Attorney of Ken Marks, Jr.............................. 35
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of July 29, 1997 (this "Agreement")
between SONIC AUTO WORLD, INC., a Delaware corporation (the "Buyer"), and KEN
MARKS, JR., O.K. MARKS, SR. and MICHAEL J. MARKS (the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers own in the aggregate 500 shares of common stock, par
value $1.00 per share (the "Shares"), of Ken Marks Ford, Inc., a Florida
corporation (the "Corporation"), which shares represent all of the issued and
outstanding shares of capital stock of the Corporation and are owned of record
and beneficially by the Sellers in the amounts set forth opposite their
respective names on Exhibit A hereto; and
WHEREAS, the Buyer desires to purchase the Shares from the Sellers, and the
Sellers are willing to sell the Shares to the Buyer, upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and representations hereinafter stated, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1
Purchase and Sale
1.1 Agreement of Purchase and Sale. On the terms and subject to the
conditions of this Agreement and in reliance upon the representations and
warranties of the parties herein, at the closing referred to in Article 2 hereof
(the "Closing"), the Sellers shall sell, transfer, convey and deliver to the
Buyer, and the Buyer shall purchase from the Sellers, the Shares.
1.2 Purchase Price.
(a) As the full purchase price to be paid by the Buyer for the Shares, the
Buyer shall pay to the Sellers the aggregate sum of $24,982,500, subject to
adjustment as provided in Section 1.2 (d) below (the "Purchase Price").
(b) The Purchase Price, less the sum of $500,000 (the "Escrow Amount"),
which shall be paid into escrow to First Union National Bank or another bank
reasonably acceptable to the parties, as escrow agent (the "Escrow Agent"),
pursuant to the terms of the escrow agreement substantially in the form of
Exhibit B attached hereto, with such other changes thereto as the Escrow Agent
shall reasonably request (the "Escrow Agreement"), shall be payable to the
Sellers at the
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Closing in the amounts set forth opposite their respective names on Exhibit A
hereto in cash in immediately available funds by wire transfer to an account or
accounts designated by such Sellers in writing at least one (1) full Business
Day prior to the Closing. For purposes of this Agreement, the term "Business
Day" shall mean any day other than a Saturday, a Sunday or a day on which banks
are authorized or required to be closed in the State of North Carolina.
(c) Concurrently with the signing of this Agreement, the Buyer is
delivering to Ken Marks, Jr., as agent for the Sellers (the "Sellers' Agent"), a
Letter of Credit in the face amount of $2,000,000 and otherwise in the form of
Exhibit C attached hereto (the "Letter of Credit"). In the event that the
Closing does not occur by the Closing Date Deadline (as defined in Article 2
below), then the provisions of Article 10 hereof shall apply with respect to the
Letter of Credit.
(d) Purchase Price Adjustment Procedures.
(i) Not later than 60 days after the Closing Date (as defined in
Article 2), the Buyer will prepare and deliver to the Sellers' Agent a
balance sheet (the "Closing Balance Sheet") of the Corporation as of the
Closing Date, consisting of a computation of the tangible book value of the
assets of the Corporation as of the Closing Date, less the book value of
the liabilities of the Corporation as of the Closing Date, all as
determined in accordance with generally accepted accounting principles
applied consistently with the Financial Statements (as defined in Section
3.13(a)); provided, however, that (A) based upon a physical inventory, the
cost of which will be borne equally by the Buyer and the Sellers, parts
inventories shall be based on the value of returnable parts and new car
inventories shall be valued on a first-in, first-out (FIFO) basis without
taking into account the tax effect of such FIFO basis, (B) the value of the
used vehicles inventory of the Corporation shall be as mutually agreed to
by the Buyer and the Sellers based upon a physical inventory to be
conducted jointly by the Sellers and the Buyer on the Closing Date or the
Business Day immediately preceding the Closing Date, which inventory shall
be conducted for the Sellers by the Seller's Agent and for the Buyer by
Bryan Scott Smith, and (C) there shall be included such reserves and/or
write-offs for doubtful accounts receivable and bad debts and for damaged,
spoiled, obsolete or slow-moving inventory as shall be consistent with the
Corporation's past year-end practices. The tangible net book value
reflected on the Closing Balance Sheet is hereinafter called the "Net Book
Value". If within 30 days following delivery of the Closing Balance Sheet
(or the next Business Day if such 30th day is not a Business Day), the
Sellers' Agent has not given the Buyer notice of the Sellers' objection to
the computation of the Net Book Value as set forth in the Closing Balance
Sheet (such notice to contain a statement in reasonable detail of the
nature of the Sellers' objection), then the Net Book Value reflected in the
Closing Balance Sheet will be deemed mutually agreed by the Buyer and the
Sellers. If the Sellers' Agent shall have given such notice of objection in
a timely manner, then the issues in dispute will be submitted to a "Big
Six" accounting firm mutually acceptable to the Buyer and the Sellers'
Agent (the "Accountants") for resolution. If issues in dispute are
submitted to the Accountants for resolution, (1) each party will furnish to
the Accountants such workpapers and other documents and information
relating to the disputed issues as the Accountants may request and are
available to the party or its subsidiaries (or its independent public
accountants), and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants; (2) the Accountants will be instructed
to determine the Net Book Value based upon their resolution of the issues
in dispute; (3) such determination by the Accountants of the Net Book
Value, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties;
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and (4) the Buyer and the Sellers shall each bear 50% of the fees and
expenses of the Accountants for such determination.
(ii) To the extent that the Net Book Value, as deemed mutually agreed
by the parties or as determined by the Accountants, as aforesaid, is less
than $5,050,000 (the "Net Book Value Shortfall"), the Sellers shall be
obligated, jointly and severally, to pay the amount of the Net Book Value
Shortfall promptly to the Buyer, together with interest on such amount at
the prime rate of NationsBank, N.A. from time to time in effect from the
Closing Date to the date of payment. In furtherance of such obligation of
the Sellers, the Buyer and the Sellers' Agent shall execute and deliver to
the Escrow Agent a joint instruction to pay up to the entire amount of the
Escrow Amount to the Buyer. To the extent that the amount of such Net Book
Value Shortfall, plus interest as aforesaid, shall exceed the Escrow
Amount, the Sellers shall be obligated, jointly and severally, to pay such
excess amount of Net Book Value Shortfall, plus interest as aforesaid,
promptly to the Buyer. Any interest earned on the Escrow Amount shall be
paid as provided in the Escrow Agreement.
1.3 Delivery of the Shares.
(a) At the Closing, each Seller shall deliver to the Buyer a certificate or
certificates representing the number of Shares set forth opposite such Seller's
name on Exhibit A hereto, duly endorsed in blank or with a fully executed stock
power attached, all in proper form for transfer with all transfer taxes, if any,
paid by such Seller.
(b) The Shares shall be delivered to the Buyer free and clear of all liens,
pledges, encumbrances, claims, security interests, charges, voting trusts,
voting agreements, other agreements, rights, options, warrants or restrictions
or claims of any kind, nature or description (collectively, "Encumbrances").
1.4 Dealership Lease; Guaranty; Employment Agreement; Non-Competition
Agreement.
(a) Dealership Lease; Guaranty. At the Closing, the Sellers will cause
Marks Holding Company, Inc., as lessor, to enter into a lease agreement with the
Corporation, as lessee, regarding the Leased Premises (as defined in Section
3.16(b) below) owned by such lessor, such lease agreement to be substantially in
the form of Exhibit D-1 hereto (the "Dealership Lease"). The obligations of the
Corporation, as lessee under the Dealership Lease, shall be guaranteed by the
Buyer and Sonic Financial Corporation pursuant to a Guaranty in the form of
Exhibit D-2 (the "Guaranty").
(b) Employment Agreement. At the Closing, Ken Marks, Jr. will enter into an
employment agreement with the Corporation, such employment agreement to be
substantially in the form of Exhibit E hereto (the "Employment Agreement").
(c) Non-Competition Agreement. At the Closing, Ken Marks, Jr. will enter
into a non-competition agreement with the Buyer and the Corporation, such
non-competition agreement to be substantially in the form of Exhibit F hereto
(the "Non-Competition Agreement"). The parties hereto agree that the amount of
the Purchase Price allocated to the Non-Competition Agreement is $10,000.
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ARTICLE 2
Closing
The Closing shall take place at the offices of Johnson, Blakely, Pope,
Bokor, Ruppel & Burns, P.A., 911 Chestnut Street, Clearwater, Florida, at 9:30
a.m., local time, on the Closing Date. The Closing Date shall be the fifth (5th)
Business Day, or such shorter period as the Buyer may choose, following the date
the Buyer gives notice of the Closing to the Sellers, but in no event later than
October 15, 1997 (the "Closing Date Deadline"), unless another date or place is
agreed to in writing by the Sellers and the Buyer. The date upon which the
Closing shall take place is hereinafter called the "Closing Date".
ARTICLE 3
Representations and Warranties of the Sellers
Each of the Sellers hereby represents and warrants to the Buyer, severally
with respect to the matters set forth in Sections 3.1 through 3.6, inclusive,
and jointly and severally with respect to all other matters set forth in this
Article 3, as follows:
3.1 Ownership of Shares. Each Seller owns of record and beneficially the
number of Shares set forth opposite such Seller's name on Exhibit B hereto. Each
Seller has, and will have at the time of the Closing, good and valid title to
the Shares to be sold by such Seller hereunder, free and clear of all
Encumbrances.
3.2 Sellers' Power and Authority; Consents and Approvals.
(a) Each Seller has full capacity, right, power and authority to execute
and deliver this Agreement and the other agreements, documents and instruments
to be executed and delivered by such Seller in connection herewith, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder.
(b) Except as set forth on Schedule 3.2(b) hereto, no authorization,
approval or consent of, or notice to or filing or registration with, any
governmental agency or body, or any other third party, is required in connection
with the execution and delivery by each Seller of this Agreement and the other
agreements, documents and instruments to be executed and delivered by each
Seller in connection herewith, the consummation of the transactions contemplated
hereby and thereby and the performance by each Seller of his obligations
hereunder and thereunder.
3.3 Execution and Enforceability. This Agreement and the other agreements,
documents and instruments to be executed by the Sellers in connection herewith,
and the consummation by each Seller of the transactions contemplated hereby and
thereby, have been duly authorized, executed and delivered by each Seller and
constitute, and the other agreements, documents and instruments contemplated
hereby, when executed and delivered by each Seller, shall constitute, the legal,
valid and binding obligations of each Seller, enforceable against each such
Seller in accordance with their
4
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respective terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
3.4 Litigation Regarding Sellers. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to each Sellers' knowledge, threatened or probable of assertion, against any
Seller relating to the Shares, this Agreement or the transactions contemplated
hereby before any court, governmental or administrative agency or other body.
None of the Sellers knows of any basis for the institution of any such suit or
proceeding. No judgment, order, writ, injunction, decree or other similar
command of any court or governmental or administrative agency or other body has
been entered against or served upon any Seller relating to the Shares, this
Agreement or the transactions contemplated hereby.
3.5 Interest in Competitors and Related Entities; Certain Transactions.
(a) Except as set forth on Schedule 3.5 hereto, no Seller and no Affiliate
(as hereinafter defined) of any Seller (i) has any direct or indirect interest
in any person or entity engaged or involved in any business which is competitive
with the business of the Corporation, (ii) has any direct or indirect interest
in any person or entity which is a lessor of assets or properties to, material
supplier of, or provider of services to, the Corporation, or (iii) has a
beneficial interest in any contract or agreement to which the Corporation is a
party; provided, however, that the foregoing representation and warranty shall
not apply to any person or entity, or any interest or agreement with any person
or entity, which is a publicly held corporation in which such Seller
individually owns less than 3% of the issued and outstanding voting stock. For
purposes of this Agreement, the term "Affiliate" shall mean any entity directly
or indirectly controlling, controlled by or under common control with the
specified person, whether by stock ownership, agreement or otherwise, or any
parent, child or sibling of such specified person and the concept of "control"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
(b) Except as set forth in Schedule 3.5 hereto, there are no transactions
between the Corporation and any of the Sellers (including the Sellers'
Affiliates), or any of the directors, officers or salaried employees of the
Corporation, or the family members or Affiliates of any of the above (other than
for services as employees, officers and directors), including, without
limitation, any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from, any of the
Sellers, or any such officer, director or salaried employee, family member, or
Affiliate or any corporation, partnership, trust or other entity in which such
family member, Affiliate, officer, director or employee has a substantial
interest or is a shareholder, officer, director, trustee or partner.
3.6 Sellers Not Foreign Persons. Each Seller is a "United States person" as
that term is defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations promulgated thereunder.
3.7 Organization; Good Standing; Qualifications; and Power. The Corporation
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Florida and has all requisite power and authority to own,
lease and operate its properties and to carry
5
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on its business as now being conducted. The Corporation is qualified to do
business as a foreign corporation and is in good standing in each of the
jurisdictions listed on Schedule 3.7 hereto, which are the only jurisdictions
where the nature of its business and assets requires such qualification.
3.8 Capitalization. The authorized capital stock of the Corporation
consists of 500 shares of common stock, par value $1.00 per share, all of which
are issued and outstanding and constitute the Shares. All of the Shares are duly
authorized, validly issued, fully paid and non-assessable and are held by the
Sellers in the amounts indicated on Exhibit A hereto. Except as set forth on
Schedule 3.8 hereto, there are no preemptive rights, whether at law or
otherwise, to purchase any of the securities of the Corporation and there are no
outstanding options, warrants, "phantom" stock plans, subscriptions, agreements,
plans or other commitments pursuant to which the Corporation is or may become
obligated to sell or issue any shares of its capital stock or any other debt or
equity security, and there are no outstanding securities convertible into shares
of such capital stock or any other debt or equity security.
3.9 Subsidiaries and Investments. The Corporation does not own or maintain,
directly or indirectly, any capital stock of or other equity or ownership or
proprietary interest in any other corporation, partnership, association, trust,
joint venture or other entity and does not have any commitment to contribute to
the capital of, make loans to, or share in the losses of, any such entity.
3.10 No Violation; Conflicts. Except as set forth on Schedule 3.10 hereto,
the execution and delivery by the Sellers of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the
Sellers in connection herewith, the consummation by the Sellers of the
transactions contemplated hereby and thereby and the performance by the Sellers
of their respective obligations hereunder and thereunder do not and will not (a)
conflict with or violate any of the terms of the Articles of Incorporation or
By-Laws of the Corporation, (b) violate or conflict with any law, ordinance,
rule or regulation, or any judgment, order, writ, injunction, decree or similar
command of any court, administrative or governmental agency or other body,
applicable to the Corporation, (c) violate or conflict with the terms of, or
result in the acceleration of, any indebtedness or obligation of the Corporation
under, or violate or conflict with or result in a breach of, or constitute a
default under, any indenture, mortgage, deed of trust, agreement or instrument
to which the Corporation is a party or by which the Corporation or any of its
assets or properties is bound or affected, (d) result in the creation or
imposition of any Encumbrance of any nature upon any of the assets or properties
of the Corporation, (e) constitute an event permitting termination of any
agreement, license or other right of the Corporation, or (f) require any
authorization, approval or consent of, or any notice to or filing or
registration with, any governmental agency or body, or any other third party,
applicable to the Corporation or any of its properties or assets.
3.11 Title to Assets; Related Matters. The Corporation has good and valid
title to all assets, rights, interests and other properties, real, personal and
mixed, tangible and intangible, owned by it (collectively, the "Assets"), free
and clear of all Encumbrances, except those specified on Schedule 3.11 and liens
for taxes not yet due and payable. The Assets (a) include all properties and
assets (real, personal and mixed, tangible and intangible) owned by the
Corporation; (b) do not include (i) any contracts for future services, prepaid
items or deferred charges the full value or benefit of which will not be usable
by or transferable to the Buyer, or (ii) any goodwill, organizational expense or
other similar intangible asset.
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3.12 Possession. The tangible assets included within the Assets are in the
possession or control of the Corporation and no other person or entity has a
right to possession or claims possession of all or any part of such Assets,
except the rights of lessors of Leased Equipment and Leased Premises (each as
defined in Section 3.16 hereof) under their respective contracts and leases.
3.13 Financial Statements.
(a) The Sellers have delivered to the Buyer prior to the date hereof:
(i) the reviewed balance sheets of the Corporation as of April 30,
1994, April 30, 1995, April 30, 1996 and April 30, 1997 and the related
reviewed statements of income, stockholders' equity and changes in cash
flows for the fiscal years then ended (including the notes thereto and any
other information included therein), accompanied, in each case, by the
review opinion of Spence, Marston, Bunch & Morris CPAs, independent
certified public accountants of the Corporation (collectively, the "Annual
Financial Statements"), together with the consent of Spence, Marston, Bunch
& Morris CPAs to the use of their reports contained in the Annual Financial
Statements by the Buyer (or any Affiliate of the Buyer) in any filing of
such Annual Financial Statements with any governmental entity; and
(ii) the unaudited balance sheet of the Corporation as of May 31, 1997
and the related unaudited statements of income, stockholders' equity and
changes in cash flow for the one month period then ended (collectively, the
"Interim Financial Statements"), as certified by the Corporation's
President (the Annual Financial Statements and the Interim Financial
Statements are hereinafter collectively referred to as the "Financial
Statements").
(b) The Financial Statements (i) are in accordance with the books and
records of the Corporation, which books and records are true, correct and
complete, (ii) fully and fairly present the financial position of the
Corporation as of the dates indicated and the results of operation,
stockholders' equity and changes in cash flows of the Corporation for the
periods indicated, and (iii) except as set forth in Schedule 3.13, have been
prepared in accordance with generally accepted accounting principles
consistently applied ("GAAP").
3.14 Accounts Receivable. All accounts receivable of the Corporation are
collectible at the aggregate recorded amounts thereof, subject to the reserve
for doubtful accounts maintained by the Corporation in the ordinary course of
business, and are not subject to any known counterclaims or setoffs. An adequate
reserve for doubtful accounts for the Corporation has been established and such
reserve is consistent with both the operation of the Corporation in the ordinary
course of business and past practice.
3.15 Inventories. All inventories of the Corporation consist of items of a
quality and quantity usable and saleable in the ordinary course of business of
the Corporation, and the levels of inventories are consistent with the levels
maintained by the Corporation in the ordinary course consistent with past
practice and the Corporation's obligations under its agreements with all
applicable vehicle manufacturers and distributors. The values at which such
inventories are carried are based on the last-in, first-out method and are
stated in accordance with generally accepted accounting principles consistently
applied by the Sellers at the lower of historic cost or market. An adequate
reserve has been established by the Corporation for damaged, spoiled, obsolete,
defective,
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or slow-moving goods and such reserve is consistent with both the operation of
the Corporation in the ordinary course of business and past practice.
3.16 Real Property; Machinery and Equipment.
(a) Owned Real Property. The Corporation does not own any real property.
(b) Leased Premises. Schedule 3.16(b) hereto contains a complete list and
description (including buildings and other structures thereon and the name of
the owner thereof) of all real property which is used by the Corporation in its
business and operations (herein referred to either as the "Leased Premises" or
the "Real Property"). True, correct and complete copies of all leases of all
Leased Premises (the "Leases") have been delivered to the Buyer. The Leased
Premises are in good physical condition and, with respect to each Lease, no
event or condition currently exists which would give rise to a material repair
or restoration obligation if such Lease were to terminate. The Sellers have no
knowledge of any event or condition which currently exists which would create a
legal or other impediment to the use of the Leased Premises as currently used,
or would increase the additional charges or other sums payable by the tenant
under any of the Leases (including, without limitation, any pending tax
reassessment or other special assessment affecting the Leased Premises). The
improvements and building systems which comprise a part of the Leased Premises
as to which the Corporation is responsible for the maintenance and repair
thereof are in good condition, maintenance and repair. There is no person or
entity other than the Corporation in or entitled to possession of the Leased
Premises.
(c) Condemnation, Etc. The Sellers have delivered to the Buyer a recent
survey of the Real Property. No portion of the Real Property has been condemned
or otherwise taken by any public authority, and the Sellers have no knowledge of
any pending or threatened condemnation or taking thereof. The Sellers have no
knowledge of any event or condition which currently exists which would create a
legal or other impediment to the use of the Real Property as currently used, or
would increase the additional charges or other sums payable by the Corporation
under any leases of the Leased Premises (including, without limitation, any
pending extraordinary tax reassessment or other special assessment affecting the
Real Property). The buildings and improvements (including building systems)
which comprise a part of the Real Property are in good condition, maintenance
and repair, ordinary wear and tear excepted.
(d) Owned Equipment. Schedule 3.16(d) hereto sets forth a list of all
material machinery, equipment, tools, motor vehicles, furniture and fixtures
owned by the Corporation (collectively, the "Owned Equipment").
(e) Leased Equipment. Schedule 3.16(e) hereto contains a list of all leases
or other agreements, whether written or oral, under which the Corporation is
lessee of or holds or operates any items of machinery, equipment, tools, motor
vehicles, furniture and fixtures or other property (other than real property)
owned by any third party (collectively, the "Leased Equipment").
(f) Maintenance of Equipment. The Owned Equipment and the Leased Equipment
are in good operating condition, maintenance and repair in accordance with
industry standards taking into account the age thereof and ordinary wear and
tear excepted.
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3.17 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.
(a) Except as set forth on Schedule 3.17 hereto, there are no patents,
trademarks, trade names, service marks, service names and copyrights, and there
are no applications therefor or licenses thereof, inventions, trade secrets,
computer software, logos, slogans, proprietary processes and formulae and all
other proprietary information, know-how and intellectual property rights,
whether patentable or unpatentable, that are owned or leased by the Corporation
or used in the conduct of the Corporation's business. The Corporation is not a
party to, nor pays a royalty to anyone under, any license or similar agreement.
There is no existing claim, or, to the knowledge of the Sellers, any basis for
any claim, against the Corporation that any of its operations, activities or
products infringe the patents, trademarks, trade names, copyrights or other
property rights of others or that the Corporation is wrongfully or otherwise
using the property rights of others.
(b) The Corporation has the right to use the names "Ken Marks Ford" and
"Ken Marks - Oldsmar" in the State of Florida and, to the knowledge of the
Sellers, no person uses, or has the right to use, such name or any derivation
thereof in connection with the manufacture, sale, marketing or distribution of
products or services commonly associated with an automobile dealership.
3.18 Certain Liabilities.
(a) All accounts payable by the Corporation to third parties as of the date
hereof arose in the ordinary course of business and none are delinquent or
past-due.
(b) Schedule 3.18 hereto sets forth a list of all indebtedness of the
Corporation, other than accounts payable, as of the close of business on the day
preceding the date hereof, including, without limitation, money borrowed,
indebtedness of the Corporation owed to stockholders and former stockholders,
the deferred purchase price of assets, letters of credit and capitalized leases,
indicating, in each case, the name or names of the lender, the date of maturity,
the rate of interest, any prepayment penalties or premiums and the unpaid
principal amount of such indebtedness as of such date.
3.19 No Undisclosed Liabilities. The Corporation does not have any material
liabilities or obligations of any nature, known or unknown, fixed or contingent,
matured or unmatured, other than those (a) reflected in the Financial
Statements, (b) incurred in the ordinary course of business since the date of
the Financial Statements and of the type and kind reflected in the Financial
Statements, or (c) disclosed specifically on Schedule 3.19 hereto.
3.20 Absence of Changes. Since April 30, 1997, the business of the
Corporation has been operated in the ordinary course, consistent with past
practices and, except as set forth on Schedule 3.20 hereto, there has not been
incurred, nor has there occurred:
(a) Any damage, destruction or loss (whether or not covered by insurance),
adversely affecting the business or assets of the Corporation in excess of
$100,000; (b) Any strikes, work stoppages or other labor disputes involving the
employees of the Corporation; (c) Any sale, transfer, pledge or other
disposition of any of the Assets of the Corporation having an aggregate
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book value of $100,000 or more (except sales of vehicles and parts inventory in
the ordinary course of business); (d) Any amendment, termination, waiver or
cancellation of any Material Agreement (as defined in Section 3.29 hereof) or
any termination, amendment, waiver or cancellation of any material right or
claim of the Corporation under any Material Agreement (except in each case in
the ordinary course of business and consistent with past practice); (e) Any (1)
general uniform increase in the compensation of the employees of the Corporation
(including, without limitation, any increase pursuant to any bonus, pension,
profit-sharing, deferred compensation or other plan or commitment), (2) increase
in any such compensation payable to any individual officer, director, consultant
or agent thereof, or (3) loan or commitment therefor made by the Corporation to
any officer, director, stockholder, employee, consultant or agent of the
Corporation; (f) Any change in the accounting methods, procedures or practices
followed by the Corporation or any change in depreciation or amortization
policies or rates theretofore adopted by the Corporation; (g) Any material
change in policies, operations or practices of the Corporation with respect to
business operations followed by the Corporation, including, without limitation,
with respect to selling methods, returns, discounts or other terms of sale, or
with respect to the policies, operations or practices of the Corporation
concerning the employees of the Corporation; (h) Any capital appropriation or
expenditure or commitment therefor on behalf of the Corporation in excess of
$100,000 individually or $200,000 in the aggregate; (i) Any write-down or
write-up of the value of any inventory or equipment of the Corporation or any
increase in inventory levels in excess of historical levels for comparable
periods; (j) Any account receivable in excess of $100,000 or note receivable in
excess of $100,000 owing to the Corporation which (1) has been written off as
uncollectible, in whole or in part, (2) has had asserted against it any claim,
refusal or right of setoff, or (3) the account or note debtor has refused to, or
threatened not to, pay for any reason, or such account or note debtor has become
insolvent or bankrupt; (k) Any other change in the condition (financial or
otherwise), business operations, assets, earnings, business or prospects of the
Corporation which, in the judgment of the Sellers, has, or could reasonably be
expected to have, a material adverse effect on the assets, business or
operations of the Corporation; or (l) Any agreement, whether in writing or
otherwise, for the Corporation to take any of the actions enumerated in this
Section 3.20.
3.21 Tax Matters.
(a) All federal, state and local tax returns and tax reports required as of
the date hereof to be filed by the Corporation for taxable periods ending prior
to the date hereof have been duly and timely filed prior to the due date thereof
(as such due date may have been lawfully extended) by the Corporation with the
appropriate governmental agencies, and all such returns and reports are true,
correct and complete.
(b) All federal, state and local income, profits, franchise, sales, use,
occupation, property, excise, payroll, withholding, employment, estimated and
other taxes of any nature, including interest, penalties and other additions to
such taxes ("Taxes"), payable by, or due from, the Corporation for all periods
prior to the date hereof have been fully paid or adequately reserved for by the
Corporation or, with respect to Taxes required to be accrued, the Corporation
has properly accrued or will properly accrue such Taxes in the ordinary course
of business consistent with past practice of the Corporation.
(c) The federal income tax returns of the Corporation have not been
examined by the Internal Revenue Service ("IRS") for the fiscal years ended
April 30, 1995, April 30, 1996 and April
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30, 1997. Except as set forth on Schedule 3.21 hereto, the Corporation has not
received any notice of any assessed or proposed claim or deficiency against it
in respect of, or of any present dispute between it and any governmental agency
concerning, any Taxes. Except as set forth on Schedule 3.21 hereto, no
examination or audit of any tax return or report of the Corporation by any
applicable taxing authority is currently in progress and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return or report of the Corporation. Copies of all
federal, state and local tax returns and reports required to be filed by the
Corporation for the years ended 1996, 1995, 1994, 1993 and 1992, together with
all schedules and attachments thereto, have been delivered by the Sellers to the
Buyer.
(d) The Corporation is not now, and has never been, a member of a
consolidated group for federal income tax purposes or a consolidated, combined
or similar group for state tax purposes. No consent under Code Section 341 has
been made affecting the Corporation. The Corporation is not a party to any
agreement or arrangement that would result in the payment of any "excess
parachute payments" under Code Section 280G. The Corporation is not required to
make any adjustment under Code Section 481(a). No power of attorney relating to
Taxes is currently in effect affecting the Corporation.
3.22 Compliance with Laws, Etc. The Corporation has conducted its
operations and business in compliance in all material respects with, and all of
the Assets (including all of the Real Property) comply in all material respects
with, (i) all applicable laws, rules, regulations and codes (including, without
limitation, any laws, rules, regulations and codes relating to anticompetitive
practices, contracts, discrimination, employee benefits, employment, health,
safety, fire, building and zoning, but excluding Environmental Laws which are
the subject of Section 3.36 hereof) and (ii) all applicable orders, rules,
writs, judgments, injunctions, decrees and ordinances. The Corporation has not
received any notification of any asserted present or past failure by it to
comply in all material respects with such laws, rules or regulations, or such
orders, writs, judgments, injunctions, decrees or ordinances. Set forth on
Schedule 3.22 hereto are all orders, writs, judgments, injunctions, decrees and
other awards of any court or governmental agency applicable to the Corporation
or its business or operations. The Sellers have delivered to the Buyer copies of
all reports, if any, of the Corporation required to be submitted under the
Federal Occupational Safety and Health Act of 1970, as amended, and under all
other applicable health and safety laws and regulations. The deficiencies, if
any, noted on such reports have been corrected by the Corporation and any
deficiencies noted by inspection through the Closing Date will have been
corrected by the Corporation by the Closing Date.
3.23 Litigation Regarding the Corporation. Except as set forth on Schedule
3.23 hereto, there are no actions, suits, claims, investigations or legal,
administrative or arbitration proceedings pending, or, to the Sellers'
knowledge, threatened or probable of assertion, against the Corporation or
relating to its assets, business or operations or the transactions contemplated
by this Agreement, and the Sellers do not know of any basis for the institution
of any such suit or proceeding. No order, writ, judgment, injunction, decree or
similar command of any court or any governmental or administrative agency or
other body has been entered against or served upon the Corporation relating to
the Corporation or its assets, business or operations.
3.24 Permits, Etc. Set forth on Schedule 3.24 hereto is a list of all
governmental licenses, permits, approvals, certificates of inspection and other
authorizations, filings and registrations that
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are necessary for the Corporation to own and operate its business as presently
conducted in all material respects (collectively, the "Permits"). All such
Permits have been duly and lawfully secured or made by the Corporation and are
in full force and effect. There is no proceeding pending, or, to the Sellers'
knowledge, threatened or probable of assertion, to revoke or limit any such
Permit. None of the transactions contemplated by this Agreement will terminate,
violate or limit the effectiveness of any such Permit.
3.25 Employees; Labor Relations. As of May 31, 1997, the Corporation
employed a total of approximately 250 employees. As of the date hereof, (a) the
Corporation is not delinquent in the payment (i) to or on behalf of its past or
present employees of any wages, salaries, commissions, bonuses, benefit plan
contributions or other compensation for all periods prior to the date hereof, or
(ii) of any amount which is due and payable to any state or state fund pursuant
to any workers' compensation statute, rule or regulation or any amount which is
due and payable to any workers' compensation claimant; (b) there are no
collective bargaining agreements currently in effect between the Corporation and
labor unions or organizations representing any employees of the Corporation; (c)
no collective bargaining agreement is currently being negotiated by the
Corporation; (d) to the knowledge of the Sellers, there are no union
organizational drives in progress and there has been no formal or informal
request to the Corporation for collective bargaining or for an employee election
from any union or from the National Labor Relations Board; and (e) no dispute
exists between the Corporation and any of its sales representatives or, to the
knowledge of the Sellers, between any such sales representatives with respect to
territory, commissions, products or any other terms of their representation.
3.26 Compensation. Schedule 3.26 contains a schedule of all employees
(including sales representatives) and consultants of the Corporation whose
individual cash compensation for the year ended April 30, 1997, or projected for
the year ended April 30, 1998, is in excess of $100,000, together with the
amount of total compensation paid to each such person for the twelve month
period ended April 30, 1997 and the current aggregate base salary or hourly rate
(including any bonus or commission) for each such person.
3.27 Employee Benefits.
(a) The Sellers have listed on Schedule 3.27 and has delivered to the Buyer
true and complete copies of all Employee Plans (as defined below) and related
documents, established, maintained or contributed to by the Corporation (which
shall include for this purpose and for the purpose of all of the representations
in this Section 3.27, the Sellers and all employers, whether or not
incorporated, that are treated together with the Corporation as a single
employer with the meaning of Section 414 of the Code). The term "Employee Plan"
shall include all plans described in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and also shall include,
without limitation, any deferred compensation, stock, employee or retiree
pension benefit, welfare benefit or other similar fringe or employee benefit
plan, program, policy, contract or arrangement, written or oral, qualified or
nonqualified, funded or unfunded, foreign or domestic, covering employees or
former employees of the Corporation and maintained or contributed to by the
Corporation.
(b) Where applicable, each Employee Plan (i) has been administered in
material compliance with the terms of such Employee Plan and the requirements of
ERISA and the Code; and
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(ii) is in material compliance with the reporting and disclosure requirements of
ERISA and the Code. The Corporation does not maintain or contribute to, and has
never maintained or contributed to, an Employee Plan subject to Title IV of
ERISA or a "multiemployer plan." There are no facts relating to any Employee
Plan that (i) have resulted in a "prohibited transaction" of a material nature
or have resulted or is reasonably likely to result in the imposition of a
material excise tax, penalty or liability pursuant to Section 4975 of the Code,
(ii) have resulted in a material breach of fiduciary duty or violation of Part 4
of Title I of ERISA, or (iii) have resulted or could result in any material
liability (whether or not asserted as of the date hereof) of the Corporation or
any ERISA affiliate pursuant to Section 412 of the Code arising under or related
to any event, act or omission occurring on or prior to the date hereof. Each
Employee Plan that is intended to qualify under Section 401(a) or to be exempt
under Section 501(c)(g) of the Code is so qualified or exempt as of the date
hereof in each case as such Employee Plan has received favorable determination
letters from the Internal Revenue Service with respect thereto. To the knowledge
of the Sellers, the amendments to and operation of any Employee Plan subsequent
to the issuance of such determination letters do not adversely affect the
qualified status of any such Employee Plan. No Employee Plan has an "accumulated
funding deficiency" as of the date hereof, whether or not waived, and no waiver
has been applied for. The Corporation has made no promises or incurred any
liability under any Employee Plan or otherwise to provide health or other
welfare benefits to former employees of the Corporation, except as specifically
required by law. There are no pending or, to the best knowledge of the Sellers,
threatened claims (other than routine claims for benefit) or lawsuits with
respect to any of Corporation's Employee Plans. As used in this Section 3.27,
all technical terms enclosed in quotation marks shall have the meaning set forth
in ERISA.
3.28 Powers of Attorney. There are no persons, firms, associations,
corporations or business organizations or entities holding general or special
powers of attorney from the Corporation.
3.29 Material Agreements.
(a) List of Material Agreements. Set forth on Schedule 3.29(a) hereto is a
list or, where indicated, a brief description of all contracts, agreements,
documents, instruments, guarantees, plans, understandings or arrangements,
written or oral, which require the payment of $50,000 in any 12 month period or
which otherwise are material to the Corporation or its business or assets
(collectively, the "Material Agreements"). True copies of all written Material
Agreements and written summaries of all oral Material Agreements described or
required to be described on Schedule 3.29(a) have been furnished to the Buyer.
(b) Performance, Defaults, Enforceability. The Corporation has in all
material respects performed all of its obligations required to be performed by
it to the date hereof, and is not in default or alleged to be in default in any
material respect, under any Material Agreement, and there exists no event,
condition or occurrence which, after notice or lapse of time or both, would
constitute such a default. To the knowledge of the Sellers, no other party to
any Material Agreement is in default in any respect of any of its obligations
thereunder. Each of the Material Agreements is valid and in full force and
effect and enforceable against the parties thereto in accordance with their
respective terms, and, except as set forth in Schedule 3.29(b) hereto, the
consummation of the transactions contemplated by this Agreement will not (i)
require the consent of any party thereto or (ii) constitute an event permitting
termination thereof.
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3.30 Brokers' or Finders' Fees, Etc. Except for NCM & Associates, Inc.,
whose fees will be paid by the Sellers, no agent, broker, investment banker,
person or firm acting on behalf of the Corporation or any of the Sellers or any
person, firm or corporation affiliated with any of the Sellers or under their
authority is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee directly or indirectly from any of the parties hereto
in connection with the sale of the Shares contemplated hereby, other than any
such fee or commission the entire cost of which will be borne by the Sellers.
3.31 Bank Accounts, Credit Cards, Safe Deposit Boxes and Cellular
Telephones. Schedule 3.31 hereto lists all bank accounts, credit cards and safe
deposit boxes in the name of, or controlled by, the Corporation, and all
cellular telephones provided and/or paid for by the Corporation, and details
about the persons having access to or authority over such accounts, credit
cards, safe deposit boxes and cellular telephones.
3.32 Insurance.
(a) Schedule 3.32(a) hereto contains a list of all policies of liability,
theft, fidelity, life, fire, product liability, workmen's compensation, health
and any other insurance and bonds maintained by, or on behalf of, the
Corporation on its properties, operations, inventories, assets, business or
personnel (specifying the insurer, amount of coverage, type of insurance, policy
number and any pending claims in excess of $5,000 thereunder). Each such
insurance policy identified therein is and shall remain in full force and effect
on and as of the Closing Date and the Corporation is not in default with respect
to any provision contained in any such insurance policy and has not failed to
give any notice or present any claim under any such insurance policy in a due
and timely fashion. The Corporation has not, during the last three (3) fiscal
years, been denied or had revoked or rescinded any policy of insurance.
(b) Set forth on Schedule 3.32(b) hereto is a summary of information
pertaining to material property damage and personal injury claims in excess of
$10,000 against the Corporation during the past three (3) years, all of which
are fully satisfied or are being defended by the insurance carrier and involve
no exposure to the Corporation.
3.33 Warranties. Set forth on Schedule 3.33 hereto are descriptions or
copies of the forms of all express warranties and disclaimers of warranty made
by the Corporation (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties)
during the past five (5) years to customers or users of the vehicles, parts,
products or services of the Corporation. There have been no breach of warranty
or breach of representation claims against the Corporation during the past five
(5) years which have resulted in any cost, expenditure or exposure to the
Corporation of more than $100,000 individually or in the aggregate.
3.34 Directors and Officers. Set forth on Schedule 3.34 hereto is a true
and correct list of the names and titles of each director and officer of the
Corporation.
3.35 Suppliers and Customers. The Corporation is not required to provide
bonding or any other security arrangements in connection with any transactions
with any of its respective customers and suppliers. To the knowledge of the
Sellers, no such supplier, customer or creditor intends or has
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threatened, or reasonably could be expected, to terminate or modify any of its
relationships with the Corporation.
3.36 Environmental Matters.
(a) For purposes of this Section 3.36, the following terms shall have the
following meaning: (i) "Environmental Law" means all present and future federal,
state and local laws, statutes, regulations, rules, ordinances and common law,
and all judgments, decrees, orders, agreements, or permits, issued, promulgated,
approved or entered thereunder by any government authority relating to
pollution, Hazardous Materials, worker safety or protection of human health or
the environment. (ii) "Hazardous Materials" means any waste, pollutant,
chemical, hazardous material, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, petroleum or petroleum-derived substance or
waste (regardless of specific gravity), or any constituent or decomposition
product of any such pollutant, material, substance or waste, including, but not
limited to, any hazardous substance or constituent contained within any waste
and any other pollutant, material, substance or waste regulated under or as
defined by any Environmental Law.
(b) The Corporation has obtained all permits, licenses and other
authorizations or approvals required under Environmental Laws for the conduct
and operation of the Assets and the business of the Corporation in all material
respects ("Environmental Permits"). All such Environmental Permits are in good
standing, the Corporation is and has been in compliance with the terms and
conditions of all such Environmental Permits, and no appeal or any other action
is pending or threatened to revoke any such Environmental Permit.
(c) The Corporation and its business, operations and assets are and have
been in compliance in all material respects with all Environmental Laws.
(d) Neither the Corporation nor any of the Sellers has received any written
or oral order, notice, complaint, request for information, claim, demand or
other communication from any government authority or other person, whether based
in contract, tort, implied or express warranty, strict liability, or any other
common law theory, or any criminal or civil statute, arising from or with
respect to (i) the presence, release or threatened release of any Hazardous
Material or any other environmental condition on, in or under the Real Property
or any other property formerly owned, used or leased by the Corporation, (ii)
any other circumstances forming the basis of any actual or alleged violation by
the Corporation or the Sellers of any Environmental Law or any liability of the
Corporation or the Sellers under any Environmental Law, (iii) any remedial or
removal action required to be taken by the Corporation or the Sellers under any
Environmental Law, or (iv) any harm, injury or damage to real or personal
property, natural resources, the environment or any person alleged to have
resulted from the foregoing, nor are the Sellers aware of any facts which might
reasonably give rise to such notice or communication. Neither the Corporation
nor the Sellers has entered into any agreements concerning any removal or
remediation of Hazardous Materials.
(e) No lawsuits, claims, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other actions are pending or, to
the knowledge of the Sellers, threatened under any Environmental Law with
respect to the Corporation, the Sellers or the Real Property.
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(f) To the knowledge of the Sellers, no Hazardous Materials are or have
been released, discharged, spilled or disposed of onto, or migrated onto, the
Real Property or any other property previously owned, operated or leased by the
Corporation, and, to the knowledge of the Sellers, no environmental condition
exists (including, without limitation, the presence, release, threatened release
or disposal of Hazardous Materials) related to the Real Property, to any
property previously owned, operated or leased by the Corporation, or to the
Corporation's past or present operations, which would constitute a violation of
any Environmental Law or otherwise give rise to costs, liabilities or
obligations under any Environmental Law.
(g) Neither the Corporation nor the Sellers, nor, to the knowledge of the
Sellers, any of their respective predecessors in interest, has transported or
disposed of, or arranged for the transportation or disposal of, any Hazardous
Materials to any location (i) which is listed on the National Priorities List,
the CERCLIS list under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any similar federal, state or local
list, (ii) which is the subject of any federal, state or local enforcement
action or other investigation, or (iii) about which either the Corporation or
the Sellers has received or has reason to expect to receive a potentially
responsible party notice or other notice under any Environmental Law.
(h) To the knowledge of the Sellers, no environmental lien has attached or
is threatened to be attached to the Real Property.
(i) To the knowledge of the Sellers, no employee of the Corporation in the
course of his or her employment with the Corporation has been exposed to any
Hazardous Materials or other substance, generated, produced or used by the
Corporation which could give rise to any claim (whether or not such claim has
been asserted) against the Corporation.
(j) Except as set forth on Schedule 3.36 hereto, none of the Sellers or
their Affiliates has installed or operated on the Real Property and, to the
knowledge of the Sellers, the Real Property does not contain, any: (i) septic
tanks into which process wastewater or any Hazardous Materials have been
disposed; (ii) asbestos; (iii) polychlorinated biphenyls (PCBs); (iv)
underground injection or monitoring wells; or (v) underground storage tanks.
(k) Except as set forth on Schedule 3.36, there have been no environmental
studies or reports made relating to the Real Property or any other property or
facility previously owned, operated or leased by the Corporation.
(l) Except as set forth on Schedule 3.36, the Corporation has not agreed to
assume, defend, undertake, guarantee, or provide indemnification for, any
liability, including, without limitation, any obligation for corrective or
remedial action, of any other person under any Environmental Law for
environmental matters or conditions.
3.37 Business Generally. None of the Sellers is selling the Shares based,
in whole or in part, on any actual knowledge of any information concerning the
Corporation which has, or which could reasonably be expected to have, a material
adverse effect on the business, operations or prospects of the Corporation and
which has not been disclosed in writing to the Buyer. The foregoing
representation and warranty shall not apply to general business and economic
conditions generally affecting the industry and markets in which the Corporation
participates.
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3.38 Misstatements and Omissions. No representation and warranty by the
Sellers contained in this Agreement, and no statement contained in any
certificate or Schedule furnished or to be furnished by the Sellers to the Buyer
in connection with this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make such representation and warranty or such statement not misleading.
ARTICLE 4
Representations and Warranties of the Buyer
The Buyer hereby represents and warrants to the Sellers as follows:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware.
4.2 Buyer's Power and Authority; Consents and Approvals.
(a) The Buyer has all requisite corporate power and authority to execute
and deliver this Agreement and the other agreements, documents and instruments
to be executed and delivered by the Buyer in connection herewith, to consummate
the transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder.
(b) Except as set forth in Schedule 4.2(b) hereto, no authorization,
approval or consent of, or notice to or filing or registration with, any
governmental agency or body, or any other third party, is required in connection
with the execution and delivery by the Buyer of this Agreement and the other
agreements, documents and instruments to be executed by the Buyer in connection
herewith, the consummation by the Buyer of the transactions contemplated hereby
or thereby or the performance by the Buyer of its obligations hereunder and
thereunder.
4.3 Execution and Enforceability. This Agreement and the other agreements,
documents and instruments to be executed and delivered by the Buyer in
connection herewith, and the consummation by the Buyer of the transactions
contemplated hereby and thereby, have been duly and validly authorized, executed
and delivered by all necessary corporate action on the part of the Buyer and
this Agreement constitutes, and the other agreements, documents and instruments
to be executed and delivered by the Buyer in connection herewith, when executed
and delivered by the Buyer, shall constitute the legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally and general equity principles.
4.4 Litigation Regarding Buyer. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to the Buyer's knowledge, threatened or probable of assertion against the Buyer
relating to this Agreement or the transactions contemplated hereby before any
court, governmental or administrative agency or other body, and no judgment,
order, writ, injunction, decree or other similar command of any court or
governmental
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or administrative agency or other body has been entered against or served upon
the Buyer relating to this Agreement or the transactions contemplated hereby.
4.5 No Violation; Conflicts. The execution and delivery by the Buyer of
this Agreement and the other agreements, documents and instruments to be
executed and delivered by the Buyer in connection herewith, the consummation by
the Buyer of the transactions contemplated hereby and thereby and the
performance by the Buyer of its obligations hereunder and thereunder do not and
will not (a) conflict with or violate any of the terms of the Certificate of
Incorporation or By-Laws of the Buyer, or (b) violate or conflict with any
domestic law, ordinance, rule or regulation, or any judgement, order, writ,
injunction or decree of any court, administrative or governmental agency or
other body, material to the Buyer.
4.6 Financing. As of the Closing Date, the Buyer will have sufficient funds
to enable it to perform its payment obligations at the Closing. The Buyer has no
actual knowledge of any adverse information which prevents, or which could
reasonably be expected to prevent, the Buyer from performing its obligations
under this Agreement at the Closing.
4.7 Brokers' or Finders' Fees, Etc. Except for Stephens, Inc., whose fees
will be paid by the Buyer, no agent, broker, investment banker, person or firm
acting on behalf of the Buyer or any person, firm or corporation affiliated with
the Buyer or under its authority is or will be entitled to any brokers' or
finders' fee or any other commission or similar fee directly or indirectly from
any of the parties hereto in connection with the sale of the Shares contemplated
hereby.
4.8 Misstatements and Omissions. No representation and warranty by the
Buyer contained in this Agreement, and no statement contained in any certificate
or Schedule furnished or to be furnished by the Buyer to the Sellers in
connection with this Agreement, contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in
order to make such representation and warranty or such statement not misleading.
ARTICLE 5
Pre-Closing Covenants of the Sellers
The Sellers hereby jointly and severally covenant and agree that, from and
after the date hereof until the Closing:
5.1 Provide Access to Information; Cooperation with Buyer.
(a) Access. The Sellers shall afford, and cause the Corporation to afford,
to the Buyer, its attorneys, accountants, and representatives, free and full
access at all reasonable times, and upon reasonable prior notice, to the
properties, books and records of the Corporation, and to interview personnel,
suppliers and customers of the Corporation, in order that the Buyer may have a
full opportunity to make such investigation as it shall reasonably desire of the
assets, business and operations of the Corporation (including, without
limitation, any appraisals or inspections thereof), and provide to the Buyer and
its representatives such additional financial and operating data and other
information as to the business and properties of the Corporation as the Buyer
shall from time
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to time reasonably request. Notwithstanding the foregoing, the Buyer shall not
interview customers and suppliers of the Corporation outside the physical
presence of the Sellers' Agent or his designee, which physical presence shall
not be unreasonably denied by the Sellers' Agent or his designee.
(b) Cooperation in IPO Preparation. At the Buyer's expense, the Sellers
shall cooperate with the Buyer in the preparation of any description of the
transactions contemplated by this Agreement deemed by the Buyer, in its sole
discretion, as necessary for the completion of any registration statement,
prospectus or amendment or supplement thereto prepared in connection with the
closing of the Initial Public Offering ("IPO") of the Buyer's securities.
(c) Cooperation in Obtaining Consents. The Sellers shall use reasonable
best efforts in cooperating with the Buyer in the preparation of and delivery to
all applicable automobile manufacturers or distributors, as soon as practicable
after the date hereof, of an application and other information necessary to
obtain such automobile manufacturer's or distributor's consent to or the
approval of the transactions contemplated by this Agreement.
5.2 Operation of Business of the Corporation. The Sellers shall cause the
Corporation to (a) maintain its corporate existence in good standing, (b)
operate its business substantially as presently operated and only in the
ordinary course and consistent with past operations and its obligations under
any existing agreements with all applicable automobile manufacturers or
distributors, (c) use its best efforts to preserve intact its present business
organizations and employees and its relationships with persons having business
dealings with them, including, but not limited to, all applicable automobile
manufacturers or distributors and any floor plan financing creditors, (d) comply
in all respects with all applicable laws, rules and regulations, (e) maintain
its insurance coverages, (f) pay all Taxes, charges and assessments when due,
subject to any valid objection or contest of such amounts asserted in good faith
and adequately reserved against, and make all proper accruals for Taxes not yet
due and payable, (g) make all debt service payments when contractually due and
payable, (h) pay all accounts payable and other current liabilities when due,
(i) maintain the Employee Plans and each plan, agreement and arrangement listed
on Schedule 3.27, and (j) maintain its property, plant and equipment in good
operating condition in accordance with industry standards taking into account
the age thereof.
5.3 Books of Account. The Sellers shall cause the Corporation to maintain
its books and records of account in the usual, regular and ordinary manner.
5.4 Employees. The Sellers shall (i) use its reasonable best efforts to
encourage such personnel of the Corporation as the Buyer may designate in
writing to remain employees of the Corporation after the date of the Closing,
and (ii) except in the ordinary course of business, not take any action, or
permit the Corporation to take any action, to encourage any of the personnel of
the Corporation to leave their positions with the Corporation.
5.5 Issuance of Securities. The Sellers shall not permit the Corporation to
(i) issue any equity or debt security or any options or warrants, (ii) enter
into any subscriptions, agreements, plans or other commitments pursuant to which
the Corporation is or may become obligated to issue any shares of its capital
stock or any securities convertible into shares of its capital stock, (iii)
otherwise change or modify its capital structure, (iv) engage in any
reorganization or similar transaction, or (v) agree to take any of the foregoing
actions.
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5.6 Other Changes. The Sellers shall not permit the Corporation to take,
cause, agree to take or cause to occur any of the actions or events set forth in
Section 3.20 of this Agreement; provided, that nothing herein contained shall
prohibit the Corporation from making cash distributions to the Sellers (whether
in the form of dividends or compensation) so long as such distributions do not
cause the Net Book Value to be materially less than $5,050,000.
5.7 Additional Information. The Sellers shall furnish and cause the
Corporation to furnish to the Buyer such additional information with respect to
any matters or events arising or discovered subsequent to the date hereof which,
if existing or known on the date hereof, would have rendered any representation
or warranty made by the Sellers or any information contained in any Schedule
hereto or in other information supplied in connection herewith then inaccurate
or incomplete. The receipt of such additional information by the Buyer shall not
operate as a waiver by the Buyer of the obligations of the Sellers to satisfy
the conditions to Closing set forth in Section 7.1 hereof.
5.8 Publicity. Except as may be required by law or the applicable rules or
regulations of any securities exchange, the Sellers shall not (i) make or permit
the Corporation to make any press release or other public announcement relating
to this Agreement or the transactions contemplated hereby, without the prior
written approval of the Buyer, and (ii) otherwise disclose the existence and
nature of their discussions or negotiations regarding the transactions
contemplated hereby to any person or entity other than their accountants,
attorneys and similar professionals, all of whom shall be subject to this
nondisclosure obligation as agents of the Sellers, as the case may be. The
Sellers shall cooperate with the Buyer in the preparation and dissemination of
any public announcements of the transactions contemplated by this Agreement.
5.9 Other Negotiations. The Sellers shall not pursue, initiate, encourage
or engage in, nor shall any of their respective Affiliates or agents pursue,
initiate, encourage or engage in, and the Sellers shall cause the Corporation
and its Affiliates, directors, officers and agents not to pursue, initiate,
encourage or engage in, any negotiations or discussions with, or provide any
information to, any other person or entity (other than the Buyer and its
representatives and Affiliates) regarding the sale of the assets or capital
stock of the Corporation or any merger or similar transaction involving the
Corporation.
5.10 Closing Conditions. The Sellers shall use all reasonable best efforts
to satisfy promptly the conditions to Closing set forth in Article 7 hereof
required herein to be satisfied by the Sellers prior to the Closing.
5.11 Environmental Audit. The Sellers shall cause the Corporation to allow
an environmental consulting firm selected by the Buyer (the "Environmental
Auditor") to have prompt access to the Real Property in order to conduct an
environmental investigation, satisfactory to the Buyer in scope (such scope
being sufficient to result in a Phase I environmental audit report and a Phase
II environmental audit report, if desired by the Buyer), of, and to prepare a
report with respect to, the Real Property (the "Environmental Audit"). The
Sellers shall cause the Corporation to provide to the Environmental Auditor: (i)
reasonable access to all its existing records concerning the matters which are
the subject of the Environmental Audit; and (ii) reasonable access to the
employees of the Corporation and the last known addresses of former employees of
the Corporation who are most familiar with the matters which are the subject of
the Environmental Audit (the Sellers
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agreeing to use reasonable efforts to have such former employees respond to any
reasonable requests or inquiries by the Environmental Auditor). The Sellers
shall otherwise cooperate and cause the Corporation to cooperate with the
Environmental Auditor in connection with the Environmental Audit. The Buyer and
the Sellers shall each bear 50% of the costs, fees and expenses incurred in
connection with the preparation of the Environmental Audit.
5.12 Audited Financial Statements. The Sellers shall allow, cooperate with
and assist Buyer's accountants, and shall instruct the Corporation's accountants
to cooperate, in the preparation of audited financial statements of the
Corporation as necessary for the IPO; provided that the expense of such audit
shall be borne by the Buyer.
5.13 Hart-Scott-Rodino. Subject to the determination by the Buyer that any
of the following actions is not required, the Sellers shall promptly prepare and
file Notification and Report Forms under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division"), and respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
ARTICLE 6
Pre-Closing Covenants of Buyer
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
6.1 Publicity. Except as may be required by law or as necessary in
connection with the transactions contemplated hereby or in connection with the
preparation and filing of any registration statement regarding the IPO, the
Buyer shall not (i) make any press release or other public announcement relating
to this Agreement or the transactions contemplated hereby, without the prior
written approval of the Sellers, or (ii) otherwise disclose the existence and
nature of its discussions or negotiations regarding the transactions
contemplated hereby to any person or entity other than its accountants,
attorneys and similar professionals, all of whom shall be subject to this
nondisclosure obligation as agents of the Buyer. The Buyer shall cooperate with
the Sellers in the preparation and dissemination of any public announcements of
the transactions contemplated by this Agreement. Subject to the Buyer's legal
obligations and the advice of its IPO underwriters, the Buyer shall submit to
the Sellers for their pre-approval (such approval shall not be unreasonably
withheld) of the content of any disclosures in the IPO context about the
transactions contemplated hereby.
6.2 Closing Conditions. The Buyer shall use all reasonable best efforts to
satisfy promptly the conditions to Closing set forth in Article 8 hereof
required herein to be satisfied by the Buyer prior to the Closing.
6.3 Application to Automobile Manufacturers and Distributors. Subject to
the reasonable cooperation of the Sellers, the Buyer shall provide to all
applicable automobile manufacturers and distributors promptly after the
execution and delivery of this Agreement any application or other information
with respect to such application necessary in connection with the seeking of the
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consents of such manufacturers and distributors to the transactions contemplated
by this Agreement, and the Buyer shall otherwise use its reasonable best efforts
to obtain such consents.
6.4 Hart-Scott-Rodino. Subject to the determination by the Buyer that any
of the following actions is not required, the Buyer shall promptly prepare and
file Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division, respond as promptly as practicable to all inquiries received
from the FTC or the Antitrust Division for additional information or
documentation, and the Buyer shall pay all filing fees in connection therewith.
In addition, the Buyer shall pay the Sellers' reasonable out-of-pocket expenses
in connection with responding to any "second request" of the FTC so long as the
Buyer shall not have terminated this Agreement pursuant to Section 10.1(c)
below.
ARTICLE 7
Conditions to Obligations of the Buyer at the Closing
The obligations of the Buyer to perform this Agreement at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by the Buyer:
7.1 Representations and Warranties. The representations and warranties made
by the Sellers in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
7.2 Performance of Obligations of the Sellers. The Sellers shall have
performed all obligations required to be performed by the Sellers under this
Agreement, and complied with all covenants for which compliance by the Sellers
is required under this Agreement, prior to or at the Closing.
7.3 Closing Documentation. The Buyer shall have received the following
documents, agreements and instruments from the Sellers:
(a) a certificate signed by the Sellers and dated the date of the Closing
certifying as to the satisfaction of the conditions set forth in Sections 7.1
and 7.2 hereof;
(b) the stock certificates and stock powers for the Shares described in
Section 1.3(a) hereof;
(c) such duly signed resignations of directors and officers of the
Corporation as the Buyer shall have previously requested;
(d) an opinion of Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.,
counsel for the Sellers, dated the date of the Closing and addressed to the
Buyer, in the form of Exhibit G annexed hereto;
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(e) copies of all authorizations, approvals, consents, notices,
registrations and filings referred to in Schedules 3.2(b), 3.10 and 3.29(b)
hereof;
(f) a certificate dated as of a recent date from (i) the Secretary of State
of the State of Florida to the effect that the Corporation is duly incorporated
and in good standing in such state and stating that the Corporation owes no
franchise taxes in such state and listing all documents of the Corporation on
file with said Secretary of State, and (ii) one or more certificates of
officials from the jurisdictions listed on Schedule 3.7 hereto to the effect
that the Corporation is duly qualified as a foreign corporation and is in good
standing in such jurisdictions;
(g) a copy of the Corporation's Articles of Incorporation, including all
amendments thereto, certified as of a recent date by the Secretary of State of
the State of Florida;
(h) evidence, reasonably satisfactory to the Buyer, of the authority and
incumbency of the persons acting on behalf of the Corporation in connection with
the execution of any document delivered in connection with this Agreement;
(i) Uniform Commercial Code Search Reports on Form UCC-11 with respect to
the Corporation from the states and local jurisdictions where the principal
places of business of the Corporation and its assets are located;
(j) a certificate of each of the Sellers as to such Seller's non-foreign
status in appropriate form;
(k) the corporate minute books and stock record books of the Corporation,
and all other books and records of, or pertaining to, the business and
operations of the Corporation;
(l) estoppel letter[s] of landlord[s] other than the Sellers or their
Affiliates under the Lease[s], in form and substance reasonably satisfactory to
the Buyer;
(m) estoppel letter[s] of lender[s] to the Corporation, in form and
substance reasonably satisfactory to the Buyer, with respect to amounts owing by
the Corporation as of the Closing; and
(n) such other instruments and documents as the Buyer shall reasonably
request not inconsistent with the provisions hereof.
7.4 Approval of Legal Matters. The form of all instruments, certificates
and documents to be executed and delivered by the Sellers to the Buyer pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
7.5 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in the violation of
any law, decree or regulation of any governmental authority having appropriate
jurisdiction, and no
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order, decree or ruling of any governmental authority or court shall have been
entered challenging the legality, validity or propriety of, or otherwise
relating to, this Agreement or the transactions contemplated hereby, or
prohibiting, restraining or otherwise preventing the consummation of the
transactions contemplated hereby.
7.6 No Material Adverse Change or Undisclosed Liability. There shall have
been no material adverse change or development in the business, prospects,
properties, earnings, results of operations or financial condition of the
Corporation, or any of its assets.
7.7 No Adverse Laws. There shall not have been enacted, adopted or
promulgated any statute, rule, regulation or order which materially adversely
affects the business or assets of the Corporation.
7.8 Affiliate Transactions. All amounts owing to the Corporation from the
Sellers or any Affiliate thereof shall have been paid in full and any
indebtedness of the Corporation to the Sellers or their Affiliates shall have
been canceled by the holder(s) thereof.
7.9 Escrow Agreement. The Sellers and the escrow agent thereunder shall
have duly executed and delivered to the Buyer the Escrow Agreement.
7.10 Execution of Dealership Lease. The Sellers shall have duly delivered
to the Corporation and the Buyer the Dealership Lease, duly executed by the
lessor thereunder, with a corresponding memorandum of lease in a form suitable
for recording.
7.11 Employment Agreement. Ken Marks, Jr. shall have duly executed and
delivered to the Buyer the Employment Agreement.
7.12 Non-Competition Agreement. Ken Marks, Jr. shall have duly executed and
delivered to the Buyer the Non-Competition Agreement.
7.13 Cancellation of Stock Options. All outstanding options, warrants,
"phantom" stock options and other plans, agreements or arrangements of the
Corporation with respect to the purchase, or the issuance of, any capital stock
or other securities of the Corporation shall have been canceled and terminated
prior to the Closing at no expense to the Buyer, and the Buyer shall have
received reasonably satisfactory evidence thereof.
7.14 Return of Letter of Credit. The Sellers' Agent shall have returned to
the Buyer the executed original of the Letter of Credit, undrawn upon by the
Sellers.
7.15 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication by the Antitrust Division
or the Federal Trade Commission that either of them intends to challenge the
transactions contemplated hereby or, if any such challenge or investigation is
made or commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
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ARTICLE 8
Conditions to Obligations of the Sellers at the Closing
The obligations of the Sellers to perform this Agreement at the Closing are
subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by the Sellers:
8.1 Representations and Warranties. The representations and warranties made
by the Buyer in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
8.2 Performance of Obligations of the Buyer. The Buyer shall have performed
all obligations required to be performed by it under this Agreement, and
complied with all covenants for which compliance by it is required under this
Agreement, prior to or at the Closing.
8.3 Closing Documentation. The Sellers shall have received the following
documents, agreements and instruments from the Buyer:
(a) a certificate signed by a duly authorized signatory of the Buyer and
dated as of the Closing Date certifying as to the satisfaction of the conditions
set forth in Sections 8.1 and 8.2 hereof;
(b) payment of the Purchase Price pursuant to Section 1.2 hereof;
(c) an opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel for the
Buyer, dated as of the Closing Date and addressed to the Sellers, in the form of
Exhibit H annexed hereto; and
(d) such resolutions of the Buyer, as sole shareholder of the Corporation,
and the directors of the Corporation electing directors and appointing officers,
respectively, of the Corporation, effective upon the Closing;
(e) certificates dated as of a recent date from the Secretary of State of
the State of Delaware to the effect that the Buyer is duly incorporated and in
good standing in such state;
(f) a copy of the Buyer's Certificate of Incorporation, including all
amendments thereto, certified by the Secretary of State of the State of
Delaware;
(g) evidence, reasonably satisfactory to the Sellers, of the authority and
incumbency of the persons acting on behalf of the Buyer in connection with the
execution of any document delivered in connection with this Agreement; and
(h) such other instruments and documents as the Sellers shall reasonably
request not inconsistent with the provisions hereof.
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8.4 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed or delivered by the Buyer to the Sellers pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Sellers and their counsel,
none of whose approval shall be unreasonably withheld or delayed.
8.5 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain substantial damages in
respect thereof, or involving a claim that consummation thereof would result in
the violation of any law, decree or regulation of any governmental authority
having appropriate jurisdiction, and no order, decree or ruling of any
governmental authority or court shall have been entered challenging the
legality, validity or propriety of, or otherwise relating to, this Agreement or
the transactions contemplated hereby, or prohibiting, restraining or otherwise
preventing the consummation of the transactions contemplated hereby.
8.6 Dealership Lease; Guaranty. The Corporation shall have duly executed
and delivered to the Sellers' Agent the Dealership Lease, and the Sellers' Agent
shall have received the Guaranty, duly executed by the Buyer and Sonic Financial
Corporation.
8.7 Escrow Agreement. The Buyer and the escrow agent thereunder shall have
duly executed and delivered the Escrow Agreement.
8.8 Employment Agreement. The Buyer shall have caused the Corporation to
duly execute and deliver the Employment Agreement to Ken Marks, Jr.
8.9 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication of the Antitrust Division
or the Federal Trade Commission that either of them intends to challenge the
transactions contemplated hereby, or, if any such challenge or investigation is
made or commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
ARTICLE 9
Survival of Representations and Warranties;
Indemnification, Etc.
9.1 Survival. All statements contained in any Schedule or certificate
delivered hereunder or in connection herewith by or on behalf of any of the
parties pursuant to this Agreement shall be deemed representations and
warranties by the respective parties hereunder unless otherwise expressly
provided herein. The representations and warranties of the Sellers contained in
this Agreement, including those contained in any Schedule or certificate
delivered hereunder or in connection herewith, shall survive the Closing
_________ * __________ with the exception of (i) the representations and
warranties of the Sellers contained in Section 3.21, which shall survive the
Closing __________ * __________ , and (ii) the representations and
* Confidential portions omitted and filed separately with the Commission.
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warranties of the Sellers contained in Sections 3.11, 3.19 and 3.36, which shall
survive the Closing ___________ * ____________ . As to each representation and
warranty of the parties hereto, the date to which such representation and
warranty shall survive is hereinafter referred to as the "Survival Date".
9.2 Agreement to Indemnify by Sellers. Subject to the terms and conditions
of Sections 9.4 and 9.5 hereof, the Sellers hereby, severally with respect to
the breach, inaccuracy or untruth of any of the matters set forth in Sections
3.1 through 3.6 hereof, and jointly and severally with respect to all other
matters set forth in this Agreement, agree to indemnify and save the Buyer, the
Corporation and their respective shareholders, officers, directors, employees,
successors and assigns (each, a "Buyer Indemnitee") harmless from and against,
for and in respect of, any and all damages, losses, obligations, liabilities,
demands, judgments, injuries, penalties, claims, actions or causes of action,
encumbrances, costs, and expenses (including, without limitation, reasonable
attorneys' fees and expert witness fees), suffered, sustained, incurred or
required to be paid by any Buyer Indemnitee (collectively, "Buyer's Damages")
arising out of, based upon, in connection with, or as a result of:
(a) the untruth, inaccuracy or breach of any representation and warranty of
the Sellers contained in or made pursuant to this Agreement, including in any
Schedule or certificate delivered hereunder or in connection herewith, excluding
any breach of representation and warranty contained in Section 3.19; provided,
however, that with respect to the foregoing indemnification obligation of the
Sellers contained in this paragraph (a), the Sellers shall not have any
indemnification obligation until (and only to the extent that) Buyer's Damages
in respect of all claims for indemnity pursuant to this paragraph (a) and
paragraph (c) below shall exceed a cumulative aggregate total of __________ *
__________ ;
(b) the untruth, inaccuracy or breach of any representation and warranty of
the Sellers contained in or made pursuant to Section 3.19, including in any
Schedule or certificate delivered hereunder in connection therewith;
(c) the breach or nonfulfillment of any covenant or agreement of any Seller
contained in this Agreement or in any other agreement, document or instrument
delivered hereunder or pursuant hereto;
(d) any loss of life, injury to persons or property, or damage to natural
resources caused by the actual, alleged, or threatened release, storage,
transportation, treatment or generation, of Hazardous Materials generated,
stored, used, disposed of, treated, handled or shipped by the Corporation on or
before the date of the Closing;
(e) any cleanup required by any governmental authority or as part of the
settlement or other disposition of a third party claim (including, without
limitation, claims by surrounding landowners and claims by potentially
responsible parties) of Hazardous Materials released, disposed of or discharged:
(i) on, beneath or adjacent to the Real Property prior to or on the date of the
Closing; or (ii) at any other location if such substances were generated, used,
stored, treated, transported or released by the Corporation prior to or on the
date of the Closing; or
* Confidential portions omitted and filed separately with the Commission.
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(f) any and all costs of installing pollution control equipment or other
equipment required by any governmental authority or as part of the settlement or
other disposition of a third party claim (including, without limitation, claims
by surrounding landowners and claims by potentially responsible parties) to
bring any of the Real Property into compliance with any Environmental Law if
such equipment is installed because any of the Real Property was not in
compliance with any Environmental Laws as of the date of the Closing.
With respect to the Sellers' obligations to pay Buyer's Damages pursuant to
Section 9.2 of this Agreement: (1) the Buyer, on behalf of itself and any other
Buyer Indemnitee, shall be entitled (but shall not be obligated) to make demand
for payment under the Escrow Agreement; and (2) the aggregate amount required to
be paid by all Sellers shall not exceed * .
9.3 Agreement to Indemnify by Buyer. Subject to the terms and conditions of
Sections 9.4 and 9.5 hereof, the Buyer hereby agrees to indemnify and save the
Sellers and their successors and assigns (each, a "Seller Indemnitee") harmless
from or against, for and in respect of, any and all damages, losses,
obligations, liabilities, demands, judgments, injuries, penalties, claims,
actions or causes of action, encumbrances, costs, and expenses (including,
without limitation, reasonable attorneys' fees and expert witness fees)
suffered, sustained, incurred or required to be paid by any Seller Indemnitee
arising out of, based upon or in connection with or as a result of:
(a) the untruth, inaccuracy or breach of any representation and warranty of
the Buyer contained in or made pursuant to this Agreement, including in any
Schedule or certificate delivered hereunder or in connection herewith;
(b) the breach or nonfulfillment of any covenant or agreement of the Buyer
contained in this Agreement or in any other agreement, document or instrument
delivered hereunder or pursuant hereto; or
(c) the assertion against any Seller Indemnitee of any claims, liabilities
or obligations arising out of the operation of the business of the Corporation
after the Closing Date, except to the extent that such claims, liabilities or
obligations arise out of any matter as to which the Sellers are obligated to
indemnify the Buyer under Section 9.2 above.
9.4 Claims for Indemnification. No claim for indemnification with respect
to a breach of a representation and warranty shall be made under this Agreement
after the applicable Survival Date unless prior to such Survival Date the Buyer
Indemnitee or the Seller Indemnitee, as the case may be, shall have given the
Sellers or the Buyer, as the case may be, written notice of such claim for
indemnification based upon actual loss sustained, or potential loss anticipated,
as a result of the existence of any claim, demand, suit, or cause of action
against such Buyer Indemnitee or Seller Indemnitee, as the case may be.
9.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Sellers with respect to indemnification hereunder regarding
claims by third persons which could give rise to an indemnification obligation
hereunder shall be as follows:
(a) Promptly after receipt by any Buyer Indemnitee or Seller Indemnitee, as
the case may be, of notice of the commencement of any action or proceeding
(including, without
*Confidential portions omitted and filed separately with the Commission.
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limitation, any notice relating to a tax audit) or the assertion of any claim by
a third person which the person receiving such notice has reason to believe may
result in a claim by it for indemnity pursuant to this Agreement, such person
(the "Indemnified Party") shall give a written notice of such action, proceeding
or claim to the party against whom indemnification pursuant hereto is sought
(the "Indemnifying Party"), setting forth in reasonable detail the nature of
such action, proceeding or claim, including copies of any documents and written
correspondence from such third person to such Indemnified Party.
(b) The Indemnifying Party shall be entitled, at its own expense, to
participate in the defense of such action, proceeding or claim, and, if (i) the
action, proceeding or claim involved seeks (and continues to seek) solely
monetary damages, (ii) the Indemnifying Party confirms, in writing, its
obligation hereunder to indemnify and hold harmless the Indemnified Party with
respect to such damages in their entirety pursuant to Sections 9.2 or 9.3
hereof, as the case may be, and (iii) the Indemnifying Party shall have made
provision which, in the reasonable judgment of the Indemnified Party, is
adequate to satisfy any adverse judgment as a result of its indemnification
obligation with respect to such action, proceeding or claim, then the
Indemnifying Party shall be entitled to assume and control such defense with
counsel chosen by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld or delayed. The Indemnified
Party shall be entitled to participate therein after such assumption, the costs
of such participation following such assumption to be at its own expense. Upon
assuming such defense, the Indemnifying Party shall have full rights to enter
into any monetary compromise or settlement which is dispositive of the matters
involved; provided, that such settlement is paid in full by the Indemnifying
Party and will not have any direct or indirect continuing material adverse
effect upon the Indemnified Party.
(c) With respect to any action, proceeding or claim as to which (i) the
Indemnifying Party does not have the right to assume the defense or (ii) the
Indemnifying Party shall not have exercised its right to assume the defense, the
Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
action, proceeding or claim, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Indemnified Party to the extent that such
fees and expenses relate to claims as to which indemnification is due under
Sections 9.2 or 9.3 hereof, as the case may be. The Indemnified Party shall have
full rights to dispose of such action, proceeding or claim and enter into any
monetary compromise or settlement; provided, however, in the event that the
Indemnified Party shall settle or compromise any action, proceeding or claim for
which indemnification is due under Sections 9.2 or 9.3 hereof, as the case may
be, it shall act reasonably and in good faith in doing so.
(d) Both the Indemnifying Party and the Indemnified Party shall cooperate
fully with one another in connection with the defense, compromise or settlement
of any such action, proceeding or claim, including, without limitation, by
making available to the other all pertinent information and witnesses within its
control.
9.6 Effectiveness. The provisions of this Article 9 shall be effective upon
consummation of the Closing, and prior to the Closing, shall have no force and
effect.
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ARTICLE 10
Termination
10.1 Termination. Notwithstanding any other provision herein contained to
the contrary, this Agreement may be terminated at any time prior to the Closing
Date:
(a) by the written mutual consent of the Buyer and the Sellers;
(b) At any time after the Closing Date Deadline, by written notice by the
Buyer or the Sellers to the other party(ies) hereto if the Closing shall not
have been completed on or before the Closing Date Deadline; provided, however,
no party(ies) may terminate this Agreement pursuant to this Section 10.1(b) if
such party(ies) is in breach of any material representation, warranty or
covenant of such party(ies) contained in this Agreement;
(c) By the Buyer if, after any initial HSR Act filing, the FTC makes a
"second request" for information, or the FTC or the Antitrust Division
challenges the transactions contemplated hereby; provided, that the Buyer
delivers a written notice to the Sellers of its termination hereunder within
five (5) Business Days of the Buyer's receipt of such second request or of
notice of such challenge;
(d) By the Buyer, in the event that approval by the applicable automobile
manufacturer and/or floor plan financing provider of the transactions
contemplated by this Agreement is not received at least 10 Business Days prior
to the Closing Date Deadline; or
(e) By the Buyer within 30 days of the date hereof if, and only if, the
Buyer is not satisfied, in its discretion, with the results of the Buyer's due
diligence investigation contemplated by Section 5.1(a) hereof.
10.2 Procedure and Effect of Termination. In the event of termination
pursuant to Section 10.1, this Agreement shall be of no further force or effect;
provided, however, that, except as expressly set forth below, any termination
pursuant to Section 10.1 shall not (i) relieve the Buyer or the Sellers of any
liability under Sections 10.3 or 10.4 below, or (ii) relieve any party hereto of
any liability for breach of any representation and warranty, covenant or
agreement hereunder occurring prior to such termination. In addition, in the
event of any such termination, all filings, applications and other submissions
made pursuant to this Agreement or prior to the execution of this Agreement in
contemplation thereof shall, to the extent practicable, be withdrawn from the
agency or other entity to which made.
10.3 Payment of Buyer's Termination Fee; Sellers' Exclusive Remedy. If this
Agreement is terminated by the Sellers pursuant to Section 10.1(b) above and the
failure to complete the Closing on or before the Closing Date Deadline shall
have been due to the Buyer's breach of its material representations and
warranties or its material covenants or obligations under this Agreement, then
the Sellers' Agent shall be entitled, pursuant to the terms of the Letter of
Credit, to make a draw on the Letter of Credit in the full face amount thereof
of $2,000,000 in immediately available funds, as liquidated damages for the loss
of the transaction (the "Buyer's Termination Fee").
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Notwithstanding any other provision of this Agreement, termination of this
Agreement and collection of the Buyer's Termination Fee shall be the Sellers'
sole and exclusive remedy; the Sellers shall not be entitled to specific
performance of any provision of this Agreement.
10.4 Payment of Sellers' Termination Fee; Buyer's Election of Remedies. If
this Agreement is terminated by the Buyer pursuant to Section 10.1(b) above and
the failure to complete the Closing on or before the Closing Date Deadline shall
have been due to the Sellers' breach of their material representations and
warranties or their material covenants or obligations under this Agreement, then
the Sellers, jointly and severally, shall, upon demand of the Buyer, promptly
pay to the Buyer in immediately available funds, as liquidated damages for the
loss of the transaction, a termination fee of $250,000 (the "Sellers'
Termination Fee"). Termination of this Agreement and collection of the Sellers'
Termination Fee shall be the Buyer's sole and exclusive remedy to collect
damages. Provided the Buyer shall have terminated this Agreement pursuant to
Section 10.1(b) above, the Buyer shall have no right to equitable relief other
than for specific performance to enforce payment of the Sellers' Termination
Fee. In the absence of termination of this Agreement by the Buyer pursuant to
Section 10.1(b) above, the Buyer shall be free to pursue all equitable remedies
against the Sellers including, without limitation, specific performance to
consummate the transactions contemplated by this Agreement.
ARTICLE 11
Certain Taxes and Expenses
11.1 Certain Taxes and Expenses.
(a) All sales, use, transfer, intangible, excise, documentary stamp,
recording, gross income, gross receipts and other similar taxes or fees which
may be due or payable in connection with the consummation of the transactions
contemplated hereby shall be paid by the Sellers.
(b) Except as otherwise herein provided, the Sellers and the Buyer shall be
responsible for the payment of their respective fees, costs and expenses
incurred in connection with the negotiation and consummation of the transactions
contemplated hereby and shall not be liable to the other party or parties for
the payment of any such fees, costs and expenses.
ARTICLE 12
Certain Post-Closing Covenants
12.1 Change of Corporation's Name. Promptly upon the effectiveness of the
Closing, the Buyer shall effect a change in the Corporation's corporate name to
a name which does not contain the name "Ken Marks" or any variation thereof. The
Buyer agrees not to use the name "Ken Marks" or any such variation except for
the purpose of identifying the Corporation as having been formerly named Ken
Marks Ford, Inc.
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12.2 Stay-on Bonuses to Employees of Corporation. Within twenty (20)
Business Days following the Closing, the Buyer shall pay, or cause the
Corporation to pay, a total of $500,000 of "stay-on bonuses" to the employees of
the Corporation listed on Schedule 12.2 hereto in the amounts listed beside each
employee's name on such Schedule; provided, however, that each employee listed
on Schedule 12.2 shall receive such "stay-on bonus" designated for such employee
only if such employee continues to be employed by the Corporation as of the
Closing Date.
ARTICLE 13
Miscellaneous
13.1 Certain Tax Returns. The Sellers shall cooperate with and provide
assistance to the Buyer and the Corporation in connection with the preparation
and filing of all federal, state, local and foreign income tax returns which
relate to the Corporation and to periods prior to Closing but which are not
required to be filed until after the Closing.
13.2 Parties in Interest; No Third-Party Beneficiaries. Subject to Section
13.4 hereof, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, expressed or implied (including, without limitation,
the provisions of Section 12.2 above), is intended or shall be construed to
confer upon or give to any employee of the Corporation or the Buyer, or any
other person, firm, corporation or legal entity, other than the parties hereto
and their successors and assigns, any rights, remedies or other benefits under
or by reason of this Agreement.
13.3 Entire Agreement; Amendments. This Agreement (including all Exhibits
and Schedules hereto) and the other writings referred to herein or delivered
pursuant hereto contain the entire understanding of the parties hereto with
respect to its subject matter. There are no representations, promises,
warranties, covenants or undertakings other than as expressly set forth herein
or therein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to its subject matter. This Agreement
may be amended or modified only by a written instrument duly executed by the
parties hereto.
13.4 Assignment. This Agreement shall not be assignable by any party hereto
without the prior written consent of the other parties; provided, however, the
Buyer may assign its rights and obligations hereunder to any Affiliate of the
Buyer presently existing or hereafter formed and to any person or entity that
shall acquire all or substantially all of the assets of the Buyer or the
Corporation; provided, further, that no such assignment shall release the Buyer
from its obligations hereunder without the consent of the Sellers.
13.5 Remedies. Except as expressly provided in this Agreement to the
contrary, each of the parties to this Agreement is entitled to all remedies in
the event of breach provided at law or in equity, specifically including, but
not limited to, specific performance.
13.6 Headings. The Article and Section headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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13.7 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by telecopier or by a nationally recognized overnight
courier, postage prepaid, and shall be deemed to have been duly given when so
delivered personally or sent by telecopier, with receipt confirmed, or one (1)
business day after the date of deposit with such nationally recognized overnight
courier. All such notices, claims, certificates, requests, demands and other
communications shall be addressed to the respective parties at the addresses set
forth below or to such other address as the person to whom notice is to be given
may have furnished to the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Auto World, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopier No.: (704) 532-3312
Attention: Theodore M. Wright, Chief Financial Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopier No.: (704) 334-4706
Attention: Edward W. Wellman, Jr.
If to the Sellers, to:
Ken Marks, Jr.
2408 Hampton Lane, West
Safety Harbor, Florida 34695
O.K. Marks, Sr.
215 Shore Drive
Palm Harbor, Florida 34683
Michael J. Marks
2663 Crystal Circle
Dunedin, Florida 34698
With a copy to:
Johnson, Blakely, Pope, Bokor, Ruppel & Burns, P.A.
911 Chestnut Street
P.O. Box 1368
Clearwater, Florida 34617
Telecopier No.: (813) 441-8617
33
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Attention: E.D. Armstrong III
13.8 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
13.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida, without giving effect to its
rules governing conflict of laws.
13.10 Waivers. Any party to this Agreement may, by written notice to the
other parties hereto, waive any provision of this Agreement from which such
party is entitled to receive a benefit. The waiver by any party hereto of a
breach by another party of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach by such other party of such
provision or any other provision of this Agreement.
13.11 Severability. In the event that any provision, or part thereof, in
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
13.12 Knowledge. Whenever any representation or warranty of any Seller
contained herein (other than the representations and warranties set forth in
Sections 3.1 through 3.6 hereof) or in any other document executed and delivered
in connection herewith is based upon the knowledge of such Seller, (i) such
knowledge shall be deemed to include (A) the best actual knowledge, information
and belief of any of the Sellers, and (B) any information which any Seller would
reasonably be expected to be aware of in the prudent discharge of his duties in
the ordinary course of business (including consultation with legal counsel) on
behalf of the Corporation, and (ii) the knowledge of any Seller shall be deemed
to be the knowledge of all of the Sellers.
13.13 Jurisdiction; Arbitration.
(a) Subject to the other provisions of this Section 13.14, any judicial
proceeding brought with respect to this Agreement must be brought in any court
of competent jurisdiction in the State of North Carolina, and, by execution and
delivery of this Agreement, each party hereto (i) accepts, generally and
unconditionally, the jurisdiction of such courts and any related appellate
court, and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement, and (ii) irrevocably waives any objection it may
now or hereafter have as to the venue of any such suit, action or proceeding
brought in such court or that such court is an inconvenient forum.
(b) Any dispute, claim or controversy arising out of or
relating to this Agreement (except for accounting matters provided for in
Section 1.2(d) hereto), or the interpretation or breach hereof (including,
without limitation, any of the foregoing based upon a claim to any termination
fee hereunder), shall be resolved by binding arbitration under the commercial
arbitration rules of the American Arbitration Association (the "AAA Rules") to
the extent such AAA Rules are not inconsistent with this Agreement. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
and order its enforcement, as the case may be. The demand for arbitration shall
be made by any party
34
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hereto within a reasonable time after the claim, dispute or other matter in
question has arisen, and in any event shall not be made after the date when
institution of legal proceedings, based on such claim, dispute or other matter
in question, would be barred by the applicable statute of limitations. The
arbitration panel shall consist of three (3) arbitrators, one of whom shall be
appointed by each party hereto within thirty (30) days after any request for
arbitration hereunder. The two arbitrators thus appointed shall choose the third
arbitrator within thirty (30) days after their appointment; provided, however,
that if the two arbitrators are unable to agree on the appointment of the third
arbitrator within 30 days after their appointment, either arbitrator may
petition the American Arbitration Association to make the appointment. The place
of arbitration shall be Charlotte, North Carolina. The arbitrators shall be
instructed to render their decision within sixty (60) days after their selection
and to allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(c) Nothing contained in this Section 13.13 shall (1) prevent the Buyer
from bringing any judicial proceeding against the Sellers in the State of
Florida, or (2) prevent any party hereto from seeking any equitable relief to
which it would otherwise be entitled from a court of competent jurisdiction.
Nothing contained in this Section 13.13 shall prevent the Buyer from enforcing
the Non-Competition Agreement in any court of competent jurisdiction.
13.14 Power of Attorney of Ken Marks, Jr. By execution hereof, each of the
Sellers irrevocably constitutes and appoints Ken Marks, Jr. with full power of
substitution, their true and lawful attorney-in-fact, in their name, place and
stead and for such Seller's use and benefit: (i) to sign, execute, certify,
acknowledge or file any other certificates, amendments, instruments or documents
which may be required from the Sellers in connection with this transaction; (ii)
to resolve setoffs against the escrowed amount; (iii) to make payment of, or
establish adequate reserves for, the expenses of the Sellers in connection with
this Agreement and other post-closing items related thereto; (iv) to represent
and bind the Sellers under Article X hereof; (v) to receive all notices
hereunder to the Sellers; and (vi) to accept service of process on behalf of
each Seller. The foregoing grant of authority: (i) is a special power of
attorney coupled with an interest and is irrevocable; (ii) may be exercised by
Ken Marks, Jr. by listing the name of the Seller along with the names of all of
the other persons for whom he is so acting by a single signature as
attorney-in-fact; and (iii) shall survive the delivery of an assignment by a
Seller of any of such Seller's rights under this Agreement.
35
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
SONIC AUTO WORLD, INC.
By: /s/ Bryan Scott Smith
-----------------------------------
Bryan Scott Smith, Chief Executive
Officer
/s/ Ken Marks, Jr.
-----------------------------------
Ken Marks, Jr.
/s/ O.K. Marks, Sr.
-----------------------------------
O.K. Marks, Sr.
/s/ Michael J. Marks
-----------------------------------
Michael J. Marks
36
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EXHIBITS
Exhibit A - List of Sellers
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Letter of Credit
Exhibit D-1 - Form of Dealership Lease
Exhibit D-2 - Form of Guaranty
Exhibit E - Form of Employment Agreement
Exhibit F - Form of Non-Competition Agreement
Exhibit G - Opinion of Sellers' Counsel
Exhibit H - Opinion of Buyer's Counsel
37
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SCHEDULES
Schedule 3.2(b) Consents and Approvals for the Sellers
Schedule 3.5 Interest in other Entities
Schedule 3.7 Qualification
Schedule 3.8 Capitalization
Schedule 3.10 No Violation; Conflicts
Schedule 3.11 Encumbrances
Schedule 3.13 Financial Statements
Schedule 3.16(b) Leased Premises
Schedule 3.16(d) Owned Equipment
Schedule 3.16(e) Leased Equipment
Schedule 3.17 Intellectual Property
Schedule 3.18 Certain Liabilities
Schedule 3.19 No Undisclosed Liabilities
Schedule 3.20 Absence of Changes
Schedule 3.21 Tax Matters
Schedule 3.22 Compliance with Laws
Schedule 3.23 Litigation Regarding Corporation
Schedule 3.24 Permits, Etc.
Schedule 3.26 Compensation
Schedule 3.27 Employee Benefits
Schedule 3.29(a) Material Agreements
Schedule 3.29(b) Required Consents for Transfers of Material Agreements
Schedule 3.31 Bank Accounts, Credit Cards and Safe Deposit Boxes
Schedule 3.32(a) Insurance Policies
Schedule 3.32(b) Property Damage and Personal Injury Claims
Schedule 3.33 Warranties
Schedule 3.34 Directors and Officers
Schedule 3.36 Environmental Matters
Schedule 4.2(b) Consents and Approvals for the Buyer
Schedule 12.2 Stay-on Bonuses to Employees
38
ASSET PURCHASE AGREEMENT
by and among
SONIC AUTOMOTIVE, INC.,
DYER & DYER, INC.
and
RICHARD DYER
Dated as of August ___, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1
Purchase and Sale of Assets; Assumption of Liabilities................1
1.1 Agreement of Purchase and Sale...................................1
1.2 Assumed Liabilities..............................................1
1.3 Purchase Price; Allocation.......................................1
1.4 Instruments of Conveyance and Transfer; Employment Agreement....3
1.5 Offers of Employment to Seller's Employees.......................4
Article 2
Closing...............................................................4
Article 3
Representations and Warranties of the Seller...........................5
3.1 Organization; Good Standing; Qualifications.......................5
3.2 Authority; Consent................................................5
3.3 Ownership; Investments............................................5
3.4 Financial Statements..............................................6
3.5 Absence of Certain Changes........................................6
3.6 Material Contracts................................................7
3.7 Title to Purchased Assets and Related Matters.....................7
3.8 Real Property of the Seller.......................................8
3.9 Machinery, Equipment, Etc.........................................8
3.10 Inventories of the Seller........................................8
3.11 Accounts Receivable of the Seller................................9
3.12 Approvals, Permits and Authorizations............................9
3.13 Compliance with Laws.............................................9
3.14 Insurance.......................................................10
3.15 Taxes...........................................................10
3.16 Litigation......................................................10
3.17 Powers of Attorney..............................................11
3.18 Broker's and Finder's Fees......................................11
3.19 Employee Relations..............................................11
3.20 Compensation....................................................11
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc.....11
3.22 Accounts Payable................................................12
3.23 No Undisclosed Liabilities......................................12
3.24 Certain Transactions............................................12
3.25 Business Generally..............................................12
3.26 Employee Benefits...............................................12
3.27 Seller and Shareholder Not Foreign Persons......................13
3.28 Suppliers and Customers.........................................13
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3.29 Environmental Matters...........................................14
3.30 Bank Accounts and Safe Deposit Boxes............................15
3.31 Warranties......................................................16
3.32 Interest in Competitors and Related Entities....................16
3.33 Availability of Seller's Employees..............................16
3.34 Misstatements and Omissions.....................................16
Article 4
Representations and Warranties of the Buyer...........................16
4.1 Organization and Good Standing...................................16
4.2 Authority; Consents; Enforceability..............................16
4.3 Broker's and Finder's Fees.......................................17
4.4 Litigation.......................................................17
4.5 Misstatements or Omissions.......................................17
Article 5
Pre-closing Covenants of the Shareholder and the Seller...............17
5.1 Provide Access to Information; Cooperation with Buyer............18
5.2 Operation of Business of the Seller..............................18
5.3 Other Changes....................................................19
5.4 Additional Information...........................................19
5.5 Publicity........................................................19
5.6 Other Negotiations...............................................19
5.7 Closing Conditions...............................................20
5.8 Environmental Audit..............................................20
5.9 Hart-Scott-Rodino Compliance.....................................20
5.10 Audit of Seller at Buyer's Expense..............................20
Article 6
Pre-closing Covenants of the Buyer....................................20
6.1 Publicity; Disclosure............................................20
6.2 Closing Conditions...............................................21
6.3 Application to Automobile Manufactures and Distributors..........21
6.4 Hart-Scott-Rodino Compliance.....................................21
Article 7
Conditions Precedent to Obligations of the Buyer......................21
7.1 Representations and Warranties...................................21
7.2 Performance of Obligations of the Seller.........................21
7.3 Closing Certificate..............................................22
7.4 Opinion of Counsel...............................................22
7.5 Supporting Documents.............................................22
7.6 Bill of Sale, Etc................................................22
7.7 Other Agreements.................................................22
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7.8 Books and Records................................................23
7.9 Change of Name of Seller; Use of Seller's Name by Buyer..........23
7.10 Consents........................................................23
7.11 No Litigation...................................................23
7.12 Authorizations..................................................23
7.13 No Material Adverse Change or Undisclosed Liability.............23
7.14 Approval of Legal Matters.......................................23
7.15 Adverse Laws....................................................24
7.16 Hart-Scott-Rodino Waiting Period................................24
Article 8
Conditions Precedent to Obligations of the Seller.....................24
8.1 Representations and Warranties...................................24
8.2 Performance of Obligations of the Buyer..........................24
8.3 Closing Certificate..............................................24
8.4 Payment of Purchase Price........................................24
8.5 Opinion of Counsel...............................................24
8.6 Supporting Documents.............................................25
8.7 Approval of Legal Matters........................................25
8.8 Employment Agreement.............................................25
8.9 No Litigation....................................................25
8.10 Hart-Scott-Rodino Waiting Period................................25
Article 9
Transfer Taxes; Proration of Charges..................................26
9.1 Certain Taxes and Fees...........................................26
9.2 Proration of Certain Charges.....................................26
Article 10
Survival of Representations and Warranties; Indemnification...........26
10.1 Survival of Representations and Warranties......................26
10.2 Agreement to Indemnify by the Seller and Shareholder............26
10.3 Agreement to Indemnify by the Buyer.............................27
10.4 Claims for Indemnification .....................................27
10.5 Procedures Regarding Third Party Claims.........................28
10.6 Effectiveness...................................................29
Article 11
Termination and Termination Fee.......................................29
11.1 Termination.....................................................29
11.2 Procedure and Effect of Termination ...........................30
Article 12
Miscellaneous Provisions..............................................30
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12.1 Access to Books and Records after Closing.......................30
12.2 Notices.........................................................31
12.3 Parties in Interest; No Third Party Beneficiaries...............32
12.4 Assignability...................................................32
12.5 Entire Agreement; Amendment.....................................32
12.6 Headings........................................................33
12.7 Counterparts....................................................33
12.8 Governing Law...................................................33
12.9 Knowledge.......................................................33
12.10 Arbitration....................................................33
12.11 Waivers........................................................34
12.12 Severability...................................................34
12.13 Expenses.......................................................34
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this____ day August, 1997, by and among SONIC AUTOMOTIVE, INC., a Delaware
corporation (the "Buyer"), DYER & DYER, INC., a South Carolina corporation (the
"Seller"), and RICHARD DYER, the sole shareholder of the Seller (the
"Shareholder").
W I T N E S S E T H:
In consideration of the mutual representations, warranties, covenants and
agreements hereinafter set forth, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS; ASSUMPTION OF LIABILITIES
1.1 Agreement of Purchase and Sale. On the terms and subject to the
conditions of this Agreement, at the Closing (as defined in Article 2 hereof),
the Seller shall sell, transfer, convey, assign and deliver (or cause to be
sold, transferred, conveyed, assigned and delivered) to the Buyer, and the Buyer
shall purchase and accept delivery of, all of the Seller's right, title and
interest in and to all of the assets of the Seller of every kind, character and
description, tangible or intangible, and wherever located, including, without
limitation, the assets described on Schedule 1.1(a), but excluding, however, the
assets described on Schedule 1.1(b) (the "Excluded Assets"); said assets, other
than the Excluded Assets, are hereinafter called the "Purchased Assets". The
Purchased Assets will be sold free and clear of all mortgages, deeds of trust,
liens, pledges, charges, security interests, contractual restrictions, claims or
encumbrances of any kind or character (collectively, "Encumbrances"), other than
the Encumbrances set forth on Schedule 1.1(c) (the "Permitted Encumbrances").
1.2 Assumed Liabilities. On the terms and subject to the conditions of this
Agreement and in reliance upon the representations and warranties contained
herein, at the Closing the Buyer shall assume and undertake to perform all of
the liabilities and obligations of the Seller specifically described on Schedule
1.2 (the "Assumed Liabilities"). Except for the Assumed Liabilities, the Buyer
shall not assume, and the Seller shall retain and remain responsible for, any
and all liabilities and obligations of the Seller of any nature whatsoever,
whether past, current or future, whether accrued, contingent, known or unknown
(such retained liabilities and obligations being hereinafter called the
"Retained Liabilities").
1.3 Purchase Price; Allocation.
(a) Purchase Price. In addition to the assumption by the Buyer of the
Assumed Liabilities, as the full consideration to be paid by the Buyer for the
Purchased Assets, the Buyer shall pay to the Seller the aggregate purchase price
of $18,000,000 (the "Purchase Price"), subject to adjustment as set forth in
Section 1.3(c).
(b) Payment of Purchase Price. $17,000,000 of the Purchase Price shall be
payable to the Seller at Closing by wire transfer of immediately available funds
to the account
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of the Seller, which shall be designed by the Seller in writing at least one
full Business Day prior to the Closing Date. The sum of $1,000,000 (the
"Escrowed Amount") shall be placed in an interest bearing escrow with Chicago
Title and Trust Company, or another escrow agent reasonably satisfactory to the
Buyer and the Seller (the "Escrow Agent"), by the Buyer in accordance with the
escrow agreement in the form of Exhibit 1.3(A), with such other changes thereto
as the Escrow Agent shall reasonably request (the "Escrow Agreement"). The sole
purpose of the Escrowed Amount shall be to secure the repayment of any shortfall
in Net Book Value pursuant to Section 1.3(c)(2) below. For purposes of this
Agreement, a "Business Day" is a day other than a Saturday, a Sunday or a day on
which banks are required or authorized to be closed in the State of North
Carolina.
(c) Adjustment Procedures.
(1) Not later than 60 days after the Closing Date, the Buyer will prepare
and deliver to the Seller an unaudited balance sheet (the "Closing Balance
Sheet") of the Seller as of the Closing Date, consisting of a computation of the
tangible book value as of the Closing Date of the Purchased Assets (excluding
goodwill and other intangible assets) less the book value as of the Closing Date
of the Assumed Liabilities, all as determined in accordance with the same
accounting principles utilized in preparing the Seller's tax basis balance sheet
as at December 31, 1996 included in the Financial Statements (as defined in
Section 3.4(a). Notwithstanding the foregoing, the Seller's new and used car
inventory reflected in the Closing Balance Sheet shall be based upon the values
shown on the Seller's books and records as of the Closing Date; however, the
determination of such values shall be based upon the same methodology utilized
in determining new and used car inventory values reflected in the December 31,
1996 tax basis balance sheet included in the Financial Statements. The tangible
net book value reflected on the Closing Balance Sheet is hereinafter called the
"Net Book Value". The Buyer shall make reasonably available to the Seller and
its agents the services of Peggy McFarland for the purpose of assisting the
Seller in evaluating the Buyer's computation of Net Book Value and preparation
of the Closing Balance Sheet. The Buyer warrants that Ms. McFarland's good faith
assistance to the Seller shall not in any way prejudice her position as an
employee of the Buyer. Further, the Buyer shall make freely available to the
Seller all books and records as the Seller or its agents may reasonably require
in order to evaluate the Buyer's computation of Net Book Value and preparation
of the Closing Balance Sheet. If within 30 days following delivery of the
Closing Balance Sheet (or the next Business Day if such 30th day is not a
Business Day), the Seller has not given the Buyer notice of the Seller's
objection to the computation of the Net Book Value as set forth in the Closing
Balance Sheet (such notice to contain a statement in reasonable detail of the
nature of the Seller's objection), then the Net Book Value reflected in the
Closing Balance Sheet will be deemed mutually agreed by the Buyer and the
Seller. If the Seller shall have given such notice of objection in a timely
manner, then the issues in dispute will be submitted to a "Big Six" accounting
firm mutually acceptable to the Buyer and the Seller (the "Accountants") for
resolution. With respect to any such submission and dispute, the Buyer shall
again make reasonably available to the Seller and its agents the services of
Peggy McFarland without prejudice to her employment and shall further grant her
(and Seller or its agents) access to all relevant books and records of the Buyer
as she (and Seller or its agents) may reasonably require. If issues in dispute
are submitted to the Accountants for resolution, (i) each party will
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furnish to the Accountants such workpapers and other documents and information
relating to the disputed issues as the Accountants may request and are available
to the party or its subsidiaries (or its independent public accountants), and
will be afforded the opportunity to present to the Accountants any material
relating to the determination and to discuss the determination with the
Accountants; (ii) the Accountants will be instructed to determine the Net Book
Value based upon their resolution of the issues in dispute; (iii) such
determination by the Accountants of the Net Book Value, as set forth in a notice
delivered to both parties by the Accountants, will be binding and conclusive on
the parties; and (iv) the Buyer and the Seller shall each bear 50% of the fees
and expenses of the Accountants for such determination.
(2) To the extent that the Net Book Value, as deemed mutually agreed by the
parties or as determined by the Accountants, as aforesaid, is less than
$10,500,000, the Seller shall be obligated to pay the amount of such shortfall
promptly to the Buyer, together with interest on such amount at the prime rate
of NationsBank, N.A. from time to time in effect (the "Prime Rate") from the
Closing Date to the date of payment, up to the Escrowed Amount. In furtherance
of such obligation of the Seller, the parties shall execute and deliver to the
Escrow Agent a joint instruction to pay such shortfall, plus interest, as
aforesaid, to the Buyer, with any remaining balance of the Escrowed Amount to be
paid to the Seller. To the extent that the amount of such shortfall in the Net
Book Value, plus interest as aforesaid, shall exceed the Escrowed Amount, the
Seller shall have no obligation to pay such excess to the Buyer, it being
understood that the Buyer's sole recourse for any such shortfall in Net Book
Value shall be to the Escrowed Amount. Any interest earned on investments of the
Escrowed Amount shall be paid to the Seller. To the extent that the Net Book
Value, as deemed mutually agreed by the parties or as determined by the
Accountants, as aforesaid, exceeds $10,500,000, the Buyer shall be obligated to
(i) execute and deliver to the Escrow Agent a joint instruction to pay the
entire amount of the Escrowed Amount to the Seller, and (ii) pay the amount of
such excess promptly to the Seller, together with interest on the amount of such
excess at the Prime Rate from the Closing Date to the date of payment.
(d) Allocation. The allocation of the Purchase Price and the Assumed
Liabilities shall be as set forth in Schedule 1.3(d); provided, however, that
the amount of the Purchase Price allocated to the Non-Competition Agreement (as
defined below) shall be $10,000. The Buyer and the Seller shall use such
allocation in all tax returns filed by them.
1.4 Instruments of Conveyance and Transfer; Employment Agreement.
(a) Instruments of Conveyance and Transfer. At the Closing, the Seller
shall deliver to the Buyer a Bill of Sale and Assignment, substantially in the
form of Exhibit 1.4(A) (the "Bill of Sale"), and such other instruments of
assignment, conveyance and transfer, as shall be necessary to vest in the Buyer
good title to the Purchased Assets in accordance herewith. Simultaneously
therewith, the Seller shall take all steps as may be required to transfer to the
Buyer actual possession and exclusive operating control of the Purchased Assets.
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(b) Employment Agreement. At the Closing, the Shareholder will enter into
an employment agreement with the Buyer, substantially in the form of Exhibit
1.4(B)(the "Employment Agreement").
(c) Non-Competition Agreement. At the Closing, the Seller and the
Shareholder will enter into a non-competition agreement with the Buyer
substantially in the form of Exhibit 1.4(C) (the "Non-Competition Agreement").
(d) Further Assurances. The Seller further agrees that, from and after the
Closing, it will execute and deliver to the Buyer such additional instruments
and documents and take such further action as the Buyer may reasonably request
in order to more fully vest, record and/or perfect the Buyer's title to, or
interest in, the Purchased Assets.
(e) Shareholder's Covenant to Close. The Shareholder further covenants and
agrees to take all necessary officer, director and stockholder actions to cause
the Seller to perform its obligations at and prior to the Closing, as
contemplated by this Agreement.
1.5 Offers of Employment to Seller's Employees. On or before the Closing
Date, the Buyer shall offer employment to those employees of the Seller listed
on Schedule 1.5 attached hereto, utilizing pay plans (and, in the case of Peggy
McFarland, an employment agreement) substantially the same as those in effect
with the Seller as of the date hereof. The Buyer may also offer employment to
such of the Seller's other employees as the Buyer shall select, in its sole
discretion, such employment to begin on or after the date of the Closing and to
be upon terms and conditions as determined by the Buyer in its sole discretion.
Notwithstanding the foregoing, the Buyer shall have no obligation to employ any
person, except as contemplated by the first sentence of this Section 1.5, and
the Seller shall be and remain responsible after the Closing for termination
expense or liability, if any, with regard to any of the Seller's employees not
offered employment by the Buyer pursuant to this paragraph on or prior to the
Closing Date. The Buyer agrees that any employee of the Seller who is offered
and accepts employment by the Buyer within 30 days of the Closing shall receive
credit for service with the Seller for purposes of determining such employee's
eligibility for holidays, sick days and vacation benefits and also for purposes
of determining eligibility (including without limitation, waiting periods under
group health plans) and vesting under any other employee benefit plans,
programs, policies or other arrangements covering such employee established,
continued or otherwise sponsored by the Buyer after the Closing.
ARTICLE 2
CLOSING
The transactions contemplated hereby shall take place at a closing (the
"Closing") at the offices of Parker, Poe, Adams & Bernstein L.L.P., 2500
Charlotte Plaza, Charlotte, North Carolina at 10:00 a.m. local time on the fifth
(5th) Business Day, or such shorter period as the Buyer may choose, following
the date the Buyer gives notice of the Closing to the Seller, but in no event
later than November 1, 1997 (the"Closing Date Deadline"), unless another date or
place is agreed
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to in writing by the Seller and the Buyer. The date on which the Closing
actually occurs is hereinafter referred to as the "Closing Date".
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer as follows:
3.1 Organization; Good Standing; Qualifications. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of South Carolina. The Seller is qualified as a foreign corporation
and in good standing in the jurisdictions listed on Schedule 3.1, which
jurisdictions are the only jurisdictions where the nature of the Seller's
business and its assets require such qualification.
3.2 Authority; Consent. The Seller has full corporate power and authority
to carry on its business as now conducted, to execute and deliver this Agreement
and the other agreements, documents and instruments contemplated hereby, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The execution and delivery by the Seller
of this Agreement and the other agreements, documents and instruments
contemplated hereby, the consummation by the Seller of the transactions
contemplated hereby and thereby and the performance by the Seller of its
obligations hereunder and thereunder: (i) have been duly and validly authorized
by all necessary corporate action, including, without limitation, all necessary
shareholder action; and (ii) do not and will not, except as set forth on
Schedule 3.2, (A) conflict with or violate any of the provisions of the
certificate of incorporation or by-laws, each as amended, of the Seller, (B)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to the Seller, the Purchased Assets
or the Assumed Liabilities, (C) violate or conflict with the terms of, or result
in the acceleration of, any indebtedness or obligation of the Seller under, or
violate or conflict with or result in a breach of, or constitute a default
under, any material instrument, agreement or indenture or any mortgage, deed of
trust or similar contract to which the Seller is a party or by which the Seller
or any of the Purchased Assets or Assumed Liabilities are bound or affected, (D)
result in the creation or imposition of any Encumbrance upon any of the
Purchased Assets, or (E) require the consent, authorization or approval of, or
notice to, or filing or registration with, any governmental body or authority,
or any other third party.
3.3 Ownership; Investments.
(a) Ownership. All issued and outstanding shares of capital stock of the
Seller are held of record and beneficially by the Shareholder, free and clear of
any Encumbrances. The Seller has no outstanding securities or other instruments,
agreements or arrangements of any character or nature whatsoever under which the
Seller is or may be obligated to issue any shares of its capital stock.
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(b) Investments. Except as set forth on Schedule 3.3, the Seller does not
own, directly or indirectly, any shares of capital stock or other equity
ownership or proprietary or membership interest in any corporation, limited
liability company, partnership, association, trust, joint venture or other
entity, and does not have any commitment to contribute to the capital of, make
loans to, or share in the losses of, any enterprise.
3.4 Financial Statements. The Seller has delivered to the Buyer prior to
the date hereof: (a) the audited balance sheet for the Seller as of December 31,
1996, and the related audited statement of income, stockholders' equity and
changes in cash flows of the Seller for the fiscal year then ended (including
the notes thereto and any other information included therein), (collectively,
the "Annual Financial Statements"); and (b) the unaudited balance sheet of the
Seller as of June 30, 1997 and the related unaudited statement of income,
stockholders' equity and changes in cash flow for the six month period then
ended (collectively, the "Interim Financial Statements"; the Annual Financial
Statements and the Interim Financial Statements are hereinafter collectively
referred to as the "Financial Statements"). The Financial Statements (i) are in
accordance with the books and records of the Seller, which books and records are
true, correct and complete, (ii) fully and fairly present the financial
condition and results of the operations of the Seller as of and for the periods
indicated, and (iii) have been prepared utilizing tax basis accounting
principles in accordance with the Code (as defined in Section 3.26(a) below) and
applicable regulations thereunder.
3.5 Absence of Certain Changes. Since December 31, 1996, the Seller has
operated its business in the ordinary course, consistent with past practices
and, except as set forth on Schedule 3.5, there has not been incurred, nor has
there occurred: (a) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the Purchased Assets or the business of the
Seller in excess of $100,000; (b) any sale, transfer, pledge or other
disposition of any tangible or intangible assets of the Seller (except sales of
vehicle and parts inventory in the ordinary course of business) having an
aggregate book value of $100,000 or more; (c) any termination, amendment,
cancellation or waiver of any Material Contract (as defined in Section 3.6
hereof) or any termination, amendment, cancellation or waiver of any rights or
claims of the Seller under any Material Contract (except in each case in the
ordinary course of business and consistent with past practices); (d) any change
in the accounting methods, procedures or practices followed by the Seller or any
change in depreciation or amortization policies or rates theretofore adopted by
the Seller; (e) any material change in policies, operations or practices with
respect to business operations followed by the Seller, including, without
limitation, with respect to selling methods, returns, discounts or other terms
of sale, or with respect to the policies, operations or practices of the Seller
concerning the employees of the Seller or the employee benefit plans of the
Seller; (f) any capital appropriation or expenditure or commitment therefor on
behalf of the Seller in excess of $100,000 individually, or $200,000 in the
aggregate; (g) any general uniform increase, other than in the ordinary course
of business, in the cash or other compensation of employees of any of the
Seller, or any increase in excess of $50,000 in any such compensation payable to
any individual officer, director, consultant or agent thereof, or any loans or
commitments therefor made by the Seller to any persons, including any officers,
directors, stockholders, employees, consultants or agents of the Seller or any
of their affiliates; (h) any account receivable in excess of $100,000 or note
receivable in excess of $100,000 owing to the Seller which (i) has been written
off as uncollectible, in whole
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or in part, (ii) has had asserted against it any claim, refusal or right of set
off, or (iii) the account or note debtor has refused to, or threatened not to,
pay for any reason, or such account or note debtor has become insolvent or
bankrupt; (i) any write-down or write-up of the value of any inventory or
equipment of the Seller or any increase in inventory levels in excess of
historical levels for comparable periods; (j) any other change in the condition
(financial or otherwise), business operations, assets, earnings, business or
prospects of the Seller which has, or could reasonably be expected to have, a
material adverse effect on the Purchased Assets or the business or operations of
the Seller; or (k) any agreement, whether in writing or otherwise, by the Seller
to take or do any of the actions enumerated in this Section 3.5. Since June 30,
1997, the Seller has paid no dividends and made no distributions in excess of
its net income from and after that date. For purposes of this Agreement, the
term "affiliate" shall mean any entity directly or indirectly controlling,
controlled by or under common control with the specified person, whether by
stock ownership, agreement or otherwise, or any parent, child or sibling of such
specified person and the concept of "control" means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise.
3.6 Material Contracts.
(a) List of Material Contracts. Set forth on Schedule 3.6 is a list of all
contracts, agreements, documents, instruments, guarantees, plans, understandings
or arrangements, written or oral, which are material to the business of the
Seller, as currently conducted or to the Purchased Assets or the Assumed
Liabilities (collectively, the "Material Contracts"). True copies of all written
Material Contracts and written summaries of all oral Material Contracts
described or required to be described on Schedule 3.6 have been furnished to the
Buyer.
(b) Performance, Defaults, Enforceability. The Seller has in all material
respects performed all of its obligations required to be performed by it to the
date hereof, and is not in default or alleged to be in default in any material
respect, under any Material Contract, and there exists no event, condition or
occurrence which, after notice or lapse of time or both, would constitute such a
default. To the knowledge of the Seller, no other party to any Material Contract
is in default in any respect of any of its obligations thereunder. Each of the
Material Contracts is valid and in full force and effect and enforceable against
the parties thereto in accordance with their respective terms, and, except as
set forth in Schedule 3.6, the transfer and assignment to the Buyer of all of
the Material Contracts, will not (i) require the consent of any party thereto or
(ii) constitute an event permitting termination thereof.
3.7 Title to Purchased Assets and Related Matters. The Seller has good and
valid title to all of the Purchased Assets, free and clear of all Encumbrances,
except those described on Schedule 3.7. Except as set forth in Schedule 3.7, the
Purchased Assets (including, without limitation, the Material Contracts) and the
Leased Premises (as defined in Section 3.8 below) include all properties and
assets (tangible and intangible, and all leases, licenses and other agreements)
utilized by the Seller in carrying on its business in the ordinary course.
Except as set forth on Schedule 3.7, the Purchased Assets (i) are in the
exclusive possession and control of the Seller and
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no person or entity other than the Seller are entitled to possession of any
portion of the Purchased Assets; and (ii) do not include any contracts for
future services, prepaid items or deferred charges the full value or benefit of
which will not be usable by or transferable to the Buyer, or any goodwill,
organizational expense or other similar intangible asset.
3.8 Real Property of the Seller.
(a) Owned Real Property. Except as set forth on Schedule 3.8, the Seller
owns no real property.
(b) Leased Premises. Schedule 3.8 contains a complete list and description
(including buildings and other structures thereon and the name of the owner
thereof) of all real property which is used by the Seller in its business and
operation identifying the existing leases thereof which are to be assigned to
the Buyer (such existing leases being hereinafter called the "Existing Leases").
All such real property on Schedule 3.8 is hereinafter collectively called either
the "Real Property" or the "Leased Premises". True, correct and complete copies
of all Existing Leases have been delivered to the Buyer.
(c) Easements, etc. The Real Property enjoys all easements and rights of
way over the property of others necessary for the operation of the Seller's
business. No portion of the Real Property has been condemned or otherwise taken
by any public authority, and the Seller has no knowledge of any pending or
threatened condemnation or taking thereof. None of the buildings or improvements
on the Real Property encroaches on any adjoining property or on any easements or
rights of way. The Seller has no knowledge of any event or condition which
currently exists which would create a legal or other impediment to the use of
the Real Property as currently used, or would increase the additional charges or
other sums payable by the tenant under any of the Existing Leases (including,
without limitation, any pending tax reassessment or other special assessment
affecting the Real Property). The buildings and improvements (including building
systems) which comprise a part of the Real Property are in good condition,
maintenance and repair, ordinary wear and tear excepted. There is no person or
entity other than the Seller in or entitled to possession of the Real Property.
3.9 Machinery, Equipment, Etc. Schedule 3.9 sets forth a list of all
material machinery, equipment, tools, motor vehicles, furniture and fixtures
owned by the Seller and included in the Purchased Assets, including which items
are owned by the Seller and which items are leased to the Seller (collectively,
the "Equipment"). With respect to Equipment which is leased, Schedule 3.9 also
contains a list of all leases or other agreements, whether written or oral,
relating thereto. The Equipment is in good operating condition, maintenance and
repair in accordance with industry standards taking into account the age thereof
and ordinary wear and tear excepted.
3.10 Inventories of the Seller. All inventories of the Seller included in
the Purchased Assets consist of items of a quality and quantity usable and
salable in the normal course of its business, are generally sufficient to do
business in the ordinary course, and the levels of inventories are consistent
with the levels maintained by the Seller in the ordinary course consistent
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with past practices and the Seller's obligations under its agreements with all
applicable vehicle manufacturers or distributors. The values at which such
inventories are carried are based on (i) the LIFO method, in the case of new car
and parts inventories, and (ii) the FIFO method, in the case of used car
inventories; furthermore, the values of new and used car inventories presently
shown on the Seller's books and records have been determined utilizing the same
methodology used in determining new and used car inventory values reflected in
the December 31, 1996 tax basis balance sheets included in the Financial
Statements.
3.11 Accounts Receivable of the Seller. All accounts receivable of the
Seller included in the Purchased Assets are collectible at the aggregate
recorded amounts thereof, subject to the reserve for doubtful accounts, in the
ordinary course of the Seller's business, and are not subject to any known
offsets or counterclaims.
3.12 Approvals, Permits and Authorizations. Set forth on Schedule 3.12 is a
list of all governmental licenses, permits, certificates of inspection, other
authorizations, filings and registrations which are necessary for the Seller to
own the Purchased Assets and to operate its business as presently conducted
(collectively, the "Authorizations"). All Authorizations have been duly and
lawfully secured or made by the Seller and are in full force and effect. There
is no proceeding pending or, to the Seller's knowledge, threatened or probable
of assertion, to revoke or limit any Authorization. Except as indicated on
Schedule 3.12, all Authorizations may be lawfully transferred to the Buyer as
contemplated by this Agreement and, except as indicated on Schedule 3.12, none
of the transactions contemplated by this Agreement will terminate, violate or
limit the effectiveness, either by virtue of the terms thereof or because of the
non-assignability thereof, of any Authorization.
3.13 Compliance with Laws. The Seller has conducted its operations and
business in compliance with, and all of the Purchased Assets and Leased Premises
comply with (i) all applicable laws, rules, regulations and codes (including,
without limitation, any laws, rules, regulations and codes relating to
anticompetitive practices, contracts, discrimination, employee benefits,
employment, health, safety, fire, building and zoning, but excluding
Environmental Laws which are the subject of Section 3.29 hereof) and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances.
The Seller has not received any notification of any asserted present or past
failure by it to comply with such laws, rules or regulations, or such orders,
rules, writs, judgments, injunctions, decrees or ordinances. Set forth on
Schedule 3.13 are all orders, writs, judgments, injunctions, decrees and other
awards of any court or any governmental instrumentality applicable to the
Purchased Assets or the Seller or its business and operations. The Seller has
delivered to the Buyer copies of all reports, if any, of the Seller required
under the Federal Occupational Safety and Health Act of 1970, as amended, and
under all other applicable health and safety laws and regulations. The
deficiencies, if any, noted on such reports or any deficiencies noted by
inspection through the Closing Date have been corrected by the Seller.
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3.14 Insurance.
(a) Schedule 3.14 of this Agreement sets forth a list of all policies of
liability, theft, fidelity, life, fire, product liability, workmen's
compensation, health and any other insurance and bonds maintained by, or on
behalf of, the Seller on its properties, operations, inventories, assets,
business or personnel (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims in excess of $5,000 thereunder).
Each such insurance policy identified therein is and shall remain in full force
and effect on and as of the Closing Date and the Seller is not in default with
respect to any provision contained in any such insurance policy and has not
failed to give any notice or present any claim under any such insurance policy
in a due and timely fashion. The insurance maintained by, or on behalf of, the
Seller is adequate in accordance with the standards of business of comparable
size in the industry in which the Seller operates and no notice of cancellation
or termination has been received with respect to any such policy. The Seller has
not, during the last three (3) fiscal years, been denied or had revoked or
rescinded any policy of insurance.
(b) Set forth on Schedule 3.14 is a summary of information pertaining to
property damage and personal injury claims in excess of $5,000 against the
Seller during the past five (5) years, all of which are fully satisfied or are
being defended by the insurance carrier and involve no exposure to the Seller.
3.15 Taxes. All federal, state and local tax returns and reports required
as of the date hereof to be filed by the Seller for taxable periods ending prior
to the date hereof have been duly and timely filed by the Seller with the
appropriate governmental agencies, and all such returns and reports are true,
correct and complete. All federal, state and local income, profits, franchise,
sales, use, occupation, property, excise, payroll, withholding, employment,
estimated and other taxes of any nature, including interest, penalties and other
additions to such taxes ("Taxes"), payable by, or due from, the Seller for all
periods arising on or prior to the Closing Date have been fully paid or
adequately reserved for by the Seller or, with respect to Taxes required to be
accrued, the Seller has properly accrued or will properly accrue such Taxes in
the ordinary course of business consistent with past practice of the Seller. The
Seller made a valid election to be treated as an "S Corporation" for federal
income tax purposes which election, as of the Closing, will have been
continuously in effect since January 1, 1996. Nothing contained in this Section
3.15 shall relieve the Buyer from its obligations to pay any Taxes which are
included in the Assumed Liabilities; and the payment of such Taxes by the Buyer
shall not relieve the Seller from any liability it may have under this Section
3.15.
3.16 Litigation. Except as set forth in Schedule 3.16, there are no
actions, suits, claims, investigations or legal or administrative or arbitration
proceedings pending, or to the Seller's knowledge, threatened or probable of
assertion, against the Seller with respect to the Purchased Assets or the
Assumed Liabilities or the business of the Seller. The Seller knows of no basis
for the institution of any such suit or proceeding. The Seller is not now under
any judgment, order, writ, injunction, decree, award or other similar command of
any court, administrative agency or other
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governmental authority applicable to the business of the Seller or any of the
Purchased Assets or Assumed Liabilities.
3.17 Powers of Attorney. Except as set forth in Schedule 3.17, there are no
persons, firms, associates, corporations, business organizations or other
entities holding general or special powers of attorney from the Seller.
3.18 Broker's and Finder's Fees. Except as disclosed to the Buyer, the
Seller has not incurred any liability to any broker, finder or agent or any
other person or entity for any fees or commissions with respect to the
transactions contemplated by this Agreement, and the Seller hereby agrees to
assume all liability to any such broker, finder or agent or any other person or
entity claiming any such fee or commission.
3.19 Employee Relations. The Seller employs a total of approximately 132
employees as of July 31, 1997. Except as set forth in Schedule 3.19: (a) the
Seller is not delinquent in the payment (i) to or on behalf of any past or
present employees of any cash or other compensation for all periods prior to the
date hereof or the date of the Closing, as the case may be, or (ii) of any
amount which is due and payable to any state or state fund pursuant to any
workers' compensation statute, rule or regulation or any amount which is due and
payable to any workers' compensation claimant; (b) there are no collective
bargaining agreements currently in effect between the Seller and any labor
unions or organizations representing any employees of the Seller; (c) no
collective bargaining agreement is currently being negotiated by the Seller; (d)
there are no union organizational drives in progress and there has been no
formal or informal request to the Seller for collective bargaining or for an
employee election from any union or from the National Labor Relations Board; and
(e) no dispute exists between the Seller and any of its sales representatives
or, to the knowledge of the Seller, between any such sales representatives with
respect to territory, commissions, products or any other terms of their
representation.
3.20 Compensation. Schedule 3.20 contains a schedule of all employees
(including sales representatives) and consultants of the Seller whose individual
cash compensation for the year ended December 31, 1996, or projected for the
year ended December 31, 1997, is in excess of $75,000, together with the amount
of total compensation paid to each such person for the twelve month period ended
December 31, 1996 and the current aggregate base salary or hourly rate
(including any bonus or commission) for each such person.
3.21 Patents; Trademarks; Trade Names; Copyrights; Licenses, Etc. Except as
set forth on Schedule 3.21, there are no patents, trademarks, trade names,
service marks, service names and registered copyrights which are material to the
Seller's business and there are no applications therefor or licenses thereof,
inventions, computer software, logos or slogans, which are owned or leased by
the Seller or used in the conduct of the Seller's business. The Seller is not
individually or jointly a party to, nor pays a royalty to anyone under, any
license or similar agreement. There is no existing claim, or, to the knowledge
of the Seller, any basis for any claim, against the Seller that any of its
operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that the Seller is
wrongfully or
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otherwise using the property rights of others. The Seller is the owner of the
names set forth on Schedule 3.21 (the "Proprietary Names") in the State of
Georgia and, to the knowledge of the Seller, no person uses, or has the right to
use, such name or any derivation thereof in connection with the manufacture,
sale, marketing or distribution of products or services commonly associated with
an automobile dealership.
3.22 Accounts Payable. All accounts payable of the Seller to third parties
as of the date hereof arose in the ordinary course of business and none are
delinquent or past due.
3.23 No Undisclosed Liabilities. The Seller does not have any material
liabilities or obligations of any nature, known or unknown, fixed or contingent,
matured or unmatured, other than those (a) reflected in the Financial
Statements, (b) incurred in the ordinary course of business since the date of
the Financial Statements, or (c) disclosed specifically on Schedule 3.23.
3.24 Certain Transactions. Except as set forth in Schedule 3.24, there are
no contracts, agreements or other arrangements between the Seller and the
Shareholder (including the Shareholder's affiliates), or the Seller's or
Shareholder's (including the Shareholder's affiliates) directors, officers or
salaried employees, or the family members or affiliates of any of the above
(other than for services in the ordinary course as employees, officers and
directors).
3.25 Business Generally. The Seller is not aware of the existence of any
conditions, including, without limitation, any actual or potential competitive
factors in the markets in which the Seller participates, which have not been
disclosed to the Buyer and which could reasonably be expected to have a material
adverse effect on the business and operations of the Seller, other than general
business and economic conditions affecting the industry and markets in which the
Seller participates.
3.26 Employee Benefits.
(a) The Seller has listed on Schedule 3.26, and has delivered to the Buyer,
true and complete copies of all Employee Plans (as defined below) and related
documents, established, maintained or contributed to by the Seller (which shall
include for this purpose and for the purpose of all of the representations in
this Section 3.26, the Shareholder and all employers, whether or not
incorporated, that are treated together with the Seller as a single employer
with the meaning of Section 414 of the Code). The term "Employee Plan" shall
include all plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and also shall include, without
limitation, any deferred compensation, stock, employee or retiree pension
benefit, welfare benefit or other similar fringe or employee benefit plan,
program, policy, contract or arrangement, written or oral, qualified or
nonqualified, funded or unfunded, foreign or domestic, covering employees or
former employees of the Seller and maintained or contributed to by the Seller.
As used in this Agreement, "Code" shall mean the Internal Revenue Code of 1986,
as amended.
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(b) Where applicable, each Employee Plan (i) has been administered in
material compliance with the terms of such Employee Plan and the requirements of
ERISA and the Code; and (ii) is in material compliance with the reporting and
disclosure requirements of ERISA and the Code. The Seller does not maintain or
contribute to, and have never maintained or contributed to, an Employee Plan
subject to Title IV of ERISA or a "multiemployer plan." There are no facts
relating to any Employee Plan that (i) have resulted in a "prohibited
transaction" of a material nature or have resulted or is reasonably likely to
result in the imposition of a material excise tax, penalty or liability pursuant
to Section 4975 of the Code, (ii) have resulted in a material breach of
fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii) have
resulted or could result in any material liability (whether or not asserted as
of the date hereof) of the Seller or any ERISA affiliate pursuant to Section 412
of the Code arising under or related to any event, act or omission occurring on
or prior to the date hereof. Each Employee Plan that is intended to qualify
under Section 401(a) or to be exempt under Section 501(c)(g) of the Code is so
qualified or exempt as of the date hereof in each case as such Employee Plan has
received favorable determination letters from the Internal Revenue Service with
respect thereto. To the knowledge of the Seller, the amendments to and operation
of any Employee Plan subsequent to the issuance of such determination letters do
not adversely affect the qualified status of any such Employee Plan. No Employee
Plan has an "accumulated funding deficiency" as of the date hereof, whether or
not waived, and no waiver has been applied for. The Seller has made no promises
or incurred any liability under any Employee Plan or otherwise to provide health
or other welfare benefits to former employees of the Seller, except as
specifically required by law. There are no pending or, to the best knowledge of
the Seller, threatened claims (other than routine claims for benefit) or
lawsuits with respect to any of Seller's Employee Plans. As used in this Section
3.26, all technical terms enclosed in quotation marks shall have the meaning set
forth in ERISA.
3.27 Seller and Shareholder Not Foreign Persons. Neither the Seller nor the
Shareholder is a "foreign person" as that term is defined in the Code and the
regulations promulgated pursuant thereto, and the Buyer has no obligation under
Section 1445 of the Code to withhold or pay over to the IRS any part of the
"amount realized" (as such term is defined in the regulations issued under
Section 1445 of the Code) by the Seller and/or the Shareholder in the
transactions contemplated hereby.
3.28 Suppliers and Customers. The Seller is not required to provide bonding
or any other security arrangements in connection with any transactions with any
of its customers or suppliers. To the knowledge of the Seller, no such supplier,
customer or creditor intends or has threatened, or reasonably could be expected,
to terminate or modify any of their respective relationships with the Seller.
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3.29 Environmental Matters.
(a) For purposes of this Section 3.29, the following terms shall have the
following meaning: (i) "Environmental Law" means all present and future federal,
state and local laws, statutes, regulations, rules, ordinances and common law,
and all judgments, decrees, orders, agreements, or permits, issued, promulgated,
approved or entered thereunder by any government authority relating to
pollution, Hazardous Materials, worker safety or protection of human health or
the environment. (ii) "Hazardous Materials" means any waste, pollutant,
chemical, hazardous material, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, petroleum or petroleum-derived substance or
waste (regardless of specific gravity), or any constituent or decomposition
product of any such pollutant, material, substance or waste, including, but not
limited to, any hazardous substance or constituent contained within any waste
and any other pollutant, material, substance or waste regulated under or as
defined by any Environmental Law.
(b) The Seller has obtained all permits, licenses and other authorizations
or approvals required under Environmental Laws for the conduct and operation of
the Purchased Assets ("Environmental Permits"). All such Environmental Permits
are in good standing, the Seller is and has been in compliance with the terms
and conditions of all such Environmental Permits, and no appeal or any other
action is pending or threatened to revoke any such Environmental Permit.
(c) The Seller and the Purchased Assets are and have been in compliance
with all Environmental Laws.
(d) Neither the Seller nor the Shareholder has received any written or oral
order, notice, complaint, request for information, claim, demand or other
communication from any government authority or other person, whether based in
contract, tort, implied or express warranty, strict liability, or any other
common law theory, or any criminal or civil statute, arising from or with
respect to (i) the presence, release or threatened release of any Hazardous
Material or any other environmental condition on, in or under the Real Property
or any other property formerly owned, used or leased by the Seller, (ii) any
other circumstances forming the basis of any actual or alleged violation by the
Seller of any Environmental Law or any liability of the Seller under any
Environmental Law, (iii) any remedial or removal action required to be taken by
the Seller under any Environmental Law, or (iv) any harm, injury or damage to
real or personal property, natural resources, the environment or any person
alleged to have resulted from the foregoing, nor is the Seller aware of any
facts which might reasonably give rise to such notice or communication. The
Seller has not entered into any agreements concerning any removal or remediation
of Hazardous Materials
(e) No lawsuits, claims, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other actions are pending or
threatened under any Environmental Law with respect to the Seller or the Real
Property.
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(f) No Hazardous Materials are or have been released, discharged, spilled
or disposed of onto, or migrated onto, the Real Property or any other property
previously owned, operated or leased by the Seller, and no environmental
condition exists (including, without limitation, the presence, release,
threatened release or disposal of Hazardous Materials) related to the Real
Property, to any property previously owned, operated or leased by the Seller, or
to the Seller's past or present operations, which would constitute a violation
of any Environmental Law or otherwise give rise to costs, liabilities or
obligations under any Environmental Law.
(g) Neither the Seller nor any of its predecessors in interest has
transported or disposed of, or arranged for the transportation or disposal of,
any Hazardous Materials to any location (i) which is listed on the National
Priorities List, the CERCLIS list under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any similar
federal, state or local list, (ii) which is the subject of any federal, state or
local enforcement action or other investigation, or (iii) about which the Seller
or the Shareholder has received or have reason to expect to receive a
potentially responsible party notice or other notice under any Environmental
Law.
(h) No environmental lien has attached or is threatened to be attached to
the Real Property.
(i) No employee of the Seller in the course of his or her employment with
the Seller has been exposed to any Hazardous Materials or other substance,
generated, produced or used by the Seller which could give rise to any claim
(whether or not such claim has been asserted) against the Seller.
(j) Except as set forth on Schedule 3.29, the Real Property does not
contain any: (i) septic tanks into which process wastewater or any Hazardous
Materials have been disposed; (ii) asbestos; (iii) polychlorinated biphenyls
(PCBs); (iv) underground injection or monitoring wells; or (v) underground
storage tanks.
(k) The Seller has not agreed to assume, defend, undertake, guarantee, or
provide indemnification for, any liability, including, without limitation, any
obligation for corrective or remedial action, of any other person under any
Environmental Law for environmental matters or conditions.
(l) Except as set forth on Schedule 3.29, there have been no environmental
studies or reports made relating to the Real Property or any other property or
facility previously owned, operated or leased by the Seller.
3.30 Bank Accounts and Safe Deposit Boxes. Schedule 3.30 lists all bank
accounts, credit cards and safe deposit boxes in the name of, or controlled by,
the Seller, and details about the persons having access to or authority over
such accounts, credit cards and safe deposit boxes.
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3.31 Warranties. Set forth on Schedule 3.31 are descriptions or copies of
the forms of all express warranties and disclaimers of warranty made by the
Seller (separate and distinct from any applicable manufacturers', suppliers' or
other third-parties' warranties or disclaimers of warranties) during the past
five (5) years to customers or users of the vehicles, parts, products or
services of the Seller. There have been no breach of warranty or breach of
representation claims against the Seller during the past five (5) years which
have resulted in any cost, expenditure or exposure to the Seller of more than
$100,000 individually or in the aggregate.
3.32 Interest in Competitors and Related Entities. Except as set forth on
Schedule 3.32, neither the Shareholder nor any affiliate of the Shareholder (i)
has any direct or indirect interest in any person or entity engaged or involved
in any business which is competitive with the business of the Seller, (ii) has
any direct or indirect interest in any person or entity which is a lessor of
assets or properties to, material supplier of, or provider of services to, the
Seller, or (iii) has a beneficial interest in any contract or agreement to which
the Seller is a party; provided, however, the foregoing representation and
warranty shall not apply to any person or entity, or any interest or agreement
with any person or entity, which is a publicly held corporation in which the
Shareholder and his affiliates individually and collectively own less than 3% of
the issued and outstanding voting stock.
3.33 Availability of Seller's Employees. There have been no actions taken
by the Seller, its affiliates, or any of their respective shareholders,
officers, directors, members, partners, managers or employees, to discourage, or
in any way prevent, any of the employees of the Seller from being hired by the
Buyer after Closing, and as of the Closing each of the Seller's employees will
be available without penalty for employment by the Buyer.
3.34 Misstatements and Omissions. No representation or warranty made by the
Seller in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Seller or the Shareholder pursuant
hereto, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make such
representation or warranty or such statement not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
4.1 Organization and Good Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
4.2 Authority; Consents; Enforceability.
(a) Authority. The Buyer has full corporate power and authority to execute
and deliver the Agreement and the other agreements and documents and instruments
contemplated hereby, to consummate the transactions contemplated hereby and
thereby and to perform its
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obligations hereunder and thereunder. The execution and delivery by the Buyer of
this Agreement and the other agreements, documents and instruments contemplated
hereby, the consummation by the Buyer of the transactions contemplated hereby
and thereby and the performance by the Buyer of its obligations hereunder and
thereunder: (i) have been duly and validly authorized by all necessary corporate
action on the part of the Buyer; and (ii) do not and will not, except as set
forth on Schedule 4.2, (A) conflict with or violate any of the provisions of the
Certificate of Incorporation or By-laws of the Buyer, (B) violate any law,
ordinance, rule or regulation or any judgment, order, writ, injunction or decree
or similar command of any court administrative or governmental agency or other
body applicable to the Buyer or any of its assets, or (C) violate or conflict
with the terms of, or result in the acceleration of, any indebtedness or
obligation of the Buyer under, or violate or conflict with or result in a breach
by the Buyer of, or constitute a default under, any material instrument,
agreement or indenture or any mortgage, deed of trust or similar contract to
which the Buyer is a party or by which the Buyer or any of its assets may be
otherwise bound or affected; or (D) require the consent, authorization or
approval of, or notice to, or filing or registration with, any governmental body
or authority, or any other third party.
4.3 Broker's and Finder's Fees. The Buyer has not incurred any liability to
any broker, finder or agent or any other person or entity for any fees or
commissions with respect to the transactions contemplated by this Agreement, and
the Buyer hereby agrees to assume all liability to any such broker, finder or
agent or any other person or entity claiming any such fee or commission.
4.4 Litigation. There are no actions, suits, claims, investigations or
legal or administrative or arbitration proceedings pending or, to the Buyer's
knowledge, threatened or probable of assertion, against the Buyer before any
court, governmental or administrative agency or other body relating to this
Agreement and/or the transactions contemplated hereby. The Buyer is not now
under any judgment, order, writ, injunction, decree or other similar command of
any court, administrative agency or other governmental agency which relate to
this Agreement and/or the transactions contemplated hereby.
4.5 Misstatements or Omissions. No representation or warranty made by the
Buyer in this Agreement, and no statement contained in any certificate or
Schedule furnished or to be furnished by the Buyer to the Seller and/or the
Shareholder pursuant hereto, contains or will contain an untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make such representation or warranty or such statement not misleading.
ARTICLE 5
PRE-CLOSING COVENANTS
OF THE SHAREHOLDER AND THE SELLER
The Seller, and the Shareholder to the extent set forth below, hereby
covenant and agree that from and after the date hereof until the Closing:
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5.1 Provide Access to Information; Cooperation with Buyer.
(a) Access. The Seller and the Shareholder shall afford to the Buyer, its
attorneys, accountants, and such other representatives of the Buyer as the Buyer
shall designate to the Seller, free and full access at all reasonable times, and
upon reasonable prior notice, to the Purchased Assets and the properties, books
and records of the Seller, and to interview personnel, suppliers and customers
of the Seller, in order that the Buyer may have full opportunity to make such
investigation as it shall reasonably desire of the Purchased Assets, Assumed
Liabilities and the business and operations of the Seller. In addition, the
Seller shall provide to the Buyer and its representatives such additional
financial and operating data and other information in respect of the Purchased
Assets, Assumed Liabilities and the business and operations of the Seller as the
Buyer shall from time to time reasonably request.
(b) Cooperation in IPO Preparation. The Seller and the Shareholder shall,
at the Buyer's sole expense, cooperate with the Buyer in the preparation of any
description of the transactions contemplated by this Agreement deemed by the
Buyer, in its sole discretion, as necessary for the completion of any
registration statement, prospectus or amendment or supplement thereto prepared
in connection with the closing of the Initial Public Offering ("IPO") of the
Buyer's securities.
(c) Cooperation in Obtaining Consents. The Seller and Shareholder shall use
reasonable best efforts in cooperating with the Buyer in the preparation of and
delivery to all applicable automobile manufacturers or distributors, as soon as
practicable after the date hereof, of an application and other information
necessary to obtain such automobile manufacturer's or distributor's consent to
or the approval of the transactions contemplated by this Agreement as
contemplated by Section 7.10.
5.2 Operation of Business of the Seller. At all times before the Closing,
the Seller shall (a) maintain its corporate existence in good standing, (b)
operate its business substantially as presently operated and only in the
ordinary course and consistent with past operations and its obligations under
any existing agreements with all applicable automobile manufacturers or
distributors, (c) use its reasonable best efforts to preserve intact its present
business organizations and employees and its relationships with persons having
business dealings with its, including, but not limited to, all applicable
automobile manufacturers or distributors and any floor plan financing creditors,
(d) comply in all respects with all applicable laws, rules and regulations, (e)
maintain its insurance coverages, (f) pay all Taxes, charges and assessments
when due, subject to any valid objection or contest of such amounts asserted in
good faith and adequately reserved against, (g) make all debt service payments
when contractually due and payable, (h) pay all accounts payable and other
current liabilities when due, (i) maintain the Employee Plans, (j) maintain the
property, plant and equipment included in the Purchased Assets in good operating
condition in accordance with industry standards taking into account the age
thereof, (k) maintain its books and records of account in the usual, regular and
ordinary manner, (l) use its reasonable best efforts to encourage such personnel
of the Seller as the Buyer may designate in writing to become employees of the
Buyer after the date of the Closing, (m) use its reasonable best efforts to
preserve the current
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terms and conditions of the Existing Leases related to the Leased Property, and
(n) not pay any dividends or make any distributions in excess of its net income,
and otherwise use its reasonable best efforts to pay dividends to the
Shareholder only to the extent that such payment will, as nearly as possible,
result in a net book value of not less than $10,500,000.
5.3 Other Changes. The Seller shall not, without the prior written consent
of the Buyer (a) engage in any reorganization or similar transaction, (b) agree
to take any of the foregoing actions, (c) enter into any contract, agreement,
undertaking or commitment which would have been required to be set forth in
Schedule 3.6 if in effect on the date hereof or enter in to any contract,
agreement, undertaking or commitment which cannot be assigned to the Buyer or a
permitted assignee of the Buyer, or (d) take, cause, agree to take or cause, or
permit to occur any of the actions or events set forth in Section 3.5 of this
Agreement.
5.4 Additional Information. The Seller shall furnish to the Buyer such
additional information with respect to any matters or events arising or
discovered subsequent to the date hereof which, if existing or known on the date
hereof, would have rendered any representation or warranty made by the Seller or
any information contained in any Schedule hereto or in other information
supplied in connection herewith then inaccurate or incomplete. The receipt of
such additional information by the Buyer shall not operate as a waiver by the
Buyer of the obligation of the Seller to satisfy the conditions to Closing set
forth in Section 7.1 hereof; provided, however, if such information shall be
furnished to the Buyer in a writing which shall also specifically refer to one
or more representations and warranties of the Seller contained herein which in
the absence of such information is inaccurate or incomplete, then if the Buyer
waives in writing the condition to Closing set forth in said Section 7.1 hereof
and elects to close the transactions contemplated hereunder, the furnishing of
such additional information shall be deemed to have amended as of the Closing
any such representation and warranty so specifically referred to by the Seller.
5.5 Publicity. Except as may be required by law or as necessary in
connection with the transactions contemplated hereby, the Seller and the
Shareholder shall not (i) make any press release or other public announcement
relating to this Agreement or the transactions contemplated hereby, without the
prior written approval of the Buyer and (ii) otherwise disclose the existence
and nature of their discussions or negotiations regarding the transactions
contemplated hereby to any person or entity other than their accountants,
attorneys and similar professionals, all of whom shall be subject to this
nondisclosure obligation as agents of the Seller and the Shareholder, as the
case may be. The Seller and the Shareholder shall cooperate with the Buyer in
the preparation and dissemination of any public announcements of the
transactions contemplated by this Agreement.
5.6 Other Negotiations. Neither the Seller nor the Shareholder shall
pursue, initiate, encourage or engage in any negotiations or discussions with,
or provide any information to, any person or entity (other than the Buyer and
its representatives and affiliates) regarding the sale of the assets, capital
stock or membership interests of any of the Seller or any merger or
consolidation or similar transaction involving the Seller.
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5.7 Closing Conditions. The Seller shall use all reasonable best efforts to
satisfy promptly the conditions to Closing set forth in Article 7 hereof
required herein to be satisfied by the Seller.
5.8 Environmental Audit. The Seller shall allow an environmental consulting
firm selected by the Buyer (the "Environmental Auditor") to have prompt access
to the Property in order to conduct an environmental investigation, satisfactory
to the Buyer in scope (such scope being sufficient to result in a Phase I
environmental audit report and a Phase II environmental audit report, if desired
by the Buyer), of, and to prepare a report with respect to, the Real Property
(the "Environmental Audit"). The Seller shall provide to the Environmental
Auditor: (i) reasonable access to all of its existing records concerning the
matters which are the subject of the Environmental Audit; and (ii) reasonable
access to the employees of the Seller and the last known addresses of former
employees of the Seller who are most familiar with the matters which are the
subject of the Environmental Audit (the Seller agreeing to use reasonable
efforts to have such former employees respond to any reasonable requests or
inquiries by the Environmental Auditor). The Seller shall otherwise cooperate
with the Environmental Auditor in connection with the Environmental Audit. The
Buyer and the Seller shall each bear 50% of the costs, fees and expenses
incurred in connection with the preparation of the Environmental Audit;
provided, however, the Seller shall not be obligated to share in the costs, fees
or expenses of any Phase II testing unless such testing was warranted based upon
the relevant Phase I test.
5.9 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Seller shall promptly
prepare and file Notification and Report Forms under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act") with the Federal
Trade Commission (the "FTC") and respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division of the Department of
Justice (the "Antitrust Division") for additional information or documentation.
5.10 Audit of Seller at Buyer's Expense. The Seller shall allow, cooperate
with and assist the Buyer and the Buyer's accountants, and shall instruct the
Seller's accountants to cooperate, in the preparation of audited financial
statements of the Seller as necessary for the IPO; provided that the expense of
such audit shall be borne by the Buyer.
ARTICLE 6
PRE-CLOSING COVENANTS OF THE BUYER
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
6.1 Publicity; Disclosure. Except as may be required by law or as necessary
in connection with the transactions contemplated hereby or in connection with
the preparation and filing of any registration statement regarding the IPO, the
Buyer shall not (i) make any press release or other public announcement relating
to this Agreement or the transactions contemplated hereby, without the prior
written approval of the Seller and the Shareholder, or (ii) otherwise disclose
the
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existence and nature of its discussions or negotiations regarding the
transactions contemplated hereby to any person or entity other than its
accountants, attorneys and similar professionals, all of whom shall be subject
to this nondisclosure obligation as agents of the Buyer. The Buyer shall
cooperate with the Seller and the Shareholder in the preparation and
dissemination of any public announcements of the transactions contemplated by
this Agreement. Subject to the Buyer's legal obligations and the advice of its
IPO underwriters, the Buyer shall submit to the Seller for its pre-approval
(such approval shall not be unreasonably withheld) of the content of any
disclosures in the IPO context about the transactions contemplated hereby.
6.2 Closing Conditions. The Buyer shall use all reasonable
best efforts to satisfy promptly the conditions to Closing set forth in Article
8 hereof required herein to be satisfied by the Buyer.
6.3 Application to Automobile Manufactures and Distributors. Subject to the
reasonable cooperation of the Seller, the Buyer shall provide to all applicable
automobile manufacturers and distributors promptly after the execution and
delivery of this Agreement any application or other information with respect to
such application necessary in connection with the seeking of the consents of
such manufacturers and distributors contemplated by Section 7.10.
6.4 Hart-Scott-Rodino Compliance. Subject to the determination by the Buyer
that any of the following actions is not required, the Buyer shall promptly
prepare and file Notification and Report Forms under the HSR Act with the FTC
and respond as promptly as practicable to all inquiries received from the FTC or
the Antitrust Division for additional information or documentation, and Buyer
shall pay all filing fees in connection therewith.
ARTICLE 7
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer under this Agreement at the Closing and the
consummation by the Buyer of the transactions contemplated hereby are subject to
the satisfaction or fulfillment by the Seller, prior to or at the Closing, of
each of the following conditions, unless waived in writing by the Buyer:
7.1 Representations and Warranties. The representations and warranties made
by the Seller in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date as though such representations and warranties were made at and as of such
times.
7.2 Performance of Obligations of the Seller. The Seller and the
Shareholder shall have performed and complied with all their covenants,
agreements, obligations and restrictions pursuant to this Agreement required to
be performed or complied with by them prior to or at the Closing.
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7.3 Closing Certificate. The Seller shall have delivered a certificate,
signed by the Seller's President and dated the Closing Date, certifying to the
satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof.
7.4 Opinion of Counsel. The Buyer shall have received an opinion of
Kaufman, Chaiken, Miller & Klorfein, counsel to the Seller and Shareholder,
dated the Closing Date, in substantially the form of Exhibit 7.4.
7.5 Supporting Documents. The Buyer shall have received from the Seller the
following:
(a) A Certificate of the Secretary of State of the State of South Carolina
dated as of a recent date as to the due incorporation and good standing of the
Seller;
(b) To the extent applicable, one or more certificates of officials from
the jurisdictions listed on Schedule 3.1 hereto as to the good standing of the
Seller in such jurisdictions;
(c) A certificate of the Secretary or an Assistant Secretary of the Seller
dated the Closing Date and certifying (i) that attached thereto are true,
complete and correct copies of the certificate of incorporation and by-laws of
the Seller, as amended to and as in effect on the date of such certification,
(ii) that attached thereto are true, complete and correct copies of the
resolutions duly adopted by the Board of Director of the Seller and Shareholder,
approving the transactions contemplated hereby and authorizing the execution,
delivery and performance by the Seller of this Agreement and the sale and
transfer of the Purchased Assets, as in effect on the date of such
certification, and (iii) as to the incumbency and signatures of those officers
of the Seller executing any instrument or other document delivered in connection
with such transactions;
(d) Uniform Commercial Code Search Reports on Form UCC-11 with respect to
the Seller from the states and local jurisdictions where the principal places of
business of the Seller and the Purchased Assets are located; and
(e) Such additional supporting documents and other information as the Buyer
or its counsel may reasonably request.
7.6 Bill of Sale, Etc. The Buyer shall have received from the Seller a duly
executed Bill of Sale and all necessary deeds, assignments, documents and
instruments to effect the transfers, conveyances and assignments to the Buyer
referred to in Article 1 hereof, and the Seller shall have taken such action as
shall be necessary to put the Buyer in actual possession and exclusive control
of each of the Purchased Assets (including, without limitation, the delivery of
keys).
7.7 Other Agreements. The Buyer shall have received the Employment
Agreement and the Non-Competition Agreement, duly executed by the parties
thereto other than the Buyer.
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7.8 Books and Records. The Buyer shall have received all books and records
of, or pertaining to, the business of the Seller and the Purchased Assets and
Assumed Liabilities, except to the extent included in the Excluded Assets.
7.9 Change of Name of Seller; Use of Seller's Name by Buyer. The Seller
shall have delivered to the Buyer all documents, including, without limitation,
resolutions of the Board of Directors of the Seller and the Shareholder,
necessary to effect a change of name of the Seller after the Closing to a name
other than the Seller's name or any variation thereof which names shall be
sufficiently different from the name of the Buyer and the Proprietary Names as
to distinguish them upon the records in the office of the Secretary of State of
Georgia from such names. The Seller shall also have delivered to the Buyer a
written consent to the use by the Buyer or any parent, subsidiary or affiliate
of the Buyer, or any successor or assignee of any thereof, of the Proprietary
Names or any variant thereof and an agreement satisfactory to the Buyer that the
Seller will not use the Proprietary Names or any variant thereof, except as may
be necessary for the winding up of the affairs of the Seller.
7.10 Consents. The Buyer shall have received duly executed copies of all
consents, authorizations, approvals, notices, registrations and filings referred
to in Schedules 3.2 and 3.6, which are required for the Seller to consummate the
transactions contemplated hereby, and including, but not limited to, the
consents of all applicable automobile manufacturers and distributors and
consents of the respective landlords for the assignment of the Existing Leases.
7.11 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in a violation of
any law, rule, decree or regulation of any governmental authority having
appropriate jurisdiction, and no order, decree or ruling of any governmental
authority or court shall have been entered challenging the legality, validity or
propriety of this Agreement or the transactions contemplated hereby or
prohibiting, restraining or otherwise preventing the consummation of the
transactions contemplated hereby.
7.12 Authorizations. The Buyer shall have received evidence of the transfer
to the Buyer of all Authorizations referred to in Section 3.12 of this Agreement
or, to the extent the Authorizations are not transferrable, the Seller shall
have effectively obtained or made on behalf of the Buyer, or assisted the Buyer
in obtaining or making, all such Authorizations.
7.13 No Material Adverse Change or Undisclosed Liability. There shall have
been no material adverse change or development in the business, prospects,
properties, earnings, results of operations or financial condition of the Seller
or any of the Purchased Assets or Assumed Liabilities.
7.14 Approval of Legal Matters. The form of all instruments, certificates
and documents to be executed and delivered by the Seller to the Buyer pursuant
to this Agreement and
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all legal matters in respect of the transactions as herein contemplated shall be
reasonably satisfactory to the Buyer and its counsel, none of whose approval
shall be unreasonably withheld or delayed.
7.15 Adverse Laws. No statute, rule, regulation or order shall have been
adopted or promulgated which materially adversely affects the Purchased Assets,
the Assumed Liabilities or the business of the Seller.
7.16 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication by the Antitrust Division
or the FTC that either of them intends to challenge the transactions
contemplated hereby or, if any such challenge or investigation is made or
commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS
OF THE SELLER
The obligations of the Seller under this Agreement at the Closing and the
consummation by the Seller of the transactions contemplated hereby are subject
to the satisfaction or fulfillment by the Buyer, prior to or at the Closing, of
each of the following conditions, unless waived in writing by the Seller:
8.1 Representations and Warranties. The representations and warranties made
by the Buyer in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing
Date as though such representations and warranties were made at and as of such
times.
8.2 Performance of Obligations of the Buyer. The Buyer shall have performed
and complied with all its covenants, agreements, obligations and restrictions
pursuant to this Agreement required to be performed or complied with prior to or
at the Closing.
8.3 Closing Certificate. The Buyer shall have delivered a certificate,
signed by the Buyer's President and dated the Closing Date, certifying to the
satisfaction of the conditions set forth in Sections 8.1 and 8.2 hereto.
8.4 Payment of Purchase Price. The Buyer shall have tendered to the Seller
payment of the portion of the Purchase Price payable at the Closing and shall
have placed into escrow the Escrowed Amount.
8.5 Opinion of Counsel. The Seller shall have received an opinion of
Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the Closing
Date, in substantially the form of Exhibit 8.5.
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8.6 Supporting Documents. The Seller shall have received the following:
(a) A certificate of the Secretary of State of the State of Delaware dated
as of a recent date as to the due incorporation and good standing of the Buyer;
(b) A certificate of the Secretary or an Assistant Secretary of the Buyer
dated the Closing Date, and certifying (i) that attached thereto is a true,
complete and correct copy of the certificate of incorporation and by-laws of the
Buyer, as amended and as in effect on the date of such certification, (ii) that
attached thereto are true, complete and correct copies of the resolutions duly
adopted by the Board of Directors of the Buyer approving the transactions
contemplated hereby and authorizing the execution, delivery and performance by
the Buyer of this Agreement, as in effect on the date of such certification, and
(iii) as to the incumbency and signatures of certain officers of the Buyer
executing any instrument or other document delivered in connection with such
transactions; and
(c) Copies of all authorizations, consents, approvals, notices, filings and
registrations referred to in Section 4.2 hereof.
8.7 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed and/or delivered by the Buyer to the Seller
pursuant to this Agreement and all legal matters in respect of the transactions
as herein contemplated shall be reasonably satisfactory to the Seller and its
counsel, none of whose approval shall be unreasonably withheld or delayed.
8.8 Employment Agreement. The Shareholder shall have received the
Employment Agreement, duly executed by the Buyer.
8.9 No Litigation. No action, suit or other proceeding shall be pending or
threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in a violation of
any law, rule, decree or regulation of any governmental authority having
appropriate jurisdiction, and no order, decree or ruling of any governmental
authority or court shall have been entered challenging the legality, validity or
propriety of this Agreement or the transactions contemplated hereby or
prohibiting, restraining or otherwise preventing the consummation of the
transactions contemplated hereby.
8.10 Hart-Scott-Rodino Waiting Period. All applicable waiting periods under
the HSR Act shall have expired without any indication by the Antitrust Division
or the FTC that either of them intends to challenge the transactions
contemplated hereby, or, if any such challenge or investigation is made or
commenced, the conclusion of such challenge or investigation permits the
transactions contemplated hereby in all material respects.
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ARTICLE 9
TRANSFER TAXES; PRORATION OF CHARGES
9.1 Certain Taxes and Fees. All sales, transfer, documentary, stamp,
recording and other similar taxes and/or fees and Taxes which may be due or
payable in connection with the sale of the Purchased Assets pursuant hereto
shall be borne by the Seller.
9.2 Proration of Certain Charges. The following taxes, charges and payments
("Charges") shall, to the extent not reflected in the Closing Balance Sheet, be
prorated on a per diem basis and apportioned between the Seller and the Buyer as
of the date of the Closing: personal property, use, intangible taxes, utility
charges, rental or lease charges, license fees, general assessments imposed with
respect to the Purchased Assets, employee payrolls and insurance premiums. The
Seller shall be liable for that portion of the Charges relating to, or arising
in respect of, periods on or prior to the Closing Date and the Buyer shall be
liable for that portion of the Charges relating to, or arising in respect of,
any period after the Closing Date.
ARTICLE 10
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
10.1 Survival of Representations and Warranties. All statements contained
in any schedule or certificate delivered hereunder or in connection herewith by
or on behalf of any of the parties pursuant to this Agreement shall be deemed
representations and warranties by the respective parties hereunder unless
otherwise expressly provided herein. The representations and warranties of the
Seller and the Buyer contained in this Agreement, including those contained in
any Schedule or certificate delivered hereunder or in connection herewith, shall
survive the Closing * with the exception of the representations and warranties
of the Seller contained in Sections 3.7 and 3.15, which shall survive the
Closing * . As to each representation and warranty of the parties hereto, the
date to which such representation and warranty shall survive is hereinafter
referred to as the "Survival Date."
10.2 Agreement to Indemnify by the Seller and Shareholder. Subject to the
terms and conditions of Sections 10.4 and 10.5 hereof, the Seller and the
Shareholder hereby agree, jointly and severally, to indemnify and save the
Buyer, its affiliates, and their respective shareholders, officers, directors,
employees, successors and assigns (each, a "Buyer Indemnitee") harmless from and
against, for and in respect of, any and all demands, judgments, injuries,
penalties, fines, damages, losses, obligations, liabilities, claims, actions or
causes of action, encumbrances, costs, expenses (including, without limitation,
reasonable attorneys' fees, consultants' fees and expert witness fees),
suffered, sustained, incurred or required to be paid by any Buyer Indemnitee
(collectively, "Buyer's Damages") arising out of, based upon, in connection with
or as a result of:
* Confidential portions omitted and filed separately with the Commission.
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(a) the untruth, inaccuracy or breach of any representation and warranty of
the Seller contained in or made pursuant to this Agreement, including in any
Schedule or certificate delivered hereunder or in connection herewith; provided,
however, the Seller and the Shareholder shall have no obligation to pay Buyer's
Damages pursuant to this Subsection 10.2(a) unless and until (and only to the
extent that) all claims with respect of Buyer's Damages exceed a cumulative
aggregate total of * ;
(b) the breach or nonfulfillment of any covenant or agreement of the Seller
or the Shareholder contained in this Agreement or in any other agreement
document or instrument delivered hereunder or pursuant hereto;
(c) the assertion against any Buyer Indemnitee or any of the Purchased
Assets of any liability or obligation arising out of or based upon any of the
Retained Liabilities; or
(d) all claims of creditors asserted by reason of the parties'
non-compliance with any applicable bulk sales laws, except to the extent that
amounts owed to such creditors are included in the Assumed Liabilities.
10.3 Agreement to Indemnify by the Buyer. Subject to the terms and
conditions of Sections 10.4 and 10.5 hereof, the Buyer hereby agrees to
indemnify and save the Seller and the Shareholder, their affiliates and their
respective shareholders, officers, directors, employees, successors and assigns
(each, a "Seller Indemnitee") harmless from and against, for and in respect of,
any and all demands, judgments, injuries, penalties, damages, losses,
obligations, liabilities, claims, actions or causes of action, encumbrances,
costs and expenses (including, without limitation, reasonable attorneys' fees
and expert witness fees) suffered, sustained, incurred or required to be paid by
any Seller Indemnitee arising out of, based upon, in connection with or as a
result of:
(a) the untruth, inaccuracy or breach of any representation and warranty of
the Buyer contained in or made pursuant to this Agreement, including in any
Schedule or certificate delivered hereunder or in connection herewith;
(b) the breach or nonfulfillment of any covenant or agreement of the Buyer
contained in this Agreement or in any other agreement, document or instrument
delivered hereunder or pursuant hereto; or
(c) the assertion against any Seller Indemnitee of any of the Assumed
Liabilities.
10.4 Claims for Indemnification. No claim for indemnification with respect
to a breach of a representation and warranty shall be made under this Agreement
after the applicable
* Confidential portions omitted and filed separately with the Commission.
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Survival Date unless prior to such Survival Date the Buyer Indemnitee or the
Seller Indemnitee, as the case may be, shall have given the Seller or the Buyer,
as the case may be, written notice of such claim for indemnification based upon
actual loss sustained, or potential loss anticipated, as a result of the
existence of any claim, demand, suit or cause of action against such Buyer
Indemnitee or Seller Indemnitee, as the case may be.
10.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Seller and the Shareholder with respect to indemnification
hereunder regarding claims by third persons shall be as follows:
(a) Promptly after receipt by any Buyer Indemnitee or Seller Indemnitee, as
the case may be, of notice of the commencement of any action or proceeding
(including, without limitation, any notice relating to a tax audit) or the
assertion of any claim by a third person, which the person receiving such notice
has reason to believe may result in a claim by it for indemnity pursuant to this
Agreement, such person (the "Indemnified Party") shall give notice of such
action, proceeding or claim to the party against whom indemnification pursuant
hereto is sought (the "Indemnifying Party"), setting forth in reasonable detail
the nature of such action or claim, including copies of any written
correspondence from such third person to such Indemnified Party.
(b) The Indemnifying Party shall be entitled, at its own expense, to
participate in the defense of such action, proceeding or claim, and, if (i) the
action, proceeding or claim involved seeks (and continues to seek) solely
monetary damages, (ii) the Indemnifying Party confirms, in writing, its
obligation hereunder to indemnify and hold harmless the Indemnified Party with
respect to such damages in their entirety pursuant to Sections 10.2 or 10.3
hereof, as the case may be, and (iii) the Indemnifying Party shall have made
provision which, in the reasonable judgment of the Indemnified Party, is
adequate to satisfy any adverse judgment as a result of its indemnification
obligation with respect to such action, proceeding or claim, then the
Indemnifying Party shall be entitled to assume and control such defense with
counsel chosen by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld or delayed. The Indemnified
Party shall be entitled to participate therein after such assumption, the costs
of such participation following such assumption to be at its own expense. Upon
assuming such defense, the Indemnifying Party shall have full rights to enter
into any monetary compromise or settlement which is dispositive of the matters
involved; provided, that such settlement is paid in full by the Indemnifying
Party and will not have any direct or indirect continuing material adverse
effect upon the Indemnified Party.
(c) With respect to any action, proceeding or claim as to which (i) the
Indemnifying Party does not have the right to assume the defense or (ii) the
Indemnifying Party shall not have exercised its right to assume the defense, the
Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
action, the cost of such participation to be at its own expense. The
Indemnifying Party shall be obligated to pay the reasonable attorneys' fees and
expenses of the Indemnified Party to the extent that such fees and expenses
relate to claims as to which indemnification is due under Sections 10.2 or 10.3
hereof, as the case may be. The
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Indemnified Party shall have full rights to dispose of such action and enter
into any monetary compromise or settlement; provided, however, in the event that
the Indemnified Party shall settle or compromise any claims involved in the
action insofar as they relate to, or arise out of, the same facts as gave rise
to any claim for which indemnification is due under Sections 10.2 or 10.3
hereof, as the case may be, it shall act reasonably and in good faith in doing
so.
(d) Both the Indemnifying Party and the Indemnified Party shall cooperate
fully with one another in connection with the defense, compromise or settlement
of any such claim, proceeding or action, including, without limitation, by
making available to the other all pertinent information and witnesses within its
control.
10.6 Effectiveness. The provisions of this Article 10 shall be effective
upon consummation of the Closing, and prior to the Closing, shall have no force
and effect.
ARTICLE 11
TERMINATION AND TERMINATION FEE
11.1 Termination. Notwithstanding any other provision herein contained to
the contrary, this Agreement may be terminated at any time prior to the Closing
Date as follows:
(a) This Agreement may be terminated by written consent of the parties
hereto;
(b) The Buyer may terminate this Agreement by giving written notice to the
Seller at any time after the Closing Date Deadline (provided, however, that the
Buyer may not terminate under this subsection (b) if the Buyer is in breach of
any material representation, warranty, or covenant of the Buyer contained in
this Agreement);
(c) The Seller may terminate this Agreement by giving written notice to the
Buyer at any time after the Closing Date Deadline (provided, however, that the
Seller may not terminate under this subsection (c) if the Seller is in breach of
any material representation, warranty, or covenant contained in this Agreement);
(d) The Buyer may terminate this Agreement if, after any initial HSR Act
filing, the FTC makes a "second request" for information, or the FTC or the
Antitrust Division challenges the transactions contemplated hereby; provided
that the Buyer delivers written notice to the Seller of its termination
hereunder within fifteen (15) days of the Buyer's receipt of such second request
or of notice of such challenge; or
(e) The Buyer may terminate this Agreement within thirty (30) days of the
date hereof if the Buyer is not satisfied, in its discretion, with the results
of the Buyer's due diligence investigation contemplated by Section 5.1(a),
including without limitation the Environmental Audit.
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11.2 Procedure and Effect of Termination. If either party terminates this
Agreement pursuant to Section 11.1 above, all rights and obligations of the
parties hereunder shall terminate without any liability of any party to any
other party except as set forth below:
(a) If this Agreement is terminated by the Buyer pursuant to the provisions
of Section 11.1(b) above and the failure to complete the Closing on or before
the Closing Date Deadline shall have been due to the breach of any material
representation, warranty or covenant of the Seller or the Shareholder under this
Agreement, then the Seller shall, on demand of the Buyer, promptly pay to the
Buyer in immediately available funds, as liquidated damages for the loss of the
transaction and not as a penalty, a termination fee of $1,000,000 (the "Seller's
Termination Fee").
(b) If this Agreement is terminated by the Seller pursuant to the
provisions of Section 11.1(c) above and the failure to complete the Closing on
or before the Closing Date Deadline shall have been due to the breach of any
material representation, warranty or covenant of the Buyer under this Agreement,
then the Buyer shall, upon demand of the Seller, promptly pay to the Seller in
immediately available funds, as liquidated damages for the loss of the
transaction and not as a penalty, a termination fee of $1,000,000 (the "Buyer's
Termination Fee").
The respective rights of the parties to terminate this Agreement under Sections
11.1(b) or 11.1(c), as the case may be, and to be paid the Seller's Termination
Fee or the Buyer's Termination Fee, as the case may be, shall be the respective
parties' sole and exclusive remedies for damages for breach of this Agreement;
in this regard, the parties hereto agree that (i) they reasonably anticipate
that the damages for breach of this Agreement, as contemplated by Sections
11.1(b) or 11.1(c), will be difficult to ascertain because of their
indefiniteness or uncertainty, and (ii) the Seller's Termination Fee and the
Buyer's Termination Fee are reasonable estimates of such damages. In the event
of such termination by either party pursuant to Section 11.1(b) or 11.1(c), as
the case may be, such party shall have no right to equitable relief for any
breach or alleged breach of this Agreement, other than for specific performance
for the payment of the Seller's Termination Fee or the Buyer's Termination Fee,
as the case may be.
(c) Except as specifically provided in this Section 11.2, nothing contained
in this Section 11.2 shall prevent any party from seeking any equitable relief,
including specific performance, to which it would otherwise be entitled in the
event of breach of this Agreement by the other party.
ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 Access to Books and Records after Closing. The Buyer shall, following
the Closing, give, and shall cause to be given, to the Seller and its authorized
representatives such access, during normal business hours and upon prior notice,
to such books and records constituting part of the Purchased Assets as shall be
reasonably necessary for the Seller in connection with the preparation and
filing of the Seller's tax returns for periods prior to the Closing, and to make
extracts and copies of such books and records.
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12.2 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by telecopier or by a nationally recognized overnight
courier, postage prepaid, and shall be deemed to have been duly given when so
delivered personally or sent by telecopier, with receipt confirmed, or one (1)
Business Day after the date of deposit with such nationally recognized overnight
courier. All such notices, claims, certificates, requests, demands and other
communications shall be addressed to the respective parties at the addresses set
forth below or to such other address as the person to whom notice is to be given
may have furnished to the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Automotive, Inc.
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28218
Telecopier No.: (704) 532-3312
Attention: Theodore Wright
with a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopier No.: (704) 334-4706
Attention: Edward W. Wellman, Esq.
If to the Seller, to:
Dyer & Dyer, Inc.
5260 Peachtree Industrial Blvd.
Chamblee, Georgia 30341
Telecopier No.: (770) 452-8721
Attention: Richard Dyer
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If to the Shareholder, to:
Richard Dyer
5260 Peachtree Industrial Blvd.
Chamblee, Georgia 30341
Telecopier No.: (770) 452-8721
in either case, with a copy to:
Kaufman, Chaiken, Miller & Klorfein
400 Perimeter Center Terrace, N.E. Suite 720
Atlanta, Georgia 30346-1234
Telecopier No.: (770) 395-6720
Attention: Robert J. Kaufman, Esq.
The Buyer, the Seller or the Shareholder may change the address or
telecopier number to which such communications are to be directed by giving
written notice to the others in the manner provided in this Agreement.
12.3 Parties in Interest; No Third Party Beneficiaries.
(a) Subject to Section 12.4 hereof, this Agreement shall be binding upon,
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto.
(b) Nothing in this Agreement, expressed or implied, is intended or shall
be construed to confer upon or give to any employee of the Seller (other than
Peggy McFarland to the extent she is referred to herein), or any other person,
firm, corporation or legal entity, other than the parties hereto and their
successors and permitted assigns, any rights, remedies or other benefits under
or by reason of this Agreement.
12.4 Assignability. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties, provided that the
Buyer may assign its rights under this Agreement to any affiliate of the Buyer
presently existing or hereafter formed and to any person or entity that shall
acquire all or substantially all of the assets of the Buyer; provided, however,
that no such assignment by the Buyer shall release it from its obligations
hereunder without the consent of the Seller.
12.5 Entire Agreement; Amendment. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire understanding
of the parties hereto and supersedes all prior agreements and understandings
between the parties hereto with respect to its subject matter. This Agreement
may be amended or modified only by a written instrument duly executed by the
parties hereto.
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12.6 Headings. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
12.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, without giving effect to its
principles of conflicts of law.
12.9 Knowledge. Whenever any representation or warranty of the Seller
contained herein or in any other document executed and delivered in connection
herewith is based upon the knowledge of the Seller, such knowledge shall be
deemed to include the knowledge, if any, of the Seller or the Shareholder.
12.10 Arbitration. (a) Subject to the other provisions of this Section
12.10, any dispute, claim or controversy arising out of or relating to this
Agreement, or the interpretation or breach hereof (including, without
limitation, any of the foregoing based upon a claim to any termination fee
hereunder, but not including disputes regarding Net Book Value which shall be
conclusively resolved pursuant to the provision of Section 1.3 herein), shall be
resolved by binding arbitration under the commercial arbitration rules of the
American Arbitration Association (the AAAA Rules@) to the extent such AAA Rules
are not inconsistent with this Agreement. Judgment upon the award of the
arbitrators may be entered in any court having jurisdiction thereof or such
court may be asked to judicially confirm the award and order its enforcement, as
the case may be. The demand for arbitration shall be made by any party hereto
within a reasonable time after the claim, dispute or other matter in question
has arisen, and in any event shall not be made after the date when institution
of legal proceedings, based on such claim, dispute or other matter in question,
would be barred by the applicable statute of limitations. The arbitration panel
shall consist of three (3) arbitrators, one of whom shall be appointed by each
of the Seller and the Buyer within thirty (30) days after any request for
arbitration hereunder. The two arbitrators thus appointed shall choose the third
arbitrator within thirty (30) days after their appointment; provided, however,
that if the two arbitrators are unable to agree on the appointment of the third
arbitrator within 30 days after their appointment, either arbitrator may
petition the American Arbitration Association to make the appointment. The place
of arbitration shall be Columbia, South Carolina. The arbitrators shall be
instructed to render their decision within sixty (60) days after their selection
and to allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(b) Nothing contained in this Section 12.10 shall prevent any party hereto
from seeking any equitable relief to which it would otherwise be entitled from
any court of competent jurisdiction.
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<PAGE>
12.11 Waivers. Any party to this Agreement may, by written notice to the
other parties hereto, waive any provision of this Agreement from which such
party is entitled to receive a benefit. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach of such provision or any other provision of this
Agreement.
12.12 Severability. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
12.13 Expenses. Except as otherwise set forth herein, each party shall be
responsible for its own legal fees and other costs and expenses incurred in
connection with this Agreement and the negotiation and consummation of the
transactions contemplated hereby.
[SIGNATURES BEGIN ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day, month and year first above written.
THE BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
------------------------------------------------
Name: Theodore M. Wright
Title: Vice President & Chief Financial Officer
THE SELLER: DYER & DYER, INC.
By: /s/ Richard S. Dyer, Jr.
------------------------------------------------
Name: Richard Dyer
Title: President
THE SHAREHOLDER: /s/ Richard S. Dyer, Jr. (SEAL)
------------------------------------------
RICHARD DYER
<PAGE>
List of Schedules
-----------------
Schedule 1.1(a) - Purchased Assets
Schedule 1.1(b) - Excluded Assets
Schedule 1.1(c) - Permitted Encumbrances
Schedule 1.2 - Assumed Liabilities
Schedule 1.3(d) - Allocation of Purchase Price and Assumed
Liabilities
Schedule 1.5 - Certain Employees of Seller to be Offered
Employment by Buyer
Schedule 3.1 - Jurisdictions of Foreign Qualification of
Seller
Schedule 3.2 - Required Authorizations and Consents to
Agreement -- Seller
Schedule 3.3 - Investments
Schedule 3.5 - Certain Changes
Schedule 3.6 - Material Contracts
- Required Consents for Transfers of Material
Contracts
Schedule 3.7 - Encumbrances
Schedule 3.8 - Real Property; Leased Premises
Schedule 3.9 - Equipment
Schedule 3.12 - Approvals, Permits and Authorizations
Schedule 3.13 - Compliance with Laws
Schedule 3.14 - Insurance Policies
<PAGE>
- Insured Property Damage and Personal
Injury Claims
Schedule 3.16 - Litigation
Schedule 3.17 - Powers of Attorney
Schedule 3.19 - Employee Relations
Schedule 3.20 - Compensation
Schedule 3.21 - Patents; Trademarks; Trade Names;
Copyrights; Licenses; Etc. and Proprietary
Names
Schedule 3.23 - Other Liabilities
Schedule 3.24 - Affiliate Transactions
Schedule 3.26 - Employee Plans
Schedule 3.29 - Environmental Matters
Schedule 3.30 - Bank Accounts and Safe Deposit Boxes
Schedule 3.31 - Warranties
Schedule 3.32 - Interests in Competitors
Schedule 4.2 - Required Authorizations and Consents to
Agreement -- Buyer
2
<PAGE>
List of Exhibits
----------------
Exhibit 1.3(A) - Form of Escrow Agreement
Exhibit 1.4(A) - Form of Bill of Sale and Assignment
Exhibit 1.4(B) - Form of Employment Agreement
Exhibit 1.4(C) - Form of Non-Competition Agreement
Exhibit 7.4 - Form of opinion of counsel for the Seller
Exhibit 8.5 - From of opinion of counsel for the Buyer
4-29-433 (3/92) [LOGO] CHRYSLER
SECURITY AGREEMENT AND MASTER CREDIT AGREEMENT CREDIT
(Non-Chrysler Corporation Dealer)
This Security Agreement and Master Credit Agreement (hereinafter called the
"Agreement"), made as of this 21 day of April 1995, is by and between CLEVELAND
CHRYSLER PLYMOUTH JEEP EAGLE, having its principal place of business at 2490
South Lee Hwy. - Cleveland, Tn. 37311 (hereinafter called "Debtor"), and
Chrysler Credit Corporation, a Delaware corporation, having offices located at
27777 Franklin Rd., Southfield, Michigan 48034-8286 (hereinafter called "Secured
Party").
WHEREAS, Debtor is engaged in business as an authorized dealer of Jeep/Eagle and
desires Secured Party to finance the acquisition by Debtor in the ordinary
course of its business of new and unused vehicles sold and distributed by
Jeep/Eag1e and/or other authorized sellers and of used vehicles (all such unused
and used vehicles being hereinafter collectively called the "Vehicles").
WHEREAS, Secured Party is willing to provide wholesale financing to Debtor to
finance the acquisition of Vehicles by Debtor by making loans or advances to
debtor to finance the acquisition by Debtor of Vehicles.
NOW, THEREFORE, in consideration of the mutual premises herein contained and
other good and valuable consideration paid by each party to the other, the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1.0 Financing - Secured Party agrees to extend to Debtor wholesale financing by
making loans or advances to Debtor to finance the acquisition by Debtor of
Vehicles from sellers thereof, on the terms and conditions set forth in
Paragraph 2.1 herein or as set forth in the Vehicle financing terms and
conditions as they may be made available to Debtor from time to time by
Secured Party.
For the purposes of this Agreement, loans or advances provided by Secured
Party directly to either Debtor or to the seller of Vehicles to Debtor are
herein called "Advances". Debtor acknowledges that (x) the maximum amount
of Advances which will be made by Secured Party hereunder will be
established from time to time by Secured Party in its sole discretion and
(y) all such Advances shall be made on and shall be subject to the terms
and conditions of this Agreement. It is understood and agreed that the
making of any Advance hereunder shall be at the option of Secured Party and
shall not be obligatory, and that the right of Debtor to request that
Secured Party make Advances may be terminated at any time by Secured Party
at its election without notice.
2.0 Evidence of Advances and Payment Terms - Each Advance shall be made at such
time as Debtor shall request in accordance with the then-effective Vehicle
financing terms and conditions referred to above. Debtor will execute and
deliver to Secured Party from time to time its demand promissory notes in
aggregate principal amount equal to that amount agreed to by Debtor and
Secured Party from time to time, such demand promissory notes (the
"Promissory Notes") to evidence the liability of Debtor to Secured Party on
account of all Advances. The maximum liability of Debtor under this
Agreement shall at any time be equal to the aggregate principal amount of
all Advances at the time outstanding hereunder plus interest and such other
amounts as may be due under this Agreement. Debtor will pay to Secured
Party on demand the aggregate principal amount of all Advances from time to
time outstanding, and will pay upon demand the interest due thereon and
such other additional charges as Secured Party shall determine from time to
time.
In consideration of Secured Party's making Advances, Debtor will pay to
Secured Party interest at the rate(s) per annum designated by Secured Party
from time to time on the amount of each Advance made by Secured Party
hereunder from the date of such Advance until the date of repayment to
Secured Party of the full amount thereof. Secured Party will give notice to
Debtor of the interest rate(s) established by it from time to time under
the terms hereof, and each such notice shall constitute an agreement
between Debtor and Secured Party as to the applicability to the Advances of
the interest rate(s) contained therein, to be applicable from the dates
stated in such notice until such interest rate(s) are changed by subsequent
notice given by Secured Party pursuant to this sentence. All interest
accrued on the Advances shall be payable monthly by Debtor, and shall be
due upon receipt by Debtor of the statement of Secured Party setting forth
the amount of such accrued interest.
2.1 Debtor agrees that financing pursuant to this Agreement shall be used
exclusively for the purpose of acquiring Vehicles for Debtor's inventory
and Debtor shall not sell or otherwise dispose of such Vehicles except by
sale in the ordinary course of business. If so requested by Secured Party,
Debtor agrees to maintain a separate bank account into which all cash
proceeds of such sales or other dispositions of such Vehicle will be
deposited. Debtor further agrees that upon the sale of each Vehicle with
respect to which an Advance has been made by Secured Party, Debtor will
promptly remit to Secured Party the total amount then outstanding of
Secured Party's Advance on each such Vehicle unless other terms of
repayment have been agreed to by Secured Party. Debtor agrees to hold in
trust for Secured Party and shall forthwith remit to Secured Party, to the
extent of any unpaid and past due indebtedness hereunder, all proceeds of
each Vehicle when received by Debtor, or to allow Secured Party to make
direct collection thereof and credit Debtor with all sums received by
Secured Party.
3.0 Security - Debtor hereby grants to Secured Party a first and prior security
interest in and to each and every Vehicle financed hereunder, whether now
owned or hereafter acquired by way of replacement, substitution, addition
or otherwise, together with all additions and accessions thereto and all
proceeds thereof. Further, Debtor also hereby grants to Secured Party a
security interest in and to all Chattel Paper, Accounts whether or not
earned by performance and including without limitation all amounts due from
the manufacturer or distributor of the Vehicles or any of its subsidiaries
or affiliates, Contract Rights, Documents, Instruments, General
Intangibles, Consumer Goods, Inventory of Automotive Parts, Accessories and
Supplies, Equipment, Furniture, Fixtures, Machinery, Tools, and Leasehold
Improvements, whether now owned or hereafter acquired by way of
replacement, substitution, addition or otherwise, together with all
additions and accessions thereto and all proceeds thereof, as additional
security for each and every indebtedness and obligation of Debtor as set
forth herein. The security interest hereby granted shall secure the prompt,
timely and full payment of (l) all Advances, (2} all interest accrued
thereon in accordance with the terms of this Agreement and the Promissory
Notes, (3) all other indebtedness and obligations of Debtor under the
Promissory Notes, (4) all costs and expenses incurred by Secured Party in
the collection or enforcement of the Promissory Notes or of the obligations
of the Debtor under this Agreement, (5) all monies advanced by Secured
Party on behalf of Debtor for taxes, levies, insurance and repairs to and
maintenance of any Vehicle or other collateral, and (6) each and every
other indebtedness or obligation now or hereafter owing by Debtor to
Secured Party including any collection or enforcement costs and expenses or
monies advanced on behalf of Debtor in connection with any such other
indebtedness or obligations.
<PAGE>
3.1 All said security set forth in Paragraph 3.0 shall hereinafter collectively
be called "Collateral." Debtor hereby expressly agrees that the term
"proceeds" as used in Paragraph 3.0 shall include without limitation all
insurance proceeds on the Collateral, money, chattel paper, goods received
in trade including without limitation vehicles received in trade, contract
rights, instruments, documents, accounts whether or not earned by
performance, general intangibles, claims and tort recoveries relating to
the Collateral. Notwithstanding that Advances hereunder are made from time
to time with respect to specific Vehicles, each Vehicle and the proceeds
thereof and all other Collateral hereunder shall constitute security for
all obligations of Debtor to Secured Party secured hereunder.
3.2 Debtor hereby agrees that upon request of the Secured Party it will take
such action and/or execute and deliver to Secured Party any and all
documents (and pay all costs and expenses of recording the same), in form
and substance satisfactory to Secured Party, which will perfect in Secured
Party its security interest in the Collateral in which Secured Party has or
is to have a security interest under the terms of this Agreement.
3.3 Secured Party's security interest in the Collateral shall attach to the
full extent provided or permitted by law to the proceeds, in whatever form,
of any disposition of said Collateral or to any part thereof by Debtor
until such proceeds are remitted and accounted for as provided herein.
Debtor will notify Secured Party before Debtor signs, executes or
authorizes any financing statement regardless of coverage.
3.4 Debtor shall be responsible for all loss and damage to the Collateral and
agrees to keep Collateral insured against loss or damage by fire, theft,
collision, vandalism and against such other risks as Secured Party may
require from time to time. Insurance and policies evidencing such insurance
shall be with such companies, in such amount and such form as shall be
satisfactory to Secured Party. If so requested by Secured Party, any or all
such policies of insurance shall contain an endorsement, in form and
substance satisfactory to Secured Party, showing loss payable to Secured
Party as its interest may appear, and a certificate of insurance evidencing
such coverage will be provided to Secured Party.
4.0 Debtor's Warranties - Debtor warrants and agrees that the Collateral now is
and shall always be kept free of all taxes, liens and encumbrances, except
as specifically disclosed in Paragraph 4.1 below or provided for in
Paragraph 3.0 above, and Debtor shall defend the Collateral against all
other claims and demands whatsoever and shall indemnify, hold harmless and
defend Secured Party in connection therewith. Any sum of money that may be
paid by Secured Party in release or discharge of any taxes, liens or
encumbrances shall be paid to Secured Party on demand as an additional part
of the obligation secured hereunder. Debtor hereby agrees not to mortgage,
pledge or loan (except for designated demonstrators as agreed to in advance
by Secured Party in writing) the Vehicles and shall not license, title,
use, transfer or otherwise dispose of them except as provided in this
Agreement. Debtor agrees that it will execute in favor of Secured Party any
form of document which may be required to evidence further Advances by
Secured Party hereunder, and shall execute such additional documents as
Secured Party may at any time request in order to conform or perfect
Debtor's title to or Secured Party's security interest in the Vehicles.
Execution by Debtor of notes, checks or other instruments for the amount
advanced shall be deemed evidence of Debtor's obligation and not payment
therefor until collected in full by Secured Party.
4.1 Disclosure of Taxes, Liens and Encumbrances-
(If there are any, list them here; if none, so state.)
- --------------------------------------------------------------------------------
PLACE FILED DATE OF FILING NAME AND ADDRESS OF CREDITOR
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5.0 Signatory Authorization - Debtor hereby authorizes Secured Party or any of
its officers, employees, agents or any other person Secured Party may
designate to execute any and all documents pursuant to the terms and
conditions of that certain Power of Attorney and Signatory Authorization of
even date herewith.
6.0 Events of Default and Remedies/Termination - Time is of the essence herein
and it is understood and agreed that Secured Party may terminate this
Agreement, refuse to advance funds hereunder, and declare the aggregate of
all Advances outstanding hereunder immediately due and payable upon the
occurrence of any of the following events (each hereinafter called an
"Event of Default"), and that Debtor's liabilities under this sentence
shall constitute additional obligations of Debtor secured under this
Agreement.
(a) Debtor shall fail to make any payment to Secured Party, whether
constituting the principal amount of any Advance, interest thereon or
any other payment due hereunder, when and as due in accordance with
the terms of this Agreement or with any demand permitted to be made by
Secured Party under this Agreement or any Promissory Note, or shall
fail to pay when due any other amount owing to Secured Party under any
other agreement between Secured Party and Debtor, or shall fail in the
due performance or compliance with any other term or condition hereof
or thereof, or shall be in default in the payment of any liabilities
constituting indebtedness for money borrowed or the deferred payment
of the purchase price of property or rental payment with respect to
property material to the conduct of Debtor's business;
(b) A tax lien or notice thereof shall have been filed against any of the
Debtor's property or a proceeding in bankruptcy, insolvency or
receivership shall be instituted by or against Debtor or Debtor's
property or an assignment shall have been made by Debtor for the
benefit of Creditors;
<PAGE>
(c) In the event that Secured Party deems itself insecure for any reason
or the Vehicles are deemed by Secured Party to be in danger of misuse,
loss, seizure or confiscation or other disposition not authorized by
this Agreement;
(d) Termination of any franchise authorizing Debtor to sell Vehicles;
(e) A misrepresentation by Debtor for the purpose of obtaining credit or
an extension of credit or a refusal by Debtor to execute documents
relating to the Collateral and/or Secured Party's security interest
therein or to furnish financial information to Secured Party at
reasonable intervals or to permit persons designated by Secured Party
to examine Debtor's books or records and to make periodic inspections
of the Collateral; or
(f) Debtor, without Secured Party's prior written consent, shall
guarantee, endorse or otherwise become surety for or upon the
obligations of others except as may be done in the ordinary course of
Debtor's business, shall transfer or otherwise dispose of any
proprietary, partnership or share interest Debtor has in his business,
or all or substantially all of the assets thereof, shall enter into
any merger or consolidation, if a corporation, or shall make any
substantial disbursements or use of funds of Debtor's business except
as may be done in the ordinary course of Debtor's business, or assign
this Agreement in whole or in part or any obligation hereunder.
Upon the occurrence of an Event of Default, Secured Party may take
immediate possession of said Vehicles without demand or further notice and
without legal process; and for the purpose and furtherance thereof, Debtor
shall, if Secured Party so requests, assemble the Vehicles and make them
available to Secured Party at a reasonably convenient place designated by
Secured Party and Secured Party shall have the right, and Debtor hereby
authorizes and empowers Secured Party to enter upon the premises wherever
said Vehicles may be, to remove same. In addition, Secured Party or its
assigns shall have all the rights and remedies applicable under the Uniform
Commercial Code or under any other statute or at common law or in equity or
under this Agreement. Such rights and remedies shall be cumulative. Debtor
hereby agrees that it shall pay all expenses and reimburse Secured Party
for any expenditures, including reasonable attorneys' fees and legal
expenses, in connection with Secured Party's exercise of any of its rights
and remedies under this Agreement.
7.0 Inspection: Vehicles/Books and Records - It is hereby understood and agreed
by and between Debtor and Secured Party that Secured Party shall have the
right of access to and inspection of the Vehicles and the right to examine
Debtor's books and records, which Debtor warrants are genuine in all
respects. Debtor hereby certifies to Secured Party that all Vehicles and
books and records shall be kept at the principal place of business of
Debtor as hereinabove stated or at such other locations as approved in
writing by Secured Party, and Debtor shall not remove or permit the removal
of the Vehicles or books and records during the pendency of this Agreement
except in the ordinary course of business and as authorized by Secured
Party.
7.1 Debtor agrees to furnish to Secured Party after the end of each month, for
so long as this Agreement shall be effective, balance sheets and statements
of profit and loss for each month with respect to Debtor's business in such
detail and at such times as Secured Party may require from time to time.
8.0 General - Debtor and Secured Party further covenant and agree that:
8.1 Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
8.2 This Agreement shall be interpreted according to the laws of the State of
Debtor's principal place of business as identified above.
8.3 This Agreement cannot be modified or amended, except in writing by both
parties unless otherwise specifically authorized herein, and shall be
binding and inure to the benefit of each of the parties hereto and their
respective legal representatives, successors and assigns.
8.4 Interest to be paid in connection herewith shall never exceed the maximum
rate allowable by law applicable hereto, as the parties intend to strictly
comply with all law relating to usury. Notwithstanding any provision hereof
or any other document in connection herewith to the contrary, Debtor shall
not pay nor will Secured Party accept payment of any such excessive
interest, which excessive interest is hereby canceled, and Secured Party
shall be entitled at its option to refund any such interest erroneously
paid or credit the same to Debtor's obligations hereunder.
8.5 The terms and provisions of this Agreement and of any other agreement
between Debtor and Secured Party should be construed together as one
agreement; provided, however, in the event of any conflict, the terms and
provisions of this Agreement shall govern such conflict.
8.6 No failure or delay on the part of Secured Party in exercising any power or
right hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right or power preclude any other or further
exercise thereof or the exercise of any other right or power hereunder. The
remedies herein are in addition to those available in law or equity, and
Secured Party need not pursue any rights it might have as a Secured Party
before pursuing payment and performance by Debtor or any guarantor or
surety.
8.7 This Agreement may not be assigned by Debtor.
<PAGE>
9.0 Notices - Any notice given hereunder shall be in writing and given by
personal delivery or shall be sent by U.S. Mail, postage prepaid, addressed
to the party to be charged with such notice at the respective address set
forth below:
- --------------------------------------------------------------------------------
TO DEBTOR TO SECURED PARTY
- --------------------------------------------------------------------------------
CLEVELAND CHRYSLER PLYMOUTH JEEP EAGLE, LLC CHRYSLER CREDIT CORPORATION
2490 South Lee Hwy P.O. Box 80247
Cleveland, Tn. 37311 Chattanooga, Tn. 37414
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
CLEVELAND CHRYSLER PLYMOUTH JEEP EAGLE, LLC
/s/ [illegible] By /s/ Nelson E. Bowers II
- ------------------------------ ---------------------------
(WITNESS)
Title President
- ------------------------------ ------------------------
(WITNESS)
CHRYSLER CREDIT CORPORATION
By /s/ [illegible]
---------------------------
Title Branch Manager
-------------------------
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
Sonic Automotive, Inc.
We consent to the use in this Amendment No. 1 to the Registration Statement
relating to shares of Class A Common Stock of Sonic Automotive, Inc. on Form S-1
of (i) our report dated August 7, 1997 on the combined financial statements of
Sonic Automotive, Inc. and Affiliated Companies as of and for the year ended
December 31, 1996; (ii) our report dated August 7, 1997 on the financial
statements of Dyer & Dyer, Inc. as of December 31, 1995 and 1996 and for each of
the three years in the period ended December 31, 1996; (iii) our report dated
August 7, 1997 on the combined financial statements of Bowers Dealerships and
Affiliated Companies as of December 31, 1995 and 1996 and for the years then
ended; (iv) our report dated August 7, 1997 on the combined financial statements
of Lake Norman Dodge, Inc. and Affiliated Companies as of and for the year ended
December 31, 1996; and (v) our report dated August 26, 1997 on the financial
statements of Ken Marks Ford, Inc. as of and for the year ended April 30, 1997
appearing in the Prospectus, which is a part of this Amendment No. 1 to the
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 29, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
Sonic Automotive, Inc.
We consent to the use in this Amendment No. 1 to the Registration Statement
of Sonic Automotive, Inc. on Form S-1 of our report dated April 30, 1997 on the
combined financial statements of Sonic Automotive, Inc. and Affiliated Companies
as of December 31, 1995 and for the years ended December 31, 1994 and 1995
appearing in the Prospectus, which is a part of this Amendment No. 1 to the
Registration Statement, and to the references to us under the heading "Experts"
in such Prospectus.
DIXON, ODOM & CO., L.L.P.
Winston-Salem, North Carolina
August 29, 1997
