UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-13395
SONIC AUTOMOTIVE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-201079
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5401 E Independence Blvd, Charlotte, North Carolina 28212
(Address of principal executive offices) (Zip Code)
(704) 532-3320
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
As of May 14, 1998, there were 5,027,452 shares of Class A Common Stock, par
value $.01 per share, and 6,250,000 shares of Class B Common Stock, par value
$.01 per share, outstanding.
<PAGE>
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial
Statements (Unaudited) 3
Consolidated Statements of Income -
Three-month periods ended
March 31, 1997 and March 31, 1998
Consolidated Balance Sheets -
December 31, 1997 and March 31, 1998
Consolidated Statement of Stockholders'
Equity - Three-month period ended March 31, 1998
Consolidated Statements of Cash Flows -
Three-month periods ended March 31, 1997
and March 31, 1998
Notes to Unaudited Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 10-Q 14
SIGNATURES 15
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
Three Months Ended
March 31,
1997 1998
-------- --------
REVENUES:
Vehicle sales $ 85,605 $228,569
Parts, service and collision repair 10,979 28,965
Finance and insurance 2,201 6,247
-------- --------
Total revenues 98,785 263,781
COST OF SALES 87,557 228,600
-------- --------
GROSS PROFIT 11,228 35,181
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 8,748 26,640
DEPRECIATION AND AMORTIZATION 218 815
-------- --------
OPERATING INCOME 2,262 7,726
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 1,338 3,235
Interest expense, other 132 1,061
Other income 134 44
-------- --------
Total other expense 1,336 4,252
-------- --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 926 3,474
PROVISION FOR INCOME TAXES 339 1,338
-------- --------
INCOME BEFORE MINORITY INTEREST 587 2,136
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY 46 --
-------- --------
NET INCOME $ 541 $ 2,136
======== ========
BASIC NET INCOME PER SHARE $ 0.19
========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 11,250
========
DILUTED NET INCOME PER SHARE $ 0.19
========
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 11,374
========
See notes to unaudited consolidated financial statements.
3
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
December 31, 1998
1997 (Unaudited)
------------ -----------
(in thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 18,304 $ 23,391
Marketable equity securities 270 247
Receivables (net of allowance for doubtful
accounts of $523,000 and $554,000 at
December 31, 1997 and March 31, 1998,
respectively) 19,784 22,128
Inventories (Note 3) 156,514 150,819
Deferred income taxes 405 405
Due from affiliates 1,047 1,014
Other current assets 1,048 1,969
-------- --------
Total current assets 197,372 199,973
PROPERTY AND EQUIPMENT, NET 19,081 19,796
GOODWILL, NET (Note 2) 74,362 86,072
OTHER ASSETS 635 651
-------- --------
TOTAL ASSETS $291,450 $306,492
======== ========
See notes to unaudited consolidated financial statements.
4
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
December 31, 1998
1997 (Unaudited)
------------ -----------
(in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan $ 133,236 $ 128,152
Trade accounts payable 6,612 7,554
Accrued interest 1,071 1,445
Other accrued liabilities 10,748 12,893
Payable to affiliates 445 445
Current maturities of long-term debt (Note 4) 584 584
--------- ---------
Total current liabilities 152,696 151,073
LONG-TERM DEBT (NOTE 4) 38,640 49,982
PAYABLE TO THE COMPANY'S CHAIRMAN 5,500 5,500
PAYABLE TO AFFILIATES 4,394 4,192
DEFERRED INCOME TAXES 1,079 1,079
INCOME TAX PAYABLE 4,776 4,822
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.10 par, 3.0 million
shares authorized; 3,960 shares issued
and outstanding at March 31, 1998 -- 3,366
Class A Common Stock, $.01 par, 50.0 million
shares authorized; 5.0 million shares issued
and outstanding 50 50
Class B Common Stock, $.01 par, 15.0 million
shares authorized; 6.3 million shares
issued and outstanding 63 63
Paid-in capital 68,045 68,045
Retained earnings 16,186 18,322
Unrealized gain (loss) on marketable
equity securities 21 (2)
--------- ---------
Total stockholders' equity 84,365 89,844
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 291,450 $ 306,492
========= =========
See notes to unaudited consolidated financial statements.
5
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain/(Loss) on
Preferred Class A Class B Marketable Total
Stock Common Stock Common Stock Paid-In Retained Equity Stockholders'
Shares Amount Shares Amount Shares Amount Capital Earnings Securities Equity
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1997 -- $ -- 5,000 $ 50 6,250 $ 63 $ 68,045 $ 16,186 $ 21 $ 84,365
Issuance of Preferred
Stock (Note 2) 3,960 3,366 -- -- -- -- -- -- -- 3,366
Net unrealized loss on
marketable equity
securities -- -- -- -- -- -- -- -- (23) (23)
Net income -- -- -- -- -- -- -- 2,136 -- 2,136
BALANCE AT
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
MARCH 31,1998 3,960 $ 3,366 5,000 $ 50 6,250 $ 63 $ 68,045 $ 18,322 $ (2) $ 89,844
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
1997 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 541 $ 2,136
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 218 815
Minority interest 46 --
Gain on sale of marketable equity securities (134) --
Changes in assets and liabilities that
relate to operations:
Receivables 1,155 (1,203)
Inventories 10,956 14,910
Other assets 17 (665)
Notes payable - floor plan (10,211) (13,405)
Accounts payable and other current liabilities (534) 1,323
Income tax payable -- 46
-------- --------
Total adjustments 1,513 1,821
-------- --------
Net cash provided by operating activities 2,054 3,957
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (Note 2) -- (9,422)
Purchases of property and equipment (830) (622)
-------- --------
Net cash used in investing activities (830) (10,044)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 19,688
Payments of long-term debt (129) (8,346)
Receipts from (advances to) affiliate companies 389 (168)
-------- --------
Net cash provided by financing activities 260 11,174
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,484 5,087
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 6,679 18,304
======== ========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,163 $ 23,391
======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Preferred Stock issued pursuant to acquisition (Note 2) $ -- $ 3,366
See notes to unaudited consolidated financial statements.
7
<PAGE>
The following Notes to Unaudited Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain estimates and forward-looking statements as indicated herein
by the use of such terms as "estimated", "expects", "approximate" or
"projected". Such statements reflect management's current views, are based on
certain assumptions and are subject to risks and uncertainties. No assurance can
be given that actual results or events will not differ materially from those
projected, estimated, assumed, or anticipated in any such forward-looking
statements. Important factors that could cause actual results to differ from
those projected or estimated are discussed herein.
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The accompanying unaudited financial information
for the three months ended March 31, 1997 and 1998 have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. All
significant intercompany accounts and transactions have been eliminated. These
unaudited consolidated financial statements reflect, in the opinion of
management, all material adjustments (which include only normal recurring
adjustments) necessary to fairly state the financial position and the results of
operations for the periods presented. The results for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year.
These interim financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 1997.
New Accounting Standards -- 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. The Company adopted the interim-period
reporting requirements of this standard for the three months ended March 31,
1998. Comprehensive income amounted to $656,000 and $2.1 million for the three
months ended March 31, 1997 and March 31, 1998, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. This Statement
will be effective for the Company's fiscal year ending December 31, 1998, and
need not be applied to interim financial statements in the initial year of its
application. The Company has not yet completed its' analysis of which operating
segments it will disclose, if any.
Per Share Data - The calculation of diluted net income per share considers
the potential dilutive effect of options to purchase 798,000 shares of Class A
Common Stock at a price ranging from $12-$14.50 per share under both the Sonic
Automotive, Inc. Formula Stock Option Plan for Independent Directors and the
Sonic Automotive, Inc. 1997 Stock Option Plan. The calculation also considers
the potential dilutive effect of the Sonic Automotive, Inc. Employee Stock
Purchase Plan, a warrant to purchase 44,000 shares of common stock at $12 per
share and conversion of the 3,960 outstanding shares of Series III Preferred
Stock.
2. BUSINESS ACQUISITIONS
Pending Acquisitions
The Company has entered into agreements to acquire four dealerships and
two dealership groups. The estimated aggregate purchase price for these
acquisitions, $80.2 million, is payable in cash, Class A Convertible Preferred
Stock and warrants to purchase shares of Class A Common Stock. In addition, the
Company may be required to make additional payments contingent on the future
performance of the dealerships and the dealership groups.
Acquisitions Completed During the Three Months ended March 31, 1998
During the first three months of 1998, the Company completed its
previously announced acquisitions of Clearwater Toyota, Clearwater Mitsubishi
and Clearwater Collision Center (the "Clearwater Acquisition") located in
Clearwater, Florida for a total purchase price of $14.9 million. The acquisition
was financed with $11.5 million in cash borrowed under a revolving credit
facility (See Note 4) and $3.4 million in Series III Convertible Preferred
Stock. In addition, by April 30, 1999 the Company will be required to pay an
additional amount equal to 50% of the combined pre-tax earnings of the entities
acquired, such amount not to exceed $1.8 million. The amount paid will be
accounted for as goodwill.
8
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(All tables in thousands except per share amounts)
2. BUSINESS ACQUISITIONS -- Continued
The Clearwater Acquisition was accounted for using the purchase method of
accounting and the results of operations of the Clearwater Acquisition have been
included in the accompanying consolidated financial statements from January 1,
1998, the effective date of acquisition. The purchase price of the acquisition
has been allocated to the assets and liabilities acquired based on their
estimated fair market value at the acquisition date as follows:
Working capital $ 2,681
Property and equipment 364
Goodwill 11,808
---------
Total purchase price $ 14,853
=========
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the Clearwater Acquisition and the
dealership groups acquired in 1997 had occurred as of January 1, 1997 after
giving effect to certain adjustments, including amortization of goodwill,
interest expense on acquisition debt and related income tax effects. The pro
forma financial information does not give effect to adjustments relating to net
reductions in floor plan interest expense resulting from re-negotiated floor
plan financing agreements or to reductions in salaries and fringe benefits of
former owners or officers of acquired dealerships who have not been retained by
the Company or whose salaries have been reduced pursuant to employment
agreements with the Company. The pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of the results of
operations that would have occurred had the acquisitions been completed on
January 1, 1997. These results are also not necessarily indicative of the
results of future operations.
Three Months
Ending
March 31,
1997
------------
Total revenues $ 260,776
Gross profit $ 31,206
Net Income $ 2,067
Diluted net income per share $ 0.18
3. INVENTORIES
Inventories consist of the following:
December 31, March 31,
1997 1998
------------ ---------
New vehicles $118,751 $110,970
Used vehicles 27,990 29,216
Parts and accessories 9,085 10,019
Other 688 614
-------- --------
Total $156,514 $150,819
======== ========
4. LONG-TERM DEBT
The Company has a secured, revolving acquisition line of credit (the
"Revolving Facility") from Ford Motor Credit Company ("Ford Motor Credit") with
a maximum lending commitment of $75 million bearing interest at prime rate (8.5%
at March 31, 1998). The Revolving Facility will mature in two years, unless the
Company requests that such term be extended, at the option of Ford Motor Credit,
for a number of additional one year terms to be negotiated by the parties. As of
March 31, 1998, a total of $44.8 million was outstanding under the Revolving
Facility. The Revolving Facility currently contains certain negative covenants.
The Company did not meet the debt to tangible equity ratio at March 31, 1998 and
has obtained a waiver with regard to such requirement from Ford Motor Credit.
9
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
(All tables in thousands except per share amounts)
5. COMMITMENTS AND 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.
10
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of the results of operations and
financial condition should be read in conjunction with the Unaudited
Consolidated Financial Statements and the related notes thereto.
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
Consolidated Statements of Income.
Percentage of Total Revenues for
Three Months Ended
March 31,
1997 1998
------ ------
Revenues:
New vehicle sales ........................... 63.7% 58.3%
Used vehicle sales .......................... 23.0% 28.4%
Parts, service and collision repair ......... 11.1% 11.0%
Finance and insurance ....................... 2.2% 2.3%
----- -----
Total revenues .............................. 100.0% 100.0%
Cost of sales ............................... 88.6% 86.7%
----- -----
Gross profit ................................ 11.4% 13.3%
Selling, general and administrative ......... 9.1% 10.4%
----- -----
Operating income ............................ 2.3% 2.9%
Interest expense ............................ 1.5% 1.6%
----- -----
Income before income taxes .................. 0.9% 1.3%
===== =====
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues. Revenues grew in each of the Company's primary revenue areas for
the first three months of 1998 as compared with the first three months of 1997,
causing total revenues to increase 167.0% to $263.8 million. New vehicle sales
revenue increased 144.5% to $153.7 million in the first three months of 1998,
compared with $62.9 million in the first three months of 1997. The increase was
due primarily to an increase in new vehicle unit sales of 119.1% to 6,617, as
compared with 3,020 in the first three months of 1997 resulting principally from
additional unit sales contributed by the acquisitions of Jeff Boyd
Chrysler-Plymouth-Dodge in June 1997, Lake Norman Dodge and Affiliates in
September 1997, Ken Marks Ford in October 1997, Dyer Volvo and the Bowers
Dealerships and Affiliated Companies in November 1997, and Clearwater Toyota,
Clearwater Mitsubishi, and Clearwater Collision Center effective January 1998
(the "Acquisitions"). The remainder of the increase was due to a 11.6% increase
in the average selling price of new vehicles resulting principally from sales of
higher priced import vehicles contributed by the Acquisitions.
Used vehicle revenues from retail sales increased 263.0% to $56.5 million
in the first three months of 1998 from $15.6 million in the first three months
of 1997. The increase was primarily due to an increase in used vehicle unit
sales of 241.5% to 4,333, as compared with 1,269 in the first three months of
1997, resulting from additional unit sales contributed by the Acquisitions.
The Company's parts, service and collision repair revenue increased 163.8%
to $29.0 million in the first three months of 1998 compared to $11.0 million in
the first three months of 1997, principally due to the Acquisitions. Finance and
insurance revenue increased $4.0 million, or 183.9%, principally due to
increased new vehicle sales and related financing.
Gross Profit. Gross profit increased 213.3% to $35.2 million in the first
three months of 1998 from $11.2 million in the first three months of 1997
principally due to increases in revenues contributed by dealerships acquired.
Gross profit as a percentage of sales increased to 13.3% from 11.4% due to
increases in new vehicle gross margins resulting from sales of higher margin
import vehicles contributed by acquired dealerships, as well as improved gross
margins of used vehicles resulting from efforts made to improve management of
used vehicle inventories.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including depreciation and amortization, increased
206.2% to $27.5 million in the first three months of 1998 from $9.0 million in
the first three months of 1997. Such expenses as a percentage of revenues
increased to 10.4% from 9.1% principally due to expenses inherent with growth
and the Acquisitions.
11
<PAGE>
Interest Expense. Interest expense increased 192.2% to $4.3 million from
$1.5 million. The increase was primarily due to a $1.9 million increase in floor
plan interest incurred by the Acquisitions. The remaining increase was due to
$0.9 million in interest incurred on acquisition related indebtedness.
Net Income. As a result of the factors noted above, the Company's net
income increased by $1.6 million in the first three months of 1998 compared to
the first three months of 1997.
Liquidity and Capital Resources :
The Company's principal needs for capital resources are to finance
acquisitions, service debt and fund working capital requirements. Historically,
the Company has relied primarily upon internally generated cash flows from
operations, borrowings under its various credit facilities, borrowings and
capital contributions from its stockholders, and proceeds generated from its
Initial Public Offering to finance its operations and expansion.
The Company currently has a global floor plan credit facility with Ford
Motor Credit Company ("Ford Motor Credit") for all its dealership subsidiaries
(the "Floor Plan Facility"). As of March 31, 1998, there was an aggregate of
$128.2 million outstanding under the Floor Plan Facility. The Floor Plan
Facility at March 31, 1998 had an effective rate of prime less 0.9%, subject to
certain incentives. Typically new vehicle floor plan indebtedness exceeds the
related inventory balances. The inventory balance is generally reduced by the
manufacturer's purchase discounts, and such reduction is not reflected in the
related floor plan liability. These manufacturer purchase discounts are standard
in the industry, typically occur on all new vehicle purchases, and are not used
to offset the related floor plan liability. These discounts are aggregated and
generally paid to the Company by the manufacturer on a quarterly basis.
The Company makes monthly interest payments on the amount financed under
the Floor Plan Facility 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 Facility contains a number of covenants,
including among others, covenants restricting the Company with respect to the
creation of liens and changes in ownership, officers and key management
personnel.
During the first three months of 1998, the Company generated net cash of
$4.0 million from operating activities, compared to $2.1 million in the first
three months of 1997. The increase was attributable principally to a decrease in
inventory levels and increased net income.
Cash used for investing activities, excluding amounts paid in
acquisitions, was approximately $622,000 for the first three months of 1998 and
related primarily to acquisitions of property and equipment.
Cash provided by financing activities for the first three months of 1998
of $11.2 primarily reflects amounts borrowed under the Revolving Facility to
finance the purchase of the Clearwater Dealerships.
The Company has a secured, revolving acquisition line of credit (the
"Revolving Facility") from Ford Motor Credit with a maximum lending commitment
of $75 million bearing interest at prime rate. The Revolving Facility will
mature in two years, unless the Company requests that such term be extended, at
the option of Ford Motor Credit, for a number of additional one year terms to be
negotiated by the parties. Amounts to be drawn under the Revolving Facility are
to be used for the acquisition of additional dealerships and to provide general
working capital needs of the Company not to exceed $10 million. As of March 31,
1998, a total of $44.8 million was outstanding under the Revolving Facility. The
Revolving Facility currently contains certain negative covenants. The Company
did not meet the specified debt to tangible equity ratio at March 31, 1998 and
has obtained a waiver with regard to such requirement from Ford Motor Credit.
Capital expenditures, excluding amounts paid in acquisitions, were $0.8
million and $0.6 million for the three months ended March 31, 1997 and 1998,
respectively. The Company's principal capital expenditures typically include
building improvements and equipment for use in the Company's dealerships. During
the first three months of 1998, the Company completed its previously announced
acquisitions of Clearwater Toyota, Clearwater Mitsubishi, and Clearwater
Collision Center located in Clearwater, Florida for a total purchase price of
$14.9 million. The acquisition was financed with $11.5 million in cash borrowed
under a revolving credit facility and $3.4 million in convertible preferred
stock. In addition, by April 30, 1999 the Company will be required to pay an
additional amount equal to 50% of the combined pre-tax earnings of the entities
acquired, such amount not to exceed $1.8 million.
The Company has entered into agreements to acquire four dealerships and
two dealership groups. The estimated aggregate purchase price for these
acquisitions, $80.2 million, is payable in cash, Class A Convertible Preferred
Stock and warrants to purchase
12
<PAGE>
shares of Class A Common Stock. In addition, the Company may be required to make
additional payments contingent on the future performance of the dealerships and
the dealership groups.
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 incurred a tax liability of approximately $7.0
million in connection with the change in its tax basis of accounting for
inventory from LIFO to FIFO, which is payable over a six-year period beginning
in January 1998. As of March 31, 1998, the remaining balance of this liability
was $5.8 million. The Company expects to be 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 (including the
Revolving Facility) or the issuance of Class A Common Stock or issuance of other
convertible instruments.
New Accounting Standards
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. The
Company adopted the interim-period reporting requirements of this standard for
the three months ended March 31, 1998. Comprehensive income amounted to $656,000
and $2.1 million for the three months ended March 31, 1997 and March 31, 1998,
respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures and Segments of an
Enterprise and Related Information". This Standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. This Statement
will be effective for the Company's fiscal year ending December 31, 1998, and
need not be applied to interim financial statements in the initial year of its
application. The Company has not yet completed its analysis of which operating
segments it will disclose, if any.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) Exhibits:
4.1 Certificate of Designation, Preferences and Rights of Class A Convertible
Preferred Stock.
10.1* Asset Purchase Agreement dated December 30, 1997 between Sonic Automotive,
Inc., as buyer, and M&S Resources, Inc. .Clearwater Auto Resources, Inc.
and Clearwater Collision Center, Inc., as sellers and Scott Fink, Michael
Cohen, Jeffrey Schuman, and Timothy McCabe as shareholders of the sellers
(incorporated by reference to Exhibit 99.1 to the Company's Current Report
of Form 8-K dated March 30, 1998 (the "March 1998 Form 8-K")).
10.2* Amendment No. 1 and Supplement to Asset Purchase Agreement dated as of
March 24, 1998 between Sonic Automotive, Inc., as buyer, and M&S
Resources, Inc., Clearwater Auto Resources, Inc., and Clearwater Collision
Center, Inc., as sellers and Scott Fink, Michael Cohen, Jeffrey Schuman,
and Timothy McCabe as shareholders of the sellers (incorporated by
reference to Exhibit 99.2 to the March 1998 Form 8-K).
10.3 Asset Purchase Agreement dated as of February 4, 1998 between Sonic
Automotive, Inc., as buyer, and Hatfield Jeep Eagle, Inc., Hatfield
Lincoln Mercury, Inc., Trader Bud's Westside Dodge, Inc., Toyota West,
Inc., and Hatfield Hyundai Inc., as sellers and Bud C. Hatfield, Dan E.
Hatfield and Dan E. Hatfield, as Trustee of the Bud C. Hatfield, Sr.
Special Irrevocable Trust as shareholders of the sellers.
10.4 Agreement and Plan of Merger dated as of February 10, 1998 between Sonic
Automotive, Inc., as buyer, and Capitol Chevrolet, Inc., Capitol Imports,
LTD., and Frank E. McGough, Jr., as sellers.
10.5 Stock Purchase Agreement dated as of March 16, 1998 between Sonic
Automotive, Inc., as buyer, and Freeman Smith, as stockholder and the
other stockholders named therein.
10.6* Sonic Automotive, Inc. Formula Stock Option Plan for Independent Directors
(incorporated by reference to Exhibit 10.69 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1997).
27 Financial data schedule for the three month period ended March 31, 1998
(filed electronically).
(b) Reports on Form 8-K.
On March 30, 1998, the Company filed a Current Report on Form 8-K,
dated March 24, 1998, pursuant to Item 2 of such form, reporting the
Clearwater Acquisition and containing Unaudited Pro Forma Financial
Statements Reflecting the Business Combination of Sonic Automotive,
Inc. and Clearwater Dealerships.
* Filed Previously
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONIC AUTOMOTIVE, INC.
(Registrant)
Date: May 14, 1998 By: /s/ O. Bruton Smith
------------ ---------------------------------
O. Bruton Smith
Chairman and Chief Executive Officer
Date: May 14, 1998 By: /s/ Theodore M. Wright
------------ --------------------------------
Theodore M. Wright
Vice President-Finance, Chief Financial
Officer, Treasurer, Secretary and Director
15
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SONIC AUTOMOTIVE, INC.
FOR THE QUARTER ENDED March 31, 1998
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
4.1 Certificate of Designation, Preferences and Rights of Class A
Convertible Preferred Stock.
10.1* Asset Purchase Agreement dated December 30, 1997 between Sonic
Automotive, Inc., as buyer, and M&S Resources, Inc. .Clearwater Auto
Resources, Inc. and Clearwater Collision Center, Inc., as sellers
and Scott Fink, Michael Cohen, Jeffrey Schuman, and Timothy McCabe
as shareholders of the sellers (incorporated by reference to Exhibit
99.1 to the Company's Current Report of Form 8-K dated March 30,
1998 (the "March 1998 Form 8-K")).
10.2* Amendment No. 1 and Supplement to Asset Purchase Agreement dated as
of March 24, 1998 between Sonic Automotive, Inc., as buyer, and M&S
Resources, Inc., Clearwater Auto Resources, Inc., and Clearwater
Collision Center, Inc., as sellers and Scott Fink, Michael Cohen,
Jeffrey Schuman, and Timothy McCabe as shareholders of the sellers
(incorporated by reference to Exhibit 99.2 to the March 1998 Form
8-K).
10.3 Asset Purchase Agreement dated as of February 4, 1998 between Sonic
Automotive, Inc., as buyer, and Hatfield Jeep Eagle, Inc., Hatfield
Lincoln Mercury, Inc., Trader Bud's Westside Dodge, Inc., Toyota
West, Inc., and Hatfield Hyundai Inc., as sellers and Bud C.
Hatfield, Dan E. Hatfield and Dan E. Hatfield, as Trustee of the Bud
C. Hatfield, Sr. Special Irrevocable Trust as shareholders of the
sellers.
10.4 Agreement and Plan of Merger dated as of February 10, 1998 between
Sonic Automotive, Inc., as buyer, and Capitol Chevrolet, Inc.,
Capitol Imports, LTD., and Frank E. McGough, Jr., as sellers.
10.5 Stock Purchase Agreement dated as of March 16, 1998 between Sonic
Automotive, Inc., as buyer, and Freeman Smith, as stockholder and
the other stockholders named therein.
10.6* Sonic Automotive, Inc. Formula Stock Option Plan for Independent
Directors (incorporated by reference to Exhibit 10.69 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1997).
27 Financial data schedule for the three month period ended March 31,
1998 (filed electronically).
* Filed Previously
16
Exhibit 4.1
State of Delaware PAGE 1
Office of the Secretary of State
_______________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "SONIC AUTOMOTIVE, INC.", FILED IN THIS OFFICE ON THE
TWENTY-THIRD DAY OF MARCH, A.D. 1998, AT 10 O'CLOCK A.M.
(SEAL APPEARS HERE WITH THE FOLLOWING INFORMATION:)
GREAT SEAL OF THE STATE OF DELAWARE
1793 1847 1907
(Shield appears here) /s/ Edward J. Freel
Edward J. Freel, Secretary of State
2714319 8100 AUTHENTICATION:
DATE: 8986068
981109787 03-23-98
<PAGE>
CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS
OF CLASS A CONVERTIBLE PREFERRED STOCK
We, Bryan Scott Smith and Theodore M. Wright, being the President and
the Secretary, respectively, of Sonic Automotive, Inc., a Delaware corporation
(the "Corporation"), do hereby certify that, pursuant to authority conferred
upon the Board of Directors by the Amended and Restated Certificate of
Incorporation of the Corporation and the General Corporation Law of the State of
Delaware, the Board of Directors, by unanimous written consent effective as of
March 20, 1998, adopted the Resolutions Creating Class A Convertible Preferred
Stock attached hereto as EXHIBIT A.
IN WITNESS WHEREOF, we have hereunto set our hands and seals as
President and Secretary, respectively, of the Corporation this 20th day of
March, 1998, and we hereby affirm that the foregoing Certificate is our act and
deed and the act and deed of the Corporation and that the facts stated therein
are true.
SONIC AUTOMOTIVE, INC.
By: BRYAN SCOTT SMITH
---------------------------------
Name: Bryan Scott Smith
Title: President
By: THEODORE M. WRIGHT
---------------------------------
Name: Theodore M. Wright
Title: Secretary
<PAGE>
EXHIBIT A
RESOLUTIONS CREATING CLASS A CONVERTIBLE PREFERRED STOCK
RESOLVED, that, pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation by Section 4.06 of the Amended and
Restated Certificate of Incorporation of the Corporation, there is hereby
created a class of 300,000 shares of preferred stock, designated as Class A
Convertible Preferred Stock, par value $0.10 per share, which shall be divided
into 100,000 shares of Series I Convertible Preferred Stock, par value $0.10
per share (the "Series I Preferred Stock"), 100,000 shares of Series II
Convertible Preferred Stock, par value $0.10 per share (the "Series II
Preferred Stock"), and 100,000 shares of Series III Convertible Preferred
Stock, par value $0.10 per share (the "Series III Preferred Stock" and,
together with the Series I Preferred Stock and the Series II Preferred Stock,
collectively, the "Class A Preferred Stock"). The Board of Directors reserves
the right, at any time and from time to time, subject to the filing of a
further Certificate or Certificates of Designation with respect thereto and to
compliance with any other applicable legal requirements, to redivide or
reclassify the Class A Preferred Stock into different numbers of shares of
Series I Preferred Stock, Series II Preferred Stock and/or Series III Preferred
Stock, or into other classes of preferred stock; provided, however, that no
such redivision or reclassification shall affect any shares of Series I
Preferred Stock, Series II Preferred Stock or Series III Preferred Stock, as
the case may be, then issued and outstanding. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Amended and Restated Certificate of Incorporation of the Corporation as in
effect on the date hereof.
The powers, preferences and rights, and the qualifications, limitations or
restrictions, of each such Series of Class A Preferred Stock, in relation to
the other such Series of Class A Preferred Stock and in relation to the Common
Stock, shall be as follows:
Section 1. Liquidation Rights.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the event of
any liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, the holders of each share of the Class A
Preferred Stock shall, subject to the preferential rights, if any, of the
holders of preferred stock other than the Class A Preferred Stock, be entitled
to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes an
amount, and no other amount, equal to $1,000 per share of Class A Preferred
Stock. If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of the Class A Preferred Stock of all amounts
distributable to them under this Subsection 1(a) and to all other holders of
preferred stock, if any, entitled to share in such assets with the holders of
the Class A Preferred Stock, then the entire assets of the Corporation
available for such distribution shall be distributed ratably among the holders
of the Class A Preferred Stock and such other holders of preferred stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive. After such payments shall have been made in full to the
holders of the Class A Preferred Stock and such other holders of preferred
stock or funds necessary for such payments shall have been set aside by the
Corporation in trust for the account of holders of Class A Preferred Stock and
such other holders of preferred stock so as to be available for such payments,
the remaining assets available for distribution shall be distributed among the
holders of the Common Stock ratably in proportion to the number of shares of
Common Stock held by them. Upon conversion of shares of Class A Preferred Stock
into shares of Class A Common Stock pursuant to Section 2 below, the holder of
such Class A Common Stock shall not be entitled to any preferential payment or
distribution in case of any liquidation, dissolution or winding up, but shall
share ratably as a holder of Class A Common Stock in any distribution of the
assets of the Corporation to all the holders of Common Stock.
(b) Distributions other than Cash. Whenever the distribution provided for
in this Section 1 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property, as
determined in good faith by the Board of Directors of the Corporation, which
determination shall be final.
Section 2. Conversion. The Class A Preferred Stock shall be convertible as
follows:
(a) Right of Holder to Convert; Conversion Amount.
(i) Definitions. As used herein, the term "Market Price" shall mean the
average of the daily closing prices for one share of Class A Common Stock for
the twenty (20) consecutive trading days ending one (1) trading day immediately
prior to the date of determination. The closing price for each day shall be the
last regularly reported sales price, or in case no such reported sales took
place on such day, the average of the last regularly reported bid and asked
prices, in either case on the New York Stock Exchange or, if the shares of the
Class A Common Stock are not listed or admitted to trading on the New York
Stock Exchange, on the principal national securities exchange on which such
shares are listed or admitted to trading,
A-1
<PAGE>
or, if such shares are not so listed or admitted to trading, the average of the
highest reported bid and lowest reported asked prices as furnished by the
National Association of Securities Dealers, Inc. through NASDAQ or through a
similar organization if NASDAQ is no longer reporting such information. If
shares of the Class A Common Stock are not listed or admitted to trading on any
exchange or quoted through NASDAQ or any similar organization, the Market Price
shall be deemed to be the fair value thereof determined in good faith by the
Corporation's board of directors as expressed by a resolution of such board as
of a date which is within fifteen days of the date as of which the
determination is to be made, which determination shall be final. As used
herein, the term "Applicable Conversion Amount" shall mean the Series I
Conversion Amount, the Series II Conversion Amount or the Series III Conversion
Amount (each as hereafter defined), as the case may be. As used herein, the
term "business day" shall mean a day other than a Saturday, a Sunday or a day
in which banks are required to be closed in the State of North Carolina.
(ii) Series I Preferred Stock. Subject to the other provisions of this
Section 2, each share of Series I Preferred Stock shall be convertible, without
the payment of any additional consideration by the holder thereof and at the
option of the holder thereof, on any business day after the date of issuance of
such share, at the principal executive office of the Corporation or the
designated office of any transfer agent for the Class A Preferred Stock, into
such number (rounded to four decimal places) of fully paid and nonassessable
shares of Class A Common Stock as is determined by dividing $1,000 by the
Market Price as of the date of conversion provided in the last sentence of
Section 2(b) below (such number of shares being the "Series I Conversion
Amount"). The right of conversion with respect to any shares of Series I
Preferred Stock which shall have been called for redemption under Section 5
shall terminate at the close of business on the date of the mailing of the
notice of redemption with respect thereto; provided, however, if the
Corporation shall default in the payment of the redemption price on the
redemption date fixed in such notice of redemption, such right of conversion
shall continue.
(iii) Series II Preferred Stock. Subject to the other provisions of this
Section 2, each share of Series II Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and
at the option of the holder thereof, on any business day after the date of
issuance of such share, at the principal executive office of the Corporation or
the designated office of any transfer agent for the Class A Preferred Stock,
into such number (rounded to four decimal places) of fully paid and
nonassessable shares of Class A Common Stock as is determined by dividing
$1,000 by the Market Price as of the date of issuance of such share of Series
II Preferred Stock (such number of shares being the "Series II Conversion
Amount"), subject to adjustment as provided in the following two sentences. If
the Market Price as of the date of conversion (as provided in the last sentence
of Section 2(b) below) of such share of Series II Preferred Stock is less than
ninety percent (90%) of the Market Price as of the date of issuance of such
share of Series II Preferred Stock, the Series II Conversion Amount shall be
multiplied by a fraction, the numerator of which shall be an amount equal to
ninety percent (90%) of such Market Price as of such date of issuance and the
denominator of which shall be such Market Price as of such date of conversion,
and the product obtained thereby shall be the Series II Conversion Amount. If
the Market Price as of the date of conversion (as provided in the last sentence
of Section 2(b) below) of such share of Series II Preferred Stock is more than
one hundred ten percent (110%) of the Market Price as of the date of issuance
of such share of Series II Preferred Stock, the Series II Conversion Amount
shall be multiplied by a fraction, the numerator of which shall be an amount
equal to one hundred ten percent (110%) of such Market Price as of such date of
issuance and the denominator of which shall be such Market Price as of such
date of conversion, and the product obtained thereby shall be the Series II
Conversion Amount. The right of conversion with respect to any shares of Series
II Preferred Stock which shall have been called for redemption under Section 5
shall terminate at the close of business on the date of the mailing of the
notice of redemption with respect thereto; provided, however, if the
Corporation shall default in the payment of the redemption price on the
redemption date fixed in such notice of redemption, such right of conversion
shall continue.
(iv) Series III Preferred Stock. Subject to the other provisions of this
Section 2, each share of Series III Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and
at the option of the holder thereof, on any business day after the date of
issuance of such share, at the principal executive office of the Corporation or
the designated office of any transfer agent for the Class A Preferred Stock,
into such number (rounded to four decimal places) of fully paid and
nonassessable shares of Class A Common Stock as is determined by dividing
$1,000 by the Market Price as of the date of issuance of such shares of Series
III Preferred Stock (such number of shares being the "Series III Conversion
Amount"), subject to adjustment as provided in the following two sentences. If
the Market Price as of the date of conversion (as provided in the last sentence
of Section 2(b) below) of such share of Series III Preferred Stock is less than
the Market Price as of the date of issuance of such share of Series III
Preferred Stock, the Series III Conversion Amount shall be multiplied by a
fraction, the numerator of which shall be an amount equal to such Market Price
as of such date of issuance and the denominator of which shall be such Market
Price as of such date of conversion, and the product obtained thereby shall be
the Series III Conversion Amount. If the Market Price as of the date of
conversion (as provided in the last sentence of Section 2(b) below) of such
share of Series III Preferred Stock is more than one hundred ten percent (110%)
A-2
<PAGE>
of the Market Price as of the date of issuance of such share of Series III
Preferred Stock, the Series III Conversion Amount shall be multiplied by a
fraction, the numerator of which shall be an amount equal to one hundred ten
percent (110%) of such Market Price as of such date of issuance and the
denominator of which shall be such Market Price as of such date of conversion,
and the product obtained thereby shall be the Series III Conversion Amount. The
right of conversion with respect to any shares of Series III Preferred Stock
which shall have been called for redemption under Section 5 shall terminate at
the close of business on the date of the mailing of the notice of redemption
with respect thereto; provided, however, if the Corporation shall default in
the payment of the redemption price on the redemption date fixed in such notice
of redemption, such right of conversion shall continue.
(v) Conversion Cap. Prior to the date on which holders of the Common Stock
approve the issuance of the Class A Preferred Stock, the Corporation may not
issue, upon the conversion of shares of the Class A Preferred Stock, more than
2,249,999 shares of Class A Common Stock in the aggregate (the "Conversion Cap
Amount"). In lieu of any shares of Class A Common Stock to which a holder of
Class A Preferred Stock would otherwise be entitled upon conversion but for the
Conversion Cap Amount (the "Excess Conversion Common Shares"), the Corporation
shall pay cash equal to the number of such Excess Conversion Common Shares
multiplied by the Market Price in effect at the time of conversion.
(vi) Conversion During First Year. The right of any holder to convert any
of such holder's shares of the Class A Preferred Stock during the one (1) year
period commencing with the date of issuance of such Class A Preferred Stock
shall be subject to the Corporation's right of optional redemption under
Section 5 hereof. The holder of such share of Class A Preferred Stock shall not
exercise such holder's right to convert such share of Class A Preferred Stock
during such one (1) year period unless such holder shall have first delivered
to the Corporation, at its address at 5401 E. Independence Boulevard,
Charlotte, North Carolina 28212, Attention: Chief Financial Officer, or at such
other address as the Corporation may notify the holder in writing, written
notice of such holder's intention to convert a specified number of shares of
Class A Preferred Stock. For a period of ten (10) business days after receipt
by the Corporation of such notice, the Corporation shall have the right to
exercise its right of optional redemption under Section 5 hereof with respect
to some or all of the shares of Class A Preferred Stock proposed to be
converted by such holder. In the event that the Corporation shall not have
exercised such right of redemption within such ten (10) business day period,
such holder shall be entitled to convert such shares of Class A Preferred Stock
in accordance with the mechanics set forth in Subsection 2(b) below.
(b) Mechanics of Optional Conversions. In order for any holder of the
Class A Preferred Stock to convert the same into full shares of Class A Common
Stock pursuant to Subsection 2(a), such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the principal executive office of
the Corporation or the designated office of any transfer agent for the Class A
Preferred Stock, together with written notice to the Corporation at such office
that such holder elects to convert the number of shares of Class A Preferred
Stock set forth therein. No fractional shares of Class A Common Stock shall be
issued upon conversion of the Class A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Market
Price as of the date of the conversion. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of the
Class A Preferred Stock, and in the name or names shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Class A Common Stock to which such holder shall be entitled as
aforesaid, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Class A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Class A Common Stock issuable upon conversion shall be treated for all purposes
as the record holder or holders of such shares of Class A Common Stock on such
date.
(c) Mandatory Conversion at the Option of the Corporation. After the
second anniversary of the date of its issuance, any share of the Class A
Preferred Stock which has not been converted into Class A Common Stock shall be
subject, at the option of the Corporation, to mandatory conversion as
hereinafter provided. The Corporation may exercise its option to convert any
such share of Class A Preferred Stock by giving notice in writing of such
conversion to the holder of such share of Class A Preferred Stock (a "Mandatory
Conversion Notice") at such holder's address set forth in the books and records
of the Corporation. Upon the giving of a Mandatory Conversion Notice with
respect thereto, each such share of Class A Preferred Stock referred to in such
Mandatory Conversion Notice shall automatically and without any further action
on the part of the holder of such Class A Preferred Stock be converted into the
number of shares (rounded to four decimal places) of fully paid and
nonassessable Class A Common Stock based upon the Applicable Conversion Amount
as of the date of such Mandatory Conversion Notice. Until surrendered in
accordance with the provisions of Subsection 2(d) below, the certificate or
certificates evidencing the shares of Class A Preferred Stock so converted
shall be deemed to represent the applicable number of shares of Class A Common
Stock into which such shares of Class A Preferred Stock have been so converted.
A-3
<PAGE>
(d) Mechanics of Mandatory Conversion. Upon mandatory conversion pursuant
to Subsection 2(c) above, the Corporation shall not be obligated to issue
certificates evidencing the shares of Class A Common Stock issuable upon such
conversion unless the certificate or certificates evidencing such share or
shares of the Class A Preferred Stock being converted are either delivered to
the Corporation or its designated transfer agent for the Class A Preferred
Stock, or the holder notifies the Corporation or such transfer agent that such
certificate or certificates have been lost, stolen, or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection therewith and, if the Corporation so
elects, provides an appropriate indemnity bond. Upon the mandatory conversion
of one or more shares of the Class A Preferred Stock, the holder or holders of
such Class A Preferred Stock shall surrender the certificates representing such
shares at the principal executive office of the Corporation or of its
designated transfer agent for the Class A Preferred Stock. Thereupon, there
shall be issued and delivered to such holder or holders, promptly at such
office and in the name or names as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Class A
Common Stock into which the shares of the Class A Preferred Stock surrendered
were convertible as of the date of the applicable Mandatory Conversion Notice.
No fractional shares of Class A Common Stock shall be issued upon such
mandatory conversion of the Class A Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the Market Price as of the date
of conversion. The right of the Corporation to effectuate mandatory conversion
of the Class A Preferred Stock may be exercised by the Corporation, in its
discretion, as to any or all shares of Class A Preferred Stock held by any or
all of the holders of the Class A Preferred Stock; and the exercise (or
non-exercise) of such right by the Corporation with respect to any shares of
Class A Preferred Stock held by one holder shall not in any way imply any
obligation or duty of the Corporation to exercise (or not to exercise) such
right with respect to any shares of Class A Preferred Stock held by any other
holder.
(e) Adjustments for Stock Dividends, Stock Distributions, Subdivisions,
Combinations or Consolidations of Common Stock. In the event that all the
outstanding shares of Class A Common Stock shall be increased by way of stock
dividend, stock distribution or subdivision, the Applicable Conversion Amount
in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately increased. In the event
that all the outstanding shares of Class A Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Class A Common Stock, the Applicable Conversion Amount in effect immediately
prior to such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
decreased.
(f) Adjustment for Reclassification, Exchange, or Substitution. In the
event that at any time or from time to time after the date of issuance of a
share of Class A Preferred Stock, the Class A Common Stock issuable upon the
conversion of such share of the Class A Preferred Stock shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
merger, consolidation, or sale of assets provided for below), then and in each
such event the holder of such share of Class A Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Class
A Common Stock into which such share of Class A Preferred Stock would have been
converted immediately prior to such reorganization, reclassification, or
change.
(g) Adjustment for Merger, Consolidation or Sale of Assets. In the event
that at any time or from time to time after the date of issuance of a share of
Class A Preferred Stock, the Corporation shall merge or consolidate with or
into another entity or sell all or substantially all of its assets, such share
of Class A Preferred Stock shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder of
the number of shares of Class A Common Stock deliverable upon conversion of
such share of Class A Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions of this Section 2 set forth with respect to the
rights and interest thereafter of the holders of Class A Preferred Stock, to
the end that the provisions set forth in this Section 2 (including provisions
with respect to changes in and other adjustments of the Applicable Conversion
Amount) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Class A Preferred Stock.
(h) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 2, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each affected holder of Class A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
A-4
<PAGE>
(i) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Class A Common Stock such number
of shares of Class A Common Stock as shall from time to time be sufficient to
effect conversion of the Class A Preferred Stock.
Section 3. Voting Rights.
(a) Notice of Meeting. Except as otherwise required by law or as
hereinafter set forth, the holders of the Class A Preferred Stock shall be
entitled to notice of any meeting of stockholders at which any matter is to be
voted on by the holders of the Class A Common Stock.
(b) Voting. Except as otherwise required by law or as hereinafter set
forth, the holders of the Class A Preferred Stock shall be entitled to vote
with the holders of the Class A Common Stock on any matter which is to be voted
on by the holders of the Class A Common Stock, whether such matter is to be
voted on by the holders of the Class A Common Stock and the holders of the
Class B Common Stock voting together as a single class, or by the holders of
the Class A Common Stock voting separately as a class. Each holder of Class A
Preferred Stock shall have that number of votes equal to the number of shares
of Class A Common Stock into which the shares of Class A Preferred Stock held
by such holder could be converted on the date for determination of stockholders
entitled to vote at a meeting.
With respect to all questions as to which, under law, stockholders are
entitled to vote by classes, the Class A Preferred Stock shall vote together as
a single class separately from the Common Stock.
Section 4. Dividend Rights. The holders of the Class A Preferred Stock shall
have no preferential dividend rights. Subject to the preferential rights, if
any, of the holders of preferred stock other than the Class A Preferred Stock,
each holder of the Class A Preferred Stock shall be entitled to receive all
dividends and other distributions of cash and other property as may be declared
on the Class A Common Stock by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor, as if all shares
of the Class A Preferred Stock held by such holder had been converted into the
applicable number of shares of Class A Common Stock on the day any such
dividend was declared.
Section 5. Redemption. The Class A Preferred Stock shall be subject to optional
redemption by the Corporation as follows:
(a) Right of Corporation to Redeem; Redemption Price.
(i) Series I Preferred Stock. Any share of the Series I Preferred Stock
which has not been surrendered for optional conversion by the holder thereof
and as to which the Corporation has not issued a Mandatory Conversion Notice
may be redeemed by the Corporation, at the option of the Corporation, at any
time after the date on which such share of Series I Preferred Stock was first
issued at a redemption price equal to $1,000 per share.
(ii) Series II Preferred Stock. Any share of the Series II Preferred Stock
which has not been surrendered for optional conversion by the holder thereof
and as to which the Corporation has not issued a Mandatory Conversion Notice
may be redeemed by the Corporation, at the option of the Corporation, at any
time after the date on which such share of Series II Preferred Stock was first
issued at a redemption price per share equal to (A) if the date of the mailing
of the notice of redemption is on or before the second anniversary of the date
of issuance of such share of Series II Preferred Stock, the greater of (I)
$1,000 or (II) the Market Price as of the date of the mailing of such notice of
redemption multiplied by the number of shares of Class A Common Stock into
which such share of Series II Preferred Stock could be converted as of the date
of the mailing of such notice of redemption, or (B) if the date of the mailing
of the notice of redemption is after the second anniversary of the date of
issuance of such share of Series II Preferred Stock, the Market Price as of the
date of the mailing of such notice of redemption multiplied by the number of
shares of Class A Common Stock into which such share of Series II Preferred
Stock could be converted as of the date of the mailing of such notice of
redemption.
(iii) Series III Preferred Stock. Any share of the Series III Preferred
Stock which has not been surrendered for optional conversion by the holder
thereof and as to which the Corporation has not issued a Mandatory Conversion
Notice may be redeemed by the Corporation, at the option of the Corporation, at
any time after the date on which such share of Series III Preferred Stock was
first issued at a redemption price per share equal to (A) if the date of the
mailing of the notice of redemption is on or before the second anniversary of
the date of issuance of such share of Series III Preferred Stock, the greater
of (I) $1,000 or (II) the Market Price as of the date of the mailing of such
notice of redemption multiplied by the number of shares of Class A Common Stock
into which such share of Series III Preferred Stock could be converted as of
the date of the mailing of such notice of redemption, or (B) if the date of the
mailing of the notice of redemption is after the second anniversary of the date
of issuance of such share of Series III Preferred Stock, the Market Price as of
the date of the mailing of such notice of redemption multiplied by the number
of shares of Class A Common Stock into which such share of Series III Preferred
Stock could be converted as of the date of the mailing of such notice of
redemption.
A-5
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(b) Notice of Redemption. Notice of redemption shall be sent by first
class mail, postage prepaid, to the holder of record of the Class A Preferred
Stock to be redeemed, not less than 30 days nor more than 60 days prior to the
redemption date set forth therein, at its address as it appears on the books of
the Corporation. Such notice shall set forth (i) the date and place of
redemption; and (ii) the number of shares to be redeemed and the redemption
price with respect thereto. In the event that a notice of redemption is given
under this Subsection 5(b), the Corporation shall be obligated to redeem the
Class A Preferred Stock on the date and in the amounts set forth in the notice.
(c) If, on or before a redemption date, the funds necessary for such
redemption shall have been set aside by the Corporation and deposited with a
bank or trust company, in trust for the pro rata benefit of the holders of the
Class A Preferred Stock that has been called for redemption, then,
notwithstanding that any certificates for shares that have been called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding from and after such
redemption date, and all rights of holders of such shares so called for
redemption shall forthwith, after such redemption date, cease and terminate
with respect to such shares, excepting only the right to receive the redemption
funds therefor to which they are entitled, but without interest. Any interest
accrued on funds so deposited and unclaimed by stockholders entitled thereto
shall be paid to such stockholders at the time their respective shares are
redeemed or to the Corporation at the time unclaimed amounts are paid to it.
(d) The right of the Corporation to redeem the Class A Preferred Stock may
be exercised by the Corporation, in its discretion, as to any or all shares of
Class A Preferred Stock held by any or all of the holders of the Class A
Preferred Stock; and the exercise (or non-exercise) of such right by the
Corporation with respect to any shares of Class A Preferred Stock held by one
holder shall not in any way imply any obligation or duty of the Corporation to
exercise (or not to exercise) such right with respect to any shares of Class A
Preferred Stock held by any other holders.
Section 7. Waiver. Except to the extent prohibited by applicable law, the
Corporation may waive any right it may have hereunder. Any such waiver shall be
in writing; and no waiver of (or failure to waive) any such right by the
Corporation in any one instance shall constitute a waiver (or non-waiver) by
the Corporation of a similar or other right in any other instance.
Section 8. Residual Rights. Subject to the preferential rights, if any, of the
holders of preferred stock other than the Class A Preferred Stock, all rights
accruing to the outstanding shares of the Corporation not expressly provided
for to the contrary herein shall be vested in the Common Stock.
A-6
Exhibit 10.3
FINAL 2/4/98
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 4th day of February, 1998, by and among: SONIC AUTOMOTIVE, INC., a
Delaware corporation (the "Buyer"), HATFIELD JEEP EAGLE, INC., an Ohio
corporation d/b/a Volkswagen West, Jeep Eagle West, Hatfield KIA and Trader
Bud's Westside Chrysler Plymouth, HATFIELD LINCOLN MERCURY, INC., an Ohio
corporation d/b/a Hatfield Lincoln Mercury, TRADER BUD'S WESTSIDE DODGE, INC.,
an Ohio corporation d/b/a Trader Bud's Westside Dodge, TOYOTA WEST, INC., an
Ohio corporation d/b/a Toyota West, and HATFIELD HYUNDAI, INC., an Ohio
corporation d/b/a Hatfield Hyundai, Hatfield Isuzu and Hatfield Subaru
(collectively, the "Sellers" and each, individually, a "Seller"); and Bud C.
Hatfield, Dan E. Hatfield and Dan E. Hatfield, as Trustee of the Bud C.
Hatfield, Sr. Special Irrevocable Trust (collectively, the "Shareholders" and
each, individually, a "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 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; Inducement Fee.
(a) 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 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
<PAGE>
future, whether accrued, contingent, known or unknown (such retained liabilities
and obligations being hereinafter called the "Retained Liabilities").
(b) Inducement Fee. As an inducement to the Buyer to negotiate and
enter into this Agreement and to undertake the further cost and expense of
conducting its due diligence investigation and preparing to satisfy its
obligations at the Closing, the Sellers hereby agree, jointly and severally, to
pay to Sonic Automotive, Inc., not later than April 30, 1998, the sum of
$500,000 (the "Inducement Fee"). The Inducement Fee will be an Assumed Liability
and will become an obligation of the Buyer or any other person (including any
holder of a right of first refusal, preemptive right or other similar right,
with respect to any of the Purchased Assets) who purchases the Purchased Assets,
or any portion thereof, based upon the terms of this Agreement. The Inducement
Fee will be reflected as a liability in the Closing Balance Sheet (as defined in
Section 1.3(c) below), but will not be taken into account in determining the Net
Current Assets (as defined in Section 1.3(a) below), notwithstanding the
provisions of said Section 1.3(c). The Inducement Fee will be canceled if this
Agreement is terminated for any reason other than the exercise of a right of
first refusal, preemptive right or other similar right, by an applicable
automobile manufacturer or distributor or any person claiming by, through or
under it.
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 a
purchase price of $46,750,000, consisting of $8,000,000, subject to adjustment
as provided in Section 1.3(c) below, as the purchase price for the Sellers' Net
Current Assets (as hereinafter defined) and $38,750,000 as the purchase price
for all of the other Purchased Assets (collectively, the "Purchase Price"). As
used in this Agreement, the term "Net Current Assets" shall mean (i) all of the
Purchased Assets as of the close of business on the last day of the calendar
month immediately preceding the calendar month in which the Closing occurs (the
"Effective Closing Date") which would, in conformity with generally accepted
accounting principles applied in a manner consistent with those used in the
preparation of the Financial Statements referred to in Section 3.4 below
("GAAP"), be included under current assets on a balance sheet as at such date,
MINUS (ii) all of the Assumed Liabilities as of the close of business on the
Effective Closing Date which would, in conformity with GAAP, be included under
current liabilities on a balance sheet as at such date.
(b) Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(1) (A) $32,725,000 of the Purchase Price plus (B) interest on
such amount from and including the first day of the calendar month in which the
Closing occurs to the date of payment at the Interest Rate (as defined in
Section 1.3(c) below) (the "Closing 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 Bud Hatfield, as agent for
the Sellers (the "Sellers' Agent"), in writing at least one full Business Day
prior to the Closing Date, in the respective amounts specified in Part I of
Schedule 1.3(e). 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.
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(2) (A) At the Closing, the Buyer shall issue to the Sellers,
in the respective amounts specified in Part I of Schedule 1.3(d) hereto, 14,025
shares of the Buyer's Convertible Preferred Stock (the "Preferred Stock"). The
Preferred Stock will be convertible into shares of the Buyer's Class A Common
Stock having an aggregate market value at the time of conversion equal to
$14,025,000, as more specifically provided in the Summary of Rights and
Preferences attached as Exhibit A hereto. At the Closing, 11,525 shares of the
Preferred Stock (the "Closing Shares") will be delivered to the Sellers in the
respective amounts specified in Part I of Schedule 1.3(d) hereto and 2,500
shares of the Preferred Stock (the "Escrow Shares") shall be placed in escrow
with First Union National Bank (the "Escrow Agent") by the Buyer in accordance
with the escrow agreement in the form of Exhibit B hereto, with such other
changes thereto as the Escrow Agent shall reasonably request (the "Escrow
Agreement").
(B) The term of the Escrow Agreement shall be for (I)
ninety days (or such longer period of time (not to exceed an additional 60 days)
as shall be necessary to complete the determination of Net Current Assets
pursuant to Section 1.3(c) below) with respect to 500 of the Escrow Shares and
(II) one year with respect to 2,000 of the Escrow Shares. If, at the end of
ninety days from the Closing Date (or such later date (not to exceed an
additional 60 days) as shall be necessary to complete the determination of the
Net Current Assets), the Buyer shall have made no claims in respect of any Net
Current Assets Shortfall (as defined in Section 1.3(c) below) or for
indemnification pursuant to the terms of this Agreement, the Buyer will execute
a joint instruction pursuant to the Escrow Agreement to instruct the Escrow
Agent to pay 500 of the Escrow Shares to the Sellers pursuant to the terms of
the Escrow Agreement. If, at the end of one year from the Closing Date, the
Buyer shall have made no claims for indemnification pursuant to the terms of
this Agreement, the Buyer will execute a joint instruction pursuant to the
Escrow Agreement to instruct the Escrow Agent to pay 2,000 of the Escrow Shares
to the Sellers pursuant to the terms of the Escrow Agreement.
(C) The Buyer shall use its reasonable best efforts to
make available current public information with respect to the Buyer within the
meaning of Subsection (c)(1) of Securities and Exchange Commission Rule 144
("Rule 144") to the extent necessary to facilitate public resales by the Sellers
of the Buyer's Class A Common Stock issuable upon conversion of the Preferred
Stock, pursuant to Rule 144. The Buyer shall remove any and all stop transfer
instructions and shall remove any restrictive legend on the certificates with
respect to the Preferred Stock and any such Class A Common Stock then owned by
the Sellers to the extent that either (i) such Preferred Stock or Class A Common
stock may hereafter be registered under the Securities Act of 1933, as amended,
and under any applicable state securities or blue sky laws, or (ii) the Buyer
has received an opinion of counsel reasonably satisfactory to the Buyer, in form
and substance reasonably satisfactory to the Buyer, that such registration is
not required. Upon receipt of reasonable evidence that the requirements of Rule
144(k) have been complied with (including an opinion of counsel reasonably
satisfactory to the Buyer to such effect), the Buyer shall remove any and all
stop transfer instructions and shall remove any restrictive legend on such
certificates.
(c) Adjustment Procedures.
(1) Not later than 60 days after the Closing Date (as defined
in Article 2 hereof), the Buyer will prepare and deliver to the Sellers' Agent
an unaudited balance sheet (the "Closing Balance Sheet") of the Sellers as of
the Effective Closing Date, consisting of computations
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of (A) the Net Current Assets, and (B) the tangible book value as of the
Effective Closing Date of the Purchased Assets (excluding goodwill and other
intangible assets) less the book value as of the Effective Closing Date of the
Assumed Liabilities, all as determined in accordance with GAAP; provided,
however, that: new vehicle inventories shall be valued at factory invoice less
factory holdback, dealer rebates, and any other factory incentives; used vehicle
inventories shall include those vehicles of the respective Sellers chosen by the
Buyer on an "all or nothing" basis, meaning that, as to each Seller, the Buyer
shall be free to choose either all or none (but not some) of such Seller's used
vehicles, it being understood that the Buyer shall not be required, in any case,
to choose any used vehicles of the Seller which have been in such Seller's used
vehicle inventory for more than 60 days as of the Closing Date; no 1997 or older
vehicles (other than up to a total of 15 1997 new vehicles acceptable to the
Buyer) shall be included in new vehicle inventory; and there shall be included
appropriate reserves and/or write-offs for doubtful accounts receivable and bad
debts and for damaged, spoiled, obsolete, defective or slow-moving inventory. As
used herein, the term "slow moving" means (i) with respect to returnable parts,
returnable parts older than twelve months, (ii) with respect to new vehicles,
new vehicles older than 300 days, and (iii) with respect to other inventory
(excluding used vehicles), as may be reasonably determined by the Buyer, the
Sellers having a right to arbitrate disputes with respect to such other
inventory. 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
computations of the Net Current Assets 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 Current Assets 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, (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 Current Assets based upon their resolution of
the issues in dispute; (iii) such determination by the Accountants of the Net
Current Assets, as set forth in a notice delivered to the 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.
(2) To the extent that the Net Current Assets, as deemed
mutually agreed by the parties or as determined by the Accountants, as
aforesaid, is less than $8,000,000 (the "Net Current Assets Shortfall"), the
Sellers shall be obligated, jointly and severally, to pay the amount of the Net
Current Assets Shortfall, together with interest on such amount at a rate equal
to the Buyer's floor plan financing rate from time to time in effect (the
"Interest Rate") from and including the first day of the calendar month in which
the Closing occurs to the date of payment, promptly to the Buyer. In furtherance
of (but not by way of limitation of) the Sellers' obligation in the immediately
preceding sentence, the Sellers' Agent and the Buyer shall execute and deliver
to the Escrow Agent a joint instruction to deliver up to 500 of the Escrow
Shares to the Buyer, with the balance of such 500 of the Escrow Shares to be
delivered to the Sellers so long as no claim by the Buyer for indemnification
shall then be pending pursuant to this Agreement. To the extent that the Net
Current Assets, as deemed mutually agreed by the parties or as determined by the
Accountants,
4
<PAGE>
as aforesaid, is at least equal to $8,000,000, the Buyer shall be obligated to
execute and deliver to the Escrow Agent a joint instruction to deliver 500 of
the Escrow Shares to the Sellers pursuant to the Escrow Agreement (except to the
extent of any pending claim by the Buyer for indemnification pursuant to this
Agreement). To the extent that the Net Current Assets, as deemed mutually agreed
by the parties or as determined by the Accountants, as aforesaid, is greater
than $8,000,000 (the "Net Current Assets Excess"), the Buyer shall be obligated
to pay the amount of the Net Current Assets Excess in cash promptly to the
Sellers, together with interest thereon at the Interest Rate from and including
the first day of the calendar month in which the Closing occurs to the date of
payment.
(d) Allocation. The allocation of the Purchase Price and the Assumed
Liabilities as among the respective Sellers and as among the Purchased Assets
shall be as set forth in Part II of Schedule 1.3(d).
1.4 Instruments of Conveyance and Transfer; Dealership Leases.
(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 C (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) Dealership Leases. At the Closing, certain of the Shareholders
or their affiliates will enter into leases with the Buyer or a permitted
assignee of the Buyer, as lessee, regarding the Leased Premises (as defined in
Section 3.8(a) below) owned by them (the "Dealership Leases"). The Dealership
Leases will each be for a term of ten years with two five-year renewal options
in the tenant, and will otherwise be substantially in the form of Exhibit D
hereto. 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.
(c) Non-Competition Agreement. At the Closing, the Sellers and the
Shareholders will enter into a non-competition agreement with the Buyer (the
"Non-Competition Agreement"). The Non-Competition Agreement shall be for a term
of three years, will cover the Standard Metropolitan Statistical Areas served by
the Sellers and by the Buyer and its affiliates as of the Closing, and will
otherwise be substantially in the form of Exhibit E hereto.
(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 request in order to more fully vest, record and/or perfect the
Buyer's title to, or interest in, the Purchased Assets.
5
<PAGE>
(e) 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 parties hereto acknowledge and
agree that 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 Kemp, Schaeffer, Rowe
& Lardiere Co., L.P.A., 88 West Mound Street, Columbus, Ohio 43215, 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 March 17, 1998 (the "Closing Date
Deadline"); provided, however, if as of the Closing Date Deadline, the consents
or approvals of all applicable automobile manufacturers and distributors
contemplated in Section 7.10 shall not have been obtained and/or the audited
financial statements contemplated in Section 7.17 shall not have been completed,
the Buyer may, so long as it is using its reasonable best efforts to obtain such
consents or approvals and/or to complete such audited financial statements,
elect to extend the Closing Date Deadline for up to an additional 60 days. 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. Each of the Sellers is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Ohio. Each of the Sellers is qualified as a foreign corporation
and is 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.
3.2 Authority; Consent. Each of the Sellers 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
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
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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, 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 any 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 any of the Sellers is a party or by which any
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 Sellers are held of record and beneficially by the Shareholders, free and
clear of any Encumbrances. 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.
(b) Investments. Except as set forth on Schedule 3.3, 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) unaudited balance sheets of the Sellers as of December 31,
1996 and December 31, 1997, together with related statements of income for the
years then ended (collectively, the "Annual Financial Statements"); and (b)
unaudited balance sheets of the Sellers as of January 31, 1998, together with
related statements of income for the one 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, (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, 1997 the Sellers have
operated their businesses 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 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 vehicle and parts inventory in the
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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 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 the business or operations of the Sellers; or (k) Any agreement,
whether in writing or otherwise, by any 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 require the payment of
$50,000 or more in any twelve-month period, or do not require payment but which
are otherwise 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 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, and, except as set forth in Schedule 3.6(b), the transfer and assignment
to the
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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
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 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 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 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.
(c) Owned Real Property. None of the Sellers owns any 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 each of 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,
Schedule 3.9 also contains a list of all leases or other agreements, whether
written or oral, relating
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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 that, to the Sellers' knowledge, are 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. The values at which such inventories are carried are based on the
FIFO 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 for damaged, spoiled, obsolete,
defective or slow-moving goods and such reserve is consistent with both the
operation of the Sellers' businesses in the ordinary course and past practice.
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 the reserve for doubtful accounts, in the
ordinary course of the Sellers' business, and are not subject to any known
offsets or counterclaims. An adequate reserve for doubtful accounts has been
established and such reserve is consistent with both the operations of the
Sellers' business in the ordinary course and its past practices.
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
(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.
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 Occupational Safety and Health Act of 1970, as
amended, and under all other applicable health and
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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 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. To the best of the Sellers' knowledge, 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. 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 $10,000
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 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 Sellers for all
periods arising on or prior to the Closing Date 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 of the Sellers.
Each of the Sellers has made a valid election to be treated as an "S
Corporation" for federal income tax purposes which election has been
continuously in effect since the first day of the first tax year of each Seller.
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 any of 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 the institution of any such suit or proceeding. None of the Sellers is
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 in Schedule 3.17, there are
no persons, firms, associates, corporations, business organizations or other
entities holding general or special powers of attorney from any of the Sellers.
3.18 Broker's and Finder's Fees. Except as disclosed to the Buyer, none of
the Sellers or the Shareholders has 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,
jointly and severally, 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 [INSERT NUMBER]
employees as of December 31, 1997. Except as set forth in Schedule 3.19: (a)
none of the Sellers is 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 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) there are
no union organizational drives in progress and there has been no formal or
informal request to any of 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 any 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, 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, 1997 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 agreement. There is no existing claim, or, to the knowledge
of the Sellers, any basis for any claim, against any of 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 Ohio 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.
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3.22 Accounts Payable; Other Indebtedness. 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. Schedule 3.22 hereto sets forth a
list of all indebtedness of the Sellers, 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 Sellers 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, whether (and to what extent) such indebtedness is secured, 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 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, which have not been
disclosed to the Buyer and which could reasonably be expected to have a material
adverse effect on the businesses and operations of any of the Sellers, other
than business and economic conditions generally affecting the industry and
markets in which the Sellers participate.
3.26 Employee Benefits.
(a) The Sellers have listed on Schedule 3.26 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 within the meaning of Section 414 of the Internal Revenue Code
of 1986, as amended (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
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.
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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.
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,
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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 ("Environmental Permits"). All such
Environmental Permits are in good standing, the Sellers are and have 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 Sellers and the Purchased Assets are and have been in
compliance with all Environmental Laws.
(d) Neither the Sellers nor the Shareholders have 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 any of 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 any of the Sellers
under any Environmental Law, (iii) any remedial or removal action required to be
taken by any of 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. None of 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 threatened under any Environmental Law with respect to any of the
Sellers or the Real Property.
(f) None of the Sellers has released, discharged, spilled or
disposed of Hazardous Materials onto the Real Property and, to the knowledge of
the Sellers, no Hazardous Materials are or have been released, discharged,
spilled or disposed of by any other person onto, or have migrated onto, the Real
Property or any other property previously owned, operated or leased by any of
the Sellers, 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 any of 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) None of the Sellers nor, to the Sellers' knowledge, 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 any of the Sellers or the
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Shareholders have received or have 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 any 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
any of the Sellers which could give rise to any claim (whether or not such claim
has been asserted) against any of the Sellers.
(j) Except as set forth on Schedule 3.29(j), 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) None of the Sellers has 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(l), to the Sellers'
knowledge, 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 any of 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,
any of 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 any of
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 services of any of the Sellers. There have been no breach of
warranty or breach of representation claims against any of the Sellers during
the past five (5) years which have resulted in any cost, expenditure or exposure
to any of the Sellers 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, 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, any of the
Sellers, or (iii) has a beneficial interest in any contract or agreement to
which any 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.
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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, 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 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.
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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 Financing. As of the date hereof and as of the Closing Date, the Buyer
has sufficient funds, or sources of financing available to it, to enable it to
perform its obligations at the Closing.
4.6 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 SELLERS AND THE SHAREHOLDERS
The Sellers and the Shareholders hereby 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 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 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 existence in good standing, (b)
operate their businesses substantially as
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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 respects
with all applicable laws, rules and regulations, (e) maintain their 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 their books
and records of account in the usual, regular and ordinary manner, and (l) use
their reasonable best 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 Certain Prohibitions. The Sellers shall not, without the prior written
consent of the Buyer (a) engage or take part in, or agree to engage or take part
in, any reorganization or similar transaction, (b) 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, (c) sell or otherwise dispose of any
of their respective assets, other than sales of inventory in the ordinary course
of business, (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, or (e) declare
or make payment of any dividend or other distribution of cash or other property
in respect of any of their capital stock, or redeem, purchase or otherwise
acquire any such capital stock; provided, however, the Buyer's consent to the
payment of dividends by the Sellers will not be withheld so long as the Sellers
shall have demonstrated, to the reasonable satisfaction of the Buyer, that such
dividends (A) are only out of retained earnings for periods ending prior to
January 1, 1998, and (B) will not result in the Net Current Assets falling below
$8,000,000.
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 and the
Shareholders shall not (i) make any press
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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.
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 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 shall bear 100% of the costs, fees and expenses
in connection with any Phase I environmental audit report; if, based upon such
Phase I environmental audit report, a Phase II environmental report is
warranted, the Buyer, on the one hand, and the Sellers, on the other hand, shall
each bear 50% of the costs, fees and expenses in connection with the preparation
of such Phase II environmental audit report; provided however, the Sellers shall
have the right to require that a different environmental consulting firm,
selected by the Sellers and reasonably acceptable to the Buyer, be the
"Environmental Auditor" for such Phase II environmental audit report; and
provided further, that the maximum payment obligations of the Sellers with
respect to their share of the costs, fees and expenses of the Phase II
environmental audit shall be $10,000 per location.
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 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. The filing fees with respect to the
filing under the HSR Act shall be borne solely by the Buyer.
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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 any required filings by the Buyer with the
Securities and Exchange Commission or with the Buyer's lenders; provided,
however, 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 by the
rules of the New York Stock Exchange, 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' Agent,
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 and the Shareholders in the
preparation and dissemination of any public announcements of the transactions
contemplated by this Agreement.
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 as promptly as possible
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. 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 11.1(c) below.
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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 and the Shareholders. The
Sellers and the Shareholders 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, 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 Kemp,
Schaeffer, Rowe & Lardiere Co., L.P.A., counsel to the Sellers and the
Shareholders, dated the Closing Date, substantially in the form of Exhibit F
hereto.
7.5 Supporting Documents. The Buyer shall have received from the Sellers
the following:
(a) One or more certificates of the Secretary of State of the State
of Ohio dated as of a recent date as to the due incorporation or organization
and good standing 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 or an Assistant Secretary 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 Sellers, 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 Sellers, 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
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(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 and
exclusive control of each of the Purchased Assets (including, without
limitation, the delivery of keys).
7.7 Dealership Leases, Non-Competition Agreement, and Escrow Agreement.
The Buyer shall have received the Dealership Leases, the Non-Competition
Agreement and the Escrow 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 respective Boards of Directors and the shareholders of each
of the Sellers, necessary to effect a change of names of each 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 Ohio 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.
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 the business, prospects,
properties, earnings, results of operations or financial condition of any of the
Sellers 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 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.
7.17 Audited Financial Statements. The Buyer shall have completed
preparation of such audited financial statements of the Sellers as may be
required by applicable regulations of the Securities and Exchange Commission.
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 or a Vice 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 (a) tendered to the
Sellers the Closing Payment and the Closing Shares, and (b) placed into escrow
the Escrow Shares, as contemplated by Section 1.3(b) above.
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, substantially in the form of Exhibit G hereto.
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 and its
counsel, none of whose approval shall be unreasonably withheld or delayed.
8.8 Dealership Leases and Escrow Agreement. The Sellers' Agent shall have
received the Dealership Leases, duly executed by the Buyer or a permitted
assignee of the Buyer, and the Escrow Agreement, duly executed by the parties
thereto other than the Sellers.
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
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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.
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 Sellers.
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 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.
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 for a period of three years with the exception of the
representations and warranties of the Sellers contained in Sections 3.7, 3.15,
3.23 and 3.29, which shall survive the Closing until the expiration of the
applicable statutes of limitation. 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 and Shareholders. Subject to
the terms and conditions of Sections 10.4 and 10.5 hereof, each of the Sellers
and the Shareholders hereby agrees, 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")
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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, 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 in respect of Buyer's Damages
exceed a cumulative aggregate total of $100,000 (the parties hereby acknowledge
that the above stated figure of $100,000 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);
(b) the breach or nonfulfillment of any covenant or agreement of any
of the Sellers or the Shareholders 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.
With respect to the Sellers' and the Shareholders' obligations to pay
Buyer's Damages pursuant to Section 10.2 of this Agreement: (1) the Buyer, on
behalf of any Buyer Indemnitee, shall be entitled (but shall not be obligated)
to make demand for payment under the Escrow Agreement; and (2) the aggregate
amount of Buyer's Damages required to be paid by the Sellers and the
Shareholders hereunder shall not exceed the Purchase Price. To the extent that
the Buyer shall make a demand for payment of Buyer's Damages under the Escrow
Agreement, the number of Escrow Shares payable to the Buyer shall be that number
shares of Preferred Stock which, if converted on the date of payment, would be
convertible into that number of shares of the Buyer's Class A Common Stock
having an aggregate market value (based upon the average closing price per share
of the Buyer's Class A Common Stock on the New York Stock Exchange for the
twenty consecutive trading days immediately preceding the date of conversion)
equal to the amount of Buyer's Damages so demanded by the Buyer.
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
27
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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;
(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 indemnification
obligation with respect to such action, proceeding or claim, then the
Indemnifying Party shall be
28
<PAGE>
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 party 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
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:
(a) By written consent of the parties hereto;
(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 may terminate this Agreement pursuant to this Section 11.1(b)
if such party is in breach of any material representation, warranty or covenant
of such party contained in this Agreement;
29
<PAGE>
(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 15
days of the Buyer's receipt of such second request or of notice of such
challenge;
(d) By the Buyer, by written notice to the Sellers, in the event
that approval by any applicable automobile manufacturer or distributor of the
transaction contemplated by this Agreement is not received at least 10 Business
Day prior to the Closing Date Deadline;
(e) By the Buyer, by written notice to the Seller, in the event that
any automobile manufacturer or distributor shall exercise any right of first
refusal, preemptive right or other similar right, with respect to any of the
Purchased Assets; or
(f) By the Buyer within 60 days of ________________, 1998 if, and
only if, the Buyer is not satisfied, in its discretion, with the results of the
Buyer's due diligence investigation.
11.2 Procedure and Effect of Termination. In the event of termination
pursuant to Section 11.1, this Agreement shall be of no further force or effect;
provided, however, that any termination pursuant to Section 11.1 shall not
relieve any party hereto of any liability for breach of any representation and
warranty, covenant or agreement hereunder occurring prior to such termination.
In the event of any termination pursuant to Section 11.1, 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.
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 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.
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<PAGE>
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, Jr.
If to the Sellers, to the Sellers' Agent at the following address:
Bud C. Hatfield
c/o Toyota West
1500 Automall Drive
P.O. Box 28668
Columbus, Ohio 43228
Telecopier No.: [TO BE SUPPLIED]
Attention: Bud C. Hatfield
If to the Shareholders, to:
Mr. Bud C. Hatfield
c/o Toyota West
1500 Automall Drive
P.O. Box 28668
Columbus, Ohio 43228
Telecopier No.: [TO BE SUPPLIED]
Mr. Dan E. Hatfield
c/o Toyota West
1500 Automall Drive
P.O. Box 28668
Columbus, Ohio 43228
Telecopier No.: [TO BE SUPPLIED]
31
<PAGE>
Mr. Dan E. Hatfield, as Trustee of the
Bud C. Hatfield, Sr. Special Irrevocable
Trust
c/o Toyota West
1500 Automall Drive
P.O. Box 28668
Columbus, Ohio 43228
Telecopier No: [TO BE SUPPLIED]
in either case, with a copy to:
Kemp, Schaeffer, Rowe & Lardiere Co., L.P.A.
88 West Mound Street
Columbus, Ohio 43215
Telecopier No.: (614) 469-7170
Attention: Michael N. Schaeffer, 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.
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.
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 this 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. Nothing contained in this
Agreement shall prohibit its assignment by the Buyer as collateral security and
the Sellers hereby agree to execute any acknowledgment of such assignment by the
Buyer as may be required by any lender to the Buyer.
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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<PAGE>
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 Ohio, 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 knowledge of the Sellers, (i) such knowledge shall be
deemed to include (A) the best actual knowledge, information and belief of any
of the Sellers or the Shareholders and (B) any information which any Shareholder
would reasonably be expected to be aware of in the prudent discharge of his or
her duties in the ordinary course of business (including consultation with legal
counsel) on behalf of any Seller, and (ii) the knowledge of any Seller or
Shareholder shall be deemed to be the knowledge of all the Sellers and
Shareholders.
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 Ohio, 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
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<PAGE>
of arbitration shall be Columbus, Ohio. 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 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; nothing
contained in this Section 12.10 shall prevent the Buyer from enforcing the
Non-Competition Agreement in any court of competent jurisdiction.
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]
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<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/ O. Bruton Smith
--------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
THE SELLERS:
HATFIELD JEEP EAGLE, INC.
By: /s/ Dan E. Hatfield
--------------------------------
Name: Dan E. Hatfield
Title: President
HATFIELD LINCOLN MERCURY, INC.
By: /s/ Dan E. Hatfield
--------------------------------
Name: Dan E. Hatfield
Title: President
TRADER BUD'S WESTSIDE DODGE, INC.
By: /s/ Bud C. Hatfield
--------------------------------
Name: Bud C. Hatfield
Title: President
TOYOTA WEST, INC.
By: /s/ Dan E. Hatfield
--------------------------------
Name: Dan E. Hatfield
Title: President
35
<PAGE>
HATFIELD HYUNDAI, INC.
By: /s/ Dan E. Hatfield
--------------------------------
Name: Dan E. Hatfield
Title: President
THE SHAREHOLDERS: /s/ Bud C. Hatfield (SEAL)
------------------------------------
BUD C. HATFIELD
/s/ Dan E, Hatfield (SEAL)
------------------------------------
DAN E. HATFIELD
/s/ Dan E. Hatfield (SEAL)
------------------------------------
DAN E. HATFIELD, AS TRUSTEE
OF THE BUD C. HATFIELD, SR.
SPECIAL IRREVOCABLE TRUST
36
<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 3.1 - Jurisdictions of Foreign Qualification of
Sellers
Schedule 3.2 - Required Authorizations and Consents to
Agreement
Schedule 3.3 - 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 - 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 3.16 - Litigation
<PAGE>
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 3.22 - Accounts Payable and Other Indebtedness
Schedule 3.23 - Other Liabilities
Schedule 3.24 - Affiliate Transactions
Schedule 3.26 - Employee Plans
Schedule 3.29(j) - Certain Environmental Conditions
Schedule 3.29(l) - Environmental Studies and Reports
Schedule 3.30 - Bank Accounts, Credit Cards and Safe
Deposit Boxes
Schedule 3.31 - Warranties
Schedule 3.32 - Interests in Competitors
Schedule 4.2(a) - Buyer Consents
2
<PAGE>
List of Exhibits
Exhibit A - Preferred Stock Statement of Rights and
Preferences
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Bills of Sale and Assignment
Exhibit D - Form of Dealership Leases
Exhibit E - Form of Non-Competition Agreement
Exhibit F - Form of Legal Opinion of Counsel for the
Sellers and the Shareholders
Exhibit G - Form of Legal Opinion of Counsel for the
Buyer
<PAGE>
Schedule 1.1(a)
Purchased Assets
The Purchased Assets shall include, without limitation, the
following, all to the extent not included in the Excluded Assets:
(a) all machinery, equipment (both mobile and non-mobile),
computers, computer programs, databases and related manuals and other materials
necessary for the development, use, installation, maintenance and modification
of such computer programs and databases, tapes, tools, furniture, furnishings,
automobiles, trucks, vehicles, tools, dies, molds, signs, supplies and parts and
other tangible personal property (including any of the foregoing purchased
subject to any conditional sales or title retention agreement in favor of any
third party), whether owned, leased or subleased;
(b) all accounts and notes receivable, advances held by the
Sellers, and all debts and obligations due to the Sellers from their customers
and others, howsoever evidenced, and whether or not previously written-off by
the Sellers, and all obligations and loans, if any, due to the Sellers as of the
Closing from any and all employees of the Sellers;
(c) all inventories, including, without limitation, all new
and used vehicle and parts inventories, goods, supplies, fuel oil, spare parts,
packing containers, replacement and component parts, and office and other
supplies, including all such inventories held at any location controlled by the
Sellers and all such inventories previously purchased and in transit to the
Sellers at such locations;
(d) all rights to products sold or leased and to any products
under research or development prior to or on the Closing;
(e) all security, utility or similar deposits and prepaid
expenses of the Sellers;
(f) all of the rights of the Sellers under all contracts,
arrangements, commitments, sales orders, purchase orders, invoices, license and
technology agreements, leases and agreements and all warranties, claims and
causes of action against third parties and under insurance policies, including
any of the Sellers' right to receive goods and services pursuant to such
contracts and to assert claims and take other rightful actions in respect of
breaches, defaults and other violations of such contracts and otherwise;
(g) all designs, plans, non-marketing trade secrets,
inventions, processes, procedures, research records, manufacturing know-how and
manufacturing formulae, wherever located;
(h) all books, records, manuals and other materials,
including, without limitation, all records and materials maintained at any and
all offices and other locations of the Sellers, all accounting and financial
records, files, computer tapes, advertising matter, catalogues,
<PAGE>
brochures, price lists, correspondence, mailing lists, lists of customers and
suppliers, distribution lists, art work, photographs, production data, sales and
promotional materials and records, purchasing materials and records, personnel
records, credit records, manufacturing and quality control records and
procedures, blueprints, research and development files, records, data and
laboratory books, patent disclosures, media materials and plates, sales order
files and litigation files, stationary and business forms;
(i) all interest of the Sellers in and to their telephone and
telex numbers and all listings pertaining to the Sellers in all telephone books
and directories;
(j) to the extent their transfer is permitted by law, all
governmental licenses, permits, approvals, license applications, license
amendment applications and product registrations;
(k) all bank accounts;
(l) all cash paid by customers of the Sellers, or otherwise,
whether or not deposited with a trustee or other depository;
(m) all goodwill of the Sellers;
(n) all trademarks, service marks and trade names and
registered user names, all rights to the Proprietary Names (as defined in the
Agreement) and all logos, tradestyles and variants thereof, of the Seller, and
all existing and pending registrations or applications in connection with the
foregoing; and
(o) all insurance policies.
<PAGE>
Schedule 1.1(b)
Excluded Assets
The Sellers will retain and not sell, convey, assign, transfer or
deliver to the Buyer, and the Buyer shall not purchase or acquire, the following
Excluded Assets:
(a) all real property owned by the Sellers;
(b) the minute books, stock ledgers and other related
corporate books and records of the Sellers;
(c) refunds for Taxes of the Sellers, except for Taxes accrued
for or reserved against in the Closing Balance Sheet, and all claims therefor;
(d) all segregated funds and other assets of the Sellers
corresponding to Employee Plans of the Sellers that are not assumed by the Buyer
according to Schedule 1.2;
(e) all governmental licenses, permits, approvals, license
applications, license amendment applications and product registrations the
transfer of which is not permitted by law;
(f) any loans or advances to employees or to the Sellers,
their affiliates, or their respective officers, directors or shareholders.
<PAGE>
Schedule 1.1(c)
Permitted Encumbrances
Those Encumbrances listed on Schedule 3.7 which secure only the payment of
indebtedness included in the Assumed Liabilities.
<PAGE>
Schedule 1.2
Assumed Liabilities
The Buyer shall assume the following liabilities and obligations of
the Sellers:
(a) all liabilities and obligations (i) set forth in the
balance sheets included in the Financial Statements, (ii) of the type and kind
set forth in such balance sheets and incurred by the Sellers in the ordinary
course of business from the date of such balance sheets to the Closing Date, and
(iii) set forth in the Closing Balance Sheet;
(b) the Inducement Fee; and
(c) all continuing obligations under the Material Contracts
listed on Schedule 3.6 arising after the Closing in the ordinary course of
business and not as a result of any breach or default of the Sellers thereunder.
* * * * * * * * * * * * *
Notwithstanding the foregoing and without limiting the generality of
the definition of "Retained Liabilities" set forth in the Agreement, the Buyer
shall not assume, and the Sellers shall retain and be responsible for, the
following Retained Liabilities, unless specifically included in the Assumed
Liabilities:
(i) those liabilities payable to the Sellers, their
affiliates, or their respective officers, directors or shareholders;
(ii) all real property mortgage indebtedness owed by any of
the Sellers;
(iii) all liabilities and obligations under lines of credit,
long and short term indebtedness to financial institutions and other similar
financings, except for new and used vehicle "floor planning" lines;
(iv) all liabilities and obligations for Taxes, except to the
extent accrued for or reserved against in the Closing Balance Sheet;
(v) all liabilities and obligations under any contract or
agreement which is not fully and effectively assigned to the Buyer (including
any required consent or approval as specified in Schedule 3.2 or 3.6(b) and such
consent or approval has not been obtained by the Sellers or waived by the
Buyer);
(vi) all liabilities for any and all pending or threatened
litigation existing at the time of the Closing;
<PAGE>
(vii) all known or unknown environmental liabilities and claims
arising out of the ownership or operation of the Purchased Assets prior to the
Closing, including, without limitation, the presence, release or threatened
release of Hazardous Materials and any liabilities or obligations arising under
any Environmental Law, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), as amended;
(viii) all known or unknown product liabilities and claims arising
out of the sale of products or the furnishing of services prior to the Closing;
(ix) all liabilities and obligations relating to the Excluded
Assets; and
(x) all employment related liabilities.
Exhibit 10.4
F I N A L
2/10/98
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of February 10, 1998 (this
"Agreement") among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "Buyer"),
CAPITOL CHEVROLET, INC., an Alabama corporation (the "Corporation"), CAPITOL
IMPORTS, LTD., an Alabama limited partnership (the "Partnership" and, together
with the Corporation, collectively, the "Companies"), and FRANK E. McGOUGH, JR.
(the "Seller").
W I T N E S S E T H:
WHEREAS, as of the Closing (as defined in Article 2 below), the Seller
will own (i) all of the issued and outstanding shares of common stock of the
Corporation which shares (the "Shares") represent all of the issued and
outstanding shares of capital stock of the Corporation, and (ii) all of the
issued and outstanding partnership interests of the Partnership (the
"Partnership Interests"); and
WHEREAS, the Buyer desires to acquire the Shares and the Partnership
Interests from the Seller, and the Seller is willing to sell the Shares and the
Partnership Interests to the Buyer, upon the terms and conditions hereinafter
set forth; and
WHEREAS, the acquisition by the Buyer of the Shares and the Partnership
Interests is to be accomplished by the merger (the "Merger") of the Companies
with and into a wholly-owned Alabama subsidiary (the "Sub"), to be formed by the
Buyer prior to the Closing, on the terms and subject to the conditions set forth
herein.
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:
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ARTICLE 1
The Merger
1.1 The Merger.
(a) Subject to the provisions of this Agreement and the Certificate
of Merger substantially in the form of Exhibit A attached hereto (the
"Certificate of Merger"), the Companies shall be merged with and into the Sub in
accordance with the provisions of the Alabama Business Corporation Act and the
Alabama Limited Partnership Act (collectively, the "Merger Law"), whereupon the
separate existence of the Companies shall cease and the Sub shall be the
surviving corporation (the Sub and the Companies are sometimes herein referred
to as the "Constituent Companies" and the Sub after the Merger is sometimes
herein referred to as the "Surviving Company").
(b) As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver of all conditions to the Merger, the Constituent
Companies shall execute and file the Certificate of Merger with the Secretary of
State of the State of Alabama in accordance with the Merger Law, and shall
otherwise make all other filings or recordings required by the Merger Law in
connection with the Merger. The Merger shall become effective at such date and
time as the Certificate of Merger is duly filed with, and accepted by, the
Secretary of State of the State of Alabama (the "Effective Time").
(c) At the Effective Time, the separate existence of the Companies
shall cease and the Companies shall be merged with and into the Sub and the Sub
shall be the Surviving Company, whose name thereafter shall be "CAPITOL
CHEVROLET AND IMPORTS, INC.".
(d) From and after the Effective Time: (i) the Articles of
Incorporation of the Surviving Company shall be the Articles of Incorporation of
the Sub; (ii) the Bylaws of the Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Company, until thereafter
amended in accordance with applicable law; (iii) the directors of the Sub at the
Effective Time shall become the directors of the Surviving Company, until their
respective successors are duly elected or appointed and qualified in accordance
with applicable law; and (iv) the officers of the Sub at the Effective Time
shall become the initial officers of the Surviving Company, to serve at the
pleasure of the board of directors of the Surviving Company.
(e) At the Effective Time by virtue of the Merger and the applicable
provisions of the Merger Law and without any further action on the part of the
Constituent Companies or on the part of the Companies' shareholders and
partners:
(1) each share of common stock of the Sub outstanding
immediately prior to the Effective Time shall, automatically and without any
action on the part of the holder thereof, be converted into one share of common
stock of the Surviving Company;
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(2) all of the Shares and all of the Partnership Interests
(collectively, the "Company Securities") shall, automatically and without any
action on the part of the Seller, cease to be outstanding and shall be converted
into the right to receive the Merger Consideration (as defined in Section 1.2
below) in accordance with the provisions of said Section 1.2. All Company
Securities, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and the Seller
holding Company Securities shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration in accordance with
provisions of said Section 1.2.
1.2 The Merger Consideration.
(a) Definitions. As used in this Agreement, (i) the term "Basic
Consideration" shall mean $7,325,000, adjusted as provided in Section 1.4 below,
(ii) the term "Contingent Consideration" shall have the meaning given to it in
Section 1.2(d) below, (iii) the term "Merger Consideration" shall mean the Basic
Consideration and the Contingent Consideration, and (iv) the term "Escrow
Amount" shall mean the sum of $500,000, which shall be withheld from the Basic
Consideration and placed in escrow, as more fully provided in Section 1.2(c)(2)
below.
(b) Entitlement to Merger Consideration. The Seller shall, after the
Effective Time and provided the Seller shall have surrendered to the Surviving
Company any certificate or certificates for the Company Securities, or other
reasonably satisfactory evidence thereof, in accordance with the provisions of
Section 1.5 below, or shall have otherwise complied with said Section 1.5, be
entitled to receive payment of the Merger Consideration, subject to the terms
and conditions of this Article 1.
(c) Payment of Basic Consideration. Payment to the Seller of the
Basic Consideration shall be made as follows:
(1) An amount equal to $3,039,000 less the Escrow Amount,
shall be paid to the Seller, in immediately available funds by wire transfer to
an account designated in writing to the Buyer, on the first full Business Day
(as hereinafter defined) after such surrender of such certificate or
certificates, or other evidence, and designation of such account (which Business
Day will be the Closing Date provided the certificate or certificates, or other
evidence, together with applicable wire transfer instructions, shall have been
received by the Buyer at or before the Closing). The sum of $275,000 shall be
paid on each of the first and second anniversaries of the Closing Date, by wire
transfer as aforesaid. In the event that the Buyer shall have failed to pay all
or any portion of such $275,000 sum and such failure shall have continued for a
period of 10 Business Days from the due date thereof, such sum shall bear
interest at the Interest Rate (as defined in Section 1.4(b) below) until paid
and the Buyer shall also be obligated, upon demand of the Seller, to pay any
remaining such $275,000 sum, together with interest at such Interest Rate from
the date of such demand to the date of payment. For purposes of this Agreement,
a "Business Day" means any day, other than a Saturday, Sunday or legal holiday,
on which banks in the State of Alabama are generally open for business.
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(2) The Escrow Amount shall be placed in escrow with First
Union National Bank (the "Escrow Agent") by the Buyer in accordance with the
Escrow Agreement in substantially the form of Exhibit B hereto, with such other
changes thereto as the Escrow Agent shall reasonably request (the "Escrow
Agreement"). The term of the Escrow Agreement will be for 90 days from the
Closing Date (or such longer period of time as shall be necessary to determine
the Net Book Value pursuant to Section 1.4(b) below), except to the extent that
the Buyer shall have made claims during such period for payment from the Escrow
Amount in respect of the adjustment to the Basic Consideration contemplated by
Section 1.4 of this Agreement or for indemnification pursuant to the terms of
this Agreement. At the end of such 90-day (or longer) period, the Buyer will
execute a joint instruction with the Seller, pursuant to the Escrow Agreement
instructing the Escrow Agent to pay the Escrow Amount, less the amount of any
such claims by the Buyer, to the Seller pursuant to the terms of the Escrow
Agreement.
(3) The Buyer shall issue and deliver to the Seller 3,736
shares of the Buyer's Convertible Preferred Stock (the "Preferred Stock"). The
Preferred Stock will be convertible into that number of shares of the Buyer's
Class A Common Stock (the "Common Stock") having an aggregate market value at
the time of conversion (based upon the average closing price per share of Common
Stock on the New York Stock Exchange for the 20 consecutive trading days
immediately preceding the Closing Date) of not less than $3,362,400 and not more
than $4,109,600, as more fully set forth in the Summary of Rights and
Preferences attached as Exhibit C hereto. The Buyer shall use its reasonable
best efforts to make available current public information with respect to the
Buyer within the meaning of Subsection (c)(1) of Securities and Exchange
Commission Rule 144 ("Rule 144") to the extent necessary to facilitate public
resales by the Seller of such shares of Common Stock pursuant to Rule 144. The
Buyer shall remove all stop transfer instructions and shall remove any
restrictive legend on the certificates with respect to any shares of the
Preferred Stock or the Common Stock then owned by the Seller to the extent that
either (i) the Preferred Stock or the Common Stock may hereafter be registered
under the Securities Act of 1933, as amended, and under any applicable state
securities or blue sky laws, or (ii) the Buyer has received an opinion of
counsel satisfactory to the Buyer, in form and substance satisfactory to the
Buyer, that such registration is not required.
(4) Notwithstanding the foregoing, should any shares of Common
Stock comprising part of the Basic Consideration or the Contingent Consideration
include any fractional share of the Common Stock, the Buyer shall not be
obligated to deliver any certificate with respect to such fractional share; in
lieu thereof, the Buyer shall pay to the Seller an amount of cash (rounded to
the nearest whole cent) equal to the product of (i) such fraction multiplied by
(ii) the average closing price per share of Common Stock on the New York Stock
Exchange for the 20 consecutive trading days immediately preceding the date of
payment.
(d) Payment of Contingent Consideration.
(1) As used in this Agreement, (i) the term "Contingent
Consideration" shall mean an amount, not to exceed an aggregate total of
$3,250,000, equal to
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4.75 times the Earnings Before Taxes of the Buyer or any successor to or
assignee of the Buyer between $1,368,421 and $2,052,632 during the Overall
Calculation Period, as more fully provided in paragraph (2) below, (ii) the term
"Subject Businesses" shall mean the businesses of the Companies acquired
pursuant to this Agreement, (iii) the term "Calculation Period" shall mean each
of the four consecutive twelve calendar month periods which collectively
comprise the Overall Calculation Period; (iv) the "Overall Calculation Period"
shall mean the forty-eight consecutive calendar month period beginning with the
first full calendar month after the Closing Date, (v) the term "Earnings Before
Taxes" shall mean the combined earnings before taxes of the Buyer or any
successor to or assignee of the Buyer from the Subject Businesses, as more fully
provided in paragraph (3) below; and (vi) the term "Qualified Earnings Before
Taxes" shall mean, for any Calculation Period, Earnings Before Taxes for such
Calculation Period of $1,368,421 up to and including $2,052,632.
(2) Subject to the provisions of Section 9.7 below, not later
than 120 days after each of the first through the fourth anniversaries of the
Closing Date, the Buyer shall pay to the Seller an installment of the Contingent
Consideration, calculated as follows:
(i) The installment of Contingent Consideration for the
first Calculation Period shall be calculated based upon the excess, if any, of
Qualified Earnings Before Taxes, for such Calculation Period over $1,368,421
(any such excess being called the "First Period Excess");
(ii) The installment of Contingent Consideration for the
second Calculation Period shall be calculated based upon the excess, if any, of
Qualified Earnings Before Taxes for such Calculation Period over the sum of (A)
$1,368,421 plus (B) the First Period Excess (any such excess being called the
"Second Period Excess");
(iii) The installment of Contingent Consideration for
the third Calculation Period shall be calculated based upon the excess, if any,
of Qualified Earnings Before Taxes for such Calculation Period over the sum of
(A) $1,368,421, plus (B) the First Period Excess, plus (C) the Second Period
Excess (any such excess being called the "Third Period Excess"); and
(iv) The installment of Contingent Consideration for the
fourth Calculation Period shall be calculated based upon the excess, if any, of
Qualified Earnings Before Taxes, for such Calculation Period over the sum of (A)
$1,368,421, plus (B) the First Period Excess, plus (C) the Second Period Excess,
plus (D) the Third Period Excess,
provided, however, the Contingent Consideration payable in respect of all four
Calculation Periods shall not exceed an aggregate total of $3,250,000.
An amount equal to 49% of each installment to Contingent Consideration
shall be paid to the Seller in cash by wire transfer of immediately available
funds to the account of the Seller, which shall be designated by the Seller in
writing at least one (1) Business Day prior to the date
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of payment, and the balance of such installment of Contingent Consideration
shall be paid by the issuance and delivery to the Seller of shares of Preferred
Stock at the rate of one share of Preferred Stock for every $1,000 of such
Contingent Consideration. Fractional shares of Preferred Stock may be issued
under this Agreement; however, no fractional shares of Common Stock shall be
issued upon conversion of the Preferred Stock. If any installment of Contingent
Consideration shall not be paid when due and such failure shall continue for a
period of 10 Business Days, such installment shall bear interest at the Interest
Rate (as defined in Section 1.4(b) below) until paid.
(3) For purposes of calculating Earnings Before Taxes, the
following rules shall apply:
(i) no deduction shall be taken for federal and state
income taxes owed by the Subject Businesses;
(ii) no deduction shall be taken for any interest
expenses of the Subject Businesses other than floor plan financing interest
attributable to the Subject Businesses and other interest expenses directly
attributable to the operation of the Subject Businesses;
(iii) Earnings Before Taxes shall be determined before
any expense chargeable with respect to the Non-Competition Agreement (as defined
in Section 1.7(c) below) or any management fee expense allocation from the Buyer
in respect of management fees payable to the Buyer;
(iv) For purposes of calculating Earnings Before Taxes,
each of the three $275,000 installments of Basic Consideration shall be treated
as an expense;
(v) No deduction shall be taken for any amortization of
goodwill included in the Purchase Price;
(vi) Earnings Before Taxes shall not reflect any income
associated with collection of the Acceptance Receivables (as defined in Section
1.4(c) below);
(vii) overhead expenses (including, without limitation,
accounting fees, data processing fees, third party management and consulting
fees, salaries and bonuses of persons previously employed by Buyer and any of
its Affiliates other than the Surviving Company, and the like) or other expenses
which have been incurred by any of the Subject Businesses which are allocated to
such Subject Business but do not directly relate to the operation of such
Subject Business, or that portion so allocated which is not reasonably related
to the operation of such Subject Business, shall not be deducted in determining
Earnings Before Taxes; and
(viii)Earnings Before Taxes shall be determined without
reference to any income or expense attributable to business operations of the
Surviving
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Company other than the Subject Businesses.
At the time of the making of the payment of an installment of the
Contingent Consideration, the Buyer shall deliver to the Seller a statement in
writing setting forth in reasonable detail the manner in which the respective
payment of Contingent Consideration was determined. The Seller shall have a
period of 30 days after the payment of such installment of Contingent
Consideration to object in writing to the Buyer's calculation of the respective
Earnings Before Taxes. If the Buyer and the Seller are unable to reach agreement
on the Buyer's objections, the matter shall be submitted to binding resolution
by the Accountants (as defined in Section 1.4(a) below). For purposes of such
resolution process, the procedural provisions of the last sentence of said
Section 1.4(a) shall be applicable, except that the Seller shall pay 100% of the
fees and expenses of the Accountants in determining such Earnings Before Taxes
unless such Earnings Before Taxes, as determined by the Accountants, is more
than 110% of such Earnings Before Taxes as determined by the Buyer, in which
case the Buyer shall pay 100% of such fees and expenses of the Accountants.
Until such time as the Contingent Consideration shall have been paid in full,
the Buyer shall furnish to the Seller its regularly prepared monthly dealer
financial statements, such financial statements to be furnished within 30 days
after their preparation by the Buyer.
(e) Concerning Certain Shares of Preferred Stock.
If, pursuant to this Agreement, the Buyer shall issue any
shares of Preferred Stock after the second anniversary of the Closing Date, the
Buyer will grant to the Seller "piggyback" registration rights with respect to
the shares of Common Stock issuable on conversion of such shares of Preferred
Stock. Such piggyback registration rights shall be subject to customary
limitations such as underwriter cutbacks and registration rights, if any, of
others.
1.3 Certain Divestitures Prior to Closing. Prior to the Closing, the
Companies will distribute to the Seller the following assets, as more fully
described on Exhibit D hereto (collectively, the "Distributed Assets"): land;
buildings and improvements; leasehold improvements; life insurance; certain
notes receivable; GMAC contract for Frank McGough's benefit; and employee
receivables. In connection with such distribution, the Companies shall also
distribute to the Seller the following liabilities, also as more fully described
on Exhibit D hereto (collectively, the "Distributed Liabilities"): GMAC payables
for the benefit of Frank McGough; obligations with respect to the life insurance
included in the Distributed Assets; payables to Frank McGough's family; any
loans secured by real estate; and all liabilities to Frank McGough for personal
funds invested in GMAC cash management.
1.4 Basic Consideration Adjustment Procedures.
(a) Not later than 60 days after the Closing Date (as defined in
Article 2), the Buyer will prepare and deliver to the Seller a consolidated
balance sheet (the "Closing Balance Sheet") of the Companies as of the Closing
Date, consisting of a computation of the consolidated book value of the tangible
assets of the Companies as of the Closing Date (excluding the
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Distributed Assets), less the consolidated book value of the liabilities of the
Companies as of the Closing Date (excluding the Distributed Liabilities), but
including (i) the present value of the tax liabilities of the Companies
associated with the conversion to the FIFO method of accounting for inventories
(utilizing a discount factor equal to the Interest Rate applied to the longest
payment period permitted by the Internal Revenue Service without imposition of
penalties or interest), and (ii) the tax liabilities of the Companies, if any,
associated with the distribution of the Distributed Assets and Distributed
Liabilities (in the case of the distribution of any real property, utilizing a
fair market value for such property which is mutually agreed to by the Buyer and
the Seller or, failing such agreement, determined by a nationally recognized
appraisal firm selected by the Buyer and reasonably acceptable to the Seller).
In addition, the Closing Balance Sheet shall reflect as a liability the unpaid
amount payable to Van McGough in consideration of a covenant not to compete
given by him, such liability to be reflected at its present value utilizing a
discount factor equal to the Interest Rate. The Closing Balance Sheet and the
accounts reflected therein shall be determined in accordance with tax basis
accounting principles applied consistently with the preparation of the tax basis
balance sheet included in the Annual Financial Statements (as defined in Section
3.13(a)); provided, however, that (A) used vehicle inventories shall be valued
as mutually agreed by the Buyer and the Seller based upon a physical inventory
to be conducted by them as of such date ( the "Valuation Date"), not more than
20 days after the date the Buyer shall have a representative of the Buyer (the
"Buyer's Representative") on site full time at the Companies' premises; with
respect to all used vehicles in the Companies' inventory as of the Valuation
Date, if any of such vehicles shall not have been sold within ninety days after
the Valuation Date, the value of such vehicle on the Closing Balance Sheet shall
be reduced by $500; for all used vehicles acquired after the Valuation Date with
the approval of the Buyer's Representative or his designee, such vehicles shall
be valued at cost; (B) parts which are returnable under the respective
manufacturers' returnable parts plans shall be valued at their respective return
values under such plans; (C) 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 (excluding new cars, used cars and
returnable parts to the extent they qualify for return under the relevant
manufacturer's parts return plans or policies); provided, however, new
demonstrator vehicles with more than 5,000 miles on their odometers shall be
reduced in value by $.32 per mile for each mile shown on the odometer in excess
of $5,000. 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 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. If issues in dispute are submitted to the Accountants for
resolution, (1) each party will furnish to the Accountants such work papers 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
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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; and (4) the Buyer and the Seller
shall each bear 50% of the fees and expenses of the Accountants for such
determination.
(b) If the Net Book Value, as deemed mutually agreed by the parties
or as determined by the Accountants, as aforesaid, equals or exceeds $4,300,000,
the parties shall execute and deliver to the Escrow Agent a joint instruction to
pay the entire Escrow Amount 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 $4,300,000 (the "Net Book Value Excess"), the
Buyer shall be obligated to pay the Net Book Value Excess promptly to the
Seller, together with interest on the amount of the Net Book Value Excess at the
Buyer's floor plan financing rate (which currently is 90 basis points below
prime rate) from time to time in effect (the "Interest Rate") from the Closing
Date to the date of such payment. 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 $4,300,000 (the "Net Book Value Shortfall"), the Seller
shall be obligated to pay the amount of the Net Book Value Shortfall, up to the
entire amount of the Escrow Amount, promptly to the Buyer, with any remaining
balance of the Escrow Amount to be paid to the Seller. In furtherance of such
obligation of the Seller, the parties shall execute and deliver to the Escrow
Agent a joint instruction to pay such amount of the Net Book Value Shortfall to
the Buyer. To the extent that the Net Book Value Shortfall exceeds the Escrow
Amount, the Seller shall be obligated to pay the amount of such excess over the
Escrow Amount promptly to the Buyer, together with interest on the amount of
such excess over the Escrow Amount at the Interest Rate from the Closing Date to
the date of such payment. Any interest earned on the Escrow Amount shall be paid
to the Buyer or the Seller, as the case may be, in proportion to the respective
principal amounts of the Escrow Amount paid to each of them. Any Net Book Value
Excess shall be paid to the Seller 49% in cash and 51% in shares of Preferred
Stock at the rate of one share of Preferred Stock for every $1,000 in value of
such percentage of Net Book Value Excess. Interest thereon shall be paid in
cash.
(c) It is intended that the Closing Balance Sheet shall include a
reserve for uncollectibility of amounts payable to the Companies by Credit
Acceptance Corporation and Auto Acceptance (collectively, the "Acceptance
Receivables") as of the Closing Date. To the extent that actual collections by
the Companies of the unreserved portion of the Acceptance Receivables during the
6 year period after the Closing Date shall exceed an amount equal to such
unreserved portion plus interest thereon from the Closing Date to the date of
collection of the respective Acceptance Receivables, the Buyer shall promptly
notify the Seller thereof and pay the amount of such excess to the Seller. The
Buyer may elect to defer payment of such excess on an annual basis, in which
case the Buyer shall pay interest at the Interest Rate on the amount so
deferred. To the extent that actual collections by the Companies of the
unreserved portion of the Acceptance Receivables during the 6 year period after
the Closing Date shall be less than such unreserved portion, the Buyer shall
notify the Seller and the Seller shall promptly pay the
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Buyer the shortfall in such unreserved portion together with interest thereon at
the Interest Rate from the Closing Date to the date of payment. Any write-offs
by the Buyer after the Closing Date of the Acceptance Receivables shall be
applied first against such reserve and, to the extent such write-offs are
applied against such reserve, the Buyer shall pay to the Seller an amount equal
to any net tax benefit to the Buyer (computed based upon the Buyer's applicable
tax rates) resulting from such write-off. Any payments by the Buyer under this
Section 1.4(c) shall be made 49% in cash and 51% in shares of Preferred Stock at
the rate of one share of Preferred Stock for each $1,000 in value of such
payment percentage. The Seller shall have the right, upon prior notice to the
Buyer and during normal business hours, to inspect the Buyer's books and records
with respect to the collection of the Acceptance Receivables.
1.5 Surrender of Company Securities
(a) At the Closing, the Seller shall surrender to the Surviving
Company the certificate or certificates, or other reasonably satisfactory
evidence, representing Company Securities to be exchanged for the Merger
Consideration pursuant to Section 1.2, duly endorsed to the Surviving Company
(in the case of certificates), with all transfer taxes duly paid, where
applicable. If such certificate or certificates or other evidence cannot, after
a diligent search, be located, in lieu of such certificate or certificates or
other evidence the Seller shall provide an affidavit of lost certificate and
indemnity in a form reasonably satisfactory to the Buyer. Upon such surrender,
the Seller shall be entitled to the Merger Consideration, as more fully provided
in Section 1.2 above. Until surrendered in accordance with Section 1.5, each
such certificate or other evidence of the Company Securities shall be deemed for
all purposes to evidence only the right to receive the Merger Consideration
payable pursuant to Section 1.2 (subject to any taxes required to be withheld).
(b) The Company Securities, when surrendered to the Surviving
Company pursuant to Section 1.5(a) above, shall be surrendered 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").
1.6 Appraisal/Dissenters' Rights. It shall be a condition to the Buyer's
obligations at the Closing that all Company Securities shall have been voted in
favor of the Merger, such that no appraisal or dissenters rights under
applicable law shall be available to the Seller.
1.7 Dealership Leases; Employment Agreement; Non-Competition Agreement.
(a) Dealership Leases. At the Closing, the Seller and/or his
Affiliates (as hereinafter defined), as lessors, will enter into lease
agreements (the "Dealership Leases") with the Buyer, as lessee, regarding the
Leased Premises (as defined in Section 3.16(b) below) owned by them. The
Dealership Leases: shall be for ten year terms with two 5-year renewal options
in tenant; shall be "triple net" with aggregate total monthly lease payments of
$56,500, subject to CPI adjustment upon completion of the fifth year of the
initial lease term and again upon the
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commencement of each renewal option period; shall contain options to purchase
the respective Leased Premises at fair market value; and shall otherwise be
substantially in the form of Exhibit E hereto. 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) Employment Agreement. At the Closing, Frank McGough will enter
into an employment agreement with the Buyer (the "Employment Agreement"). The
Employment Agreement: shall be for a three year term; shall provide for a
$25,000 annual salary, standard employee benefits (health care, etc.), the use
of two demonstrator vehicles, payment of club dues of up to $500 per month and a
$75,000 bonus upon closing of each dealership acquired by the Buyer or its
Affiliates and first brought to the attention of the Buyer as an acquisition
target; and shall otherwise be substantially in the form of Exhibit F hereto.
(c) Non-Competition Agreement. At the Closing, Frank McGough will
enter into a non-competition agreement with the Buyer and the Surviving Company
(the "Non-Competition Agreement"). The Non-Competition Agreement: shall be for
a three year term; shall cover the Montgomery, Alabama Metropolitan Statistical
Area (as compiled by the United States Office of Management and Budget), with
the exception of Dothan, Alabama; and shall otherwise be substantially in the
form of Exhibit G hereto.
1.8 Seller's Covenant to Close. The Seller further covenants and agrees to
vote all of the Company Securities held by him in favor of the Merger, and
otherwise to take all officer, director, shareholder or partner actions
necessary to cause the Companies to adopt and approve, and to consummate, the
Merger.
ARTICLE 2
Closing
The Closing of the Merger shall take place at the offices of Sirote &
Permutt, P.C., One Commerce Street, Montgomery, Alabama, at 9:30 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 March 31, 1998 (the "Closing Date Deadline");
provided, however, if as of March 31, 1998, the consents or approvals of all
applicable automobile manufacturers and distributors contemplated by Section
7.3(d) hereof shall not have been obtained and/or the audited financial
statements contemplated by Section 7.15 hereof shall not have been completed,
the Closing Date Deadline shall be extended for an additional 60 days. The date
upon which the Closing shall take place is hereinafter called the "Closing
Date."
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ARTICLE 3
Representations and Warranties of the Seller and the Companies
The Seller and the Companies, jointly and severally, hereby
represent and warrant to the Buyer as follows:
3.1 Ownership of Company Securities. As of the Closing, the Seller will
own of record and beneficially the Company Securities, free and clear of all
Encumbrances.
3.2 Seller's Power and Authority; Consents and Approvals.
(a) The 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 the 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 the Seller of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the Seller
in connection therewith, the consummation of the transactions contemplated
hereby and thereby and the performance by the Seller of the Seller's obligations
hereunder and thereunder.
3.3 Execution and Enforceability. This Agreement and the other agreements,
documents and instruments to be executed by the Seller in connection herewith,
and the consummation by the Seller of the transactions contemplated hereby and
thereby, have been duly authorized, executed and delivered by the Seller and
constitute, and the other agreements, documents and instruments contemplated
hereby, when executed and delivered by the Seller, shall constitute, the legal,
valid and binding obligations of the Seller, enforceable against the Seller 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 or by general equitable principles.
3.4 Litigation Regarding Seller. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to the Seller's knowledge, threatened or probable of assertion, against the
Seller relating to the Company Securities, this Agreement or the transactions
contemplated hereby before any court, governmental or administrative agency or
other body. The Seller knows of no 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 the Seller relating to the Company
Securities, this Agreement or the transactions contemplated hereby.
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3.5 Interest in Competitors and Related Entities; Certain Transactions.
(a) Except as set forth on Schedule 3.5 hereto, neither the Seller
nor any Affiliate of the Seller (i) has any direct or indirect interest in any
person or entity engaged or involved in any business which is competitive with
any business of the Companies, (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, either of the Companies, or (iii) has a
beneficial interest in any contract or agreement to which either of the
Companies 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 the
Seller individually owns less than 3% of the issued and outstanding voting
stock.
(b) Except as set forth in Schedule 3.5 hereto, there are no
transactions between either of the Companies and the Seller (including the
Seller's Affiliates), or any of the directors, officers or salaried employees of
either of the Companies, 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, the Seller, 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 Seller Not Foreign Person. The 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.
(a) The Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Alabama and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. The Partnership is a
limited partnership duly organized, validly existing and in good standing under
the laws of the State of Alabama and has all requisite partnership power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Companies is qualified to do business as a
foreign corporation or partnership, as the case may be, 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.
(b) This Agreement and the other agreements, documents and
instruments to be executed by the Companies in connection herewith, and the
consummation by each of the Companies of the transactions contemplated hereby
and thereby, have been duly authorized by
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all necessary corporate or partnership, as the case may be, action of the
Companies including, without limitation, all necessary shareholder or partner,
as the case may be, action and have been duly executed and delivered by each of
the Companies and constitute, and the other agreements, documents and
instruments contemplated hereby, when executed and delivered by each of the
Companies, shall constitute, the legal, valid and binding obligations of the
Companies, enforceable against the Companies 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, or by general equitable principles.
3.8 Capitalization. The authorized capital stock of the Corporation is as
set forth in Schedule 3.8 hereto, of which the number of shares indicated on
Schedule 3.8 hereto 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 Seller. All of the Partnership Interests have been duly
authorized and are validly issued and are held by the persons indicated on
Schedule 3.8 hereto. All capital contributions required to be made with respect
to the Partnership Interests have been made and no requirement for a capital
contribution with respect thereto remains outstanding or unperformed. 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 Companies and there are
no outstanding options, warrants, "phantom" stock plans, subscriptions,
agreements, plans or other commitments pursuant to which either of the Companies
is or may become obligated to sell or issue any shares of its debt or equity
securities, and there are no outstanding securities convertible into any other
debt or equity security of the Companies.
3.9 Subsidiaries and Investments. The Companies do 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 do 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 Companies of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the
Companies in connection herewith, the consummation by the Companies of the
transactions contemplated hereby and thereby and the performance by the
Companies 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 Bylaws of the Corporation or the Agreement of Limited
Partnership of the Partnership, (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 either of the Companies, (c) violate or conflict with the terms
of, or result in the acceleration of, any indebtedness or obligation of either
of the Companies 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 either of the Companies is a party or by which either of the
Companies 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
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the assets or properties of either of the Companies, (e) constitute an event
permitting termination of any agreement, license or other right of either of the
Companies, 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 either of the Companies or any of its
properties or assets.
3.11 Title to Assets; Related Matters. Each of the Companies has good and
valid title to all assets, rights, interests and other properties, real,
personal and mixed, tangible and intangible, owned by it, other than the
Distributed Assets (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 Companies; (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.
3.12 Possession. The tangible assets included within the Assets are in the
possession or control of the Companies 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 Seller has delivered to the Buyer prior to the date hereof:
(1) the consolidated audited tax basis balance sheets of the
Companies as of December 31, 1996 and the related audited statements of income,
owners' 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 opinion of Cherry, Bekaert & Holland,
independent certified public accountants of the Companies (collectively, the
"Annual Financial Statements"), together with the consent of such auditors 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
(2) the consolidated unaudited balance sheet of the Companies
as of December 31, 1997 and the related unaudited statements of income and
owners' equity for the 12 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").
(b) The Financial Statements (i) are in accordance with the books
and records of the Companies, which books and records are true, correct and
complete in all material respects, (ii) fully and fairly present the financial
position of the Companies as of the dates
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indicated and the results of operation, owners' equity and changes in cash flows
of the Companies 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 Companies are
collectible at the aggregate recorded amounts thereof, subject to the reserve
for doubtful accounts maintained by the Companies in the ordinary course of
business, and are not subject to any known counterclaims or setoffs. An adequate
reserve for doubtful accounts for the Companies has been established and such
reserve is consistent with both the operation of the Companies in the ordinary
course of business and past practice.
3.15 Inventories. All inventories of the Companies consist of items of a
quality and quantity usable and saleable in the ordinary course of business of
the Companies, and the levels of inventories are consistent with the levels
maintained by the Companies in the ordinary course consistent with past practice
and the Companies' obligations under its agreements with all applicable vehicle
manufacturers and distributors. The values at which such inventories are carried
are based on the LIFO method and are stated in accordance with generally
accepted accounting principles consistently applied by the Companies at the
lower of historic cost or market. An adequate reserve has been established by
the Companies for damaged, spoiled, obsolete, defective, or slow-moving goods
(excluding returnable parts to the extent they qualify for return under the
relevant manufacturer's parts return plans or policies) and such reserve is
consistent with both the operation of the Companies in the ordinary course of
business and past practice.
3.16 Real Property; Machinery and Equipment.
(a) Owned Real Property. Schedule 3.16(a) hereto contains a complete
list and brief description of all real property owned by the Companies and a
summary description of the improvements (including buildings and other
structures) located thereon (collectively, the "Owned Real Property"). True and
correct copies of the deeds with respect to the Owned Real Property have been
delivered to the Buyer. The Companies are the sole owners of the Owned Real
Property and hold the Owned Real Property in fee simple or its equivalent under
local law, free and clear of all building use restrictions, exceptions,
variances, limitations or other title defects of any nature whatsoever, except
those set forth in Schedule 3.16(a) hereto (the "Permitted Encumbrances"). There
are no leases, written or oral, affecting all or any part of the Owned Real
Property. The only real property (other than the Leased Premises) used by the
Companies in connection with the Companies' business is the Owned Real Property.
To the knowledge of the Seller, the Owned Real Property is structurally sound
and in good operating condition, maintenance and repair in accordance with
customary industry standards, taking into account the age thereof.
(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)
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of all real property which is used by the Companies in their business and
operations (herein referred to as the "Leased Premises" and, together with the
Owned Real Property, sometimes collectively referred to as the "Real Property").
True, correct and complete copies of all leases of all Leased Premises (the
"Leases") have been delivered to the Buyer. To the knowledge of the Seller, the
Leased Premises are in good physical condition, normal wear and tear excepted,
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. To the knowledge of the Seller, the improvements and building
systems which comprise a part of the Leased Premises as to which the Companies
are responsible for the maintenance and repair thereof are in good condition,
maintenance and repair, normal wear and tear excepted. There is no person or
entity other than the Companies in or entitled to possession of the Leased
Premises.
(c) Easements, Etc. The Real Property enjoys all easements and
rights of way over the property of others necessary for the operation of the
Companies' 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 Companies under any leases of
the Leased Premises (including, without limitation, any pending tax reassessment
or other special assessment affecting the Real Property). There has been no work
performed, services rendered or materials furnished in connection with repairs,
improvements, construction, alteration, demolition or similar activities with
respect to the Owned Real Property or, to the knowledge of the Seller, the
Leased Premises, for at least ninety (90) days before the date hereof; there are
no outstanding claims or persons entitled to any claim or right to a claim for a
mechanic's or materialman's lien against the Owned Real Property or, to the
knowledge of Seller, the Leased Premises.
(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 Companies (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 either of the
Companies 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. To the knowledge of the Seller, 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
Companies or used in the conduct of the Companies' business. Neither of the
Companies is a party to, or 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 either of the Companies that any of its
operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that either of the
Companies is wrongfully or otherwise using the property rights of others.
(b) The Companies have the right to use their respective corporate
and partnership names and the other names listed on Schedule 3.17 hereto in the
State of Alabama 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.
3.18 Certain Liabilities.
(a) All accounts payable by the Companies 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 Companies, 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 or partners and former
stockholders or partners, 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. Neither of the Companies has 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 December 31, 1996, the business of the
Companies 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:
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(a) Any damage, destruction or loss (whether or not covered by
insurance), adversely affecting the business or assets of either of the
Companies in excess of $50,000; (b) Any strikes, work stoppages or other labor
disputes involving the employees of either of the Companies; (c) Any sale,
transfer, pledge or other disposition of any of the Assets of either of the
Companies having an aggregate book value of $50,000 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 either of the Companies 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 either of the Companies (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 either of the Companies to
any officer, director, stockholder, partner, employee, consultant or agent of
either of the Companies; (f) Any change in the accounting methods, procedures or
practices followed by either of the Companies or any change in depreciation or
amortization policies or rates theretofore adopted by either of the Companies;
(g) Any material change in policies, operations or practices of either of the
Companies with respect to business operations followed by either of the
Companies, 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 either of the Companies concerning the employees of
either of the Companies; (h) Any capital appropriation or expenditure or
commitment therefor on behalf of either of the Companies in excess of $50,000
individually or $100,000 in the aggregate; (i) Any write-down or write-up of the
value of any inventory or equipment of either of the Companies or any increase
in inventory levels in excess of historical levels for comparable periods; (j)
Any account receivable in excess of $50,000 or note receivable in excess of
$50,000 owing to either of the Companies 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
either of the Companies which, in the judgment of the Seller, has, or could
reasonably be expected to have, a material adverse effect on the assets,
business or operations of either of the Companies; or (l) Any agreement, whether
in writing or otherwise, for either of the Companies 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 Companies 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 Companies
with the appropriate governmental agencies, and all such returns and reports are
true, correct and complete.
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(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 Companies for all periods
prior to the date hereof have been fully paid or adequately reserved for by the
respective Companies or, with respect to Taxes required to be accrued, the
respective Companies have properly accrued or will properly accrue such Taxes in
the ordinary course of business consistent with past practice of the respective
Companies. The Corporation has made a valid election to be treated as an "S
Corporation" for federal income tax purposes which election has been
continuously in effect since the date listed on Schedule 3.21 hereto.
(c) The federal income tax returns of the Companies have not been
examined by the Internal Revenue Service ("IRS") for the years indicated on
Schedule 3.21 hereto. Except as set forth on Schedule 3.21 hereto, neither of
the Companies has 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 either of
the Companies 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 either of the Companies.
Copies of all federal, state and local tax returns and reports required to be
filed by the Companies for the years ended 1996, 1995, 1994, 1993 and 1992,
together with all schedules and attachments thereto, have been delivered by the
Seller to the Buyer.
(d) Neither of the Companies is now, and neither of the Companies
has ever 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 either of the Companies. Neither
of the Companies is a party to any agreement or arrangement that would result in
the payment of any "excess parachute payments" under Code Section 280G. Neither
of the Companies is required to make any adjustment under Code Section 481(a).
No power of attorney relating to Taxes is currently in effect affecting either
of the Companies.
3.22 Compliance with Laws, Etc. The Companies have conducted their
operations and businesses 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 Companies 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,
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 Companies or their
respective businesses or operations. The Seller has
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delivered to the Buyer copies of all reports, if any, of the Companies 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
Companies and any deficiencies noted by inspection through the Closing Date will
have been corrected by the Companies by the Closing Date.
3.23 Litigation Regarding the Companies. 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 Seller's
knowledge, threatened or probable of assertion, against the Companies or
relating to their assets, businesses or operations or the transactions
contemplated by this Agreement, and the Seller does 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
either of the Companies relating to the Companies or their respective assets,
businesses 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 are necessary for the Companies
to own and operate their businesses as presently conducted (collectively, the
"Permits"). All such Permits have been duly and lawfully secured or made by the
Companies 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 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 December 31, 1997, the Companies
employed the number of employees stated on Schedule 3.26 hereto. As of the date
hereof, (a) neither of the Companies is 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
either of the Companies and labor unions or organizations representing any
employees of either of the Companies; (c) no collective bargaining agreement is
currently being negotiated by either of the Companies; (d) to the knowledge of
the Seller, there are no union organizational drives in progress and there has
been no formal or informal request to either of the Companies 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 Companies 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.
3.26 Compensation. Schedule 3.26 contains a statement of the total number
of employees of the Companies as of December 31, 1997, as well as a schedule of
all employees
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(including sales representatives) and consultants of the Companies whose
individual cash compensation for the year ended December 31, 1997, or projected
for the year ended December 31 , 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 December 31, 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 Seller has 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 Companies
(which shall include for this purpose and for the purpose of all of the
representations in this Section 3.27, the Seller and all employers, whether or
not incorporated, that are treated together with the Companies 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 Companies and maintained or contributed to by the
Companies.
(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 Companies 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 either of the Companies 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 Companies 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 Companies, 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
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Companies'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 either of the Companies.
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 are material to the Companies or their
respective businesses 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. Each of the Companies 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 Seller, 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.
3.30 Brokers' or Finders' Fees, Etc. No agent, broker, investment banker,
person or firm acting on behalf of either of the Companies or the Seller or any
person, firm or corporation affiliated with any of the Seller 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 Merger contemplated hereby, other than any such fee or
commission the entire cost of which will be borne by the Seller.
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, either of the Companies, and all
cellular telephones provided and/or paid for by either of the Companies, and
details about the persons having access to or authority over such accounts,
credit cards, safe deposit boxes and cellular telephones.
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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 Companies on their respective 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 neither of the
Companies is 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 Companies is adequate in accordance with the
standards of business of comparable size in the industry in which the Companies
operate and no notice of cancellation or termination has been received with
respect to any such policy. Neither of the Companies has, 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
$5,000 against either of the Companies 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 Companies.
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 Companies (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 Companies. Except as set forth on Schedule 3.33,
there have been no breach of warranty or breach of representation claims against
either of the Companies during the past five (5) years which have resulted in
any cost, expenditure or exposure to either of the Companies of more than
$50,000 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
Companies.
3.35 Suppliers and Customers. The Companies are not required to provide
bonding or any other security arrangements in connection with any transactions
with any of their respective customers and 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 its relationships
with either of the Companies.
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
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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 Companies have obtained all permits, licenses and other
authorizations or approvals required under Environmental Laws for the conduct
and operation of the respective Assets and the businesses of the Companies
("Environmental Permits"). All such Environmental Permits are in good standing,
the Companies are and have 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) Each of the Companies and its business, operations and assets
are and have been in compliance with all Environmental Laws.
(d) Neither of the Companies nor the Seller 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 Companies, (ii) any
other circumstances forming the basis of any actual or alleged violation by
either of the Companies or the Seller of any Environmental Law or any liability
of either of the Companies or the Seller under any Environmental Law, (iii) any
remedial or removal action required to be taken by either of the Companies or
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. Neither
of the Companies nor the Seller 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 threatened under any Environmental Law with respect to the Companies,
the Seller or the Real Property.
(f) None of the Companies has released, discharged, spilled or
disposed of Hazardous Materials onto the Real Property and, to the knowledge of
the Seller, no Hazardous Materials are or have been released, discharged,
spilled or disposed of onto, or migrated onto,
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the Real Property or any other property previously owned, operated or leased by
either of the Companies, except for spills of petroleum products in the ordinary
course of business which spills do not violate any Environmental Law and, alone
or in conjunction with other such spills, do not under applicable law require
cleanup or remediation. To the knowledge of the Seller, 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 either of the
Companies, or to the Companies' 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 of the Companies or the Seller, nor, to the knowledge of
the Seller, 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 of the Companies or
the Seller 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 Seller, no environmental lien has
attached or is threatened to be attached to the Real Property.
(i) To the knowledge of the Seller, no employee of either of the
Companies in the course of his or her employment with either of the Companies
has been exposed to any Hazardous Materials or other substance, generated,
produced or used by either of the Companies which could give rise to any claim
(whether or not such claim has been asserted) against either of the Companies.
(j) Except as set forth on Schedule 3.36 hereto, 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 either of the
Companies.
(l) Neither of the Companies has 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. The Seller is not aware of the existence of any
conditions,
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including, without limitation, any actual or potential competitive factors in
the markets in which the Companies participate, which have not been disclosed in
writing to the Buyer and which could reasonably be expected to have an adverse
effect on the business and operations of either of the Companies, other than
general business and economic conditions generally affecting the industry and
markets in which the Companies participate.
3.38 Misstatements and Omissions. No representation and warranty by the
Seller or the Companies contained in this Agreement, and no statement contained
in any certificate or Schedule furnished or to be furnished by the Seller or the
Companies 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 Seller and the Companies
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 it 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 and the Sub in
connection herewith, the consummation by the Buyer and the Sub of the
transactions contemplated hereby or thereby or the performance by the Buyer and
the Sub of their respective 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 and the Sub 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 and the Sub
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in connection herewith, when executed and delivered by the Buyer and the Sub,
shall constitute the legal, valid and binding obligations of the Buyer and the
Sub, as the case may be, enforceable against the Buyer and the Sub 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
or the Sub 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 or administrative agency or other body has been entered against
or served upon the Buyer or the Sub 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 and the Sub in connection herewith, the
consummation by the Buyer and the Sub of the transactions contemplated hereby
and thereby and the performance by the Buyer and the Sub of their respective
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 the Sub, 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 or the Sub.
4.6 Brokers' or Finders' Fees, Etc. No agent, broker, investment banker,
person or firm acting on behalf of the Buyer or the Sub or any person, firm or
corporation affiliated with the Buyer or the Sub 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 Merger contemplated hereby.
4.7 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 or the Sub to the Seller
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.
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ARTICLE 5
Pre-Closing Covenants of the Seller and the Companies
The Seller and the Companies 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 Seller and the Companies shall 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 Companies, and to interview personnel, suppliers and customers of
the Companies, in order that the Buyer may have a full opportunity to make such
investigation (including the Environmental Audit contemplated by Section 5.11
below) as it shall reasonably desire of the assets, business and operations of
the Companies (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 Companies as the Buyer shall from time to time reasonably
request.
(b) Cooperation in Obtaining Consents. The Seller and the Companies
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 Companies. The Seller shall cause each of
the Companies to, and each of the Companies shall, (a) maintain its corporate or
partnership, as the case may be, 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, (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 the
ordinary course in accordance with all past practices.
5.3 Books of Account. The Seller shall cause each of the Companies to, and
each of the Companies shall, maintain its books and records of account in the
usual, regular and ordinary
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manner.
5.4 Employees. The Seller and the Companies shall (i) use their reasonable
best efforts to encourage such personnel of the Companies as the Buyer may
designate in writing to remain employees of the Companies after the date of the
Closing, and (ii) not take any action, or permit the Companies to take any
action, to encourage any of the personnel of the Companies to leave their
positions with the Companies.
5.5 Certain Prohibitions. The Seller shall not permit the Companies to,
and the Companies shall not, (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 either of the Companies is or may become
obligated to issue any of its debt or equity securities, (iii) otherwise change
or modify its capital structure, (iv) engage in any reorganization or similar
transaction, (v) sell or otherwise dispose of any of their assets, other than
sales of inventory in the ordinary course of business, (vi) declare or make
payment of any dividend or other distribution in respect of the Company
Securities or redeem, repurchase or acquire any of the Company Securities, or
(vii) agree to take any of the foregoing actions.
5.6 Other Changes. The Seller shall not permit the Companies to, and the
Companies shall not, take, cause, agree to take or cause to occur any of the
actions or events set forth in Section 3.20 of this Agreement.
5.7 Additional Information. The Seller and the Companies 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 and/or the Companies 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 Seller 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 Companies and the Seller 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 Companies and the Seller, as the case may be. The Companies and
the Seller 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. Neither of the Companies nor the Seller shall
pursue, initiate, encourage or engage in, nor shall any of their respective
Affiliates or agents pursue, initiate,
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encourage or engage in, and the Seller and the Companies shall cause their
respective Affiliates, directors, officers, employees, 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
securities of either of the Companies or any merger or similar transaction
involving either of the Companies.
5.10 Closing Conditions. The Seller and the Companies 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 and the
Companies prior to the Closing.
5.11 Environmental Audit. The Seller shall cause the Companies to allow,
and the Companies 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 Real Property (the "Environmental
Audit"). The Seller shall cause the Companies to, and the Companies shall,
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 Companies and the last known
addresses of former employees of the Companies who are most familiar with the
matters which are the subject of the Environmental Audit (the Seller and the
Companies 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 cause the Companies to cooperate, and the Companies
shall 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.
5.12 Audited Financial Statements. The Seller and the Companies shall
allow, cooperate with and assist Buyer's accountants, and shall instruct the
Companies' accountants to cooperate, in the preparation of audited financial
statements of the Companies as necessary for any required filings by the Buyer
with the Securities and Exchange Commission or with the Buyer's lenders;
provided that the expense of such audits 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 Seller and the Companies 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.
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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. Except as may be required by law or by the rules of the New
York Stock Exchange, neither the Buyer nor the Sub shall (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, 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
and the Sub.
6.2 Closing Conditions. The Buyer and the Sub 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 and the Sub prior to the
Closing.
6.3 Application to Automobile Manufacturers 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 to the transactions contemplated
by this Agreement.
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, and 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.
ARTICLE 7
Conditions to Obligations of the Buyer and the Sub at the Closing
The obligations of the Buyer and the Sub 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 Seller and the Companies in this Agreement shall be true and correct
in all material respects at
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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 Seller and the Companies. The Seller
and the Companies shall have performed all obligations required to be performed
by them under this Agreement, and complied with all covenants for which
compliance by them 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 Seller:
(a) a certificate signed by the Seller and by the President of the
Corporation and a duly authorized officer of the Managing Partner of the
Partnership 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 certificates, or other evidence satisfactory to the Buyer,
evidencing the Company Securities described in Section 1.5 hereof;
(c) an opinion of Sirote & Permutt, P.C., counsel for the Seller,
and the Companies dated the date of the Closing and addressed to the Buyer, in
the form of Exhibit H annexed hereto;
(d) copies of all authorizations, approvals, consents, notices,
registrations and filings referred to in Schedules 3.2(b), 3.10 and 3.29(b)
hereof, including, but not limited to, the consents of all applicable automobile
manufacturers and distributors;
(e) certificates dated as of a recent date from (i) the Secretary of
State of the State of Alabama to the effect that the Corporation and the
Partnership are in existence in such state and stating that the Corporation is
in good standing and owes no franchise taxes in such state and listing all
documents of the Corporation and the Partnership 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 and the
Partnership are duly qualified as a foreign corporation and a foreign
partnership, as the case may be, and are in good standing in such jurisdictions;
(f) 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 Alabama, a copy of the Corporation's Bylaws, including all
amendments thereto, certified as of a recent date by the Secretary of the
Corporation, and a copy of the Partnership's limited partnership agreement,
certified as of a recent date by a duly authorized officer of the Managing
Partner of the Partnership;
(g) evidence, reasonably satisfactory to the Buyer, of the authority
and
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incumbency of the persons acting on behalf of the Companies in connection with
the execution of any document delivered in connection with this Agreement;
(h) Uniform Commercial Code Search Reports on Form UCC-11 with
respect to the Companies from the states and local jurisdictions where the
principal places of business of the Companies and their respective assets are
located;
(i) a certificate of the Seller as to the Seller's non-foreign
status in appropriate form;
(j) the corporate minute books and stock record books of the
Companies, and all other books and records of, or pertaining to, the business
and operations of the Companies;
(k) estoppel letter[s] of landlord[s] other than the Seller or their
Affiliates under the Lease[s], in form and substance reasonably satisfactory to
the Buyer;
(l) estoppel letter[s] of lender[s] to the Companies, in form and
substance reasonably satisfactory to the Buyer, with respect to amounts owing by
the Companies as of the Closing; and
(m) 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 Seller and the Companies 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 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 either of
the Companies, or any of their assets, other than general business and economic
conditions generally affecting the industry and markets in which the Companies
participate.
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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 either of the Companies.
7.8 Affiliate Transactions. All amounts owing to the Companies from the
Seller or any Affiliate thereof shall have been paid in full and any
indebtedness of the Companies to the Seller or any Affiliate thereof shall have
been paid or discharged.
7.9 Escrow Agreement. The Seller and the Escrow Agent shall have duly
executed and delivered to the Buyer the Escrow Agreement.
7.10 Execution of Dealership Leases. The Seller shall have duly delivered
to the Buyer the Dealership Leases, duly executed by the respective lessors
thereunder, each with a corresponding memorandum of lease in a form suitable for
recording.
7.11 Employment Agreement. Frank McGough shall have duly executed and
delivered to the Buyer the Employment Agreement.
7.12 Non-Competition Agreement. Frank McGough shall have duly executed and
delivered to the Buyer and the Companies 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
Companies with respect to the purchase, or the issuance of, any securities of
the Companies 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 Appraisal/Dissenters' Rights. No holder of any of the Company
Securities shall have any appraisal or dissenters' rights under applicable law.
7.15 Audited Financial Statements. The Buyer shall have completed
preparation of such audited financial statements of the Companies as may be
required by applicable regulations of the Securities and Exchange Commission or
by any of the Buyer's lenders.
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 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 Seller and the Companies at the Closing
The obligations of the Seller and the Companies 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 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 as
though made at and as of the Closing.
8.2 Performance of Obligations of the Buyer. The Buyer and the Sub shall
have performed all obligations required to be performed by them under this
Agreement, and complied with all covenants for which compliance by them is
required under this Agreement, prior to or at the Closing.
8.3 Closing Documentation. The Seller shall have received the following
documents, agreements and instruments from the Buyer and the Sub:
(a) a certificate signed by duly authorized signatories of each of
the Buyer and the Sub 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 Basic Consideration 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 Seller, in the form
of Exhibit I annexed hereto; and
(d) such resolutions of the Buyer, as sole shareholder of the
Companies, and the directors of the Companies electing directors and appointing
officers, respectively, of the Companies, 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 each of the Buyer's Certificate of Incorporation and
the Sub's Articles of Incorporation, including all amendments thereto, certified
by the Secretary of State of the State of Delaware (in the case of the Buyer)
and the Secretary of State of the State of Alabama (in the case of the Sub);
(g) evidence, reasonably satisfactory to the Seller, of the
authority and
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incumbency of the persons acting on behalf of the Buyer and the Sub in
connection with the execution of any document delivered in connection with this
Agreement; and
(h) such other instruments and documents as the Seller shall
reasonably request not inconsistent with the provisions hereof.
8.4 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed or delivered by the Buyer and the Sub 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.
8.5 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 Execution of Dealership Leases. The Buyer shall have duly executed and
delivered to the Seller the Dealership Leases.
8.7 Escrow Agreement. The Buyer and the Escrow Agent shall have duly
executed and delivered the Escrow Agreement.
8.8 Employment Agreement. The Buyer shall have duly executed and delivered
the Employment Agreement to Frank McGough.
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.
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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 Seller and the
Companies contained in this Agreement, including those contained in any Schedule
or certificate delivered hereunder or in connection herewith, shall survive the
Closing for a period of two years with the exception of (i) the representations
and warranties of the Seller and the Companies contained in Section 3.21, which
shall survive the Closing until the expiration of the applicable tax statutes of
limitation plus a period of sixty (60) days, and (ii) the representations and
warranties of the Seller and the Companies contained in Sections 3.11, 3.19 and
3.36, which shall survive the Closing for a period of five years. 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 the Seller. Subject to the terms and
conditions of Sections 9.4 and 9.5 hereof, the Seller hereby agrees to indemnify
and save the Buyer, the Surviving Company 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 Seller or the Companies 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 Seller contained in this paragraph (a), the
Seller 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) shall exceed a cumulative aggregate total of $75,000;
(b) the untruth, inaccuracy or breach of any representation and
warranty of the Seller or the Companies 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 the
Seller or either of the Companies contained in this Agreement or in any other
agreement, document or
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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 either of the
Companies on or before the Closing Date;
(e) any cleanup of Hazardous Materials released, disposed of or
discharged: (i) on, beneath or adjacent to the Real Property prior to or on the
Closing Date; or (ii) at any other location if such substances were generated,
used, stored, treated, transported or released by either of the Companies prior
to or on the Closing Date;
(f) any and all costs of installing pollution control equipment or
other equipment 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 Closing
Date;
(g) any and all Taxes arising out of or based upon the Distributed
Assets or the Distributed Liabilities or the distribution thereof contemplated
by Section 1.3; or
(h) any purchase or redemption prior to the Closing, by the Seller
or the Companies, of any capital stock or partnership interest held by any other
person or entity.
With respect to the Seller's obligations to pay Buyer's Damages pursuant
to Section 9.2 of this Agreement, the Buyer shall be entitled (but shall not be
obligated) to make demand for payment under the Escrow Agreement and/or to
postpone, offset and reduce the Contingent Consideration, as provided in Section
9.7 below.
9.3 Agreement to Indemnify by the Buyer. Subject to the terms and
conditions of Sections 9.4 and 9.5 hereof, the Buyer hereby agrees to indemnify
and save the Seller and its 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; or
(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.
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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
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.
9.5 Procedures Regarding Third Party Claims. The procedures to be followed
by the Buyer and the Seller 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 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
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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.
9.7 Postponement, Offset and Reduction of Contingent Consideration. If, as
of the date of the payment of an installment of Contingent Consideration
(hereinafter called a "Contingent Payment Date"), any Buyer Indemnitee shall
have previously made a claim or claims for Buyer's Damages and such claim or
claims shall not have been resolved prior to such Contingent Payment Date,
either by mutual written agreement between the Seller and the Buyer or by a
decision of the arbitrators pursuant to Section 12.13 below, then the amount of
such installment of Contingent Consideration shall only be paid to the extent it
(together with any prior installments of Contingent Consideration which have
been postponed pursuant to this Section 9.7) exceeds the aggregate total of
Buyer's Damages as to which claims for indemnification shall have been made on
or prior to such Contingent Payment Date and not resolved on or prior thereto,
and payment of the remainder of the Contingent Consideration which would
otherwise be payable on or before such Contingent Payment Date shall be
postponed until the resolution of all such claims for indemnification. The
Seller hereby acknowledges and agrees that the Buyer shall be entitled to set
off against and to reduce the amount of the Contingent Consideration by the
amount of Buyer's Damages which is either agreed to in writing by the Seller and
the Buyer or determined pursuant to a decision of the arbitrators referred to in
Section 12.13 below. To the extent that such arbitrators shall determine that
the postponement of any portion of the Contingent Consideration by the Buyer was
not warranted, the Buyer shall promptly pay such portion to the Seller, together
with interest thereon at the Interest Rate (as defined in Section 1.4 above)
from the applicable Contingent Payment Date. Any amount of postponement, setoff
and reduction of the Contingent Consideration contemplated by this Section 9.7
shall be allocated 49% to the cash portion of such Contingent Consideration and
51% to the Preferred Stock portion of such Contingent Consideration.
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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 Seller;
(b) At any time after the Closing Date Deadline, by written notice
by the Buyer or the Seller 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 may terminate this Agreement based upon a failure by the other
party of Section 7.2 or Section 8.2, as the case may be, unless the terminating
party shall have first given the failing party written notice of such failure
and a reasonable period of time (not to exceed 30 days) to cure such failure,
and provided, further, no party may terminate this Agreement pursuant to this
Section 10.1(b) if such terminating party is in breach of any material
misrepresentation, warranty, or covenant of such party 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 Seller of its termination hereunder within 30
days of the Buyer's receipt of such second request or of notice of such
challenge;
(d) By the Buyer, by written notice to the Seller, in the event that
approval by the applicable automobile manufacturer 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, by written notice to the Seller, in the event that
any applicable automobile manufacturer or distributor (or any person claiming
by, through or under it) shall exercise any right of first refusal, preemptive
right or other similar right, with respect to the dealership business of the
Corporation; or
(f) By the Buyer within 30 days after __________________, 1998 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 relieve (i) the Buyer of any liability under
Section 10.3 below, (ii) the Seller of any liability under Section 10.4 below,
or (iii) 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
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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. Except as specifically
provided in Section 10.5 below, nothing contained in this Agreement shall
prevent any party from seeking any equitable relief, including specific
performance, to which it would otherwise be entitled in the event of breach by
any other party.
10.3 Payment of Buyer's Termination Fee. If this Agreement is terminated
by the Seller 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 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, a termination fee of
$1,000,000 (the "Buyer's Termination Fee").
10.4 Payment of Seller's Termination Fee. 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
Seller's or the Companies' breach of any of their material representations and
warranties or any of their material covenants or obligations under this
Agreement, then the Seller and the Companies, 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
$1,000,000 (the "Seller's Termination Fee").
10.5 Termination Fees Exclusive Remedies for Damages. The respective
rights of the parties to terminate this Agreement under Section 10.1(b) 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; 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 Seller' Termination
Fee or the Buyers' Termination Fee, as the case may be.
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 Seller.
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(b) Except as otherwise herein provided, the Seller 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
Miscellaneous
12.1 Certain Tax Returns. The Seller shall cooperate with and provide
assistance to the Buyer and the Surviving Company in connection with the
preparation and filing of all federal, state, local and foreign income tax
returns which relate to the Companies and to periods prior to Closing but which
are not required to be filed until after the Closing.
12.2 Parties in Interest; No Third-Party Beneficiaries. Subject to Section
12.4 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, is intended or shall be
construed to confer upon or give to any employee of either of the Companies 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.
12.3 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.
12.4 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 Companies; provided, further, that no such assignment shall release the
Buyer from its obligations hereunder without the consent of the Seller. Nothing
contained in this Agreement shall prohibit its assignment by the Buyer as
collateral security and the Seller hereby agrees to execute any acknowledgment
of such assignment by the Buyer as may be required by any lender to the Buyer.
12.5 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.
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12.6 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.
12.7 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by a nationally recognized overnight courier, postage
prepaid, and shall be deemed to have been duly given when so delivered
personally 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 E. Independence Boulevard
Charlotte, North Carolina 28212
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
Attention: Edward W. Wellman, Jr., Esq.
If to the Seller, to:
Frank E. McGough, Jr.
8549 Old Marsh Way
Montgomery, Alabama 36117
With a copy to:
Sirote & Permutt, P.C.
1401 Peachtree Street, Suite 500
Atlanta, Georgia 30309
Attention: Jeff Kohn, Esq.
12.8 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
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counterparts together shall constitute but one agreement.
12.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Alabama, without giving effect to its
rules governing conflict of laws.
12.10 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.
12.11 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.
12.12 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 (A) the best actual knowledge, information and belief of the
Seller and (B) any information which the 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 either of the
Companies.
12.13 Arbitration.
(a) Any dispute, claim or controversy arising out of or relating to
this Agreement (except for accounting matters provided for in Section 1.4
hereto), or the interpretation or breach hereof, 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
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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 12.13 shall prevent any party
hereto from seeking any equitable relief to which it would otherwise be entitled
from a court of competent jurisdiction.
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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 AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
----------------------------------
Name: O. BRUTON SMITH
Title: CHIEF EXECUTIVE OFFICER
CAPITOL CHEVROLET, INC.
By: /s/ Frank E. McGough, Jr.
----------------------------------
Name: FRANK E. MCGOUGH, JR.
Title: PRESIDENT
CAPITOL IMPORTS, LTD.
MCGOUGH MANAGEMENT COMPANY, INC., its
General Partner
By: /s/ Frank E. McGough, Jr.
----------------------------------
Name: FRANK E. MCGOUGH, JR.
Title: PRESIDENT
/s/ Frank E. McGough, Jr.
--------------------------------------
FRANK E. MCGOUGH, JR., as Seller
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EXHIBITS
Exhibit A - Certificate of Merger
Exhibit B - Form of Escrow Agreement
Exhibit C - Preferred Stock Summary of Rights and Preferences
Exhibit D - Distributed Assets and Distributed Liabilities
Exhibit E - Form of Dealership Leases
Exhibit F - Form of Employment Agreement
Exhibit G - Form of Non-Competition Agreement
Exhibit H - Opinion of Seller' Counsel
Exhibit I - Opinion of Buyer's Counsel
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SCHEDULES
Schedule 3.2(b) Consents and Approvals for the Seller
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(a) Owned Real Property
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 Companies
Schedule 3.24 Permits, Etc.
Schedule 3.26 Compensation
Schedule 3.27 Employee Benefits
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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
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Exhibit 10.5
PPAB 3/12/98
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of March 16, 1998 (this
"Agreement") among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "Buyer"),
and FREEMAN SMITH and the other stockholders named on the signature page of this
Agreement (the "Sellers").
W I T N E S S E T H:
WHEREAS, the Sellers own all of the issued and outstanding shares of
capital stock of Economy Cars, Inc., a Tennessee corporation (the
"Corporation"), and all of such shares (the "Shares") are owned of record and
beneficially by the Sellers in the amounts set forth opposite their respective
names on Exhibit A hereto;
WHEREAS, the Corporation owns and operates a Honda automobile dealership
franchise pursuant to certain dealership arrangements with American Honda Motor
Co., Inc. ("Honda"); 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) Purchase Price. As the full purchase price to be paid by the
Buyer for the Shares, the Buyer shall pay to the Sellers the sum of (i)
$7,500,000, plus (ii) the Net Book Value (as defined in Section 1.2(c)
below)(collectively, the "Purchase Price").
<PAGE>
(b) Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(1) At the Closing, the Sellers shall deliver to the Buyer a
certificate signed by the Sellers setting forth their good faith estimate of the
Net Book Value as of the Closing Date (as defined in Article 2 hereof), which
estimate (the "Estimated Net Book Value") shall be reasonably acceptable to the
Buyer. At the Closing, an amount equal to the Purchase Price (for this purpose
only, calculated based upon the Estimated Net Book Value), less the Preferred
Stock (as defined in Section 1.2(b)(2) below), shall be payable in cash by the
Buyer to the Sellers 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, pro rata
according to the percentages set forth opposite their respective names on
Exhibit A hereto. 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 Tennessee.
(2) (I) At the Closing, the Buyer shall issue to the Sellers,
pro rata according to the respective percentages specified opposite their names
on Exhibit A hereto, that number of shares of the Buyer's Convertible Preferred
Stock obtained by dividing 51% of the Purchase Price (for this purpose only,
calculated based upon the Estimated Net Book Value) by $1,000, but in no event
more than 5,100 shares (the "Preferred Stock"). The Preferred Stock will be
convertible into shares of the Buyer's Class A Common Stock (the "Common Stock")
having an aggregate market value at the time of conversion equal to the number
of shares of Preferred Stock multiplied by $1,000, as more specifically provided
in the Statement of Rights and Preferences attached as Exhibit C-1 hereto. At
the Closing, all but 1,000 shares of the Preferred Stock will be delivered to
the Sellers pro rata according to the respective percentages specified opposite
their names on Exhibit A hereto and 1,000 shares of the Preferred Stock (the
"Pledged Shares") shall be retained and held by the Buyer in accordance with the
pledge agreement in the form of Exhibit B hereto (the "Pledge Agreement"). The
Preferred Stock may include fractional shares (rounded to the nearest four
decimal points); provided, however, upon conversion of the Preferred Stock, no
fractional shares of Common Stock shall be issued. At the Closing, the Buyer
will deliver to the Sellers the agreement of Sonic Financial Corporation,
guaranteed by O. Bruton Smith, in the form of Exhibit C-2 hereto (the "Liquidity
Agreement").
(II) The Buyer shall use its reasonable best efforts to
make available current public information with respect to the Buyer within the
meaning of Subsection (c)(1) of Securities and Exchange Commission Rule 144
("Rule 144") to the extent necessary to facilitate public resales by the Sellers
of the Buyer's Common Stock issuable upon conversion of the Preferred Stock,
pursuant to Rule 144. The Buyer shall remove any and all stop transfer
instructions and shall remove any restrictive legend on the certificates with
respect to any such Common Stock then owned by the Sellers to the extent that
either (i) such Common Stock may hereafter be registered under the Securities
Act of 1933, as amended, and under any applicable state securities or blue sky
laws, or (ii) the Buyer has received an opinion of counsel satisfactory to the
Buyer, in form and substance satisfactory to the Buyer, that such registration
is not required.
(III) The Buyer will pay to the respective Sellers a
conversion forbearance fee on each share of the Preferred Stock, or portion
thereof, at the annual rate of $60.00 per whole share of Preferred Stock. Such
fee shall accrue on a daily basis (based upon a 365 day year) until the earlier
of (A) the receipt by the respective Sellers of the net proceeds of the sale of
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the Common Stock issued upon conversion of the respective shares of the
Preferred Stock, plus any amounts required to be paid pursuant to the Liquidity
Agreement with respect thereto, or (B) the termination of the Liquidity
Agreement with respect to such shares of Preferred Stock and/or the shares of
Common Stock issued on conversion thereof, or (C) two (2) years and ninety (90)
days from the Closing Date. Such fee shall be payable quarterly in arrears on
each January 1, April 1, July 1 and October 1 for the fee accrued for the
quarter, or portion thereof, immediately preceding such payment date.
(c) Net Book Value Determination.
(1) Not later than 60 days after the Closing Date, the
Sellers, acting through Freeman Smith (the "Sellers' Agent"), will prepare and
deliver to the Buyer an unaudited balance sheet (the "Closing Balance Sheet") of
the Corporation as of the Closing Date, consisting of a computation of the
tangible net book value of the tangible assets of the Corporation as of the
Closing Date, including accounts receivable, notes receivable and prepaid
expenses of an ordinary and recurring nature (excluding amounts receivable from
the Sellers and their Affiliates (as defined in Section 1.4(a) below) as of the
Closing Date), less the book value of the liabilities of the Corporation as of
the Closing Date (excluding amounts payable by the Corporation to the Sellers
and their Affiliates), all as determined in accordance with the same accounting
principles utilized in preparing the Corporation's tax basis balance sheet as at
December 31, 1997 included in the Financial Statements (as defined in Section
3.13(a)); provided, however, that (A) new vehicles shall be valued at actual
invoice cost, plus dealer installed options, less factory holdback and any and
all reserves reflected on the Closing Balance Sheet relating to the use of the
last-in, first out (LIFO) method of accounting will be added to book value, (B)
used vehicle inventories shall be valued as mutually agreed by the Buyer and the
Sellers' Agent, based upon a physical inventory to be conducted by them not
later than the Business Day immediately preceding the Closing Date, with any
used vehicles as to which the Buyer and the Sellers' Agent cannot reach
agreement as to value being valued by a mutually acceptable third party
appraiser not later than the Closing Date, (C) parts inventories shall include
only Honda returnable parts, which shall be valued based on the value of such
returnable parts under applicable returnable parts plans with Honda prior to the
deduction by Honda of any charge in the nature of a restocking charge, and
salable non-Honda parts shall be valued at net book value, (D) no real property
and related mortgage indebtedness of the Corporation shall be included in the
computation of the tangible net book value of the assets and liabilities of the
Corporation, it being understood by the parties that the Sellers will cause the
Corporation to distribute to the Sellers all of the real property owned by the
Corporation and related mortgage indebtedness immediately prior to, and in
anticipation of, the Closing, (E) the assets of the Corporation shall reflect
the dividend(s) contemplated by Schedule 5.5 hereto, (F) the liabilities of the
Corporation shall include any tax liabilities associated with (i) such
distribution of such real property to the Sellers utilizing a fair market value
for such property which is mutually agreed to by the Sellers' Agent and the
Buyer or, failing such agreement, determined by a nationally recognized
appraisal firm selected by the Buyer and reasonably acceptable to the Sellers'
Agent, and (ii) the conversion from the LIFO method of accounting to the
first-in, first-out (FIFO) method of accounting, and (G) there shall be included
appropriate write-offs for doubtful accounts receivable and bad debts and for
damaged, spoiled, obsolete or slow-moving inventory. To the extent that any
write down of value of any used vehicle would ultimately result in a tax benefit
to the Corporation when such vehicle was sold, such tax benefit will be
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reflected in the Closing Balance Sheet. The tangible net book value reflected on
the Closing Balance Sheet is hereinafter called the "Net Book Value". The Buyer
shall give to the Sellers' Agent and its authorized agents and representatives
full access, during normal business hours and on reasonable prior notice, to the
books and records of the Corporation to enable the Sellers' Agent to prepare the
Closing Balance Sheet. The out-of-pocket fees and expenses of the Sellers' Agent
incurred in the preparation of the Closing Balance Sheet (but not in connection
with any dispute under Section 1.2(c)(2) below) shall be paid by the Buyer.
(2) 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. During such
30 day period, the Sellers' Agent shall give to the Buyer and its authorized
agents and representatives full access, during normal business hours and on
reasonable prior notice, to the books and records of the Sellers' Agent and the
work papers of its accountants to enable the Buyer to determine the manner in
which the Closing Balance Sheet was prepared. 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, (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; and (4) the Buyer
and the Sellers shall each bear 50% of the fees and expenses of the Accountants
for such determination.
(3) If the Net Book Value, as deemed mutually agreed by the
parties or as determined by the Accountants, as aforesaid, equals or exceeds the
Estimated Net Book Value, the Buyer shall deliver 500 of the Pledged Shares to
the Sellers pursuant to the Pledge Agreement (except to the extent of any
pending claim by the Buyer for indemnification pursuant to this Agreement). 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 Estimated Net Book
Value (the "Net Book Value Excess"), the Buyer shall be obligated to pay in
cash, in immediately available funds, the Net Book Value Excess promptly to the
Sellers, together with interest on the amount of the Net Book Value Excess at
the Buyer's floor plan financing rate from time to time in effect (the "Interest
Rate") from the Closing Date to the date of such payment. As of the date hereof,
the Interest Rate is prime rate less ninety (90) basis points. 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 Estimated Net Book
Value (the "Net Book Value Shortfall"), the Sellers shall be obligated, jointly
and severally, to pay the amount of the Net Book Value Shortfall, together with
interest on such amount at the Interest Rate from the Closing Date to the date
of such payment, promptly to the Buyer. In furtherance of (but not by way of
limitation of)
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such obligation of the Sellers, the Buyer shall be entitled to transfer into its
own name and retain up to 500 of the Escrow Shares, with any remaining balance
of such 500 of the Pledged Shares to be delivered to the Sellers pursuant to the
Pledge Agreement (except to the extent of any pending claim by the Buyer for
indemnification pursuant to this 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 Leases; Non-Competition Agreement.
(a) Dealership Leases. At the Closing, Freeman Smith and/or his
Affiliates (as hereinafter defined), as lessors, will enter into lease
agreements with the Buyer, as lessee, regarding the Leased Premises (as defined
in Section 3.16(b) below) owned by them, such lease agreements to be
substantially in the form of Exhibit D hereto (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.
(b) Non-Competition Agreement. At the Closing, the Sellers 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 E 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.
ARTICLE 2
CLOSING
The Closing shall take place at the offices of Baker, Donelson, Bearman &
Caldwell, 1800 Republic Centre, 633 Chestnut Street, Chattanooga, Tennessee at
11:00 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 sixty (60) calendar days after the date of this Agreement (the
"Closing Date Deadline"); provided, however, if as of the Closing Date Deadline,
the consents or
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approvals of Honda (or any subsidiary or affiliate of Honda, as may be required)
to the sale of the Shares pursuant hereto shall not have been obtained and/or
the audited financial statements contemplated by Section 7.13 shall not have
been completed, the Buyer may, so long as it is using its reasonable best
efforts to obtain such consents or approvals and/or to complete such financial
statements, elect to extend the Closing Date Deadline for up to an additional 60
days. 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 A 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 each 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 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,
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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 of any Seller 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; 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.
(b) Except as set forth in Schedule 3.5 hereto, there are no
contracts, agreements or other arrangements between the Corporation and any of
(i) the Sellers (including the Sellers' Affiliates), (ii) the directors,
officers or salaried employees of the Corporation, or (iii) the family members
or Affiliates of any of such directors and officers (other than for services as
employees, officers and directors), providing for the furnishing of services to
or by, or the rental of real or personal property to or from, or otherwise
requiring payments to or from, (x) any of the Sellers, (y) any such officer,
director, salaried employee, family member or Affiliate, or (z) 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 Tennessee and has all requisite power
and authority to own, lease and operate its properties and to carry 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 is as
set forth on Schedule 3.8 hereto. 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
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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, and, except as
set forth on Schedule 3.11 hereto, on the Closing Date will have, good and valid
title to all assets, rights, interests and other properties, real, personal and
mixed, tangible and intangible, owned by it, including the real property which
will become the Leased Premises as of the Closing Date (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.
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.
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3.13 Financial Statements.
(a) The Sellers have delivered to the Buyer prior to the date
hereof:
(i) the Corporation's federal income tax returns on Form 1120
for the years ended December 31, 1995, 1996 and 1997 (the balance sheets
and income statements included in such tax returns being hereinafter
collectively called the "Annual Financial Statements"); and
(ii) the monthly and year to date financial statements
provided to Honda through the date hereof (collectively, the "Interim
Financial Statements") (the Annual Financial Statements and the Interim
Financial Statements are hereinafter collectively referred to as the
"Financial Statements").
(b) Except as set forth on Schedule 3.13 hereto, (i) the Annual
Financial Statements are in accordance with the books and records of the
Corporation, which books and records are true, correct and complete in all
material respects, (ii) the Financial Statements fairly present the financial
position of the Corporation as of the dates indicated and the results of
operation of the Corporation for the periods indicated in the form prescribed by
Honda except that the Interim Financial Statements contain estimates that are
subject to year end adjustment, and (iii) the Financial Statements have been
prepared in accordance with the income tax basis of accounting consistently
applied. The Corporation maintains its books and records, and prepares its
financial statements, in accordance with the income tax basis of accounting.
Schedule 3.13 sets forth certain material differences between the income tax
basis of accounting and generally accepted accounting principles.
3.14 Accounts Receivable. The accounts receivable of the Corporation are
collectible in the aggregate recorded amounts thereof and are not subject to any
known counterclaims or setoffs.
3.15 Inventories. Except as set forth on Schedule 3.15 hereto, 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 LIFO method in the case of new vehicle inventories and the FIFO
method in the case of all other inventories. All such values are stated in
accordance with tax basis accounting principles consistently applied by the
Sellers.
3.16 Real Property; Machinery and Equipment.
(a) Owned Real Property. As of the Closing Date, the Corporation
will own no real property.
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(b) Leased Premises. Schedule 3.16(b) hereto contains a complete
list and description of all real property (including buildings and other
structures thereon) which the Corporation uses in the conduct of its business.
Except as set forth on Schedule 3.16(b) hereto, all of such real property
(herein collectively referred to as the "Leased Premises" or the "Real
Property") will be leased to the Corporation pursuant to the Dealership Leases.
As of the date hereof, the Corporation does not, and as of the Closing Date the
Corporation will not (except for the Dealership Leases), lease any real property
from any person. To the knowledge of the Sellers, except as set forth on
Schedule 3.16(b) hereto, the Leased Premises are in good physical condition,
ordinary wear and tear excepted. Except as set forth on Schedule 3.16(b) hereto,
the Sellers have no knowledge of any event or condition which currently exists
which (i) would create a material legal or other impediment to the continued use
by the Corporation of the Leased Premises as currently used or the lease of the
Leased Premises to the Corporation pursuant to the Dealership Leases, or (ii)
would materially increase the additional charges or other sums payable by the
Corporation under the Dealership 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, ordinary wear
and tear excepted.
(c) Easements, Condemnation, Etc. Except as set forth on Schedule
3.16(c), the Real Property enjoys all easements and rights, including, but not
limited to, easements for power lines, water lines, sewers, roadways and other
means of ingress and egress, necessary to conduct the business the Corporation
now conducts, all such easements and rights are unconditional appurtenant rights
to the Real Property, which are for at least the applicable lease terms
(including renewals and extensions) under the Dealership Leases, and none of
such easements or rights are subject to any forfeiture or divestiture rights.
Except as set forth on Schedule 3.16(c), none of the Real Property is in the
process of being condemned, expropriated, ordered to be sold or otherwise taken
by any public authority, with or without payment or compensation therefor, and
the Sellers have no knowledge of any such threatened condemnation,
expropriation, sale or taking.
(d) Zoning, Etc. Except as set forth on Schedule 3.16(d) hereto,
none of the Real Property is in violation in any material respect of any public
or private restriction or any law or any building, zoning, health, safety, fire
or other law, ordinance, code or regulation, and no notice from any governmental
body has been served upon the Corporation or upon any of the Real Property
claiming any violation of any such law, ordinance, code or regulation or
requiring or calling to the attention of the Corporation the need for any work,
repair, construction, alterations or installation on or in connection with said
properties which has not been complied with. Except as set forth on Schedule
3.16(d) hereto, all improvements which comprise a part of the Real Property are
located within the record lines of the Real Property and none of the
improvements located on the Real Property encroach upon any adjoining property
or any easements or rights of way and no improvements located on any adjoining
property encroach upon any of the Real Property or any easements or rights of
way servicing the Real Property.
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(e) Owned Equipment. Schedule 3.16(e) hereto sets forth a list of
all material machinery, equipment, motor vehicles (other than inventory),
furniture and fixtures owned by the Corporation (collectively, the "Owned
Equipment").
(f) Leased Equipment. Schedule 3.16(f) 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, motor
vehicles, furniture and fixtures or other property (other than real property)
owned by any third party (collectively, the "Leased Equipment").
(g) Maintenance of Equipment. Except as set forth on Schedule
3.16(g) hereto, 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.
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 name "Economy Honda"
and the other names listed on Schedule 3.17 hereto 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.
3.18 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 and accrued liabilities in the
ordinary course, 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
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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 3.18 or Schedule
3.19 hereto.
3.20 Absence of Changes. Since December 31, 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 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 $50,000 individually or $100,000 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 $50,000 or note receivable in excess of $50,000 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; (l) Any declaration or
payment of any dividend or distribution of the Corporation's assets or any
redemption, repurchase or other acquisition by the Corporation of any shares of
its capital stock; or (m) Any agreement, whether in writing or otherwise, for
the Corporation to take any of the actions enumerated in this Section 3.20.
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3.21 Tax Matters.
(a) Except as set forth on Schedule 3.21 hereto, 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) Except as set forth on Schedule 3.21 hereto, 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 years listed on
Schedule 3.21 hereto. 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 1997, 1996, 1995, 1994, 1993 and 1992, together
with all schedules and attachments thereto, have been delivered by the Sellers
to the Buyer.
(d) Except as set forth on Schedule 3.21 hereto, 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 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,
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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 during the period from January 1, 1995 to the date
hereof under the Federal Occupational Safety and Health Act of 1970, as amended,
and under all other applicable health and safety laws and regulations. Except as
set forth on Schedule 3.22 hereto, 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 reasonable basis for the
institution of any such suit or proceeding. Except as set forth on Schedule 3.22
hereto, 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 are necessary for the Corporation
to own and operate its business as presently conducted in all material respects
(collectively, the "Permits"). Except as set forth on Schedule 3.24 hereto, all
such Permits have been duly and lawfully secured or made by the Corporation and
are in full force and effect. Except as set forth on Schedule 3.24 hereto, 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 the date hereof, the Corporation
employs the total number of employees set forth on Schedule 3.25 hereto. As of
the date hereof, except as set forth on Schedule 3.25 hereto (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
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sales representatives) and consultants of the Corporation 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.
3.27 Employee Benefits.
(a) The Sellers have listed on Schedule 3.27 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 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 (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" or a plan subject to
Section 412 of the Code. 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, or (ii)
have resulted in a material breach of fiduciary duty or violation of Part 4 of
Title I of ERISA. To the Sellers' knowledge, 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.
(c) Sections 3.27(a) and 3.27(b) above shall not apply with respect
to any Employee Plan in connection with any events occurring or facts arising
after the Closing Date,
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except to the extent such events or facts could reasonably have been prevented
by any notice to the Buyer or other reasonable action of the Sellers prior to
the Closing Date.
3.28 Powers of Attorney. Except as set forth on Schedule 3.28 hereto,
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 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.
3.30 Brokers' or Finders' Fees, Etc. 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,
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policy number and any pending claims in excess of $5,000 thereunder). Except as
set forth on Schedule 3.32(a), 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 insurance
maintained by, or on behalf of, the Corporation is adequate in accordance with
the standards of business of comparable size in the industry in which the
Corporation operates and no notice of cancellation or termination has been
received with respect to any such policy. 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
$5,000 against the Corporation 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 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. Except as set forth on Schedule 3.33,
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 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 Agreement, 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, worker safety or protection of human health or
the environment; (ii) "Hazardous Materials" means any pollutant, 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 hazardous constituent contained within any waste and any
other pollutant, material, substance or waste, as regulated under or as defined
by any applicable
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Environmental Law.
(b) Except as set forth on Schedule 3.36, 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 ("Environmental Permits"). Except as set forth on
Schedule 3.36, all such Environmental Permits are in good standing, the
Corporation is and has 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 disclosed on Schedule 3.36, the Corporation and its
business, operations and the Assets are and have been in compliance in all
material respects with all applicable Environmental Laws.
(d) Except as disclosed on Schedule 3.36, 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 applicable Environmental Law, (iii) any remedial or removal
action required to be taken by the Corporation or the Sellers under any
applicable 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. Except as disclosed
on Schedule 3.36, the Corporation has not entered into any agreements concerning
any removal or remediation of Hazardous Materials.
(e) Except as set forth on Schedule 3.36, 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 applicable Environmental Law with respect to the
Corporation or the Real Property.
(f) Except as disclosed on Schedule 3.36, no environmental condition
exists (including, without limitation, the presence, release, threatened
release, migration 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 material violation of any applicable Environmental Law or otherwise
give rise to costs, liabilities or obligations of the Corporation under any
applicable Environmental Law.
(g) Except as disclosed on Schedule 3.36, 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 or, to the knowledge of
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the Sellers, 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 under any Environmental Law, 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) No environmental lien has attached or, to the knowledge of the
Sellers, 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, 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, to the
knowledge of the Sellers, any other property or facility previously owned,
operated or leased by the Corporation.
(l) Except as described 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. The Sellers are not selling the Shares to the
Buyer based in whole or in part on the actual knowledge of the Sellers of any
information concerning the Corporation's business which has or could reasonably
be expected to have a material adverse effect on the Corporation or its business
and which has not been disclosed to the Buyer hereunder.
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:
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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 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 Brokers' or Finders' Fees, Etc. 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
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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.
4.7 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.
The Buyer has delivered to the Sellers copies of the Prospectus dated November
10, 1997 and the Form 10-Q of the Buyer for the quarterly period ended September
30, 1997 (collectively, the "Buyer's Disclosure Materials"). None of the Buyer's
Disclosure Materials contained, at the time of the filing thereof with the
Securities and Exchange Commission, any untrue statement of any material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances in which
they were made, 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 (including the Environmental Audit
contemplated by Section 5.11 below) 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 to time reasonably request.
(b) 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
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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, (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 their 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) 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 Certain Prohibitions. 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 of its debt or equity
securities, (iii) otherwise change or modify its capital structure, (iv) engage
in any reorganization or similar transaction, (v) sell or otherwise dispose of
any of its assets, other than sales of inventory in the ordinary course of
business and the distribution of all real property owned by the Corporation as
contemplated by Section 1.2(c) above, (vi) declare or make payment of any
dividend or other distribution in respect of the Shares or redeem, repurchase or
acquire any of the Shares, except that the Corporation may pay dividends as
provided in Schedule 5.5 hereto and such dividends shall not, as of the Closing,
constitute a breach of the Sellers' representations and warranties contained in
Section 3.20(l), or (vii) agree to take any of the foregoing actions.
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.
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.
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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 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 any required filings by the Buyer with the
Securities and Exchange Commission or with the Buyer's lenders; 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
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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 by the rules of the New
York Stock Exchange, 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' Agent, 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.
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 as promptly as practicable
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 to the
transactions contemplated by this Agreement.
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.
6.5 ss.338 Election. In the event that the Buyer makes an election under
Section 338(g) of the Code with respect to the purchase of the Shares, the Buyer
shall be liable for and hereby agrees to indemnify the Sellers for any and all
liability for Taxes imposed on the Sellers or the Corporation that are
attributable, directly or indirectly, to any election made by the Buyer pursuant
to Section 338(g) of the Code.
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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 Baker, Donelson, Bearman & Caldwell, counsel for
the Sellers, dated the date of the Closing and addressed to the Buyer, in form
and substance reasonably acceptable to the Buyer;
(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 including, without limitation, the approval of Honda (or any subsidiary
or affiliate of Honda, as may be required);
(f) (i) a certificate dated as of a recent date from the Secretary
of State of the State of Tennessee to the effect that the Corporation is duly
incorporated in such State and stating that the Corporation owes no taxes, fees
or penalties in such 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 Tennessee;
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(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 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
(m) 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 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.
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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. Title to the Real Property, as well as
all related mortgage indebtedness of the Corporation with respect to the Real
Property, shall have been transferred to the Sellers with no continuing
liability or obligation of the Corporation with respect thereto.
7.9 Pledge Agreement. The Sellers shall have duly executed and delivered
to the Buyer the Pledge Agreement and the Pledged Shares thereunder.
7.10 Execution of Dealership Leases. The Sellers shall have duly delivered
to the Corporation and the Buyer the Dealership Leases, duly executed by the
respective lessors thereunder, each with a corresponding memorandum of lease in
a form suitable for recording.
7.11 Non-Competition Agreement. The Sellers shall have duly executed and
delivered to the Buyer and the Corporation the Non-Competition Agreement.
7.12 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.
7.13 Audited Financial Statements. The Buyer shall have completed
preparation of such audited financial statements of the Corporation as may be
required by applicable regulations of the Securities and Exchange Commission or
by any of the Buyer's lenders.
7.14 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.
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
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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 form
and substance reasonably acceptable to the Sellers;
(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.
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
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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 Leases. The Corporation shall have duly executed and
delivered to the Sellers the Dealership Leases.
8.7 Pledge Agreement. The Buyer shall have duly executed and delivered the
Pledge Agreement.
8.8 Liquidity Agreement. O. Bruton Smith shall have executed and delivered
to the Sellers the Liquidity Agreement.
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 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 for a period of two years with the exception of (i) the representations
and warranties of the Sellers contained in Section 3.21, which shall survive the
Closing until the expiration of the applicable tax statutes of limitation plus a
period of sixty (60) days, and (ii) the representations and warranties of the
Sellers contained in Sections 3.11, 3.19 and 3.36, which shall survive the
Closing for a period of five years. 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")
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<PAGE>
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) shall exceed a cumulative aggregate total of $150,000;
(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 or exposure to Hazardous Materials
generated, stored, used, disposed of, treated, handled or shipped by the
Corporation or present on the Real Property on or before the Closing Date;
(e) any cleanup 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 Closing Date;
(f) all known or unknown environmental liabilities of and claims
against the Corporation or any such liabilities and claims arising out of the
operation of the business or ownership of the Real Property prior to the
Closing, including, without limitation, the presence, release or threatened
release of Hazardous Materials and any liabilities or obligations arising under
any Environmental Law, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), as amended;
(g) any and all costs of installing pollution control equipment or
other equipment 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, regardless of when such non-compliance is discovered; or
(h) any and all Taxes owing out of or based upon the ownership, use
and operation of the Owned Real Property before or after the Closing (other than
any Taxes which are the obligation of the Buyer under the Dealership Leases) or
the distribution by the Corporation of the Owned Real Property contemplated in
Section 1.2(c)(1).
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With respect to the Sellers' obligations to pay Buyer's Damages
pursuant to Section 9.2 of this Agreement, the Buyer shall be entitled (but
shall not be obligated) to make demand for delivery of Escrow Shares under the
Escrow Agreement.
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
("Sellers' Damages") 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;
(c) 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 or exposure to Hazardous Materials
generated, stored, used, disposed of, treated, handled or shipped by the
Corporation after the Closing Date;
(d) any cleanup of Hazardous Materials released, disposed of or
discharged: (i) on, beneath or adjacent to the Real Property after 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 after the
Closing Date;
(e) all known or unknown environmental liabilities of and claims
against the Corporation or any such liabilities and claims arising out of
operation of the business after the Closing, including, without limitation, the
presence, release or threatened release of Hazardous Materials and any
liabilities or obligations arising under any Environmental Law, including but
not limited to the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), as amended; or
(f) any and all costs of installing pollution control equipment or
other equipment in order to bring any of the Real Property into compliance with
any Environmental Laws if such equipment is installed because any of the Real
Property is not in compliance with applicable Environmental Laws during the
Buyer's operation on or occupancy of the Real Property; provided, however, that
this indemnification does not apply to (i) any such noncompliance of any of the
Real Property as of the date of Closing, regardless of when such noncompliance
is discovered, or (ii) any such noncompliance that is otherwise attributable to
the acts or omissions of the Sellers or their agents.
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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 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
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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.
9.7 Access to Information. In order to facilitate the resolution of any
claims for indemnification under this Article 9, each of the parties hereto
shall, after the Closing: (a) afford to the other parties hereto, and their
authorized agents and representatives, reasonable access, during normal business
hours, to the offices, properties, books and records of such party; and (b)
furnish to the other parties hereto, and their authorized agents and
representatives, such additional financial and other information as may be
relevant to the matter in dispute; provided, however, that such access shall not
unreasonably interfere with the business or operations of the party providing
such access and, provided, further, that no party hereunder shall be obligated
to disclose any information which it holds under a legally binding obligation of
confidentiality or which is protected by any privilege.
9.8 Certain Limitations on Indemnification. The indemnification
obligations of any party hereto shall be offset by any net reduction of federal
and state income tax that may reasonably be expected by reason of the respective
Buyer's Damages or Sellers' Damages, as the case may be, after taking into
account the amount of the indemnification received by such party. Furthermore,
in the case of indemnification by the Sellers, the amount of any reserve or
liability reflected on the Closing Balance Sheet with respect to the item of
Buyer's Damages involved shall be deducted in the calculation of such Buyer's
Damages.
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 may terminate this Agreement pursuant to this Section 10.1(b)
if such party is in breach of any material representation,
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<PAGE>
warranty or covenant of such party contained in this Agreement;
(c) By the Buyer or the Sellers 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 or the Sellers' Agent, as the case may be, delivers a written
notice to the other party(ies) of such termination hereunder within 30 days of
the Buyer's or Sellers' receipt of such second request or of notice of such
challenge;
(d) By the Buyer or the Sellers' Agent, by written notice to the
other party(ies) hereto, in the event that approval by Honda (or any subsidiary
or affiliate of Honda, as may be required) of the transactions contemplated by
this Agreement is not received on or prior to the Closing Date Deadline;
provided, however, if this Agreement shall be terminated by the Sellers' Agent
pursuant to this clause (d), the Buyer may nevertheless elect to close the
transactions contemplated hereby by giving the Sellers' Agent written notice of
such election within five (5) Business Days of the receipt of such termination
notice by the Sellers' Agent, in which case the parties shall be obligated to
close the transactions contemplated hereby within five (5) Business Days of the
receipt by the Sellers' Agent of such notice of election by the Buyer; or
(e) By the Buyer within 30 days after ______________ if, and only
if, the Buyer is not satisfied, in its discretion, with the results of the
Buyer's due diligence investigations 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 relieve (i) the Buyer of any liability under
Section 10.3 below or of any obligation under Section 12.14 below, (ii) the
Sellers of any liability under Section 10.4 below, or (iii) 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. Except as specifically provided in Section
10.5 below, nothing contained in this Agreement 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.
10.3 Payment of Buyer's Termination Fee . 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 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
$1,000,000 (the "Buyer's Termination Fee").
10.4 Payment of Sellers' Termination Fee. 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 any of their material
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<PAGE>
representations and warranties or any of 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
$1,000,000 (the "Sellers' Termination Fee").
10.5 Termination Fees Exclusive Remedies for Damages. The respective
rights of the parties to terminate this Agreement under Section 10.1(b) 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 Buyers' Termination Fee, as the case may be. Nothing contained in
this Section 10.5 shall prevent any party hereto from electing not to terminate
this Agreement and seeking equitable relief, including specific performance,
from any breaching party hereunder.
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
MISCELLANEOUS
12.1 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.
12.2 Parties in Interest; No Third-Party Beneficiaries. Subject to Section
12.4 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, 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
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reason of this Agreement.
12.3 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.
12.4 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. Nothing
contained in this Agreement shall prohibit its assignment by the Buyer as
collateral security and the Sellers and the Corporation hereby agree to execute
any acknowledgment of such assignment by the Buyer as may be required by any
lender to the Buyer.
12.5 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.
12.6 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.
12.7 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 one (1) business day after the date of transmission by
telecopier or 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 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopy: (704) 536-5116
Attention: Theodore M. Wright, Chief Financial Officer
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With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopy (704) 334-4706
Attention: Edward W. Wellman, Jr., Esq.
If to the Sellers, to:
Mr. Freeman Smith, as Seller's Agent
c/o Baker, Donelson, Bearman & Caldwell
1800 Republic Centre
603 Chestnut Street
Chattanooga, Tennessee 37450
Telecopy: (423) 756-3447
Attention: Richard B. Gossett, Esq.
12.8 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.
12.9 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
rules governing conflict of laws.
12.10 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.
12.11 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.
12.12 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 or her
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.
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12.13 Jurisdiction; Arbitration.
(a) Subject to the other provisions of this Section 12.13, 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 (except for accounting matters provided for in Section 1.2(c)
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 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 12.13 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.
12.14 Confidentiality. The Buyer agrees that it will keep confidential and
not disclose without the prior written consent of the Sellers' Agent, and will
not use for any reason other than the conduct of its due diligence
investigations contemplated by Section 5.1 of this Agreement, all confidential
information received from the Sellers or the Corporation. As used in this
Section 12.14, the term "confidential information" shall mean all information
regarding the Corporation's business which the Corporation takes reasonable
measures to treat as confidential, but does not include (i) information which
is, or becomes, generally available to the public other
38
<PAGE>
than due to an act or omission of the Buyer, (ii) information which is, or
becomes, available to the Buyer on a non-confidential basis from a source other
than the Sellers or the Corporation, provided that such source is not bound by a
confidentiality agreement with the Sellers or the Corporation, or (iii) was
already known by the Buyer at the time of the receipt thereof. The provisions of
this Section 12.14 shall survive the termination of this Agreement.
[Remainder of this Page Intentionally Blank - Signatures Next Page]
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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 AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
----------------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
/s/ Freeman Smith
--------------------------------------------
Name: Freeman Smith
/s/ Melvin Q. Smith
--------------------------------------------
Name: Melvin Q. Smith
/s/ James M. Holland
--------------------------------------------
Name: James M. Holland
40
<PAGE>
EXHIBITS
Exhibit A - List of Sellers
Exhibit B - Form of Pledge Agreement
Exhibit C-1 - Statement of Rights and Preferences of Preferred Stock
Exhibit C-2 - Form of Liquidity Agreement
Exhibit D - Form of Dealership Leases
Exhibit E - Form of Non-Competition Agreement
41
<PAGE>
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 3.14 Accounts Receivable
Schedule 3.15 Inventories
Schedule 3.16(b) Leased Premises
Schedule 3.16(c) Easements, Condemnation
Schedule 3.16(d) Zoning, Etc.
Schedule 3.16(e) Owned Equipment
Schedule 3.16(f) Leased Equipment
Schedule 3.16(g) Maintenance of 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 3.25 Employees; Labor Relations
Schedule 3.26 Compensation
Schedule 3.27 Employee Benefits
Schedule 3.28 Powers of Attorney
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 5.5 Certain Dividends
42
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED
STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE QUARTER
ENDING MARCH 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,391
<SECURITIES> 247
<RECEIVABLES> 22,128
<ALLOWANCES> 554
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0
3,366
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</TABLE>
