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 September 30, 1999
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 November 12, 1999, there were 23,820,355 shares of Class A Common Stock
and 12,250,000 shares of Class B Common Stock 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
September 30, 1998 and September 30, 1999
Consolidated Statements of Income -
Nine-month periods ended
September 30, 1998 and September 30, 1999
Consolidated Balance Sheets -
December 31, 1998 and September 30, 1999
Consolidated Statement of Stockholders'
Equity - Nine-month period ended September 30, 1999
Consolidated Statements of Cash Flows -
Nine-month periods ended September 30, 1998
and September 30, 1999
Notes to Unaudited Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II - OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds 23
ITEM 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements.
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1999
---------- -----------
REVENUES:
Vehicle sales $ 443,043 $ 751,181
Parts, service and collision repair 50,803 96,223
Finance and insurance (Note 1) 10,264 22,560
---------- -----------
Total revenues 504,110 869,964
COST OF SALES (Note 1) 440,136 753,310
---------- -----------
GROSS PROFIT 63,974 116,654
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 46,793 82,650
DEPRECIATION AND AMORTIZATION 1,535 2,992
---------- -----------
OPERATING INCOME 15,646 31,012
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 3,992 5,721
Interest expense, other 2,787 4,786
Other income 9 38
---------- -----------
Total other expense 6,770 10,469
---------- -----------
INCOME BEFORE INCOME TAXES 8,876 20,543
PROVISION FOR INCOME TAXES 3,450 7,960
---------- -----------
NET INCOME $ 5,426 $ 12,583
========== ===========
BASIC EARNINGS PER SHARE (Note 6) $ 0.24 $ 0.36
========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,730 35,208
========== ===========
DILUTED EARNINGS PER SHARE (Note 6) $ 0.21 $ 0.33
========== ===========
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES
OUTSTANDING 26,126 38,268
========== ===========
See notes to unaudited consolidated financial statements.
3
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands except per share amounts)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
----------- ------------
REVENUES:
Vehicle sales $ 1,012,153 $ 1,904,602
Parts, service and collision repair 119,114 230,249
Finance and insurance (Note 1) 22,954 52,095
------------ ------------
Total revenues 1,154,221 2,186,946
COST OF SALES (Note 1) 1,007,825 1,897,956
------------ ------------
GROSS PROFIT 146,396 288,990
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 107,185 207,293
DEPRECIATION AND AMORTIZATION 3,360 7,143
------------ ------------
OPERATING INCOME 35,851 74,554
OTHER INCOME AND EXPENSE:
Interest expense, floor plan 10,547 15,118
Interest expense, other 5,548 12,177
Other income 24 362
------------ ------------
Total other expense 16,071 26,933
------------ ------------
INCOME BEFORE INCOME TAXES 19,780 47,621
PROVISION FOR INCOME TAXES 7,550 18,250
------------ ------------
NET INCOME $ 12,230 $ 29,371
============ ============
BASIC EARNINGS PER SHARE (Note 6) $ 0.54 $ 0.98
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,596 29,948
============ ============
DILUTED EARNINGS PER SHARE (Note 6) $ 0.50 $ 0.88
============ ============
WEIGHTED AVERAGE NUMBER OF DILUTED SHARES
OUTSTANDING 24,280 33,489
============ ============
See notes to unaudited consolidated financial statements.
4
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
------------ -------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 51,834 $ 69,865
Receivables (net of allowance for
doubtful accounts of $700,000 and
$1,465,000 at December 31, 1998 and
September 30, 1999, respectively) 39,902 54,831
Inventories (Note 3) 264,971 362,645
Deferred income taxes 1,702 1,762
Due from affiliates (Note 5) 1,471 4,932
Other current assets 4,961 5,894
------------- -----------
Total current assets 364,841 499,929
PROPERTY AND EQUIPMENT, NET 26,250 42,315
GOODWILL, NET (Notes 1 and 2) 180,081 360,421
OTHER ASSETS 4,931 7,485
------------- -----------
TOTAL ASSETS $ 576,103 $ 910,150
============== ===========
See notes to unaudited consolidated financial statements.
5
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
------------ ------------
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - floor plan $ 228,158 $ 276,915
Trade accounts payable 14,994 22,215
Accrued interest 7,058 4,469
Other accrued liabilities 27,763 39,900
Payable to affiliates (Note 5) 628 -
Payable for acquisitions 2,385 275
Current maturities of long-term debt 4,700 1,176
----------- -----------
Total current liabilities 285,686 344,950
LONG-TERM DEBT (Note 4) 131,337 214,235
PAYABLE FOR ACQUISITIONS 275 275
PAYABLE TO THE COMPANY'S CHAIRMAN (Note 5) 5,500 5,500
PAYABLE TO AFFILIATES (Note 5) 3,625 766
DEFERRED INCOME TAXES 4,066 6,653
INCOME TAX PAYABLE 3,185 3,906
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (Note 6):
Preferred Stock, $.10 par, 3.0 million
shares authorized; 300,000 shares
designated as Class A Convertible
Preferred Stock, liquidation 20,431 27,254
preference $1,000 per share, of
which 22,179 shares are issued and
outstanding at December 31, 1998
and 28,718 shares are issued and
outstanding at September 30, 1999
Class A Common Stock, $.01 par, 100.0
million shares authorized; 11,959,274
shares issued and outstanding at
December 31, 1998 and 23,749,310 120 237
shares issued and outstanding at
September 30, 1999
Class B Common Stock, $.01 par
(convertible into Class A Common Stock),
30.0 million shares authorized;
12,400,000 shares issued and 124 123
outstanding at December 31, 1998 and
12,250,000 shares issued and
outstanding at September 30, 1999
Paid-in capital 87,011 242,137
Retained earnings 34,743 64,114
----------- ----------
Total stockholders' equity 142,429 333,865
----------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 576,103 $ 910,150
=========== ==========
See notes to unaudited consolidated financial statements.
6
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars and shares in thousands)
(Unaudited)
<TABLE>
<CAPTION>
PREFERRED CLASS A CLASS B TOTAL
STOCK COMMON STOCK COMMON STOCK PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ --------- --------- -------- ---------- -------- ---------- --------- ------------
BALANCE AT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1998 22 $ 20,431 11,959 $120 12,400 $124 $ 87,011 $34,743 $ 142,429
Issuance of Preferred
Stock (Note 2) 59 53,152 - - - - - - 53,152
Issuance of Common
Stock (Note 2) - - 7,642 76 - - 107,243 - 107,319
Shares awarded under stock
compensation plans - - 213 2 - - 1,592 - 1,594
Conversion of Class A
Preferred Stock (52) (46,329) 3,785 38 - - 46,291 - -
Conversion of Class B
Common Stock - - 150 1 (150) (1) - - -
Net income - - - - - - - 29,371 29,371
BALANCE AT
------ --------- --------- -------- ----------- -------- ---------- -------- -----------
SEPTEMBER 30, 1999 29 $ 27,254 23,749 $237 12,250 $123 $242,137 $64,114 $ 333,865
====== ========= ========== ======= =========== ======== ========== ======== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
7
<PAGE>
SONIC AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,230 $ 29,371
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,364 7,143
Amortization of discount on senior notes - 194
Loss on disposal of property and equipment 141 72
Changes in assets and liabilities that relate
to operations:
Receivables (3,978) (8,747)
Inventories 44,026 30,739
Other assets (3,736) (589)
Accounts payable and other current
liabilities 2,002 4,930
--------- ---------
Total adjustments 41,819 33,742
--------- ---------
Net cash provided by operating activities 54,049 63,113
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired (66,883) (164,306)
Purchases of property and equipment (2,614) (11,171)
Proceeds from sales of property and equipment (Note 5) - 10,594
---------- ---------
Net cash used in investing activities (69,497) (164,883)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments of notes payable - floor plan (49,842) (40,714)
Proceeds from long-term debt 171,182 159,732
Payments on long-term debt (83,897) (86,014)
Public offering of common stock - 85,069
Issuance of shares under stock compensation plans 341 1,594
Advances (to) from affiliated companies (549) 134
---------- ---------
Net cash provided by financing activities 37,235 119,801
---------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 21,787 18,031
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,304 51,834
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,091 $ 69,865
========== =========
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Preferred Stock issued for acquisitions and
contingent consideration (Note 2) $ 25,788 $ 53,150
Common Stock issued for acquisitions (Note 2) $ 8,250 $ 22,250
See notes to unaudited consolidated financial statements.
8
<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", "projected"
or similar terms. 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 and in other filings with the
Securities and Exchange Commission.
SONIC AUTOMOTIVE, INC.
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 and nine months ended September 30, 1998 and 1999 has
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 audited consolidated financial statements of Sonic Automotive, Inc. and
its subsidiaries (collectively, "Sonic") for the year ended December 31, 1998.
REVENUE RECOGNITION - Sonic records revenue when vehicles are delivered
to customers, and when vehicle service work is performed.
Sonic arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. Sonic also receives commissions from the
sale of credit life, accident, health and disability insurance and extended
service contracts to customers. Sonic may be assessed a chargeback fee in the
event of early cancellation of a loan, insurance contract, or service contract
by the customer. Finance and insurance commission revenue is recorded net of
estimated chargebacks at the time the related contract is placed with the
financial institution.
Commissions expense related to finance and insurance commission revenue
is charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $1.8 million and $3.3 million for the three months ended September
30, 1998 and September 30, 1999, respectively, and approximately $4.0 million
and $8.5 million for the nine months ended September 30, 1998 and September 30,
1999, respectively.
RECLASSIFICATION - Certain balances reported in 1998 have been
reclassified to conform with current period presentation.
GOODWILL - Goodwill represents the excess purchase price over the
estimated fair value of the tangible and separately measurable intangible net
assets acquired. The cumulative gross goodwill balance at December 31, 1998 was
$182.5 million and at September 30, 1999 was $369.5 million. As a percentage of
total assets and stockholders' equity, goodwill, net of accumulated
amortization, represented 31.3% and 126.4%, respectively, at December 31, 1998,
and 39.6% and 108.0%, respectively, at September 30, 1999. Generally accepted
accounting principles require that goodwill and all other intangible assets be
amortized over the period benefited. We have determined that the period
benefited by the goodwill will be no less than 40 years. Accordingly, we are
amortizing goodwill over a 40 year period. Earnings reported in periods
immediately following an acquisition would be overstated if we attributed a 40
year benefit to an intangible asset that should have had a shorter benefit
period. In later years, we would be burdened by a continuing charge against
earnings without the associated benefit to income valued by management in
arriving at the consideration paid for the businesses acquired. Earnings in
later years also could be significantly affected if management then determined
that the remaining balance of goodwill was impaired. We periodically compare the
carrying value of goodwill with the anticipated undiscounted future cash flows
from operations of the business we have acquired in order to evaluate the
recoverability of goodwill. We have concluded that the anticipated future cash
flows associated with intangible assets recognized in our acquisitions will
continue indefinitely, and there is no pervasive evidence that any material
portion will dissipate over a period shorter than 40 years. We will incur
additional goodwill in future acquisitions.
9
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. BUSINESS ACQUISITIONS
PENDING ACQUISITIONS
Sonic has signed definitive agreements to acquire 38 dealerships for an
estimated $224.6 million in cash, approximately 13,600 shares of Sonic's Class A
convertible preferred stock and approximately 5,100,000 shares of Class A common
stock. The aggregate purchase price is subject to adjustment based on the actual
net book value of the assets acquired. The cash portion of the purchase price
will be paid with a combination of borrowings under Sonic's $350 million
acquisition line of credit with Ford Motor Credit Company (the "Revolving
Facility") and with cash generated from Sonic's existing operations. These
acquisitions are expected to be consummated in the fourth quarter of 1999 and
first quarter of 2000.
ACQUISITIONS COMPLETED SUBSEQUENT TO SEPTEMBER 30, 1999 (THROUGH NOVEMBER 12,
1999):
Subsequent to September 30, 1999, Sonic acquired 9 dealerships for
approximately $57.8 million in cash financed with a combination of cash borrowed
under the Revolving Facility and cash generated from Sonic's existing
operations. The acquisitions were accounted for using the purchase method of
accounting.
ACQUISITIONS COMPLETED DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1999:
During the first nine months of 1999, Sonic acquired 30 dealerships for
approximately $173.8 million in cash, 6,282 shares of Sonic's Class A
convertible preferred stock, Series II, having an estimated fair value at the
time of issuance of approximately $6.1 million, 45,783 shares of Sonic's Class A
convertible preferred stock, Series III, having an estimated fair value at the
time of issuance of approximately $40.3 million, and 1,574,932 shares of Sonic's
Class A common stock having an estimated fair value at the time of issuance of
approximately $22.3 million. The cash portion of the purchase price was financed
with a combination of a portion of the net proceeds from Sonic's recent public
offering of Class A common stock, cash borrowed under the Revolving Facility and
cash generated from Sonic's existing operations. The acquisitions were accounted
for using the purchase method of accounting, and the results of operations of
such acquisitions have been included in the accompanying unaudited consolidated
financial statements from their respective acquisition dates. The aggregate
purchase price of these acquisitions has been allocated to the assets and
liabilities acquired based on their estimated fair market value at the
acquisition date as shown in the table below. The purchase price and
corresponding goodwill may ultimately be different than amounts recorded
depending on the actual fair value of tangible net assets acquired.
Working capital $ 49,010
Property and equipment 14,808
Goodwill 181,509
Non-current liabilites assumed (2,840)
------------
Total purchase price $242,487
============
In connection with the subsequent acquisition of a Honda dealership in
Chattanooga, Tennessee, Sonic sold substantially all of the assets of its
existing Honda dealership in Cleveland, Tennessee in March 1999 for
approximately $1.7 million, net of repayment of floor plan liabilities. There
was no material gain or loss as a result of the sale.
The following unaudited pro forma financial information presents a
summary of consolidated results of operations as if the above acquisition
transactions had occurred as of the beginning of the year in which the
acquisitions were completed, and at the beginning of the immediately preceding
year, 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 Sonic or whose salaries have been reduced pursuant to employment agreements
with Sonic. 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 at the beginning of the period
presented. These results are also not necessarily indicative of the results of
future operations.
10
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. BUSINESS ACQUISITIONS - CONTINUED
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
1998 1999 1998 1999
--------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues $ 814,327 $ 893,828 $ 2,368,658 $ 2,575,119
Gross profit $ 102,690 $ 119,085 $ 292,504 $ 333,665
Net Income $ 8,500 $ 13,462 $ 19,152 $ 35,956
Diluted income per share $ 0.22 $ 0.35 $ 0.50 $ 0.90
</TABLE>
3. INVENTORIES
Inventories consist of the following:
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
New vehicles $ 190,139 $ 242,679
Used vehicles 47,033 78,915
Parts and accessories 16,012 30,637
Other 11,787 10,414
------------ -------------
Total $ 264,971 $ 362,645
============= ============
4. LONG-TERM DEBT
MORTGAGES:
In January 1999, in connection with the sale of real estate at two of
its dealership subsidiaries to MMR Holdings, LLC (See Note 5), a limited
liability company owned by Bruton Smith, Sonic's Chairman and Chief Executive
Officer, and Sonic Financial Corporation ("SFC"), Sonic repaid all amounts
outstanding under mortgages encumbering such property.
REVOLVING FACILITY:
Effective November 1, 1999, the total amount available under Sonic's
Revolving Facility was increased from $150 million to $350 million. Prior to
November 1, 1999, amounts outstanding under the Revolving Facility bore interest
at a fluctuating per annum rate equal to 2.75% above the 1 month commercial
finance paper rate as reported by the Federal Reserve Board (8.01% at September
30, 1999). Subsequent to November 1, 1999, amounts outstanding bear interest at
2.50% above LIBOR. The Revolving Facility will mature in October 2002, unless
Sonic 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. On
May 5, 1999, in connection with the public offering by Sonic of 6,067,230 shares
of Class A common stock, all amounts previously outstanding under the Revolving
Facility were repaid. Amounts outstanding under the Revolving Facility as of
September 30, 1999 total approximately $88.3 million and were used to finance
acquisitions completed in the third quarter of 1999. Future 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 Sonic not to exceed
$35 million.
5. RELATED PARTIES
THE SMITH SUBORDINATED LOAN:
In December 1997, Mr. Smith was required by Ford Motor Credit Company
("Ford Motor Credit") to lend $5.5 million (the "Subordinated Smith Loan") to
Sonic to increase Sonic's capitalization. Ford Motor Credit required the
Subordinated Smith Loan as a condition to increasing the Revolving Facility
borrowing limit because the net offering proceeds from Sonic's November 1997
initial public offering were significantly less than expected by Sonic and Ford
Motor Credit. The Subordinated Smith Loan bears interest at Bank of America's
announced prime rate plus 0.5% and matures on November 30, 2000. All amounts
owed by Sonic to Mr. Smith under the Subordinated Smith Loan are to be paid
after all amounts owed by Sonic under the Revolving Facility, Sonic's floor plan
financing facility with Ford Motor Credit and Sonic's senior subordinated notes
are paid.
11
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. RELATED PARTIES - CONTINUED
REGISTRATION RIGHTS AGREEMENT:
When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill
Ford, Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic
signed a Registration Rights Agreement dated as of June 30, 1997 (the
"Registration Rights Agreements") with SFC, Bruton Smith, Scott Smith and
William S. Egan (collectively, the "Class B Registration Rights Holders"). SFC,
which is controlled by Bruton Smith, currently owns 8,881,250 shares of Class B
common stock; Bruton Smith, 2,071,250 shares; Scott Smith, 956,250 shares; and
Egan Group, LLC, an assignee of Mr. Egan (the "Egan Group"), 341,250 shares, all
of which are covered by the Registration Rights Agreement. The Egan Group also
owns 125,000 shares of Class A common stock to which the Registration Rights
Agreement applies. If, among other things provided in Sonic's charter, offers
and sales of shares of Class B common stock are registered with the Securities
and Exchange Commission, then such shares will automatically convert into a like
number of shares of Class A common stock.
The Class B Registration Rights Holders have certain limited piggyback
registration rights under the Registration Rights Agreement. These rights permit
them to have their shares of Sonic's common stock included in any Sonic
registration statement registering Class A common stock, except for
registrations on Form S-4, relating to exchange offers and certain other
transactions, and Form S-8, relating to employee stock compensation plans. The
Registration Rights Agreement expires on November 17, 2007. SFC is controlled by
Bruton Smith.
THE BOWERS VOLVO NOTE:
In connection with Volvo's approval of Sonic's acquisition of a Volvo
franchise from Nelson Bowers in 1997, Volvo, among other things, conditioned its
approval upon Nelson Bowers acquiring and maintaining a 20% interest in Sonic's
Chattanooga Volvo subsidiary operating the Volvo franchise. Mr. Bowers financed
all of the purchase price for this 20% interest by issuing a promissory note
(the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc., the
wholly-owned subsidiary of Sonic that controls a majority interest in
Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers' interest in
Chattanooga Volvo.
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S. Treasury
Department in effect on November 17, 1997. Accrued interest is payable annually.
The operating agreement of Chattanooga Volvo provides that profits and
distributions are to be allocated first to Mr. Bowers to the extent of interest
to be paid on the Bowers Volvo Note and next to the other members of Chattanooga
Volvo according to their percentages of ownership. No other profits or any
losses of Chattanooga Volvo will be allocated to Mr. Bowers under this
arrangement. Volvo has removed its requirement that Mr. Bowers maintain his
interest in Chattanooga Volvo. Sonic and Mr. Bowers are in the process of
redeeming his interest in Chattanooga Volvo and satisfying the Bowers Volvo
Note. This transaction is not expected to have a material impact on Sonic's
future results of operations or cash flows. As of November 1998 Mr. Bowers was
no longer an affiliate of Sonic.
DEALERSHIP LEASES:
In January 1999, Sonic sold to MMR Holdings, L.L.C., a limited
liability company then owned by Bruton Smith and SFC, the real estate at two of
its dealership subsidiaries for an aggregate purchase price of approximately
$10.6 million and entered into an agreement with MMR Holdings, L.L.C. to lease
back the real estate over a term of ten years. Sonic realized a gain on the sale
of approximately $3.8 million which was deferred and is currently being
amortized against the rent expense over the term of the lease.
On August 13, 1999, CAR MMR L.L.C., an affiliate of Capital Automotive
REIT, which is not affiliated with Sonic, acquired all of the ownership
interests of MMR Holdings, L.L.C., and two of its affiliates, MMR Viking
Investment Associates, L.P. and MMR Tennessee, L.L.C (collectively, the "MMR
Group). As of that date, Sonic leased 48 properties for 38 of its dealerships
from the MMR Group under "triple net leases" which required Sonic to pay all
costs of operating the properties, as well as all taxes, utilities, insurance,
repairs, maintenance and other property related expenses. Sonic has entered into
new leases with CAR MMR L.L.C. with terms similar to those under Sonic's former
leases with the MMR Group. These leases generally provide Sonic with options to
renew the lease for two additional five year terms after the expiration of the
initial lease term. Sonic has agreed to renew approximately 75% of its lease
rental stream for an additional five year period after the expiration of the
initial lease terms. In connection with the acquisition, Sonic, MMR Holdings and
Mar Mar Realty Trust, an affiliate of the MMR Group, terminated the strategic
alliance agreement whereby Mar Mar Realty Trust had provided Sonic with real
estate financing, acquisition referral and related services.
In connection with the above transaction, CAR MMR L.L.C. has agreed to
provide Sonic with up to $75 million in real estate sale-leaseback financing
through December 31, 1999.
12
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
5. RELATED PARTIES - CONTINUED
OTHER RELATED PARTY TRANSACTIONS:
o Sonic had amounts receivable from affiliates of $1.5 million and
$4.9 million at December 31, 1998 and September 30, 1999,
respectively. Of the $4.9 million balance at September 30, 1999,
approximately $3.5 million represents amounts owed by Mar Mar
Realty Trust. The remaining balances at December 31, 1998 and
September 30, 1999 primarily represent advances made by Sonic to
SFC and Mar Mar Realty Trust. The amounts receivable from
affiliates are non-interest bearing and are classified as current
based on the expected repayment dates.
o As part of the purchase price in connection with Sonic's
acquisition of the Bowers Automotive Group in November 1997, Sonic
issued its promissory note in the principal amount of $4.0 million
in favor of Nelson Bowers (the "Bowers Acquisition Note"). The
Bowers Acquisition Note is payable in 28 equal quarterly
installments and bears interest at the prime rate less 0.5%. The
balance outstanding under this note at September 30, 1999 was $3.0
million, the current portion of which was $572,000. As noted
above, Mr. Bowers was no longer affiliated with Sonic after
November 1998. As a result, the outstanding balance at September
30, 1999 has been classified as long term debt, the current
portion of which has been classified in current maturities of
long-term debt.
o Town and Country Toyota has an amount payable to Bruton Smith in
the amount of $0.7 million at December 31, 1998 and September 30,
1999. This loan bears interest at 8.75% per annum and is
classified as non-current based on the expected repayment date.
6. CAPITAL STRUCTURE AND PER SHARE DATA
PUBLIC OFFERING OF COMMON STOCK - Sonic completed a public offering of
8,500,000 shares of its Class A common stock on May 5, 1999 at a price of
$14.9375 per share. Of the 8,500,000 shares sold in the offering, 6,067,230
shares were sold by Sonic and 2,432,770 shares were sold by certain stockholders
of Sonic. Of the $86.1 million in net proceeds to Sonic from the public
offering, approximately $75.5 million was used to repay the outstanding balance
under the Revolving Facility. The remaining net proceeds were used to finance
acquisitions which closed in the second quarter of 1999.
SHARE REPURCHASE PROGRAM - On November 1, 1999, Sonic's Board of
Directors authorized Sonic to expend up to $25 million to repurchase shares of
its Class A common stock or redeem securities convertible into Class A common
stock. Shares will be repurchased from time to time in the open market subject
to market conditions.
INCREASE TO AUTHORIZED SHARES OF COMMON STOCK - At the annual meeting
of stockholders held on June 8, 1999, Sonic's stockholders approved an amendment
to Sonic's Amended and Restated Certificate of Incorporation to increase the
number of shares of Class A common stock authorized to be issued thereunder from
50 million to 100 million, and to increase the number of shares of Class B
common stock authorized to be issued thereunder from 15 million to 30 million.
PER SHARE DATA - The calculation of diluted net income per share
considers the potential dilutive effect of options and shares under Sonic's
stock compensation plans, Class A common stock purchase warrants, and Class A
convertible preferred stock. The following table illustrates the dilutive effect
of such items on EPS.
<TABLE>
<CAPTION>
For the nine months ended For the nine months ended
September 30, 1998 September 30, 1999
---------------------------------------- ----------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------ ------------ ------------ ------------- ------------- -----------
(DOLLARS AND SHARES IN THOUSANDS (DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $12,230 22,596 $ 0.54 $29,371 29,948 $ 0.98
============ ===========
EFFECT OF DILUTIVE SECURITIES
Stock compensation plans - 531 - 1,102
Warrants - 26 - 92
Convertible Preferred Stock - 1,127 - 2,347
------------ ------------ ------------- -------------
DILUTED EPS $12,230 24,280 $ 0.50 $29,371 33,489 $ 0.88
============ ============ ============ ============= ============= ===========
</TABLE>
13
<PAGE>
SONIC AUTOMOTIVE, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
6. CAPITAL STRUCTURE AND PER SHARE DATA - CONTINUED
<TABLE>
<CAPTION>
For the three months ended For the three months ended
September 30, 1998 September 30, 1999
---------------------------------------- ----------------------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
------------ ------------ ------------ ------------- ------------- -----------
(DOLLARS AND SHARES IN THOUSANDS (DOLLARS AND SHARES IN THOUSANDS
EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS $ 5,426 22,730 $ 0.24 $12,583 35,208 $ 0.36
============ ===========
EFFECT OF DILUTIVE SECURITIES
Stock compensation plans - 718 - 736
Warrants - 36 - 76
Convertible Preferred Stock - 2,642 - 2,248
------------ ------------ ------------- -------------
DILUTED EPS $ 5,426 26,126 $ 0.21 $12,583 38,268 $ 0.33
============ ============ ============ ============= ============= ===========
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Sonic is involved in various legal proceedings. Management believes
based on advice of counsel that the outcome of such proceedings will not have a
materially adverse effect on Sonic's financial position or future results of
operations and cash flows.
14
<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 Sonic's
statements of income.
<TABLE>
<CAPTION>
Percentage of Total Revenues for Percentage of Total Revenues for
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1999 1998 1999
------- ------- -------- ---------
Revenues:
<S> <C> <C> <C> <C>
New vehicle sales.................................... 60.4% 58.4% 59.8% 58.3%
Used vehicle sales................................... 27.5% 27.9% 27.9% 28.8%
Parts, service, and collision repair................. 10.1% 11.1% 10.3% 10.5%
Finance and insurance................................ 2.0% 2.6% 2.0% 2.4%
------ ------ ------ ------
Total revenues....................................... 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................ 87.3% 86.6% 87.3% 86.8%
----- ----- ----- -----
Gross profit......................................... 12.7% 13.4% 12.7% 13.2%
Selling, general, and administrative................. 9.6% 9.8% 9.6% 9.8%
------ ------ ------ ------
Operating income..................................... 3.1% 3.6% 3.1% 3.4%
Interest expense..................................... 1.3% 1.2% 1.4% 1.2%
------ ------ ------ ------
Income before income taxes........................... 1.8% 2.4% 1.7% 2.2%
====== ====== ====== ======
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES. Revenues grew in each of our primary revenue areas for the
first nine months of 1999 as compared with the first nine months of 1998,
causing total revenues to increase 89.5% to $2.2 billion. New vehicle sales
revenue increased 84.8% to $1.3 billion in the first nine months of 1999,
compared with $690.5 million in the first nine months of 1998. The increase was
due primarily to an increase in new vehicle unit sales of 79.4% to 52,509, as
compared with 29,262 in the first nine months of 1998 resulting from 21,821
additional units contributed by acquisitions. The remainder of the increase was
due to a 3.0% increase in the average selling price of new vehicles as well as
an increase in new vehicle revenues from stores owned for longer than one year
of 14.5% in the first nine months of 1999 over the first nine months of 1998.
Used vehicle revenues from retail sales increased 94.7% to $458.8
million in the first nine months of 1999 from $235.6 million in the first nine
months of 1998. The increase was primarily due to an increase in used vehicle
unit sales of 88.2% to 32,392, as compared with 17,211 in the first nine months
of 1998, resulting from additional unit sales contributed by acquisitions. The
remainder of the increase was due to a 3.5% increase in the average selling
price of used vehicles as well as an increase in used vehicle revenues from
stores owned for longer than one year of 16.6% in the first nine months of 1999
over the first nine months of 1998.
Parts, service and collision repair revenue increased 93.3% to $230.2
million in the first nine months of 1999 compared to $119.1 million in the first
nine months of 1998, principally due to our acquisitions. Finance and insurance
revenue increased $29.1 million, or 127%, principally due to vehicle sales and
related financing contributed by our acquisitions, as well as a 24% improvement
in finance and insurance revenues per vehicle resulting from newly implemented
programs designed to improve training and development of finance and insurance
sales people.
GROSS PROFIT. Gross profit increased 97.4% to $289.0 million in the
first nine months of 1999 from $146.4 million in the first nine months of 1998
principally due to increases in revenues contributed by dealerships acquired.
Gross profit as a percentage of sales increased to 13.2% from 12.7% due
primarily to an increase in revenues of higher margin used vehicles and finance
and insurance products. Used vehicle revenues as a percentage of total revenues
increased from 27.9% in the first nine months of 1998 to 28.8% in the first nine
months of 1999. Finance and insurance revenues as a percentage of total revenues
increased from 2.0% in the first nine months of 1998 to 2.4% in the first nine
months of 1999.
15
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, excluding depreciation and amortization, increased
93.4% to $207.3 million in the first nine months of 1999 from $107.2 million in
the first nine months of 1998 resulting principally from acquisitions. Such
expenses as a percentage of revenues increased to 9.5% from 9.3% resulting from
two primary factors. First, because compensation programs, which represent over
50% of a dealership's selling, general and administrative expenses, are
primarily based on gross profits, the improvement in gross profit margins
resulted in an increase in compensation expense as a percentage of total
revenues from 5.7% in the first nine months of 1998 to 5.9% in the first nine
months of 1999. Second, an adjustment in monthly lease rates at certain
dealerships to fair market rates during the period resulted in an increase in
rent expense as a percentage of total revenues from 0.7% in the first nine
months of 1998 to 0.8% in the first nine months of 1999. As a percentage of
gross profits, selling, general and administrative expenses decreased to 71.7%
from 73.2%, resulting primarily from benefits of scale which has allowed us to
recognize cost savings, especially in the areas of advertising costs and
insurance premiums.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 113% to $7.1 million in the first nine months of 1999 from
$3.4 million in the first nine months of 1998, resulting principally from
additional goodwill amortization expense associated with our acquisitions.
INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased
43.3% to $15.1 million in the first nine months of 1999 from $10.5 million in
the first nine months of 1998, due primarily to floor plan interest expense
incurred by dealerships acquired. As a percentage of total revenues, floor plan
interest decreased from 0.9% in the first nine months of 1998 to 0.7% in the
first nine months of 1999 due to a decrease in the average interest rate under
our floor plan financing arrangement, as well as improvement in inventory
turnover rates.
INTEREST EXPENSE, OTHER. Interest expense, other increased to $12.2
million in the first nine months of 1999 from $5.5 million in the first nine
months of 1998 due primarily to interest incurred on our senior subordinated
notes issued on July 31, 1998.
NET INCOME. As a result of the factors noted above, our net income
increased by $17.1 million in the first nine months of 1999 compared to the
first nine months of 1998.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
REVENUES. Revenues grew in each of our primary revenue areas for the
third quarter of 1999 as compared with the third quarter of 1998, causing total
revenues to increase 72.6% to $870.0 million. New vehicle sales revenue
increased 67.0% to $508.1 million in the third quarter of 1999, compared with
$304.3 million in the third quarter of 1998. The increase was due primarily to
an increase in new vehicle unit sales of 64.1% to 20,778, as compared with
12,661 in the third quarter of 1998 resulting from 8,068 additional units
contributed by acquisitions. The remainder of the increase was due to a 1.7%
increase in the average selling price of new vehicles as well as an increase in
new vehicle revenues from stores owned for longer than one year of 11.7% in the
third quarter of 1999 over the third quarter of 1998.
Used vehicle revenues from retail sales increased 72% to $173.6 million
in the third quarter of 1999 from $100.9 million in the third quarter of 1998.
The increase was primarily due to an increase in used vehicle unit sales of
61.5% to 12,098, as compared with 7,492 in the third quarter of 1998, resulting
from additional unit sales contributed by acquisitions. The remainder of the
increase was due to an increase in used vehicle revenues from stores owned for
longer than one year of 16.8% in the third quarter of 1999 over the third
quarter of 1998.
Parts, service and collision repair revenue increased 89.4% to $96.2
million in the third quarter of 1999 compared to $50.8 million in the third
quarter of 1998, principally due to our acquisitions. Finance and insurance
revenue increased $12.3 million, or 119.8%, principally due to vehicle sales and
related financing contributed by our acquisitions, as well as a 34.7%
improvement in finance and insurance revenues per vehicle resulting from newly
implemented programs designed to improve training and development of finance and
insurance sales people.
GROSS PROFIT. Gross profit increased 82.3% to $116.7 million in the
third quarter of 1999 from $64.0 million in the third quarter of 1998
principally due to increases in revenues contributed by dealerships acquired.
Gross profit as a percentage of sales increased to 13.4% from 12.7% due
primarily to an increase in revenues of higher margin used vehicles and finance
and insurance products. Used vehicle revenues as a percentage of total revenues
increased from 27.5% in the third quarter of 1998 to 27.9% in the third quarter
of 1999. Finance and insurance revenues as a percentage of total revenues
increased from 2.0% in the third quarter of 1998 to 2.6% in the third quarter of
1999.
16
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, excluding depreciation and amortization, increased
76.6% to $82.6 million in the third quarter of 1999 from $46.8 million in the
third quarter of 1998 resulting principally from the expenses of dealerships
acquired. Such expenses as a percentage of revenues increased to 9.5% from 9.3%
resulting from two primary factors. First, because compensation programs, which
represent over 50% of a dealership's selling, general and administrative
expenses, are primarily based on gross profits, the improvement in gross profit
margins resulted in an increase in compensation expense as a percentage of total
revenues from 5.6% in the third quarter of 1998 to 5.8% in the third quarter of
1999. Second, an adjustment in monthly lease rates at certain dealerships to
fair market rates resulted in an increase in rent expense as a percentage of
total revenues from 0.7% in the third quarter of 1998 to 0.8% in the third
quarter of 1999. As a percentage of gross profits, selling, general and
administrative expenses decreased to 70.9% from 73.1%, resulting primarily from
benefits of scale which has allowed us to recognize cost savings, especially in
the areas of advertising costs and insurance premiums.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased 94.9% to $3.0 million in the third quarter of 1999 from $1.5
million in the third quarter of 1998, resulting principally from additional
goodwill amortization expense associated with our acquisitions.
INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased
43.3% to $5.7 million in the third quarter of 1999 from $4.0 million in the
third quarter of 1998, due primarily to floor plan interest expense incurred by
dealerships acquired. As a percentage of total revenues, floor plan interest
decreased from 0.8% in the third quarter of 1998 to 0.7% in the third quarter of
1999 due to decreased interest rates under our floor plan financing arrangement,
as well as improvement in inventory turnover rates.
INTEREST EXPENSE, OTHER. Interest expense, other increased to $4.8
million in the third quarter of 1999 from $2.8 million in the third quarter of
1998 due primarily to interest incurred on our senior subordinated notes.
NET INCOME. As a result of the factors noted above, our net income
increased by $7.2 million in the third quarter of 1999 compared to the third
quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES:
Our principal needs for capital resources are to finance acquisitions
and fund debt service and working capital requirements. Historically, we have
relied on internally generated cash flows from operations, borrowings under our
various credit facilities, and borrowings and capital contributions from our
stockholders to finance our operations and expansion. On May 5, 1999, we
completed a public offering of Class A common stock which provided approximately
$86.1 million of additional capital resources for the consummation of
acquisitions and repayment of borrowings under our $350 million acquisition line
of credit with Ford Motor Credit Company (the "Revolving Facility").
During the first nine months of 1999, net cash provided by operating
activities was approximately $63.1 million. During the first nine months of
1998, net cash provided by operating activities was approximately $54.0 million.
The increase was attributable principally to higher net income as well as
improved turnover rates in inventory and receivables.
Cash used for investing activities in the first nine months of 1999 was
approximately $164.9 million, including $164.3 million paid for acquisitions,
net of cash received, and $11.2 million in capital expenditures. Cash used for
investing activities in the first nine months of 1999 was offset by proceeds
received from the sale of real estate at Town and Country Toyota and Fort Mill
Ford of approximately $10.6 million. Cash used for investing activities in the
first nine months of 1998 was approximately $69.5 million, including $66.9
million paid for acquisitions, net of cash received, and $2.6 million in capital
expenditures. Our principal capital expenditures typically include building
improvements and equipment for use in our dealerships. Of the capital
expenditures in the first nine months of 1999, approximately $3.0 million
related to the construction of new dealerships and a body shop, which were
subsequently sold to MMR Holdings, LLC, a limited liability company owned by
Bruton Smith and Sonic Financial Corporation ("SFC"). There was no gain or loss
on the sale. As noted below, MMR Holdings was subsequently acquired by CAR MMR
L.L.C., an affiliate of Capital Automotive REIT which is not affiliated with
Sonic.
On August 13, 1999, CAR MMR L.L.C. acquired all of the ownership
interests of MMR Holdings, L.L.C., and two of its affiliates, MMR Viking
Investment Associates, L.P. and MMR Tennessee, L.L.C (collectively, the "MMR
Group). As of that date, Sonic leased 48 properties for 38 of its dealerships
from the MMR Group under "triple net leases" which required Sonic to pay all
costs of operating the properties, as well as all taxes, utilities, insurance,
repairs, maintenance and other property related expenses. Sonic has entered into
new leases with CAR MMR L.L.C. with terms similar to those under Sonic's former
leases with the MMR Group. These leases generally provide Sonic with options to
renew the lease for two additional five year terms after the expiration of the
initial lease term. Sonic has agreed to renew approximately 75% of its lease
rental stream for an additional five year period after the expiration of the
initial lease terms. In connection with the acquisition, Sonic, MMR Holdings and
Mar Mar Realty Trust, an affiliate of the MMR Group, terminated the strategic
alliance agreement whereby Mar Mar Realty Trust had provided Sonic with real
estate sale-leaseback financing, acquisition referral and related services.
17
<PAGE>
In connection with the above transaction, CAR MMR L.L.C. has agreed to
provide Sonic with up to $75 million in real estate sale-leaseback financing
through December 31, 1999.
During the first nine months of 1999, we acquired 30 dealerships for
approximately $173.8 million in cash, 6,282 shares of Sonic's Class A
convertible preferred stock, Series II, having an estimated fair value at the
time of issuance of approximately $6.1 million, 45,783 shares of Sonic's Class A
convertible preferred stock, Series III, having an estimated fair value at the
time of issuance of approximately $40.3 million, and 1,574,932 shares of Sonic's
Class A common stock having an estimated fair value at the time of issuance of
approximately $22.3 million. The cash portion of the purchase price was financed
with a combination of a portion of the proceeds from our recent public offering
of Class A common stock, cash borrowed under our Revolving Facility and cash
generated from our existing operations. The acquisitions were accounted for
using the purchase method of accounting, and the results of operations of such
acquisitions have been included in the accompanying unaudited consolidated
financial statements from their respective acquisition dates.
Subsequent to September 30, 1999, we acquired 9 dealerships for
approximately $57.8 million in cash financed with a combination of cash borrowed
under the Revolving Facility and cash generated from Sonic's existing
operations. The acquisitions were accounted for using the purchase method of
accounting.
We have signed definitive agreements to acquire 38 dealerships for an
estimated $224.6 million in cash, approximately 13,600 shares of Class A
convertible preferred stock and approximately 5,100,000 shares of Class A common
stock. The aggregate purchase price is subject to adjustment based on the actual
net book value of the assets acquired. The cash portion of the purchase price
will be paid with a combination of borrowings under Sonic's $350 million
Revolving Facility and with cash generated from Sonic's existing operations.
These acquisitions are expected to be consummated in the fourth quarter of 1999
and first quarter of 2000.
Cash provided by financing activities of approximately $119.8 million
in the first nine months of 1999 primarily reflects net proceeds received from
our public offering of common stock completed on May 5, 1999 as well as
additional borrowings for acquisitions on the Revolving Facility, offset by net
payments made on our floorplan borrowings.
On November 1, 1999, the total borrowing limit under the Revolving
Facility was increased from $150 million to $350 million. Prior to that date,
amounts outstanding under the Revolving Facility bore interest at a fluctuating
per annum rate equal to 2.75% above the 1 month commercial finance paper rate as
reported by the Federal Reserve Board (8.01% at September 30, 1999). Subsequent
to November 1, 1999, amounts outstanding under the Revolving Facility bear
interest at 2.50% above LIBOR. The Revolving Facility will mature in October
2002, unless we request that such term be extended, at the option of Ford Motor
Credit Company ("Ford Motor Credit"), for a number of additional one year terms
to be negotiated by us and Ford Motor Credit. On May 5, 1999, in connection with
the public offering by Sonic of 6,067,230 shares of Class A common stock, all
amounts outstanding under the Revolving Facility were repaid. Amounts
outstanding under the Revolving Facility as of September 30, 1999 total
approximately $88.3 million and were used to finance acquisitions completed in
the third quarter of 1999. Future 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 not to exceed $35 million.
We agreed under the Revolving Facility not to pledge any of our assets
to any third party (with the exception of currently encumbered real estate and
assets of our dealership subsidiaries that are subject to previous pledges or
liens). In addition, the Revolving Facility contains certain negative covenants,
including covenants restricting or prohibiting the payment of dividends, capital
expenditures and material dispositions of assets as well as other customary
covenants. Additional negative covenants include specified ratios of
o current assets to current liabilities,
o earnings before interest, taxes, depreciation and amortization
(EBITDA) and rent less capital expenditures to fixed charges,
o EBITDA to interest expense and
o EBITDA to total debt
In addition, the loss of voting control over Sonic by Bruton Smith,
Scott Smith and their spouses or immediate family members or the failure by
Sonic, with certain exceptions, to own all the outstanding equity, membership or
partnership interests in its dealership subsidiaries will constitute an event of
default under the Revolving Facility. Sonic is in compliance with all
restrictive covenants as of September 30, 1999.
18
<PAGE>
We currently have an aggregate principal balance of $125 million in our
senior subordinated notes which mature on August 1, 2008 and bear interest at a
stated rate of 11.0%. The notes are unsecured and are redeemable at our option
after August 1, 2003. Interest payments are due semi-annually on August 1 and
February 1 and commenced February 1, 1999. The notes are subordinated to all of
our present and future senior indebtedness, including the Revolving Facility.
Redemption prices during 12 month periods beginning August 1 are 105.500% in
2003, 103.667% in 2004, 101.833% in 2005 and 100% thereafter.
The indenture governing the senior subordinated notes contains certain
specified restrictive and required financial covenants. We have agreed not to
pledge our assets to any third party except under certain limited circumstances
(for example, floor plan indebtedness). We have also agreed to certain other
limitations or prohibitions concerning the incurrence of other indebtedness,
capital stock, guaranties, asset sales, investments, cash dividends to
shareholders, distributions and redemptions. Sonic is in compliance with all
restrictive covenants as of September 30, 1999.
We currently have a standardized floor plan credit facility with Ford
Motor Credit for all our dealership subsidiaries (the "Floor Plan Facility"). As
of September 30, 1999, there was an aggregate of approximately $276.9 million
outstanding under the Floor Plan Facility. The Floor Plan Facility at September
30, 1999 had an effective interest rate of prime less 1.1% (7.15% at September
30, 1999), subject to certain incentives and other adjustments. Typically new
vehicle floor plan indebtedness exceeds the related inventory balances. The
inventory balances are generally reduced by the manufacturer's purchase
discounts, which are 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 us by the
manufacturers on a quarterly basis.
We make monthly interest payments on the amount financed under the
Floor Plan Facility but are 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 relevant dealership subsidiary. The Floor Plan Facility contains a number
of covenants, including among others, covenants restricting us with respect to
the creation of liens and changes in ownership, officers and key management
personnel.
On November 1, 1999, we obtained a separate floor plan credit facility
from Chrysler Financial Company which provides up to $750 million available for
the purchase of inventories at our Chrysler dealerships. Amounts outstanding
under this facility will bear interest at 1.25% above LIBOR.
As a result of the change in our tax basis of accounting for inventory
from the "last-in, first-out" method of inventory accounting (LIFO) to the
"first-in, first-out" method of inventory accounting (FIFO) at certain of our
dealerships, we incurred additional income tax liabilities. As of September 30,
1999 the aggregate balance of such income tax liabilities was approximately $4.4
million, which is payable in quarterly installments through the year 2002, as
follows:
Year ending December 31,
1999............................................. $ 512
2000............................................. 1,598
2001............................................. 1,597
2002............................................. 711
-------
Total............................................ $ 4,418
=======
We expect to pay such obligations with cash provided by operations.
We believe that funds generated from our recent offering of Class A
common stock, together with funds generated through future operations and
availability of borrowings under our floor plan financing (or any replacements
thereof) and other credit arrangements will be sufficient to fund our debt
service and working capital requirements and any seasonal operating
requirements, including our currently anticipated internal growth for our
existing businesses, for the foreseeable future. We expect to fund any future
acquisitions from future cash flow from operations, additional debt financing
(including the Revolving Facility) or the issuance of Class A common stock,
preferred stock or other convertible instruments.
SEASONALITY
Our operations are subject to seasonal variations. The first quarter
generally contributes less revenue and operating profits than the second, third
and fourth quarters. Seasonality is principally caused by weather conditions and
the timing of manufacturer incentive programs and model changeovers.
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YEAR 2000 COMPLIANCE
GENERAL
Due to the limited memory capacity of older computers, many computer
systems and software applications in early years were programmed to store dates
using six digit formats (e.g. mm/dd/yy) versus eight digit formats (e.g.
mm/dd/yyyy). Under the six digit format, most computer systems and software
applications are limited to recognizing dates within the 20th century only,
causing computers to interpret the year "00" as the year "1900" rather than the
year "2000." As we approach the beginning of year 2000, there is widespread
concern that the inability of computer systems to recognize dates beyond the
year 1999 will result in software errors and system failures that could be
disruptive to ordinary business operations.
We recognize the need to ensure that our operations will not be
disrupted by Year 2000 system failures either within our own computer systems or
within the computer systems of our primary lenders and suppliers. Each of our
dealerships has appointed a team comprised primarily of department managers
that, using guides developed by the National Automobile Dealers Association
(NADA), is responsible for assessing and resolving potential Year 2000 problems,
and developing contingency plans to mitigate the impact of future problems on
operations.
STATE OF READINESS
INTERNAL DEALERSHIP SYSTEMS: Internal systems supporting the
dealership's daily operations are comprised of four primary systems: (i) the
Dealer Management System ("DMS") which supports the critical operations of the
dealership including all vehicle sales, vehicle inventory, financing and
insurance operations, service and parts operations, and accounting functions;
(ii) the Dealer Communication System ("DCS") which provides on-line
communication with manufacturers necessary for ordering vehicles and parts
inventory, submitting warranty claims, submitting dealership financial
statements, receiving delivery reports, and receiving technical information used
in service department operations; (iii) personal computer systems ("PC systems")
used in providing information to and communicating with the parent company; and
(iv) "embedded systems" which use an electric processor or computer chip to
control, monitor, or assist with the operation of equipment, machinery, and
building management (e.g. building access, security and fire alarms, automotive
diagnostic equipment).
DEALER MANAGEMENT SYSTEM: The DMS systems used by our dealerships are
obtained from one of four primary vendors, Reynolds & Reynolds, Infiniti Net,
ADP, and UCS. Each of these vendors has developed upgrades to correct Year 2000
problems within the DMS systems, and we have completed the process of installing
such upgrades to our systems. In addition, we have received written verification
from each of these vendors that the DMS systems operating within dealerships
currently owned by Sonic are Year 2000 certified. With respect to dealerships
being acquired, dealerships using DMS systems which are not Year 2000 certified
are being transferred to existing systems which are Year 2000 certified.
DEALER COMMUNICATION SYSTEM: The DCS systems used in our dealerships
are provided by the respective manufacturers with whom the dealerships
communicate. As a result, the manufacturers have assumed responsibility for
upgrading DCS systems to Year 2000 compliant systems. To date, approximately 80
percent of our dealerships have received written verification from their
respective manufacturer that their DCS system is Year 2000 compliant. In
addition, we have requested from each manufacturer that status reports be
provided to both the dealership and parent company to inform us of remediation
efforts at those dealerships that are not yet Year 2000 compliant, and when such
remediation efforts are expected to be completed.
PERSONAL COMPUTER SYSTEMS: PC systems and local and wide area networks
currently operating in our corporate offices were installed within the past year
and were determined to be Year 2000 compliant at the time of installation. While
not all PC systems operating in our dealerships are known to be Year 2000
compliant, such systems do not conduct mission critical operations and may not
be upgraded or replaced by the end of the year. A disruption in these systems
will not significantly affect dealerships' daily operations.
EMBEDDED SYSTEMS: Embedded systems refer to systems that use some sort
of electronic process or computer chip to track time and date information used
in the operation of that system. For example, security systems, or heating,
ventilation, and air-conditioning systems (HVAC) may be programmed to
automatically be activated or deactivated at a certain time. If a security
system is programmed to lock up a dealership on weekends, then some dealerships
may be locked out on Thursday, January 6, 2000 because the computer interprets
the date as Saturday, January 6, 1900. The dealerships are conducting an
inventory of such systems, and are contacting the manufacturers or suppliers to
test such systems and obtain verification of Year 2000 certification. This
process has not yet been completed, and some systems may not be Year 2000
certified by the end of the year. However, these systems are not considered
critical and a disruption in these systems is not expected to significantly
affect dealerships' daily operations.
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EXTERNAL SYSTEMS: A dealership's operations may be adversely affected
if the lenders, suppliers, or other third parties with whom it regularly
conducts business are affected by Year 2000 problems within their systems. Other
than automobile manufacturers, we are primarily concerned about Year 2000
failures with banks and other financial service providers, companies providing
financing and insurance to our customers, and utilities providing electricity
and water. We have received verification from our primary banks and lenders that
their systems are Year 2000 compliant and that service is not expected to be
interrupted by Year 2000 problems. We have contacted other key vendors and
suppliers and are awaiting their responses concerning their Year 2000
remediation efforts.
COSTS
The costs associated with converting our internal systems to Year 2000
compliant systems have not been, and are not expected to be, material to our
financial position or results of operations. Costs associated with upgrading and
converting the DMS and DCS systems to Year 2000 compliant systems were covered
by monthly maintenance contracts with the respective suppliers and were expensed
as incurred. Costs associated with upgrading or replacing PC and embedded
systems have not been material and were expensed or capitalized in accordance
with our capitalization policy.
CONTINGENCY PLANS
We cannot state with certainty whether Year 2000 system failures either
within our own internal systems or within the systems of third-parties with whom
we are involved will have a material adverse impact on our results of
operations. In order to mitigate the potential impact of any future Year 2000
problems, each of our dealerships is continuing to develop contingency plans
which include the following:
1. Use of pre-printed and pre-numbered forms and checks (including
repair orders and parts counter tickets) and manual journals and
ledger books to assist in bookkeeping and accounting functions;
2. Use of hand held, battery operated finance computers in order to
continue providing finance services to our customers;
3. Establishing emergency reserves of supplies in the event that
service from third party lenders and suppliers is disrupted
due to Year 2000 problems within their systems; and
4. Training of employees to manually perform functions that are currently
performed on computers.
While we believe that we are taking appropriate steps to ensure we are
adequately prepared to deal with Year 2000 problems as they arise, we cannot
make assurances that Year 2000 problems will not have a material adverse affect
on our results of operations or financial condition. In a most reasonably likely
worst case scenario, Year 2000 problems may delay our ability to sell vehicles,
provide financing and insurance to our customers, provide parts and repair
service to our customers, complete acquisitions, or meet third-party obligations
until Year 2000 problems can be resolved in the affected systems.
SIGNIFICANT MATERIALITY OF GOODWILL
Goodwill represents the excess purchase price over the estimated fair
value of the tangible and separately measurable intangible net assets acquired.
The cumulative gross goodwill balance at December 31, 1998 was $182.5 million
and at September 30, 1999 was $369.5 million. As a percentage of total assets
and stockholders' equity, goodwill, net of accumulated amortization, represented
31.3% and 126.4%, respectively, at December 31, 1998, and 39.6% and 108.0%,
respectively, at September 30, 1999. Generally accepted accounting principles
require that goodwill and all other intangible assets be amortized over the
period benefited. We have determined that the period benefited by the goodwill
will be no less than 40 years. Accordingly, we are amortizing goodwill over a 40
year period. Earnings reported in periods immediately following an acquisition
would be overstated if we attributed a 40 year benefit to an intangible asset
that should have had a shorter benefit period. In later years, we would be
burdened by a continuing charge against earnings without the associated benefit
to income valued by management in arriving at the consideration paid for the
businesses acquired. Earnings in later years also could be significantly
affected if management then determined that the remaining balance of goodwill
was impaired. We periodically compare the carrying value of goodwill with the
anticipated undiscounted future cash flows from operations of the business we
have acquired in order to evaluate the recoverability of goodwill. We have
concluded that the anticipated future cash flows associated with intangible
assets recognized in our acquisitions will continue indefinitely, and there is
no pervasive evidence that any material portion will dissipate over a period
shorter than 40 years. We will incur additional goodwill in future acquisitions.
21
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Sonic's only financial instruments with market risk
exposure are variable rate floor plan notes payable, Revolving Facility
borrowings and other variable rate notes. As of September 30, 1999, the total
outstanding balance of such instruments was approximately $377.7 million. A
change of one percent in the interest rate would have caused a change in
interest expense for the nine months ended September 30, 1999 of approximately
$2.7 million. In addition, a decrease or increase in interest rates would cause
a respective increase or decrease in the present value of Sonic's fixed rate
senior subordinated notes, which have a carrying value of $120.9 million at
September 30, 1999.
22
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PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
The following sets forth certain information as to all equity
securities sold by Sonic during the periods discussed that were not registered
under the Securities Act of 1933, as amended (the "Securities Act"). As to all
such transactions, an exemption was claimed under Section 4(2) of the Securities
Act and Rule 506 of Regulation D promulgated thereunder ("Regulation D") as
transactions not involving a public offering in view of sophistication of the
purchasers, their access to material information about Sonic, the disclosures
actually made to them by Sonic, the absence of any general solicitation or
advertising, the status of the purchasers as "accredited investors" as that term
is defined in Rule 501(a) of Regulation D and the filing by Sonic of the
appropriate forms in connection therewith. All such private sales of Sonic's
equity securities were made to the owners of assets associated with, or the
capital stock of, automobile dealerships acquired by Sonic as a part of Sonic's
dealership acquisition strategy.
Sonic has privately issued its Class A common stock in the following
dealership acquisition transactions:
On August 3, 1999, Sonic issued an aggregate 1,398,902 shares of its
Class A common stock to Joseph L. Herson, Mollye H. Mills, Richard Mills and
John Jaffee to acquire via merger with a subsidiary of Sonic the outstanding
capital stock of BMW of Fairfax, Inc. with a value of approximately $20.0
million.
Sonic has also privately issued its Class A convertible preferred stock
(the "Preferred Stock") in dealership acquisition transactions. The Preferred
Stock is divided into three series: the Series I Preferred Stock, the Series II
Preferred Stock and the Series III Preferred Stock. Each share of Preferred
Stock is convertible into shares of Class A common stock at the holder's option
at specified conversion rates. After the second anniversary of the date of
issuance, any shares of Preferred Stock which have not yet been converted are
subject to mandatory conversion to Class A common stock at the option of Sonic.
No fractional shares of Class A common stock will be issued upon conversion of
any shares of Preferred Stock. Instead, Sonic will pay cash equal to the value
of such fractional shares.
Generally each share of Preferred Stock is convertible into that number
of shares of Class A common stock that has an aggregate Market Price at the time
of conversion equal to $1,000 (with certain adjustments for Series II and Series
III Preferred Stock). "Market Price" is defined generally as the average closing
price per share of the Class A common stock on the New York Stock Exchange for
twenty trading days immediately preceding the date of determination. Before the
first anniversary of the date of issuance of Preferred Stock, each holder of
Preferred Stock is unable to convert without first giving Sonic ten business
days' notice and an opportunity to redeem such Preferred Stock at the then
applicable redemption price.
Sonic has privately issued Preferred Stock in the following dealership
acquisition transactions:
On July 8, 1999, Sonic issued 11,683 shares of its Series II Preferred
Stock to L.R. Motors, Ltd. to acquire the assets of Lute Riley Honda with a
value of approximately $11.4 million.
On August 9, 1999, Sonic issued 2,925 shares of its Series II Preferred
Stock with a value of approximately $2.9 million to Frank McGough as additional
consideration for the acquisition of the outstanding capital stock of Capital
Chevrolet and Imports, Inc. which closed in April of 1998.
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ITEM 6. EXHIBITS
(a) Exhibits:
3.1* Amended and Restated Certificate of Incorporation of Sonic
(incorporated by reference to Exhibit 3.1 to the Registration Statement
on Form S-1 (Registration No. 333-33295) of Sonic (the "Form S-1")).
3.2* Certificate of Designation, Preferences and Rights of Class A
Convertible Preferred Stock (incorporated by reference to Exhibit 4.1
to Sonic's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998).
3.3* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form
S-1).
4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated
by reference to Exhibit 4.3 to the Registration Statement on Form S-4
(Registration Nos. 333-64397 and 333-64397-001 through 333-64397-044)
of Sonic (the "Form S-4")).
4.2* Indenture dated as of July 1, 1998 between Sonic, as issuer, the
subsidiaries of Sonic named therein, as guarantors, and U.S. Bank Trust
National Association, as trustee, relating to the 11% Senior
Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.2
to the Form S-4).
4.3* Registration Rights Agreement dated as of June 30, 1998 among Sonic, O.
Bruton Smith, Bryan Scott Smith, William S. Egan and Sonic Financial
Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1).
10.1* Letter Agreement dated as of August 3, 1999 regarding amendment to the
Agreement and Plan of Merger dated as of April 6, 1999 by and among
Sonic, Manhattan Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe
and Richard Mills (the "Manhattan Merger Agreement") (incorporated by
reference to Exhibit 4.11 to Sonic's Registration Statement on Form S-3
(Registration No. 333-82615)).
10.2* Agreement dated as of August 5, 1999 by and among Sonic, O. Bruton
Smith and Sonic Financial Corporation relating to transactions
contemplated by the Sonic Agreement dated as of June 30, 1999 by and
among Sonic, certain subsidiaries of Sonic listed on Schedule A thereto
and CAR MMR L.L.C (incorporated by reference to Exhibit 10.5 to Sonic's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).
10.3 Second Amended and Restated Credit Agreement dated as of July 28, 1999
(the "Credit Agreement") by and among Sonic, as borrower, and Ford
Motor Credit Company, as lender.
10.4 Third Amended and Restated Promissory Note dated as of July 29, 1999 in
the amount of $150 million by Sonic, as borrower, in favor of Ford
Motor Credit Company, as lender under the Credit Agreement.
10.5 Asset Purchase Agreement dated September 30, 1999 by and among Sonic,
Riverside Chevrolet, Inc. and the stockholders of Riverside Chevrolet,
Inc. listed on the signature page thereto.
10.6 Asset Purchase Agreement dated September 30, 1999 by and among Sonic,
Jim Glover Dodge, Inc. and the stockholders of Jim Glover Dodge, Inc.
listed on the signature page thereto.
10.7 Stock Purchase Agreement dated September 30, 1999 by and among Sonic,
Riverside Nissan, Inc. and the stockholders of Riverside Nissan, Inc.
listed on the signature page thereto.
10.8 Agreement and Plan of Merger and Reorganization dated as of October 31,
1999 by and among Sonic, FAA Acquisition Corp., FirstAmerica
Automotive, Inc. and certain stockholders of FirstAmerica Automotive,
Inc. listed on the signature page therein.
27 Financial data schedule for the nine month period ended September 30,
1999 (filed electronically).
(b) Reports on Form 8-K.
We have not filed any reports on Form 8-K during the quarter for which
this report is filed.
* Filed Previously
24
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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.
Date: November 15, 1999 By: /s/ O. Bruton Smith
----------------- -------------------------------------
O. Bruton Smith
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Date: November 15, 1999 By: /s/ Theodore M. Wright
----------------- ------------------------------------
Theodore M. Wright
VICE PRESIDENT-FINANCE, CHIEF FINANCIAL
OFFICER, TREASURER AND SECRETARY
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
25
<PAGE>
INDEX TO EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q FOR
SONIC AUTOMOTIVE, INC.
FOR THE QUARTER ENDED September 30, 1999
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
3.1* Amended and Restated Certificate of Incorporation of Sonic
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1 (Registration No. 333-33295) of Sonic
(the "Form S-1")).
3.2* Certificate of Designation, Preferences and Rights of Class A
Convertible Preferred Stock (incorporated by reference to
Exhibit 4.1 to Sonic's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998).
3.3* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to
the Form S-1).
4.1* Form of 11% Senior Subordinated Note due 2008, Series B
(incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-4 (Registration Nos. 333-64397 and
333-64397-001 through 333-64397-044) of Sonic (the "Form
S-4")).
4.2* Indenture dated as of July 1, 1998 between Sonic, as issuer,
the subsidiaries of Sonic named therein, as guarantors, and
U.S. Bank Trust National Association, as trustee, relating to
the 11% Senior Subordinated Notes due 2008 (incorporated by
reference to Exhibit 4.2 to the Form S-4).
4.3* Registration Rights Agreement dated as of June 30, 1998 among
Sonic, O. Bruton Smith, Bryan Scott Smith, William S. Egan and
Sonic Financial Corporation (incorporated by reference to
Exhibit 4.2 to the Form S-1).
10.1* Letter Agreement dated as of August 3, 1999 regarding
amendment to the Agreement and Plan of Merger dated as of
April 6, 1999 by and among Sonic, Manhattan Auto, Inc., Joseph
Herson, Mollye Mills, John Jaffe and Richard Mills (the
"Manhattan Merger Agreement") (incorporated by reference to
Exhibit 4.11 to Sonic's Registration Statement on Form S-3
(Registration No. 333-82615)).
10.2* Agreement dated as of August 5, 1999 by and among Sonic, O.
Bruton Smith and Sonic Financial Corporation relating to
transactions contemplated by the Sonic Agreement dated as of
June 30, 1999 by and among Sonic, certain subsidiaries of
Sonic listed on Schedule A thereto and CAR MMR L.L.C
(incorporated by reference to Exhibit 10.5 to Sonic's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999).
10.3 Second Amended and Restated Credit Agreement dated as of July
28, 1999 (the "Credit Agreement") by and among Sonic, as
borrower, and Ford Motor Credit Company, as lender.
10.4 Third Amended and Restated Promissory Note dated as of July
29, 1999 in the amount of $150 million by Sonic, as borrower,
in favor of Ford Motor Credit Company, as lender under the
Credit Agreement.
10.5 Asset Purchase Agreement dated September 30, 1999 by and among
Sonic, Riverside Chevrolet, Inc. and the stockholders of
Riverside Chevrolet, Inc. listed on the signature page
thereto.
10.6 Asset Purchase Agreement dated September 30, 1999 by and among
Sonic, Jim Glover Dodge, Inc. and the stockholders of Jim
Glover Dodge, Inc. listed on the signature page thereto.
10.7 Stock Purchase Agreement dated September 30, 1999 by and among
Sonic, Riverside Nissan, Inc. and the stockholders of
Riverside Nissan, Inc. listed on the signature page thereto.
10.8 Agreement and Plan of Merger and Reorganization dated as of
October 31, 1999 by and among Sonic, FAA Acquisition Corp.,
FirstAmerica Automotive, Inc. and certain stockholders of
FirstAmerica Automotive, Inc. listed on the signature page
therein.
27 Financial data schedule for the nine month period ended
September 30, 1999 (filed electronically).
* Filed Previously
26
EXHIBIT 10.3
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amended and Restated Credit Agreement dated as of July 28,
1999 is entered into between SONIC AUTOMOTIVE, INC., a Delaware corporation, and
FORD MOTOR CREDIT COMPANY, a Delaware corporation, and amends and restates that
certain Credit Agreement, dated as of October 15, 1997, as amended by that
certain Credit Agreement Amendment dated November 12, 1997, as amended by that
certain Amended and Restated Credit Agreement dated as of December 15, 1997, as
amended by that certain Letter Agreement dated July 28, 1998, as amended by that
certain Letter Agreement dated September 21, 1998, as amended by that certain
Letter Agreement dated October 15, 1998, as further amended by that certain
Amendment to Amended and Restated Credit Agreement dated March 2, 1999,
(collectively, the "ORIGINAL CREDIT AGREEMENT") among the parties hereto. The
parties hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 Certain Defined Terms. The following terms used in this Agreement
shall have the following meanings, applicable both to the singular and the
plural forms of the terms defined.
As used in this Agreement:
"ACQUISITION" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or a Subsidiary Holding Company (i) acquires any going business or all
or substantially all of the assets of any automobile dealership and/or related
operations (e.g. body shop and service repair centers), whether through purchase
of assets, merger or otherwise or (ii) directly or indirectly acquires (in one
transaction or as the most recent transaction in a series of transactions) at
least a majority (in number of votes) of the securities of such a corporation
which have ordinary voting power for the election of directors (other than
securities having such power only by reason of the happening of a contingency)
or a majority (by percentage of voting power) of the outstanding equity
interests of such an entity.
"ACQUISITION DOCUMENTS" means all documents, instruments and agreements
entered into in connection with any Acquisition and the Initial Acquisitions.
"ADDITIONAL SUBORDINATED DEBT" means indebtedness of the Borrower which
(i) Lender has determined to be sufficiently subordinate to the payment of the
Obligations, (ii) Lender has consented to in writing, and (iii) Lender has
agreed to deduct from the calculation of Total Adjusted Debt (as defined
herein).
"ADVANCE" means any loan made by the Lender under Section 2.1 hereof.
"ADJUSTED LEVERAGE RATIO" is defined in Section 5.4(F) hereof.
"ADJUSTED TBC RATIO" is defined in Section 5.4(B) hereof.
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"AFFILIATE" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person is the
"beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act
of 1934) of greater than five percent (5%) or more of any class of voting
securities (or other voting interests) of the controlled Person or possesses,
directly or indirectly, the power to direct or cause the direction of the
management or policies of the controlled Person, whether through ownership of
Capital Stock, by contract or otherwise.
"AGREEMENT" means this Second Amended and Restated Credit Agreement, as it
may be amended, restated or otherwise modified and in effect from time to time.
"AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting
principles in effect from time to time, applied in a manner consistent with that
used in preparing the financial statements referred to in Section 5.1(A) hereof,
provided, however, that with respect to the calculation of financial ratios and
other financial tests required by this Agreement, "Agreement Accounting
Principles" means generally accepted accounting principles as in effect as of
the date of the Original Credit Agreement, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 5.1(A)
hereof; provided, further, however, all pro forma financial statements
reflecting Acquisitions shall be prepared in accordance with the requirements
established by the Commission for acquisition accounting for reporting
acquisitions by public companies (whether or not such Acquisitions are required
to be publicly reported).
"APPLICABLE COMMERCIAL PAPER RATE" means as of any Quarterly Payment Date,
(a) with respect to that portion of the Obligations the principal amount of
which is less than the value of the Sonic Group's Scaled Assets on such
Quarterly Payment Date, the Commercial Paper Rate plus two and seventy-five
hundredths percent (2.75%) per annum, and (b) with respect to that portion of
the Obligations the principal amount of which equals or exceeds the value of the
Sonic Group's Scaled Assets on such Quarterly Payment Date, the Commercial Paper
Rate plus three and seventy-five hundredths percent (3.75%) per annum. As of the
Effective Date, the Applicable Commercial Paper Rate is the Commercial Paper
Rate plus 2.75%, or _______%.
"ASSET SALE" means, with respect to any Person, the sale, lease,
conveyance, disposition or other transfer by such Person of any of its assets
(including by way of a sale-leaseback transaction and including the sale or
other transfer of any of the Equity Interests of any Subsidiary of such Person).
"AUTHORIZED OFFICER" means any of the chief executive officer, president,
chief financial officer, treasurer or assistant treasurer of the Borrower,
acting singly.
"AVERAGE SCALED ASSETS" means, as of any Quarterly Payment Date, the
average of (a) the Sonic Group's Scaled Assets on the first day of the
immediately preceding Quarter, and (b) the Sonic Group's Scaled Assets on the
last day of the immediately preceding Quarter.
"BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of
ERISA (other than a Multi-employer Plan) in respect of which the Borrower or any
other member of the Controlled Group is, or within the immediately preceding six
(6) years was, an "employer" as defined in Section 3(5) of ERISA.
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"BORROWER" means Sonic Automotive, Inc., a Delaware corporation, together
with its successors and assigns, including a debtor-in-possession on behalf of
the Borrower.
"BORROWER GUARANTY" means that certain Guaranty, dated as of October 15,
1997, pursuant to which the Borrower guaranties all Sonic Dealership obligations
arising under any Wholesale Line, as it may be amended, restated or otherwise
modified and in effect from time to time.
"BORROWER PLEDGES" means each of (i) that certain Pledge Agreement, dated
as of October 15, 1997, from the Borrower to the Lender pursuant to which the
Borrower pledges the Capital Stock of certain corporate Subsidiaries, as it may
be amended, restated or otherwise modified and in effect from time to time, (ii)
that certain Pledge Agreement, dated as of October 15, 1997, from the Borrower
to the Lender pursuant to which the Borrower pledges the Capital Stock of
certain limited liability company Subsidiaries, as it may be amended, restated
or otherwise modified and in effect from time to time and (iii) any other pledge
of Capital Stock delivered by a member of the Sonic Group from time to time to
the Lender.
"BORROWER SECURITY AGREEMENT" means that certain Security Agreement, dated
as of October 15, 1997 from the Borrower to the Lender pursuant to which the
Borrower pledged all of its assets to secure its obligations under the Bridge
Facility and the Obligations hereunder and the obligations of each Sonic
Dealership under any Wholesale Line provided by the Lender to such Sonic
Dealership, as it may be amended, restated or otherwise modified and in effect
from time to time.
"BORROWING DATE" means a date on which an Advance is made hereunder.
"BORROWING NOTICE" is defined in Section 2.4 hereof.
"BRIDGE FACILITY" means the credit facility made available by the Lender
to the Borrower pursuant to the Credit Agreement dated as of November 12, 1997.
"BUSINESS DAY" means a day (other than a Saturday or Sunday) on which
banks are open for business in Dearborn, Michigan, Atlanta, Georgia and
Charlotte, North Carolina.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (other than in connection with Permitted Acquisitions), whether
paid in cash or accrued as liabilities, including Capitalized Lease Obligations,
by the Borrower and its Subsidiaries during that period that, in conformity with
Agreement Accounting Principles, are required to be included in or reflected by
the property, plant, equipment or similar fixed asset accounts reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability company,
any and all membership interests or other equivalents (however designated) and
(v) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"CAPITALIZED LEASE" of a Person means any lease of property by such Person
as lessee
2
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which would be capitalized on a balance sheet of such Person prepared in
accordance with Agreement Accounting Principles.
"CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be capitalized
on a balance sheet of such Person prepared in accordance with Agreement
Accounting Principles.
"CASH EQUIVALENTS" means (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed by the
full faith and credit of the United States government; (ii) domestic and
Eurodollar certificates of deposit and time deposits, bankers' acceptances and
floating rate certificates of deposit issued by any commercial bank organized
under the laws of the United States, any state thereof, the District of
Columbia, or its branches or agencies; (iii) shares of money market, mutual or
similar funds having assets in excess of $100,000,000.00 and the investments of
which are limited to investment grade securities (i.e., securities rated at
least Baa by Moody's Investors Service, Inc. or at least BBB by Standard &
Poor's Corporation); (iv) commercial paper of United States and foreign banks
and bank holding companies and their subsidiaries and United States and foreign
finance, commercial industrial or utility companies which, at the time of
acquisition, are rated A-1 (or better) by Standard & Poor's Ratings Group or P-1
(or better) by Moody's Investors Services, Inc.; (v) corporate bonds,
mortgage-backed securities and municipal bonds in each case of a domestic issuer
rated at the date of acquisition not less than Aaa by Moody's Investor Services,
Inc. or AAA by Standard & Poor's Corporation with maturities of no more than two
(2) years from the date of acquisition; and (vi) money market funds with respect
to which not less than 90% of such funds are invested in the type of investments
specified in clauses (i) through (v) above; provided, unless the context
otherwise requires, that the maturities of such Cash Equivalents shall not
exceed 365 days.
"CASH MANAGEMENT AGREEMENT" means any cash management agreement to be
entered into between the Lender and the Borrower and its Subsidiaries, pursuant
to which the Borrower and such Subsidiaries may participate in a sweep-account
program managed by the Lender.
"CHANGE OF CONTROL" means an event or series of events by which:
(i) the Principals and their Related Parties cease to own, directly
or indirectly, more than fifty percent (50%) of the combined voting power
of the Borrower's Capital Stock ordinarily having the right to vote at an
election of directors;
(ii) during any period of 24 consecutive calendar months,
individuals:
(a) who were directors of the Borrower on the first day of
such period, or
(b) whose election or nomination for election to the board of
directors of the Borrower was recommended or approved by at least a
majority of the directors then still in office who were directors of
the Borrower on the first day of such period, or whose election or
nomination for election was so approved,
shall cease to constitute a majority of the board of directors of the
Borrower; and
(iii) the Borrower consolidates with or merges into another
corporation or
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conveys, transfers or leases all or substantially all of its property to
any Person, or any corporation consolidates with or merges into the
Borrower, in either event pursuant to a transaction in which the
outstanding Capital Stock of the Borrower is reclassified or changed into
or exchanged for (A) cash or Cash Equivalents or (B) securities, and the
holders of the Capital Stock in the Borrower immediately prior to such
transaction do not, as a result of such transaction, own, directly or
indirectly, more than fifty percent (50%) of the combined voting power of
the Borrower's Capital Stock or the Capital Stock of its successor entity
in such transaction.
"CHARTER DOCUMENTS" means (i) in the case of a corporation, such entity's
articles of incorporation and by-laws, (ii) in the case of a limited liability
company, such entity's articles of organization and operating agreement or
equivalent (however designated), (iii) in the case of a partnership, such
entity's partnership agreement or equivalent (however designated) and (iv) in
the case of an association or other business entity not described above, such
entity's founding documents (however designated).
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, or any successor statute.
"COLLATERAL" means all property and interests in property now owned or
hereafter acquired by the Borrower or any of its Subsidiaries in or upon which a
security interest, lien or mortgage is granted to the Lender, whether under the
Borrower Security Agreement, under any of the other Collateral Documents or
under any of the other Loan Documents.
"COLLATERAL DOCUMENTS" means all agreements, instruments and documents
executed in connection with this Agreement, the Original Agreement or the Bridge
Facility that are intended to create or evidence Liens to secure the Obligations
and all Floor Plan Indebtedness, including, without limitation, the Borrower
Security Agreement, the Borrower Pledges, the Subsidiary Holding Company
Pledges, the Cross Agreement, the Waiver, Guaranty and Disbursement Agreement,
the Reaffirmation of Guaranty, each Dealership Security Agreement, Subsidiary
Holding Company Security Agreement and all other security agreements, mortgages,
deeds of trust, loan agreements, notes, guaranties, subordination agreements,
pledges, powers of attorney, consents, assignments, contracts, fee letters,
notices, leases, financing statements and all other written matter whether
heretofore, now, or hereafter executed by or on behalf of the Borrower or any of
its Subsidiaries and delivered to the Lender, together with all agreements and
documents referred to therein or contemplated thereby.
"COMMERCIAL PAPER RATE" means a fluctuating per annum rate of interest
equal to the interest rate for commercial paper with a 30-day term, as specified
under the column entitled "Week Ending" for "1-Month Finance Paper Placed
Directly" as set forth in the Federal Reserve Board on the last Monday of a
calendar month. In the event such release is discontinued or modified to
eliminate the reporting of a 30-day commercial paper rate, then Lender will
substitute, in its sole discretion, a comparable report or release of the 30-day
commercial paper rate published by a comparable source.
"COMMISSION" means the Securities and Exchange Commission and any Person
succeeding to the functions thereof.
"COMMITMENT" means the lesser of (a) $150,000,000.00 and (b) the Scaled
Assets of
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the Sonic Group plus $25,000,000.00.
"COMMITMENT LETTER" means that certain commitment letter dated October 3,
1997 between the Borrower and the Lender as amended by the Letter Agreement
dated October 20, 1997, as further modified by the Commitment Letter dated
December 17, 1998.
"CONSOLIDATED NET WORTH" means, at a particular date, the amount by which
the total consolidated assets of the Borrower and its consolidated Subsidiaries
exceeds the total consolidated liabilities of the Borrower and its consolidated
Subsidiaries.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any
constituent of any such substance or waste, and includes but is not limited to
these terms as defined in Environmental, Health or Safety Requirements of Law.
"CONTINGENT OBLIGATION", as applied to any Person, means any Contractual
Obligation, contingent or otherwise, of that Person with respect to any
Indebtedness of another or other obligation or liability of another, including,
without limitation, any such Indebtedness, obligation or liability of another
directly or indirectly guaranteed, endorsed (otherwise than for collection or
deposit in the ordinary course of business), co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable, including Contractual Obligations (contingent or
otherwise) arising through any agreement to purchase, repurchase, or otherwise
acquire such Indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof (whether in the form of
loans, advances, stock purchases, capital contributions or otherwise), or to
maintain solvency, assets, level of income, or other financial condition, or to
make payment other than for value received.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any material
provision of any equity or debt securities issued by that Person or any material
indenture, mortgage, deed of trust, security agreement, pledge agreement,
guaranty, contract, undertaking, agreement or instrument, in each case in
writing, to which that Person is a party or by which it or any of its properties
is bound, or to which it or any of its properties is subject.
"CONTRIBUTION AGREEMENT" means that certain Amended and Restated
Contribution Agreement, dated as of October 20, 1997, as amended by the Second
Amended and Restated Contribution Agreement, dated as of December 15, 1997, as
amended by the Third Amended and Restated Contribution Agreement, dated as of
March 24, 1998, as amended and restated by the Fourth Amended and Restated
Contribution Agreement, dated as of December 1, 1998, as amended and restated by
the Fifth Amended and Restated Contribution Agreement dated March 2, 1999, as
further amended and restated by the Sixth Amended and Restated Contribution
Agreement dated _____________, 1999, as such agreement may be amended, restated
or otherwise modified and in effect from time to time.
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"CONTROLLED GROUP" means the group consisting of (i) any corporation which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade
or business (whether or not incorporated) which is under common control (within
the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member
of the same affiliated service group (within the meaning of Section 414(m) of
the Code) as the Borrower, any corporation described in clause (i) above or any
partnership or trade or business described in clause (ii) above.
"CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such Person
(i) 80% or more of the total Equity Interests or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more wholly-owned Subsidiaries of such Person and (ii)
of which such Person possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies, whether through the ownership
of voting securities, by agreement or otherwise.
"CROSS AGREEMENT" means that certain Cross Default and Cross
Collateralization Agreement dated as of even date herewith, as such agreement
may be amended, restated or otherwise modified from time to time.
"CURRENT ASSETS" means, at a particular date, all amounts which would, in
conformity with Agreement Accounting Principles, be included under current
assets on a balance sheet as at such date.
"CURRENT LIABILITIES" means, at a particular date, all amounts which
would, in conformity with Agreement Accounting Principles, be included under
current liabilities on a balance sheet as at such date.
"CURRENT RATIO" is defined in Section 5.4(C) hereof.
"CUSTOMARY PERMITTED LIENS" means:
(i) Liens (other than Environmental Liens, Liens in favor of the IRS
and Liens in favor of the PBGC) with respect to the payment of taxes,
assessments or governmental charges in all cases which are not yet due or
(if foreclosure, distraint, sale or other similar proceedings shall not
have been commenced) which are being contested in good faith by
appropriate proceedings properly instituted and diligently conducted and
with respect to which adequate reserves or other appropriate provisions
are being maintained in accordance with Agreement Accounting Principles;
(ii) statutory Liens of landlords and Liens of suppliers, mechanics,
carriers, materialmen, warehousemen or workmen and other similar Liens
imposed by law created in the ordinary course of business for amounts not
yet due or which are being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and with respect
to which adequate reserves or other appropriate provisions are being
maintained in accordance with Agreement Accounting Principles;
(iii) Liens (other than Environmental Liens, Liens in favor of the
IRS and Liens in favor of the PBGC) incurred or deposits made, in each
case, in the ordinary course of business in connection with worker's
compensation, unemployment insurance or other
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<PAGE>
types of social security benefits or to secure the performance of bids,
tenders, sales, contracts (other than for the repayment of borrowed
money), surety, appeal and performance bonds; provided that (A) all such
Liens do not in the aggregate materially detract from the value of the
Borrower's or such Subsidiary's assets or property taken as a whole or
materially impair the use thereof in the operation of the businesses taken
as a whole, and (B) with respect to Liens securing bonds to stay judgments
or in connection with appeals do not secure at any time an aggregate
amount exceeding $250,000.00;
(iv) Liens arising with respect to zoning restrictions, easements,
licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar charges or encumbrances on the use
of real property which do not in any case materially detract from the
value of the property subject thereto or interfere with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries;
(v) Liens of attachment or judgment with respect to judgments, writs
or warrants of attachment, or similar process against the Borrower or any
of its Subsidiaries which do not constitute an Event of Default under
Section 6.1(h) hereof; and
(vi) any interest or title of the lessor in the property subject to
any operating lease entered into by the Borrower or any of its
Subsidiaries in the ordinary course of business.
"DAILY ADJUSTMENT AMOUNT" means, as of each day during a Quarter, the
difference between (a) the Average Scaled Assets for such Quarter, and (b) the
Revolving Credit Obligations for each such day, multiplied by 100 basis points
per annum.
"DEALERSHIP GUARANTORS" means each Sonic Dealership providing a Dealership
Guaranty and a Dealership Security Agreement to the Lender, and their respective
successors and assigns.
"DEALERSHIP GUARANTY" means each Guaranty and/or Guaranty and
Reaffirmation of Guaranty in the forms attached hereto as Exhibit C-1, provided
by a Sonic Dealership to the Lender, as the same may be amended, modified,
supplemented and/or restated, and as in effect from time to time.
"DEALERSHIP SECURITY AGREEMENT" means any Security Agreement in the form
attached hereto as Exhibit D-1, pursuant to which a Sonic Dealership grants the
Lender a security interest in all of its assets, as the same may be amended,
modified, supplemented and/or restated, and as in effect from time to time.
"DEBT OFFERING NOTES" means, collectively, each of these certain
promissory notes from the Borrower to various investors issued in accordance
with and pursuant to the terms of the Indenture dated as of July 1, 1998 and
entered into by and among Borrower, its Subsidiaries and U.S. Bank Trust
National Association, as trustee.
"DECISION PERIOD" is defined in Section 5.2(G) hereof.
"DECISION RESERVE" is defined in Section 5.2(G) hereof.
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by
the terms of any
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<PAGE>
security into which it is convertible or for which it is exchangeable), or upon
the happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
Termination Date.
"DOL" means the United States Department of Labor and any Person
succeeding to the functions thereof.
"DOLLAR" and "$" means dollars in the lawful currency of the United
States.
"EBITDA" means, for any period, on a consolidated basis for the Borrower
and its Subsidiaries, the sum of the amounts for such period, without
duplication, of:
(i) Net Income,
plus (ii) Interest Expense,
plus (iii) charges against income for foreign, federal, state and
local taxes, to the extent deducted in computing Net Income,
plus (iv) depreciation expense, to the extent deducted in
computing Net Income,
plus (v) amortization expense, including, without limitation,
amortization of goodwill, other intangible assets and
Transaction Costs, to the extent deducted in computing Net
Income,
plus (vi) other non-cash charges classified as long-term deferrals
in accordance with Agreement Accounting Principles, to the
extent deducted in computing Net Income,
minus (vii) all extraordinary gains (and any nonrecurring unusual
gains arising in or outside of the ordinary course of business
not included in extraordinary gains determined in accordance
with Agreement Accounting Principles which have been included
in the determination of Net Income).
EBITDA shall be calculated for any period by including the actual amount for the
applicable period ending on such day, including the EBITDA attributable to
Permitted Acquisitions occurring during such period on a pro forma basis for the
period from the first day of the applicable period through the date of the
closing of each Permitted Acquisition, utilizing (a) where available or required
pursuant to the terms of this Agreement, historical audited and/or reviewed
unaudited financial statements obtained from the seller, broken down by fiscal
quarter in the Borrower's reasonable judgment or (b) unaudited financial
statements (where no audited or reviewed financial statements are required
pursuant to the terms of this Agreement) reviewed internally by the Borrower,
broken down in the Borrower's reasonable judgment.
"EBITDAR" means, for any period, on a consolidated basis for the Borrower
and its Subsidiaries, the sum of the amounts for such period, without
duplication, of (i) EBITDA and (ii) Rentals.
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<PAGE>
"EFFECTIVE DATE" is defined in Section 1.3 hereof.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all
Requirements of Law derived from or relating to federal, state and local laws or
regulations relating to or addressing pollution or protection of the
environment, or protection of worker health or safety, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. ss. 9601 et seq., the Occupational Safety and Health Act of 1970,
29 U.S.C. ss. 651 et seq., and the Resource Conservation and Recovery Act of
1976, 42 U.S.C. ss. 6901 et seq., in each case including any amendments thereto,
any successor statutes, and any regulations or guidance promulgated thereunder,
and any state or local equivalent thereof.
"ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement of
law that conditions, restricts, prohibits or requires any notification or
disclosure triggered by the closure of any property or the transfer, sale or
lease of any property or deed or title for any property for environmental
reasons, including, but not limited to, any so-called "Industrial Site Recovery
Act" or "Responsible Property Transfer Act."
"EQUIPMENT" means all of the Borrower's and each Dealership Guarantor's
present and future furniture, machinery, service vehicles, supplies and other
equipment and any and all accessions, parts and appurtenances attached to any of
the foregoing or used in connection therewith, and any substitutions therefor
and replacements, products and proceeds thereof.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time including (unless the context otherwise requires) any
rules or regulations promulgated thereunder.
"EVENT OF DEFAULT" means an event described in Article VI hereof.
"EXCLUDED REAL PROPERTY" means any real property owned by Town & Country
Toyota, Inc., a North Carolina corporation, and Ford Mill Ford, Inc. (f/k/a FMF
Management, Inc.), a South Carolina corporation if and to the extent such real
property is mortgaged to secure Indebtedness of such entities.
"FAIR VALUE" means (a) with respect to the Capital Stock of the Borrower,
the closing price for such Capital Stock on the trading date immediately
preceding the date of the applicable acquisition agreement; and (b) with respect
to other assets, the value of the relevant asset as of the date of acquisition
or sale determined in an arm's-length transaction conducted in good faith
between an informed and willing buyer and an informed and willing seller under
no compulsion to buy.
"FIXED CHARGE COVERAGE RATIO" is defined in Section 5.4(D) hereof.
"FLOOR PLAN INDEBTEDNESS" means any and all loans, advances, debts,
liabilities and obligations owing by a Sonic Dealership to the Lender of any
kind or nature, present or future, arising under a Wholesale Line or any other
Loan Document, whether or not evidenced by any
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<PAGE>
note, guaranty or other instrument, whether or not for the payment of money,
whether arising by reason of an extension of credit, loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired. The term includes, without
limitation, all interest, charges, expenses, fees, attorneys' fees and
disbursements, paralegals' fees (in each case whether or not allowed), and any
other sum chargeable to the Borrower, a Sonic Dealership or Sonic Financial
under this Agreement or any other Loan Document.
"GOVERNMENTAL AUTHORITY" means any nation or government, any federal,
state, local or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GROSS NEGLIGENCE" means recklessness, the absence of the slightest care
or the complete disregard of consequences. Gross Negligence does not mean the
absence of ordinary care or diligence, or an inadvertent act or inadvertent
failure to act. If the term "gross negligence" is used with respect to the
Lender or any indemnitee in any of the other Loan Documents, it shall have the
meaning set forth herein.
"HEDGING OBLIGATIONS" of a Person means any and all obligations of such
Person, whether absolute or contingent and howsoever and whensoever created,
arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all
agreements, devices or arrangements designed to protect at least one of the
parties thereto from the fluctuations of interest rates, exchange rates or
forward rates applicable to such party's assets, liabilities or exchange
transactions, including, but not limited to, dollar-denominated or
cross-currency interest rate exchange agreements, forward currency exchange
agreements, interest rate cap or collar protection agreements, forward rate
currency or interest rate options, puts and warrants, and (ii) any and all
cancellations, buy backs, reversals, terminations or assignments of any of the
foregoing.
"INDEBTEDNESS" of any Person means, without duplication, such Person's (a)
obligations for borrowed money, (b) obligations representing the deferred
purchase price of property or services (other than accounts payable arising in
the ordinary course of such Person's business payable on terms customary in the
trade), (c) obligations, whether or not assumed, secured by Liens or payable out
of the proceeds or production from property or assets now or hereafter owned or
acquired by such Person, (d) obligations which are evidenced by notes,
acceptances or other instruments, (e) Capitalized Lease Obligations, (f)
reimbursement obligations with respect to letters of credit (other than
commercial letters of credit) issued for the account of such Person, (g) Hedging
Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent Obligations in
respect of obligations of another Person of the type described in the foregoing
clauses (a) through (h). The amount of Indebtedness of any Person at any date
shall be without duplication (i) the outstanding balance at such date of all
unconditional obligations as described above and the maximum liability of any
such Contingent Obligations at such date and
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(ii) in the case of Indebtedness of others secured by a Lien to which the
property or assets owned or held by such Person is subject, the lesser of the
fair market value at such date of any asset subject to a Lien securing the
Indebtedness of others and the amount of the Indebtedness secured.
"INDEMNIFIED MATTERS" is defined in Section 8.6(B) hereof.
"INDEMNITEES" is defined in Section 8.6(B) hereof.
"INTEREST EXPENSE" means, for any period, the total interest expense of
the Borrower and its consolidated Subsidiaries, whether paid or accrued
(including the interest component of Capitalized Leases, commitment and letter
of credit fees), but excluding interest expense not payable in cash (including
amortization of discount), all as determined in conformity with Agreement
Accounting Principles.
"INVENTORY" shall mean any and all motor vehicles, tractors, trailers,
service parts and accessories and other inventory of the Borrower and each
Dealership Guarantor.
"INVESTMENT" means, with respect to any Person, (i) any purchase or other
acquisition by that Person of any Indebtedness, Equity Interests or other
securities, or of a beneficial interest in any Indebtedness, Equity Interests or
other securities, issued by any other Person, (ii) any purchase by that Person
of all or substantially all of the assets of a business conducted by another
Person, and (iii) any loan, advance (other than deposits with financial
institutions available for withdrawal on demand, prepaid expenses, accounts
receivable, advances to employees and similar items made or incurred in the
ordinary course of business) or capital contribution by that Person to any other
Person, including all Indebtedness to such Person arising from a sale of
property by such Person other than in the ordinary course of its business.
"IRREGULAR FRANCHISE AGREEMENT" means any franchise agreement listed on
Schedule 1.1.0.
"IRS" means the Internal Revenue Service and any Person succeeding to th
functions thereof.
"LENDER" means Ford Motor Credit Company, a Delaware corporation and its
successors and assigns.
"LIEN" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, encumbrance or security agreement or preferential
arrangements of any kind or nature whatsoever (including, without limitation,
the interest of a vendor or lessor under any conditional sale, Capitalized Lease
or other title retention agreement).
"LOAN DOCUMENTS" means this Agreement, the Note, the Sonic Guaranties, the
Collateral Documents and all other documents, instruments and agreements
executed in connection therewith or contemplated thereby, as the same may be
amended, restated or otherwise modified and in effect from time to time.
"LOAN TO VALUE RATIO" is defined in Section 5.4(G) hereof.
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"MARGIN STOCK" shall have the meaning ascribed to such term in Regulation
U.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, any Material Subsidiary of the
Borrower, or the Borrower and its Subsidiaries, taken as a whole, (b) the
ability of the Borrower or any of its Subsidiaries to perform their respective
obligations under the Loan Documents in any material respect, or (c) the ability
of the Lender to enforce in any material respect the Obligations or its rights
with respect to the Collateral.
"MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as defined in
Regulation S-X issued pursuant to the Securities Act and the Exchange Act and
(b) any other Subsidiary of the Borrower which at any time comprises five
percent (5%) or more of the Borrower's Tangible Base Capital.
"MAXIMUM RATE" means the maximum nonusurious interest rate under
applicable law.
"MINORITY HOLDER" means any holder of an Equity Interest in a Subsidiary
which such Equity Interest may not exceed 20% of the Capital Stock of such
Subsidiary.
"MULTI-EMPLOYER PLAN" means a "Multi-employer Plan" as defined in Section
4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years
was, contributed to by either the Borrower or any member of the Controlled
Group.
"NET CASH PROCEEDS" means the net cash proceeds (net of underwriting
discount and Transaction Costs) received by the Borrower in connection with the
Public Offering.
"NET INCOME" means, for any period, the net earnings (or loss) after taxes
of the Borrower and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with Agreement
Accounting Principles.
"NEW SUBSIDIARY" is defined in Section 5.3(F)(ii).
"NOTE" means that Promissory Note dated October 15, 1997 duly executed by
the Borrower and payable to the order of Lender in the original principal amount
of $26,000,000.00, as amended and restated by that certain Amended and Restated
Promissory Note dated December 15, 1997, duly executed by the Borrower and
payable to the order of Lender in the principal amount of $75,000,000.00, as
amended and restated by that certain Second Amended and Restated Promissory Note
dated March 2, 1999, duly executed by the Borrower and payable to the order of
Lender in the principal amount of $100,000,000.00, as further amended and
restated by that certain Third Amended and Restated Promissory Note dated
____________, 1999, duly executed by the Borrower and payable to the order of
Lender in the principal amount of $150,000,000.00, in substantially the form of
Exhibit A hereto, duly executed by the Borrower and payable to the order of
Lender in the amount of the Commitment, including any amendment, restatement,
modification, renewal, increase or replacement of such Note.
"OBLIGATIONS" means all Advances, debts, liabilities, obligations,
covenants and duties owing by the Borrower, a Sonic Dealership or Sonic
Financial to the Lender or any Indemnitee, of any kind or nature, present or
future, arising under this Agreement, the Note, the Collateral Documents or any
other Loan Document, whether or not evidenced by any note, guaranty or
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<PAGE>
other instrument, whether or not for the payment of money, whether arising by
reason of an extension of credit, loan, guaranty, indemnification, or in any
other manner, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising and however acquired. The term includes, without limitation,
all interest, charges, expenses, fees, attorneys' fees and disbursements,
paralegals' fees (in each case whether or not allowed), and any other sum
chargeable to the Borrower, a Sonic Dealership or Sonic Financial under this
Agreement or any other Loan Document.
"OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase
obligation or liability of such Person or any of its Subsidiaries with respect
to accounts or notes receivable sold by such Person or any of its Subsidiaries,
(b) any liability under any sale and leaseback transactions which do not create
a liability on the consolidated balance sheet of such Person, (c) any liability
under any financing lease or so-called "synthetic" lease transaction, or (d) any
obligations arising with respect to any other transaction which is the
functional equivalent of or takes the place of borrowing but which does not
constitute a liability on the consolidated balance sheets of such Person and its
Subsidiaries.
"ORIGINAL CREDIT AGREEMENT" is defined in the first paragraph hereof.
"OTHER TAXES" is defined in Section 2.11(B) hereof.
"PARTICIPANTS" is defined in Section 9.2(A) hereof.
"PAYMENT DATE" means the fifteenth day of each calendar month, provided,
however if such day is not a Business Day, then the Payment Date shall be the
next succeeding Business Day following such fifteenth day.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successo
thereto.
"PERMITTED ACQUISITION" is defined in Section 5.3(F)(iii) hereof.
"PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower
and its Subsidiaries identified as such on Schedule 1.1.1 to this Agreement.
"PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower and
its Subsidiaries identified as such on Schedule 1.1.2 to this Agreement.
"PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower and
its Subsidiaries identified as such on Schedule 1.1.3 to this Agreement.
"PERMITTED REFINANCING INDEBTEDNESS" means any replacement, renewal,
refinancing or extension of any Indebtedness permitted by this Agreement that
(i) does not exceed the aggregate principal amount (plus associated fees and
expenses) of the Indebtedness being replaced, renewed, refinanced or extended,
(ii) does not rank at the time of such replacement, renewal, refinancing or
extension senior to the Indebtedness being replaced, renewed, refinanced or
extended, and (iii) does not contain terms (including, without limitation, terms
relating to security, amortization, interest rate, premiums, fees, covenants,
event of default and remedies) materially less favorable to the Borrower or to
the Lender than those applicable to the Indebtedness being replaced, renewed,
refinanced or extended.
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"PERSON" means any individual, corporation, firm, enterprise, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, limited liability company or other entity of any kind, or any
government or political subdivision or any agency, department or instrumentality
thereof.
"PLAN" means an employee benefit plan defined in Section 3(3) of ERISA in
respect of which the Borrower or any member of the Controlled Group is, or
within the immediately preceding six (6) years was, an "employer" as defined in
Section 3(5) of ERISA.
"PRINCIPALS" means O. Bruton Smith and B. Scott Smith.
"QUARTER" means each three-month period commencing January 1, April 1,
July 1, and October 1, beginning July 1, 1999.
"QUARTERLY PAYMENT DATE" means each Payment Date occurring on January 15,
April 15, July 15 and October 15, commencing with April 15, 1998.
"REAFFIRMATION OF GUARANTY" means that certain Reaffirmation of Guaranty
dated as of even date herewith from each Dealership Guarantor and each
Subsidiary Holding Company Guarantor to Lender, pursuant to which each
Dealership Guarantor and each Subsidiary Holding Company Guarantor reaffirms its
guaranty of the Obligations as such Obligations have been amended, restated and
increased by this Agreement.
"RECEIVABLE(S)" means and includes all of the Borrower's and each
Dealership Guarantor's presently existing and hereafter arising or acquired
accounts, contract rights, chattel paper, instruments, notes, letters of credit,
documents, documents of title, investment property, deposit accounts, other bank
accounts, general intangibles, tax refunds and other obligations of third
persons of any kind, now or hereafter existing, whether arising out of or in
connection with the sale or lease of goods, the rendering of services or
otherwise, and all rights now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, chattel paper, instruments, notes, letters of
credit, documents, documents of title, investment property, deposit accounts,
other bank accounts, general intangibles, tax refunds or obligations of third
persons.
"REGULATION G" means Regulation G of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by nonbank, nonbroker lenders for the purpose of purchasing
or carrying margin stock (as defined therein).
"REGULATION T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by and to brokers and dealers of securities for the purpose
of purchasing or carrying margin stock (as defined therein).
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"REGULATION U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying Margin
Stock applicable to member banks of the Federal Reserve System.
"REGULATION X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by foreign lenders for the purpose of purchasing or carrying
margin stock (as defined therein).
"RELATED PARTY" with respect to any Principal means (i) any spouse or
immediate family member of such Principal or (ii) any trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding the outstanding Equity Interest of which consist
of such Principal and/or such other Persons referred to in the immediately
preceding clause (i).
"RELEASE" means any release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment, including the movement of Contaminants through or in the
air, soil, surface water or groundwater.
"RENTALS" of a Person means the aggregate fixed amounts payable by such
Person under any lease of real or personal property but does not include any
amounts payable under Capitalized Leases of such Person.
"REPORTABLE EVENT" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days after
such event occurs, provided, however, that a failure to meet the minimum funding
standards of Section 412 of the Code and of Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
of the Code.
"REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or
other organizational or governing documents of such Person, and any law, rule or
regulation, or determination of an arbitrator or a court or other Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject including,
without limitation, the Securities Act of 1933, the Securities Exchange Act of
1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker
Adjustment and Retraining Notification Act, Americans with Disabilities Act of
1990, and any certificate of occupancy, zoning ordinance, building,
environmental or land use requirement or permit or environmental, labor,
employment, occupational safety or health law, rule or regulation, including
Environmental, Health or Safety Requirements of Law.
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"RESTRICTED PAYMENT" means (i) any dividend or other distribution, direct
or indirect, on account of any Equity Interests of the Borrower now or hereafter
outstanding, except a dividend payable solely in the Borrower's Capital Stock
(other than Disqualified Stock) or in options, warrants or other rights to
purchase such Capital Stock, (ii) any redemption, retirement, purchase or other
acquisition for value, direct or indirect, of any Equity Interests of the
Borrower or any of its Subsidiaries now or hereafter outstanding, other than in
exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Borrower) of other Equity Interests of the
Borrower (other than Disqualified Stock), and (iii) any payment of a claim for
the rescission of the purchase or sale of, or for material damages arising from
the purchase or sale of any Equity Interests of the Borrower or any of the
Borrower's Subsidiaries, or of a claim for reimbursement, indemnification or
contribution arising out of or related to any such claim for damages or
rescission.
"RESTRICTED FRANCHISE AGREEMENT" is defined in Section 5.3(F)(iii)(b).
"REVOLVING CREDIT AVAILABILITY" means, at any particular time, the amount
by which the Commitment at such time exceeds the Revolving Credit Obligations at
such time.
"REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of
the outstanding principal amount of all Advances (including the loans made under
the Original Credit Agreement) at such time.
"SCALED ASSETS" means with respect to the Sonic Group, the sum of (A) an
amount equal to 75% of the Sonic Group's Receivables which constitute factory
receivables, (B) an amount equal to 60% of the Sonic Group's Receivables which
constitute current finance receivables, (C) an amount equal to 60% of the Sonic
Group's Receivables which constitute receivables for parts and services (after
netting any amounts payable in connection with such parts and services by any
member of the Sonic Group), (D) an amount equal to 55% of the Sonic Group's
Inventory which constitutes parts and accessories, (E) an amount equal to 80% of
the that portion of the Sonic Group's Inventory which constitutes used vehicles
less the amount of any outstanding Floor Plan Indebtedness of any member of the
Sonic Group incurred in connection with such used vehicles, and (F) an amount
equal to 45% of the difference between (i) the value of the Sonic Group's
Equipment and (ii) the amount of Indebtedness of any member of the Sonic Group
incurred in connection with such Equipment. The value of the Sonic Group's
Scaled Assets shall be calculated by the Lender and shall be determined based on
the financial statements and monthly factory statements delivered to the Lender
pursuant to Section 5.1(A). Scaled Assets shall be measured as of the Effective
Date and as of the end of each calendar quarter.
"SCALED ASSETS ADJUSTMENT AMOUNT" means, as of any Quarterly Payment Date,
the sum of the Daily Adjustment Amounts for each day of the immediately
preceding Quarter.
"SECRETARY'S CERTIFICATE" with respect to any entity in the Sonic Group,
means any certificate, delivered by a secretary, assistant secretary, managing
member, general partner or governor of such entity which certifies (i) the names
and true signatures of the incumbent officers or managers of such entity
authorized to sign each Transaction Document to which it is a party and the
other documents to be executed thereunder, (ii) a true and correct copy of such
entity's Certificate of Incorporation, or similar charter document and all
amendments thereto, (iii) a true and correct copy of the by-laws or similar
governing document of such entity and all amendments thereto, and (iv) a true
and correct copy of the resolutions of such entity's board
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of directors or members approving and authorizing the execution, delivery and
performance by such entity of each Transaction Document to which it is a party
and the other documents to be executed thereunder;
"SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"SONIC DEALERSHIP" means any Subsidiary dealership and/or related body
shop or service repair center owned, operated or acquired by the Borrower or any
Subsidiary of the Borrower.
"SONIC FINANCIAL" means Sonic Financial Corporation, a Delaware
corporation.
"SONIC GROUP" means each of the Borrower and each Subsidiary of th
Borrower.
"SONIC GUARANTIES" means each of the Borrower Guaranty, each Subsidiary
Holding Company Guaranty, each Dealership Guaranty and the Contribution
Agreement.
"SUBSIDIARY" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, association, joint venture or similar business
organization more than 50% of the ownership interests having ordinary voting
power of which shall at the time be so owned or controlled. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Borrower.
"SUBSIDIARY HOLDING COMPANIES" means each of Sonic Automotive of
Tennessee, Inc., a corporation organized under the laws of the State of
Tennessee, Sonic Automotive of Nevada, Inc., a corporation organized under the
laws of the State of Nevada, Sonic Automotive of Georgia, Inc., a corporation
organized under the laws of the State of Georgia, Sonic of Texas, Inc., a
corporation organized under the laws of the State of Texas, and any other
Subsidiary of Borrower which owns any Capital Stock in any other entity in the
Sonic Group, in each case together with its successors and assigns.
"SUBSIDIARY HOLDING COMPANY PLEDGES" means each Pledge Agreement delivered
by any Subsidiary Holding Company to Lender, pursuant to which such Persons
pledge their Capital Stock of certain corporation, limited liability company
and/or partnership subsidiaries, as such pledge agreement may be amended,
restated or otherwise modified from time to time.
"SUBSIDIARY HOLDING COMPANY GUARANTY" means each Guaranty and/or Guaranty
and Reaffirmation of Guaranty in the forms attached hereto as Exhibit C-2,
provided by a Subsidiary Holding Company to Lender, as the same may be amended,
modified, supplemented and/or restated, and in effect from time to time.
"SUBSIDIARY HOLDING COMPANY SECURITY AGREEMENTS" means any Security
Agreement in the form attached hereto as exhibit D-2, pursuant to which a
Subsidiary Holding company grants the Lender a security interest in all of its
assets, as the same may be amended, modified, supplemented and/or restated, and
in effect from time to time.
"TANGIBLE BASE CAPITAL" means, at a particular date of calculation, the
amount
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determined by the Lender to be equal to :
(i) Consolidated Net Worth
PLUS
(ii) the sum of
(A) Indebtedness of the Borrower or its Subsidiaries to officers
of the Borrower, which Indebtedness is subordinated in writing
to the Obligations on terms and conditions acceptable to the
Lender; and
(B) an amount equal to 64% of the LIFO reserve (as determined in
accordance with Agreement Accounting Principles) reflected on
the Borrower's balance sheet;
(C) Indebtedness of the Borrower and/or its Subsidiaries evidenced
by the Debt Offering Notes;
MINUS
(iii) the sum of
(A) Receivables with respect to which the account debtor is a
director, officer, employee, Subsidiary or Affiliate of the
Borrower or other amounts (whether or not classified as
Receivables) from Affiliates of the Borrower or its
Subsidiaries (other than those payable within 30 days and
incurred in the ordinary course of business); and
(B) the value of leasehold improvements after deductions for
depreciation of the Borrower and its Subsidiaries on a
consolidated basis;
(C) that part of the Borrower's and its Subsidiaries (on a
consolidated basis) capitalization or reserves attributable to
any writing up of book values on any fixed assets after the
date of the most recently delivered financial statements of
the Borrower and its Subsidiaries;
(D) the aggregate amount of the Borrower's and its Subsidiaries
Investments in Affiliates (other than the Borrower's
Subsidiaries);
(E) organizational expenses related to start-up of operations with
respect to the Borrower and its Subsidiaries;
(F) goodwill and other intangible assets (as determined in
accordance with Agreement Accounting Principles);
(G) any amount paid to a third-party as consideration for
no-competition agreements;
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(H) the value of daily rental franchise payments made by the
Borrower or its Subsidiaries under any franchise agreements
(net of any amounts owed by a franchisor to Borrower or its
Subsidiaries); and
(I) other assets (including, without limitation, airplanes,
cattle, etc.) not related to the operations of the Dealerships
as automobile dealerships.
"TAXES" is defined in Section 2.11(A) hereof.
"TBC RATIO" is defined in Section 5.4(A) hereof.
"TERMINATION DATE" means the earlier of (a) March 2, 2001or such other
"Termination Date" specified in an Extension Notice and agreed to by the Lender
and (b) the date of termination of the Commitment pursuant to either of Section
2.3 or Section 7.1 hereof.
"TERMINATION EVENT" means (i) a Reportable Event with respect to any
Benefit Plan; (ii) the withdrawal of the Borrower or any member of the
Controlled Group from a Benefit Plan during a plan year in which the Borrower or
such Controlled Group member was a "substantial employer" as defined in Section
4001(a)(2) of ERISA or the cessation of operations which results in the
termination of employment of twenty percent (20%) of Benefit Plan participants
who are employees of the Borrower or any member of the Controlled Group; (iii)
the imposition of an obligation on the Borrower or any member of the Controlled
Group under Section 4041 of ERISA to provide affected parties written notice of
intent to terminate a Benefit Plan in a distress termination described in
Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to
terminate a Benefit Plan; (v) any event or condition which might constitute
grounds under Section 4042 of ERISA for the Termination of, or the appointment
of a trustee to administer, any Benefit Plan; or (vi) the partial or complete
withdrawal of the Borrower or any member of the Controlled Group from a
Multi-employer Plan.
"TOTAL ADJUSTED DEBT" means, for any period, on a consolidated basis for
the Borrower and its Subsidiaries, the amount of Total Debt less any Floor Plan
Indebtedness, less the outstanding principal balance of the Debt Offering Notes,
and less the outstanding principal balance of any Additional Subordinated Debt.
"TOTAL DEBT" means, for any period, on a consolidated basis for the
Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and its
Subsidiaries, other than Hedging Obligations.
"TRANSACTION COSTS" means the fees, costs and expenses payable by the
Borrower in connection with the execution, delivery and performance of the
Transaction Documents.
"TRANSACTION DOCUMENTS" means the Loan Documents and the Acquisition
Documents.
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"UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans, the
amount (if any) by which the present value of all vested nonforfeitable benefits
under all Single Employer Plans exceeds the fair market value of all such Plan
assets allocable to such benefits, all determined as of the then most recent
valuation date for such Plans, and (ii) in the case of Multi- employer Plans,
the withdrawal liability that would be incurred by the Controlled Group if all
members of the Controlled Group completely withdrew from all Multi-employer
Plans.
"UNMATURED DEFAULT" means an event which, but for the lapse of time or the
giving of notice, or both, would constitute an Event of Default.
"WAIVER, GUARANTY AND DISBURSEMENT AGREEMENT" means each Waiver, Guaranty
and Disbursement Agreement delivered by Borrower or any Subsidiary Holding
Company in the form attached hereto as Exhibit G to Lender, as the same may be
amended, restated, or otherwise modified from time to time.
"WHOLESALE LINE" means any wholesale credit line made by the Lender to a
Sonic Dealership.
Any accounting terms used in this Agreement which are not specifically
defined herein shall have the meanings customarily given them in accordance with
generally accepted accounting principles in existence as of the date hereof.
1.2 References. The existence throughout the Agreement of references to
the Borrower's Subsidiaries is for a matter of convenience only. Any references
to Subsidiaries of the Borrower set forth herein shall (i) with respect to
representations and warranties which deal with historical matters be deemed to
include each of the Subsidiaries existing on the date hereof; and (ii) shall not
in any way be construed as consent by the Lender to the establishment,
maintenance or acquisition of any Subsidiary, except as may otherwise be
permitted hereunder.
1.3 Effectiveness of this Agreement. Upon the satisfaction of all of the
conditions precedent set forth in Section 3.1 of this Agreement (the date upon
which such conditions precedent are satisfied being hereinafter referred to as
the "EFFECTIVE DATE"), this Agreement shall become effective and the Original
Credit Agreement be amended and restated in its entirety in accordance with the
provisions of Article XI hereof.
ARTICLE II: THE LOAN FACILITIES
2.1 Advances. Upon the satisfaction of the conditions precedent set forth
in Sections 3.1 and 3.2, from and including the date of this Agreement and prior
to the Termination Date, the Lender shall, on the terms and conditions set forth
in this Agreement, make Advances to the Borrower from time to time, in Dollars,
in an amount not to exceed the Revolving Credit Availability at such time;
provided, however, at no time shall the Revolving Credit Obligations exceed the
Commitment at such time. Subject to the terms of this Agreement, the Borrower
may borrow, repay and re-borrow Advances at any time prior to the Termination
Date. The Borrower shall repay in full the outstanding principal balance of each
Advance on the earlier to occur of (a) the date that is 24 months from the
Borrowing Date applicable to such Advance and (b) the Termination Date.
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2.2 Optional Payments; Mandatory Prepayments
(A) Optional Payments. The Borrower may from time to time repay or prepay,
without penalty or premium all or any part of outstanding Advances; provided,
that the Borrower may not so prepay Advances unless it shall have provided at
least one Business Day's written notice to the Lender of such prepayment.
(B) Mandatory Prepayments. If at any time and for any reason the Revolving
Credit Obligations are greater than the Commitment, the Borrower shall
immediately make a mandatory prepayment of the Obligations in an amount equal to
such excess. Amounts equal to a Decision Reserve or net cash proceeds of an
Asset Sale in connection with or following restoration, rebuilding or
replacement of insured property shall be mandatorily applied against the
Revolving Credit Obligations in the amounts and in the manner set forth in
Section 5.2(G) hereof. All of the mandatory prepayments made under this Section
2.2(B) shall be applied first to Advances maturing on such date and then to
subsequently maturing Advances in order of maturity.
2.3 Changes in the Commitment. Reduction of Commitment. The Borrower may
permanently reduce the Commitment in whole, or in part, in an aggregate minimum
amount of $5,000,000.00 and integral multiples of $1,000,000.00 in excess of
that amount (unless the Commitment is reduced in whole), upon at least three (3)
Business Days' written notice to the Lender, which notice shall specify the
amount of any such reduction; provided, however, that the amount of the
Commitment may not be reduced below the aggregate principal amount of the
outstanding Revolving Credit Obligations. All accrued commitment fees shall be
payable on the effective date of any partial or complete termination of the
obligations of the Lender to make Advances hereunder.
2.4 Method of Borrowing. The Borrower shall give the Lender irrevocable
notice in substantially the form of Exhibit B hereto (a "BORROWING NOTICE") not
later than 10:00 a.m. (Eastern Standard Time) on the Business Day preceding the
Borrowing Date of each Advance, specifying: (i) the Borrowing Date (which shall
be a Business Day) of such Advance; (ii) the aggregate amount of such Advance;
(iii) the use of proceeds of such Advance, and (iv) the account or accounts into
which the Advances should be funded. Not later than 2:00 p.m. (Eastern Standard
Time) on each Borrowing Date, the Lender shall make available its Advance, in
funds immediately available to the Borrower at such account or accounts as shall
have been notified to the Lender. Each Advance shall bear interest from and
including the date of the making of such Advance to (but not including) the date
of repayment thereof at the Applicable Commercial Paper Rate, changing when and
as the underlying Commercial Paper Rate changes, which such interest shall be
payable in accordance with Section 2.9(B).
2.5 Minimum Amount of Each Advance. Each Advance shall be in the minimum
amount of $250,000.00 (and in multiples of $50,000.00 if in excess thereof),
provided, however, that any Advance may be in the amount of the unused
Commitment.
2.6 Default Rate; Late Payment Fee. After the occurrence and during the
continuance of an Event of Default, at the option of the Lender, the interest
rate(s) applicable to the Advances shall be equal to the Applicable Commercial
Paper Rate plus three percent (3.0%) per annum. To the extent not in excess of
the Maximum Rate and in accordance with applicable law, any amount not paid by
the Borrower when due shall accrue interest at an additional five percent (5.0%)
per annum above the rate applicable thereto until such amounts have been paid in
full
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and shall be payable on demand by the Lender and at any rate no later than the
next succeeding Payment Date.
2.7 Method of Payment. All payments of principal, interest, and fees
hereunder shall be made, without setoff, deduction or counterclaim, in
immediately available funds to the Lender at the Lender's address specified
pursuant to Article X, or at any other address specified in writing by the
Lender to the Borrower, by 2:00 p.m. (Eastern Standard Time) on the date when
due.
2.8 Advances, Telephonic Notices. The Lender is authorized to record the
principal amount of each Advance and each repayment with respect to its Advances
on the schedule attached to the Note; provided, however, that the failure to so
record shall not affect the Borrower's obligations under the Note. The Borrower
authorizes the Lender to extend Advances and to transfer funds based on
telephonic notices made by any person or persons the Lender in good faith
believes to be acting on behalf of the Borrower. The Borrower agrees to deliver
promptly to the Lender a written confirmation, signed by an Authorized Officer,
if such confirmation is requested by the Lender, of each telephonic notice. If
the written confirmation differs in any material respect from the action taken
by the Lender, (i) the telephonic notice shall govern absent manifest error and
(ii) the Lender shall promptly notify the Authorized Officer who provided such
confirmation of such difference.
2.9 Promise to Pay; Interest and Commitment Fees; Interest Payment Dates;
Interest and Fee Basis; Taxes.
(A) Promise to Pay. The Borrower unconditionally promises to pay when due
the principal amount of each Advance and all other Obligations incurred by it,
and to pay all unpaid interest accrued thereon, in accordance with the terms of
this Agreement and the Note.
(B) Interest Payment Date.
(i) Interest payable on Advances. Interest accrued on each Advance shall
be payable on each Payment Date, commencing with the first such date to
occur after the date hereof and at maturity (whether by acceleration or
otherwise). On each Payment Date other than a Quarterly Payment Date, the
Borrower shall pay interest at the Commercial Paper Rate plus 2.75% per
annum (the "Collection Rate") on each Advance outstanding on such date. On
each Payment Date which is a Quarterly Payment Date, the Borrower shall
pay, in addition to interest at the Collection Rate, an amount equal to
the Scaled Assets Adjustment Amount to the Lender.
(ii) Interest on other Obligations. Interest accrued on the principal
balance of all other Obligations shall be payable in arrears (i) on the
last day of each calendar month, commencing on the first such day
following the incurrence of such Obligation, (ii) upon repayment thereof
in full or in part, and (iii) if not theretofore paid in full, at the time
such other Obligation becomes due and payable (whether by acceleration or
otherwise).
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(C) Commitment Fees. The Borrower shall pay to the Lender, from and after
the date hereof until the date on which the Commitment shall be terminated in
whole, a commitment fee equal to one-quarter of one percent (0.25%) per annum,
on the amount by which (A) the Commitment in effect from time to time exceeds
(B) the Revolving Credit Obligations in effect from time to time. All such
commitment fees payable under this clause (C) shall be payable annually in
arrears on each anniversary occurring after the Effective Date and, in addition,
on the date on which the Commitment shall be terminated in whole.
(D) Interest and Fee Basis. Interest and fees shall be calculated for
actual days elapsed on the basis of a 365 or when appropriate 366, day year.
Interest shall be payable for the day an Obligation is incurred but not for the
day of any payment on the amount paid if payment is received prior to 2:00 p.m.
(Eastern Standard Time) at the place of payment. If any payment of principal of
or interest on an Advance or any payment of any other Obligations shall become
due on a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal payment, such extension
of time shall be included in computing interest in connection with such payment.
2.10 Termination Date. This Agreement shall be effective until the
Termination Date. The Borrower shall have the right, exercisable no more than 3
(three) times, to submit a notice (an "EXTENSION NOTICE") requesting an
extension of the initial Termination Date for additional one-year periods. The
Borrower shall deliver the Extension Notice on or before the date that is at
least 45 and not more than 90 days prior to the first anniversary of the
Effective Date (and each like period in each subsequent year thereafter in which
such option is available). The Lender shall, on or before the date that is 30
days after receipt of any such Extension Notice notify the Borrower in writing
whether or not the then applicable Termination Date is extended for one year;
provided, however, failure to give such notice shall mean that no such extension
shall have been granted; and PROVIDED FURTHER, NOTHING HEREIN SHALL OBLIGATE THE
LENDER TO EXTEND THE INITIAL TERMINATION DATE OR ANY OTHER TERMINATION DATE AND
ANY DETERMINATION WHETHER OR NOT TO SO EXTEND THE TERMINATION DATE SHALL BE MADE
BY THE LENDER IN ITS SOLE DISCRETION. Notwithstanding the termination of this
Agreement on the Termination Date, until all of the Obligations (other than
contingent indemnity obligations, but including all Floor Plan Indebtedness)
shall have been fully and indefeasibly paid and satisfied and all financing
arrangements between the Borrower and the Lender in connection with this
Agreement shall have been terminated (other than with respect to Hedging
Obligations), all of the rights and remedies under this Agreement and the other
Loan Documents shall survive and the Lender shall be entitled to retain its
security interest in and to all existing and future Collateral.
2.11 Taxes. (A) Any and all payments by the Borrower hereunder shall be
made free and clear of and without deduction for any and all present or future
taxes, levies, imposts, deductions, charges or withholdings or any liabilities
with respect thereto including those arising after the date hereof as a result
of the adoption of or any change in any law, treaty, rule, regulation, guideline
or determination of a Governmental Authority or any change in the interpretation
or application thereof by a Governmental Authority but excluding such taxes
(including income taxes, franchise taxes and branch profit taxes) as are imposed
on or measured by the Lender's income by the United States of America or any
Governmental Authority of the jurisdiction under the laws of which the Lender is
organized or having jurisdiction over the Lender by virtue of the Lender's
location(s) (other than solely as a result of the transaction evidenced by this
Agreement) (all such non-excluded taxes, levies, imposts, deductions, charges,
withholdings, and liabilities which the Lender determines to be applicable to
this Agreement, the
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other Loan Documents, the Commitment or the Advances being hereinafter referred
to as "TAXES"). If the Borrower shall be required by law to deduct any Taxes
from or in respect of any sum payable hereunder or under the other Loan
Documents to the Lender, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions (including deductions
applicable to additional sums payable under this Section 2.11(A)) the Lender
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, and (iii)
the Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law.
(B) In addition, the Borrower agrees to pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges, or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement, the
other Loan Documents, the Commitment or the Advances (hereinafter referred to as
"OTHER TAXES").
(C) The Borrower indemnifies the Lender for the full amount of Taxes and
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any Governmental Authority on amounts payable under this Section 2.11 paid by
the Lender and any liability (including penalties, interest, and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days after the date the Lender makes written demand therefor.
A certificate as to any additional amount payable to the Lender under this
Section 2.11 submitted to the Borrower by the Lender shall show in reasonable
detail the amount payable and the calculations used to determine such amount and
shall, absent manifest error, be final, conclusive and binding upon each of the
parties hereto. With respect to such deduction or withholding for or on account
of any Taxes and to confirm that all such Taxes have been paid to the
appropriate Governmental Authorities, the Borrower shall promptly (and in any
event not later than thirty (30) days after receipt) furnish to the Lender such
certificates, receipts and other documents as may be required (in the judgment
of the Lender) to establish any tax credit to which the Lender may be entitled.
(D) Within thirty (30) days after the date of any payment of Taxes or
Other Taxes by the Borrower, the Borrower shall furnish to the Lender the
original or a certified copy of a receipt evidencing payment thereof.
(E) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.11 shall survive the payment in full of principal and interest
hereunder and the termination of this Agreement.
2.12 Loan Account. The Lender shall maintain in accordance with its usual
practice an account or accounts (a "LOAN ACCOUNT") evidencing the Obligations of
the Borrower to the Lender owing to the Lender from time to time, including the
amount of principal and interest payable and paid to the Lender from time to
time hereunder and under the Note. The entries made in the Loan Account shall be
conclusive and binding for all purposes, absent manifest error, unless the
Borrower objects to information contained in the Loan Account within thirty (30)
days of the Borrower's receipt of such information.
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ARTICLE III: CONDITIONS PRECEDENT
3.1 Conditions of Effectiveness. The Effective Date of this Agreement
shall be on the date on which all of the following conditions shall have been
satisfied:
(A) no law, regulation, order, judgment or decree of any Governmental
Authority shall, and the Lender shall not have received any notice that
litigation is pending or threatened which is likely to, (a) enjoin,
prohibit or restrain the making of an Advance hereunder or (b) impose or
result in the imposition of a Material Adverse Effect;
(B) all due diligence materials requested by the Lender from the Borrower
shall have been delivered to the Lender and such due diligence materials
shall be in form and substance satisfactory to the Lender;
(C) the Borrower has furnished to the Lender each of the following, all in
form and substance satisfactory to the Lender:
(i) this Agreement, duly executed by the Borrower;
(ii) the Note, duly executed by the Borrower in favor of the Lender;
the Cross Agreement executed by Borrower, each Dealership Guaranto
and each Subsidiary Holding Company;
(iv) a Dealership Guaranty executed by each Sonic Dealership which
has not heretofore provided a Dealership Guaranty to the Lender;
(v) a Dealership Security Agreement executed by each Sonic
Dealership which has not heretofore provided a Dealership Security
Agreement to the Lender;
(vi) a Subsidiary Holding Company Guaranty executed by each
Subsidiary Holding Company which has not heretofore provided a Subsidiary
Holding Company Guaranty to Lender.
(vii) a Subsidiary Holding Company Security Agreement executed by
each Subsidiary Holding Company which has not heretofore provided a
Subsidiary Holding Company Security Agreement to Lender.
(viii) with respect to each Dealership/Subsidiary Holding Company
Security Agreement delivered by a Sonic Dealership/Subsidiary Holding
Company, an amendment to such Security Agreement attaching a revised
exhibit thereto, which such revised exhibit shall reflect only Permitted
Existing Liens;
the Reaffirmation of Guaranty duly executed by each Dealership
Guarantor and each Subsidiary Holding Company Guarantor which has
previously provided either a Dealership Guaranty or a Subsidiary Holding
Company Guaranty;
(x) an amendment of each of the Borrower Pledges and the Subsidiary
Holding
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Company Pledges attaching a revised exhibit thereto, which such revised
exhibit shall reflect a pledge of any Sonic Dealership/Subsidiary Holding
Company not heretofore pledged, together with, for each corporate entity
so acquired, a stock certificate evidencing the issued and outstanding
pledged stock and undated stock powers executed in blank;
(xi) To the extent any Sonic Dealership or Subsidiary Holding
Company has any Indebtedness other than Permitted Indebtedness, pay-out
letters, releases and UCC-3 Termination Statements, where applicable, from
all third-party creditors releasing all Liens securing any such
Indebtedness;
(xii) Certificates of good standing for the Borrower, and if
requested by Lender, each Subsidiary Holding Company and each Dealership
Guarantor from its jurisdiction of incorporation and each other
jurisdiction where the nature of its business requires it to be qualified
as a foreign corporation;
(xiii) a Secretary's Certificate from the Borrower, each Subsidiary
Holding Company and each Sonic Dealership acquired by the Borrower on or
prior to the date hereof, provided, however that the Borrower, any
Subsidiary Holding Company and any Sonic Dealership which provided a
Secretary's Certificate in connection with the Amendment to Amended and
Restated Credit Agreement dated March 2, 1999 (the "Amendment") or
thereafter may deliver a bring-down certificate of such previously
delivered Secretary's Certificate, certifying that as of March 2, 1999 or
earlier, there has been no change to any of the information provided
therein and, in the case of any such Subsidiary Holding Companies or Sonic
Dealerships, that the representations and warranties contained in any
Collateral Document delivered by such Subsidiary Holding Company or Sonic
Dealership in connection with the Amendment or other later Acquisition
continues to be true and correct with full force and effect as if made on
the Effective Date.
(xiv) A certificate, in form and substance satisfactory to the
Lender, signed by the chief financial officer of the Borrower stating that
as of the Effective Date, no Event of Default or Unmatured Default has
occurred and is continuing and setting forth the calculation of the Sonic
Group's Scaled Assets as of the Effective Date, and the representations
and warranties of the Borrower are true and correct with full force and
effect as if made on the Effective Date;
(xv) To the extent not included in the foregoing, the documents,
instruments and agreements set forth on the closing list attached as
Exhibit E hereto; and
(xvi) Such other documents as the Lender or its counsel may have
reasonably requested.
3.2 Conditions Precedent to Each Advance. The Lender shall not be required
to make any Advance, unless on the applicable Borrowing Date:
(i) There exists no Event of Default or Unmatured Default; and
(ii) The representations and warranties contained in Article IV are
true and correct
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as of such Borrowing Date (unless such representation and warranty
expressly relates to an earlier date or is no longer true solely as a
result of transactions permitted by this Agreement).
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the Borrower that the conditions contained in
Sections 3.2(i) and (ii) have been satisfied. If the Lender has a reasonable
basis for believing an Event of Default or Unmatured Default may have occurred
and is continuing or that the Borrower is not able to make one or more of the
representations and warranties set forth in Article IV, the Lender may require a
duly completed officer's certificate in substantially the form of Exhibit F
hereto as a condition to making an Advance.
3.3 Condition Precedent to Additional Advance. Notwithstanding anything to
the contrary in this Agreement, the Lender shall be under no obligation to make
an Advance to the Borrower hereunder, until and unless the following
requirements shall have been satisfied:
(i) There shall exist no Liens on the Collateral other than Permitted
Existing Liens and those Permitted Existing Liens appearing on Schedule
1.1.3 marked with an asterisk shall have been released and or terminated,
and the Borrower shall have confirmed delivery of such releases, UCC-3
termination statements or other documentation reasonably requested by the
Lender evidencing such release or termination; and
(ii) The loss payable endorsements referenced in Section 5.2(G) shall have
been delivered to the Lender.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants as follows to the Lender as of the
date hereof and as of the Effective Date:
4.1 Organization; Corporate Powers. The Borrower and each of its
Subsidiaries (i) is a corporation, limited liability company or limited
partnership duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization, (ii) is duly qualified to do business
and is in good standing under the laws of each jurisdiction in which failure to
be so qualified and in good standing could not reasonably be expected to have a
Material Adverse Effect and (iii) has all requisite corporate, company or
partnership power and authority to own, operate and encumber its property and to
conduct its business as presently conducted and as proposed to be conducted.
4.2 Authority.
(A) The execution, delivery, performance and filing, as the case may be,
of each of the Transaction Documents which must be executed or filed by the
Borrower or any of its Subsidiaries in connection with the Related Transactions
or which have been executed or filed as required by this Agreement on or prior
to the Effective Date and to which the Borrower or any of its Subsidiaries is
party, and the consummation of the transactions contemplated thereby, have been
duly approved by the respective boards of directors or managers, or by the
partners, as applicable, and, if necessary, the shareholders, members or
partners, as applicable, of the Borrower and its Subsidiaries, and such
approvals have not been rescinded. No other corporate,
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company or partnership action or proceedings on the part of the Borrower or its
Subsidiaries are necessary to consummate such transactions.
(B) Each of the Transaction Documents to which the Borrower or any of its
Subsidiaries is a party has been duly executed, delivered or filed, as the case
may be, by it and constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms, is in full force and effect
and no material term or condition thereof has been amended, modified or waived
without the prior written consent of the Lender, and the Borrower and its
Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries'
knowledge, all other parties thereto have, performed and complied with all the
material terms, provisions, agreements and conditions set forth therein and
required to be performed or complied with by such parties on or before the date
hereof, and no unmatured default, default or breach of any material covenant by
any such party exists thereunder.
4.3 No Conflict; Governmental Consents. The execution, delivery and
performance of each of the Loan Documents and other Transaction Documents to
which the Borrower or any of its Subsidiaries is a party do not and will not (i)
conflict with the Charter Documents of the Borrower or any such Subsidiary, (ii)
constitute a tortious interference with any Contractual Obligation of any Person
or conflict with, result in a breach of or constitute (with or without notice or
lapse of time or both) a default under any Requirement of Law (including,
without limitation, any Environmental Property Transfer Act) or Contractual
Obligation of the Borrower or any such Subsidiary, or require termination of any
Contractual Obligation, (iii) result in or require the creation or imposition of
any Lien whatsoever upon any of the property or assets of the Borrower or any
such Subsidiary, other than Liens permitted by the Loan Documents, or (iv)
require any approval of the Borrower's or any such Subsidiary's shareholders
except such as have been obtained. The execution, delivery and performance of
each of the Transaction Documents to which the Borrower or any of its
Subsidiaries is a party do not and will not require any registration with,
consent or approval of, or notice to, or other action to, with or by any
Governmental Authority, including under any Environmental Property Transfer Act,
except (i) filings, consents or notices which have been made, obtained or given,
or which, if not made, obtained or given, individually or in the aggregate could
not reasonably be expected to have a Material Adverse Effect and (ii) filings
necessary to create or perfect security interests in the Collateral.
4.4 Financial Statements. All balance sheets, statements of profit and
loss and other financial data that have been given to Lender by or on behalf of
Borrower and the Subsidiaries (the "Financial Information") are complete and
correct in all material respects, accurately present the financial condition of
Borrower and the Subsidiaries as of the dates, and the results of its operations
for the periods specified in the Financial Information, and have been prepared
in accordance with generally accepted accounting principles consistently
followed throughout the periods covered thereby. Except as specifically
disclosed as to creditor, debtor, amount and security) by the Financial
Information, Borrower and Subsidiaries do not have outstanding any loan or
indebtedness, direct or contingent, to any party, other than the indebtedness
due and owing to Lender, and none of its assets is subject to any security
interest, lien or other encumbrance in favor of anyone other than Lender (except
for the Permitted Existing Liens). There has been no change in the assets,
liabilities or financial condition of Borrower from that set forth in the
Financial Information other than changes in the ordinary course of affairs, none
of which changes has been materially adverse to Borrower. After giving effect to
the Acquisitions, neither Borrower nor any of the Guarantors are or will be
rendered insolvent by the indebtedness incurred in connection
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therewith, will be left with unreasonably small capital with which to engage its
business or will have incurred debts beyond its ability to pay such debts as
they mature.
4.5 No Material Adverse Change Since the date hereof, there has occurred
no event or circumstance which has had or could reasonably be expected to have a
Material Adverse Effect.
4.6 Taxes.
(A) Tax Examinations. All material deficiencies which have been asserted
against the Borrower or any of the Borrower's Subsidiaries as a result of any
federal, state, local or foreign tax examination for each taxable year in
respect of which an examination has been conducted have been fully paid or
finally settled or are being contested in good faith, and as of the date hereof
no issue has been raised by any taxing authority in any such examination which,
by application of similar principles, reasonably can be expected to result in
assertion by such taxing authority of a material deficiency for any other year
not so examined which has not been reserved for in the Borrower's consolidated
financial statements to the extent, if any, required by Agreement Accounting
Principles.
(B) Payment of Taxes. All tax returns and reports of the Borrower and its
Subsidiaries required to be filed have been timely filed, and all taxes,
assessments, fees and other governmental charges thereupon and upon their
respective property, assets, income and franchises which are shown in such
returns or reports to be due and payable have been paid except those items which
are being contested in good faith and have been reserved for in accordance with
Agreement Accounting Principles or for which the failure to file could not be
reasonably expected to result in the payment of amounts by the Borrower and its
Subsidiaries in the aggregate in excess of $250,000.00. The Borrower has no
knowledge of any proposed tax assessment against the Borrower or any of its
Subsidiaries that will have or could reasonably be expected to have a Material
Adverse Effect.
4.7 Litigation; Loss Contingencies and Violations. There is no action,
suit, proceeding, arbitration or (to the Borrower's knowledge after diligent
inquiry) investigation before or by any Governmental Authority or private
arbitrator pending or, to the Borrower's knowledge after diligent inquiry,
threatened against the Borrower or any of its Subsidiaries or any property of
any of them (i) challenging the validity or the enforceability of any material
provision of the Transaction Documents or (ii) which will have or could
reasonably be expected to have a Material Adverse Effect. There is no material
loss contingency within the meaning of Agreement Accounting Principles which has
not been reflected in the consolidated financial statements of the Borrower and
its Subsidiaries prepared and delivered pursuant to Section 5.1(A) for the
fiscal period during which such material loss contingency was incurred. Neither
the Borrower nor any of its Subsidiaries is (A) in violation of any applicable
Requirements of Law which violation will have or could reasonably be expected to
have a Material Adverse Effect, or (B) subject to or in default with respect to
any final judgment, writ, injunction, restraining order or order of any nature,
decree, rule or regulation of any court or Governmental Authority which will
have or could reasonably be expected to have a Material Adverse Effect.
4.8 Subsidiaries. Schedule 4.8 to this Agreement (i) contains a
description as of the Effective Date (or as of the date of any supplement
thereto) of the corporate structure of, the Borrower and its Subsidiaries and
any other Person in which the Borrower or any of its
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Subsidiaries holds an Equity Interest; and (ii) accurately sets forth as of the
Effective Date (or as of the date of any supplement thereto) (A) the correct
legal name, the jurisdiction of incorporation or formation and the jurisdictions
in which each of the Borrower and the Subsidiaries of the Borrower is qualified
to transact business as a foreign corporation or other foreign entity and (B) a
summary of the direct and indirect partnership, joint venture, or other Equity
Interests, if any, of the Borrower and each Subsidiary of the Borrower in any
Person that is not a corporation. After the formation or acquisition of any New
Subsidiary permitted under Section 5.3(F)(ii), if requested by the Lender, the
Borrower shall provide a supplement to Schedule 4.8 to this Agreement. None of
the issued and outstanding Capital Stock of the Borrower or any of its
Subsidiaries is subject to any redemption or repurchase agreement. The
outstanding Capital Stock of the Borrower and each of the Borrower's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable.
The Borrower has no Subsidiaries other (i) the Subsidiaries set forth on
Schedule 4.8 and (ii) any Subsidiaries acquired in connection with a Permitted
Acquisition, in connection with which the Borrower shall have provided all of
the documents, instruments and agreements as required by this Agreement.
4.9 ERISA. No Benefit Plan has incurred any material accumulated funding
deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code)
whether or not waived. Neither the Borrower nor any member of the Controlled
Group has incurred any material liability to the PBGC which remains outstanding
other than the payment of premiums, and there are no premium payments which have
become due which are unpaid. Schedule B to the most recent annual report filed
with the IRS with respect to each Benefit Plan and, if so requested, furnished
to the Lender, is complete and accurate. Since the date of each such Schedule B,
there has been no material adverse change in the funding status or financial
condition of the Benefit Plan relating to such Schedule B. Neither the Borrower
nor any member of the Controlled Group has (i) failed to make a required
contribution or payment to a Multiemployer Plan or (ii) made a complete or
partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer
Plan, in either event which could result in any material liability. Neither the
Borrower nor any member of the Controlled Group has failed to make a required
installment or any other required payment under Section 412 of the Code, in
either case involving any material amount, on or before the due date for such
installment or other payment. Neither the Borrower nor any member of the
Controlled Group is required to provide security to a Benefit Plan under Section
401(a)(29) of the Code due to a Plan amendment that results in an increase in
current liability for the plan year. Neither the Borrower nor any of its
Subsidiaries maintains or contributes to any employee welfare benefit plan
within the meaning of Section 3(1) of ERISA which provides benefits to employees
after termination of employment other than as required by Section 601 of ERISA.
Each Plan which is intended to be qualified under Section 401(a) of the Code as
currently in effect is so qualified, and each trust related to any such Plan is
exempt from federal incometax under Section 501(a) of the Code as currently in
effect. The Borrower and all Subsidiaries are in compliance in all material
respects with the responsibilities, obligations and duties imposed on them by
ERISA and the Code with respect to all Plans. Neither the Borrower nor any of
its Subsidiaries nor any fiduciary of any Plan has engaged in a nonexempt
prohibited transaction described in Sections 406 of ERISA or 4975 of the Code
which could reasonably be expected to subject the Borrower or any Dealership
Guarantor to material liability. Neither the Borrower nor any member of the
Controlled Group has taken or failed to take any action which would constitute
or result in a Termination Event, which action or inaction could reasonably be
expected to subject the Borrower to material liability. Neither the Borrower nor
any Subsidiary is subject to any liability under Sections 4063, 4064, 4069, 4204
or 4212(c) of ERISA and no other member of the Controlled Group is subject to
any liability under Sections 4063, 4064, 4069, 4204 or
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4212(c) of ERISA which could reasonably be expected to subject the Borrower or
any Dealership Guarantor to material liability. Neither the Borrower nor any of
its Subsidiaries has, by reason of the transactions contemplated hereby, any
obligation to make any payment to any employee pursuant to any Plan or existing
contract or arrangement. For purposes of this Section 4.9 "material" means any
noncompliance or basis for liability which could reasonably be likely to subject
the Borrower or any of its Subsidiaries to liability individually or in the
aggregate for all such matters in excess of $250,000.00.
4.10 Accuracy of Information. The information, exhibits and reports
furnished by or on behalf of the Borrower and any of its Subsidiaries to the
Lender in connection with the negotiation of, or compliance with, the Loan
Documents, the representations and warranties of the Borrower and its
Subsidiaries contained in the Transaction Documents, and all certificates and
documents delivered to the Lender pursuant to the terms thereof, taken as a
whole, do not contain as of the date furnished any untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements contained herein or therein, taken as a whole, in light of the
circumstances under which they were made, not misleading.
4.11 Securities Activities. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
4.12 Material Agreements. Neither the Borrower nor any of its Subsidiaries
is a party to any Contractual Obligation or subject to any charter or other
corporate restriction which individually or in the aggregate will have or could
reasonably be expected to have a Material Adverse Effect. Neither the Borrower
nor any of its Subsidiaries has received notice or has knowledge that (i) it is
in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any Contractual Obligation
applicable to it, or (ii) any condition exists which, with the giving of notice
or the lapse of time or both, would constitute a default with respect to any
such Contractual Obligation, in each case, except where such default or
defaults, if any, individually or in the aggregate will not have or could not
reasonably be expected to have a Material Adverse Effect.
4.13 Compliance with Laws; Compliance with Franchise Agreements. The
Borrower and its Subsidiaries are in compliance with all Requirements of Law
applicable to them and their respective businesses, in each case where the
failure to so comply individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect. The execution, delivery and
performance by each Sonic Dealership of any Loan Document to which it is a party
does not and will not conflict with the franchise agreement to which it is a
party. Each Sonic Dealership is, other than with respect to any Sonic Dealership
operating under an Irregular Franchise Agreement from the date hereof until the
condition set forth in Section 3.3(i) has been satisfied, operating under a
valid and enforceable franchise agreement.
4.14 Assets and Properties. The Borrower and each of its Subsidiaries has
good and marketable title to all of its assets and properties (tangible and
intangible, real or personal) owned by it or a valid leasehold interest in all
of its leased assets (except insofar as marketability may be limited by any laws
or regulations of any Governmental Authority affecting such assets), except
where the failure to have any such title will not have or could not reasonably
be expected to have a Material Adverse Effect, and all such assets and property
are free and clear of all Liens, except Liens permitted under Section 5.3(C).
Substantially all of the assets and properties owned by, leased to or used by
the Borrower and/or each such Subsidiary of the Borrower are
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in adequate operating condition and repair, ordinary wear and tear excepted.
Neither this Agreement nor any other Transaction Document, nor any transaction
contemplated under any such agreement, will affect any right, title or interest
of the Borrower or such Subsidiary in and to any of its assets in a manner that
will have or could reasonably be expected to have a Material Adverse Effect.
4.15 Statutory Indebtedness Restrictions. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the
Investment Company Act of 1940, or any other federal, state or local statute,
ordinance or regulation which limits its ability to incur indebtedness or its
ability to consummate the transactions contemplated hereby.
4.16 Insurance. The Borrower's and its Subsidiaries' insurance policies
and programs reflect coverage that is reasonably consistent with prudent
industry practice.
4.17 Labor Matters. As of the date hereof, to the Borrower's and its
Subsidiaries' knowledge, there are no material labor disputes to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities.
4.18 Acquisitions. As of the Effective Date and as of the date of each
Acquisition, all material conditions precedent to, all consents from applicable
Governmental Authorities, and all other material consents necessary to permit,
the Acquisitions pursuant to the Acquisition Documents have been or will be
satisfied or waived by the Borrower with the prior written consent of the
Lender.
4.19 Environmental Matters. (a)(i) The operations of the Borrower and its
Subsidiaries comply in all material respects with Environmental, Health or
Safety Requirements of Law;
(ii) the Borrower and its Subsidiaries have all material permits,
licenses or other authorizations required under Environmental, Health or
Safety Requirements of Law and are in material compliance with such
permits;
(iii) neither the Borrower, any of its Subsidiaries nor any of their
respective present property or operations, or, to the best of, the
Borrower's or any of its Subsidiaries' knowledge, any of their respective
past property or operations, are subject to or the subject of, any
investigation known to the Borrower or any of its Subsidiaries, any
judicial or administrative proceeding, order, judgment, decree, settlement
or other agreement respecting: (A) any material violation of
Environmental, Health or Safety Requirements of Law; (B) any material
remedial action; or (C) any material claims or liabilities arising from
the Release or threatened Release of a Contaminant into the environment;
(iv) there is not now, nor to the best of the Borrower's or any of
its Subsidiaries' knowledge has there ever been on or in the property of
the Borrower or any of its Subsidiaries any landfill, waste pile,
underground storage tanks, aboveground storage tanks, surface impoundment
or hazardous waste storage facility of any kind, any polychlorinated
biphenyls (PCBs) used in hydraulic oils, electric transformers or other
equipment, or any asbestos containing material that in the case of any of
the foregoing
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could be reasonably expected to result in any material claims or
liabilities; and
(v) neither the Borrower nor any of its Subsidiaries has any
material Contingent Obligation in connection with any Release or
threatened Release of a Contaminant into the environment.
(b) For purposes of this Section 4.19 "material" means any noncompliance
or basis for liability which could reasonably be likely to subject the Borrower
or any of its Subsidiaries to liability individually or in the aggregate in
excess of $500,000.00.
4.20 Benefits. Each of the Borrower and its Subsidiaries will benefit from
the financing arrangement established by this Agreement. The Lender has stated
and the Borrower acknowledges that, but for the agreement by each of the
Subsidiary Holding Companies and the Dealership Guarantors to execute and
deliver their respective Subsidiary Holding Company Guaranty, Dealership
Guaranty, Subsidiary Holding Company Security Agreement, and Dealership Security
Agreement, the Lender would not have made available the credit facilities
established hereby on the terms set forth herein.
ARTICLE V: COVENANTS
The Borrower covenants and agrees that so long as any Commitment is
outstanding and thereafter until payment in full of all of the Obligations
(other than contingent indemnity obligations, but including Floor Plan
Indebtedness), unless the Lender shall otherwise give its prior written consent:
5.1 Reporting. The Borrower shall:
(A) Financial Reporting. Furnish to the Lender:
(i) Quarterly Reports. As soon as practicable, and in any event
within thirty (30) days after the end of each fiscal quarter in each
fiscal quarter, the consolidated and consolidating balance sheet of the
Borrower and its Subsidiaries as at the end of such period and the related
consolidated and consolidating statements of income and cash flows of the
Borrower and its Subsidiaries for such fiscal quarter and for the period
from the beginning of the then current fiscal year to the end of such
fiscal quarter, certified by the chief financial officer of the Borrower
on behalf of the Borrower as fairly presenting the consolidated and
consolidating financial position of the Borrower and its Subsidiaries as
at the dates indicated and the results of their operations and cash flows
for the periods indicated in accordance with Agreement Accounting
Principles, subject to normal year end adjustments.
(ii) Annual Reports. As soon as practicable, and in any event within
ninety (90) days after the end of each fiscal year, (a) the consolidated
and consolidating balance sheet of the Borrower and its Subsidiaries as at
the end of such fiscal year and the related consolidated and consolidating
statements of income, stockholders' equity and cash flows of the Borrower
and its Subsidiaries for such fiscal year, and in comparative form the
corresponding figures for the previous fiscal year and (b) an audit report
on the items listed in clause (a) hereof (other than the consolidating
statements) of independent certified public accountants of recognized
national standing, which audit report shall be
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unqualified and shall state that such financial statements fairly present
the consolidated financial position of the Borrower and its Subsidiaries
as at the dates indicated and the results of their operations and cash
flows for the periods indicated in conformity with Agreement Accounting
Principles and that the examination by such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards. The deliveries made pursuant to
this clause (ii) shall be accompanied by any management letter prepared by
the above-referenced accountants.
(iii) Monthly Statements. As soon as practicable, and in any event
within five (5) Business Days after receipt thereof, certified copies of
direct (factory) statements provided by a manufacturer to any Sonic
Dealership.
(iv) Officer's Certificate. Together with each delivery of any
financial statement pursuant to clauses (i) and (ii) of this Section
5.1(A), an Officer's Certificate of the Borrower, substantially in the
form of Exhibit F attached hereto and made a part hereof, stating that no
Event of Default or Unmatured Default exists, or if any Event of Default
or Unmatured Default exists, stating the nature and status thereof and
setting forth (X) such financial statements and information as shall be
reasonably acceptable to the Lender and (Y) a valuation of the Collateral.
(B) Notice of Event of Default. Promptly upon any of the chief executive
officer, chief operating officer, chief financial officer, treasurer or
controller of the Borrower or any of its Subsidiaries obtaining knowledge (i) of
any condition or event which constitutes an Event of Default or Unmatured
Default, or (ii) that any Person has given any written notice to the Borrower or
any Subsidiary of the Borrower or taken any other action with respect to a
claimed default or event or condition of the type referred to in Section 6.1(e),
deliver to the Lender a notice specifying (a) the nature and period of existence
of any such claimed default, Event of Default, Unmatured Default, condition or
event, (b) the notice given or action taken by such Person in connection
therewith, and (c) what action the Borrower has taken, is taking and proposes to
take with respect thereto.
(C) Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of the
institution of, or written threat of, any action, suit, proceeding, governmental
investigation or arbitration against or affecting the Borrower or any of its
Subsidiaries or any property of the Borrower or any of its Subsidiaries, which
action, suit, proceeding, governmental investigation or arbitration exposes, or
in the case of multiple actions, suits, proceedings, governmental investigations
or arbitrations arising out of the same general allegations or circumstances
which expose, in the Borrower's reasonable judgment, the Borrower or any of its
Subsidiaries to liability in an amount aggregating $500,000.00 or more, give
written notice thereof to the Lender and provide such other information as may
be reasonably available to enable the Lender and its counsel to evaluate such
matters; and (ii) in addition to the requirements set forth in clause (i) of
this Section 5.1(C), upon request of the Lender, promptly give written notice of
the status of any action, suit, proceeding, governmental investigation or
arbitration covered by a report delivered pursuant to clause (i) above or
disclosed in any filing with the Commission and provide such other information
as may be reasonably available to it that would not violate any attorney-client
privilege by disclosure to the Lender to enable the Lender and its counsel to
evaluate such matters.
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(D) ERISA Notices. Deliver or cause to be delivered to the Lender, at the
Borrower's expense, the following information and notices as soon as reasonably
possible, and in any event:
(i) (a) within ten (10) Business Days after the Borrower obtains
knowledge that a Termination Event has occurred, a written statement of
the chief financial officer of the Borrower describing such Termination
Event and the action, if any, which the Borrower has taken, is taking or
proposes to take with respect thereto, and when known, any action taken or
threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten
(10) Business Days after any member of the Controlled Group obtains
knowledge that a Termination Event has occurred which could reasonably be
expected to subject the Borrower or any member of the Controlled Group to
liability individually or in the aggregate in excess of $250,000.00, a
written statement of the chief financial officer of the Borrower
describing such Termination Event and the action, if any, which the member
of the Controlled Group has taken, is taking or proposes to take with
respect thereto, and when known, any action taken or threatened by the
IRS, DOL or PBGC with respect thereto;
(ii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries obtains knowledge that a prohibited transaction (defined in
Sections 406 of ERISA and Section 4975 of the Code) has occurred, a
statement of the chief financial officer of the Borrower describing such
transaction and the action which the Borrower or such Subsidiary has
taken, is taking or proposes to take with respect thereto;
(iii) within ten (10) Business Days after the Borrower or any of its
Subsidiaries receives notice of any unfavorable determination letter from
the IRS regarding the qualification of a Plan under Section 401(a) of the
Code, copies of each such letter;
(iv) within ten (10) Business Days after the filing thereof with the
IRS, a copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by the Borrower or a member
of the Controlled Group with respect to such request;
(v) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of the PBGC's intention to terminate a
Benefit Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice;
(vi) within ten (10) Business Days after receipt by the Borrower or
any member of the Controlled Group of a notice from a Multi-employer Plan
regarding the imposition of withdrawal liability, copies of each such
notice;
(vii) within ten (10) Business Days after the Borrower or any member
of the Controlled Group fails to make a required installment or any other
required payment under Section 412 of the Code on or before the due date
for such installment or payment, a notification of such failure; and
(viii) within ten (10) Business Days after the Borrower or any
member of the Controlled Group knows or has reason to know that (a) a
Multi-employer Plan has been terminated, (b) the administrator or plan
sponsor of a Multi-employer Plan intends to terminate a Multi-employer
Plan, or (c) the PBGC has instituted or will institute
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proceedings under Section 4042 of ERISA to terminate a Multi-employer
Plan.
For purposes of this Section 5.1(D), the Borrower, any of its Subsidiaries and
any member of the Controlled Group shall be deemed to know all facts known by
the Administrator of any Plan of which the Borrower or any member of the
Controlled Group or such Subsidiary is the plan sponsor.
(E) Labor Matters. Notify the Lender in writing, promptly upon the
Borrower's learning thereof, of (i) any material labor dispute to which the
Borrower or any of its Subsidiaries may become a party, including, without
limitation, any strikes, lockouts or other disputes relating to such Persons'
plants and other facilities and (ii) any material liability incurred under the
Worker Adjustment and Retraining Notification Act with respect to the closing of
any plant or other facility of the Borrower or any of its Subsidiaries.
(F) Other Indebtedness. Deliver to the Lender (i) a copy of each notice or
communication regarding potential or actual defaults (including any accompanying
officer's certificate) delivered by or on behalf of the Borrower or any of its
Subsidiaries to the holders of funded Indebtedness pursuant to the terms of the
agreements governing such Indebtedness, such delivery to be made at the same
time and by the same means as such notice or other communication is delivered to
such holders, and (ii) a copy of each notice or other communication regarding
potential or actual defaults received by the Borrower or any of its Subsidiaries
from the holders of funded Indebtedness pursuant to the terms of such
Indebtedness, such delivery to be made promptly after such notice or other
communication is received by the Borrower or any such Subsidiary.
(G) Other Reports. Deliver or cause to be delivered to the Lender copies
of all financial statements, reports and notices, if any, sent or made available
generally by the Borrower to its securities holders or filed with the Commission
by the Borrower, all press releases made available generally by the Borrower or
any of the Borrower's Subsidiaries to the public concerning material
developments in the business of the Borrower or any such Subsidiary and all
notifications received from the Commission by the Borrower or its Subsidiaries
pursuant to the Securities Exchange Act of 1934 and the rules promulgated
thereunder (other than customary comment letters received in connection with
registration statements or other routine communications between the Commission
and the Borrower).
(H) Environmental Notices. As soon as possible and in any event within ten
(10) days after receipt by the Borrower or any of its Subsidiaries, a copy of
(i) any notice or claim to the effect that the Borrower or any of its
Subsidiaries is or may be liable to any Person as a result of the Release by the
Borrower, any of its Subsidiaries, or any other Person of any Contaminant into
the environment, and (ii) any notice alleging any violation of any
Environmental, Health or Safety Requirements of Law by the Borrower or any of
its Subsidiaries if, in either case, such notice or claim relates to an event
which could reasonably be expected to subject the Borrower or any Subsidiary to
liability individually or in the aggregate in excess of $500,000.00.
(I) Other Information. Promptly upon receiving a request therefor from the
Lender, prepare and deliver to the Lender such other information with respect to
the Borrower, any of its Subsidiaries, or the Collateral, including, without
limitation, schedules identifying and describing the Collateral and any
dispositions thereof, as from time to time may be reasonably requested by the
Lender.
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5.2 Affirmative Covenants.
(A) Existence, Etc. Except for mergers permitted pursuant to Section
5.3(H), the Borrower shall, and shall cause each of its Subsidiaries to, at all
times maintain its corporate company or partnership existence, as applicable,
and preserve and keep, or cause to be preserved and kept, in full force and
effect its rights and franchises material to its businesses.
(B) Powers; Conduct of Business. The Borrower shall, and shall cause each
of its Subsidiaries to, qualify and remain qualified to do business in each
jurisdiction in which the nature of its business requires it to be so qualified
and where the failure to be so qualified will have or could reasonably be
expected to have a Material Adverse Effect. The Borrower will, and will cause
each Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as it is presently
conducted.
(C) Compliance with Laws, Etc The Borrower shall, and shall cause its
Subsidiaries to, (a) comply with all Requirements of Law and all restrictive
covenants affecting such Person or the business, properties, assets or
operations of such Person, and (b) obtain as needed all permits necessary for
its operations and maintain such permits in good standing, unless failure to
comply or obtain could not reasonably be expected to have a Material Adverse
Effect.
(D) Payment of Taxes and Claims; Tax Consolidation. The Borrower shall
pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and
other governmental charges imposed upon it or on any of its properties or assets
or in respect of any of its franchises, business, income or property before any
penalty or interest accrues thereon, and (ii) all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a Lien (other
than a Lien permitted by Section 5.3(C)) upon any of the Borrower's or such
Subsidiary's property or assets, prior to the time when any penalty or fine
shall be incurred with respect thereto; provided, however, that no such taxes,
assessments and governmental charges referred to in clause (i) above or claims
referred to in clause (ii) above (and interest, penalties or fines relating
thereto) need be paid if being contested in good faith by appropriate
proceedings diligently instituted and conducted and if such reserve or other
appropriate provision, if any, as shall be required in conformity with Agreement
Accounting Principles shall have been made therefor. The Borrower will not, nor
will it permit any of its Subsidiaries to, file or consent to the filing of any
consolidated income tax return with any other Person other than the consolidated
return of the Borrower.
(E) Insurance. The Borrower shall maintain for itself and its
Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force
and effect, insurance policies and programs reflecting coverage that is
reasonably consistent with prudent industry practice.
(F) Inspection of Property; Books and Records; Discussions. The Borrower
shall permit and cause each of the Borrower's Subsidiaries to permit, any
authorized representative(s) designated by the Lender to visit and inspect any
of the properties of the Borrower or any of its Subsidiaries, to examine, audit,
check and make copies of their respective financial and accounting records,
books, journals, orders, receipts and any correspondence and other data relating
to their respective businesses or the transactions contemplated hereby or by the
Acquisitions (including, without limitation, in connection with environmental
compliance, hazard or liability), and to discuss their affairs, finances and
accounts with their officers and independent certified public accountants, all
upon reasonable notice and at such reasonable times during
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normal business hours, as often as may be reasonably requested; provided, that
while no Event of Default exists, all of the foregoing shall be at the expense
of the Lender. The Borrower shall keep and maintain, and cause each of the
Borrower's Subsidiaries to keep and maintain, in all material respects, proper
books of record and account in which entries in conformity with Agreement
Accounting Principles shall be made of all dealings and transactions in relation
to their respective businesses and activities, including, without limitation,
transactions and other dealings with respect to the Collateral. If an Event of
Default has occurred and is continuing, the Borrower, upon the Lender's request,
shall turn over any such records to the Lender or its representatives.
(G) Insurance and Condemnation Proceeds. The Borrower directs (and, if
applicable, shall cause its Subsidiaries to direct) all insurers under policies
of property damage, boiler and machinery and business interruption insurance and
payors of any condemnation claim or award relating to the property to pay all
proceeds payable under such policies or with respect to such claim or award for
any loss with respect to the Collateral directly to the Lender; provided,
however, in the event that such proceeds or award are less than $250,000.00
("EXCLUDED PROCEEDS"), unless an Event of Default shall have occurred and be
continuing, the Lender shall remit such Excluded Proceeds to the Borrower or
Subsidiary, as applicable. Each such policy shall contain a long-form
loss-payable endorsement naming the Lender as loss payee, which endorsement
shall be in form and substance acceptable to the Lender. The Lender shall, upon
receipt of such proceeds (other than Excluded Proceeds) and at the Borrower's
direction, either apply the same to the principal amount of the Advances
outstanding at the time of such receipt and create a corresponding reserve
against the Commitment in an amount equal to such application (the "DECISION
RESERVE") or hold them as cash collateral for the Obligations in an interest
bearing account. For up to 150 days from the date of any loss (the "DECISION
PERIOD"), the Borrower may notify the Lender that it intends to restore, rebuild
or replace the property subject to any insurance payment or condemnation award
and shall, as soon as practicable thereafter, provide the Lender detailed
information, including a construction schedule and cost estimates. Should an
Event of Default occur at any time during the Decision Period, should the
Borrower notify the Lender that it has decided not to rebuild or replace such
property during the Decision Period, or should the Borrower fail to notify the
Lender of the Borrower's decision during the Decision Period, then the amounts
held as cash collateral pursuant to this Section 5.2(G) or as the Decision
Reserve shall be applied as a mandatory prepayment of the Advances pursuant to
Section 2.2(B). Proceeds held as cash collateral pursuant to this Section 5.2(G)
or constituting the Decision Reserve shall be disbursed as payments for
restoration, rebuilding or replacement of such property become due; provided,
however, should an Event of Default occur after the Borrower has notified the
Lender that it intends to rebuild or replace the property, the Decision Reserve
or amounts held as cash collateral shall be applied as a mandatory prepayment of
the Advances pursuant to Section 2.2(B). In the event the Decision Reserve is to
be applied as a mandatory prepayment to the Advances, the Borrower shall be
deemed to have requested Advances in an amount equal to the Decision Reserve,
and such Advances shall be made regardless of any failure of the Borrower to
meet the conditions precedent set forth in Article III. Upon completion of the
restoration, rebuilding or replacement of such property, the unused proceeds
shall constitute net cash proceeds of an Asset Sale and shall be applied as a
mandatory prepayment of the Advances pursuant to Section 2.2(B).
(H) ERISA Compliance. The Borrower shall, and shall cause each of the
Borrower's Subsidiaries to, establish, maintain and operate all Plans, if any,
to comply in all material respects with the provisions of ERISA, the Code, all
other applicable laws, and the regulations
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and interpretations thereunder and the respective requirements of the governing
documents for such Plans, except where the failure to comply will not or could
not reasonably be expected to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $250,000.00.
(I) Maintenance of Property. The Borrower shall cause all property used or
useful in the conduct of its business or the business of any Subsidiary to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in the
judgment of the Borrower may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
provided, however, that nothing in this Section 5.2(H) shall prevent the
Borrower from discontinuing the operation or maintenance of any of such property
if such discontinuance is, in the judgment of the Borrower, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Lender.
(J) Environmental Complianc. The Borrower and its Subsidiaries shall
comply with all Environmental, Health or Safety Requirements of Law, except
where noncompliance could not reasonably be expected to subject the Borrower and
its Subsidiaries to liability individually or in the aggregate in excess of
$500,000.00. Neither the Borrower nor any of its Subsidiaries shall be the
subject of any proceeding or investigation pertaining to (i) the Release by the
Borrower or any of its Subsidiaries of any Contaminant into the environment or
(ii) the liability of the Borrower or any of its Subsidiaries arising from the
Release by any other Person of any Contaminant into the environment, which, in
either case, subjects or is reasonably likely to subject the Borrower and its
Subsidiaries individually or in the aggregate to liability in excess of the
amount set forth above.
(K) Use of Proceeds. The Borrower shall use the proceeds of the Advances
to (i) to fund Permitted Acquisitions, and (ii) provide funds for working
capital needs and other general corporate purposes of the Borrower in an amount
not to exceed $15,000,00.00. The proceeds of Advances hereunder may not be used
to make any mandatory prepayment under Section 2.2(B). The Borrower will not nor
will it permit any Subsidiary to, use any of the proceeds of the Loans to
purchase or carry any "Margin Stock" or to make any Acquisition, other than any
Permitted Acquisition pursuant to Section 5.3(F).
(L) Addition of Guarantors. The Borrower shall cause each Subsidiary
Holding Company and each Sonic Dealership which has not heretofore provided a
Subsidiary Holding Company Guaranty or a Dealership Guaranty to the Lender, to
deliver to the Lender a Subsidiary Holding Company Guaranty, in the form of
Exhibit C-2, or a Dealership Guaranty, in the form of Exhibit C-1, a Subsidiary
Holding Company Security Agreement, in the form of Exhibit D-2, or a Dealership
Security Agreement, in the form of Exhibit D-1, UCC-1 Financing Statements, an
acknowledgment to be bound by the Cross Agreement, and an acknowledgment to be
bound by the Contribution Agreement, together with appropriate corporate
resolutions, opinions and other documentation in form and substance reasonably
satisfactory to the Lender. Each Subsidiary Holding Company and each Sonic
Dealership shall provide such Subsidiary Holding Company Guaranty or Dealership
Guaranty and Collateral Documents prior to or simultaneously with its
Acquisition.
(M) Future Liens on Real Property. The Borrower shall, and shall cause
each of its
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Subsidiaries that is required to guarantee the Obligations to, execute and
deliver to the Lender, immediately upon its acquisition or leasing of any real
property after the date hereof, a mortgage, deed of trust, collateral assignment
or other appropriate instrument evidencing a Lien upon any such acquired
property, lease or interest, to be in form and substance reasonably acceptable
to the Lender and subject only to such Liens as otherwise shall be permitted by
this Agreement and the Borrower or the applicable Subsidiary, as the case may
be, shall have provided the Lender with such opinions, landlord and mortgagee
waivers or title insurance as the Lender shall have reasonably requested in
connection with such acquisition or leasing of real property. The foregoing
provision shall not apply to Excluded Real Property and shall apply to the
leasing of any real property only if (i) the term of such lease (without regard
to any extension thereof at then current market rent) is more than five years or
(ii) such lease has a material value by reason of a purchase option,
below-market rent or otherwise.
(N) Franchise Agreements. The Borrower shall use its reasonable best
efforts to obtain waivers under existing and future franchise agreements on
terms and conditions acceptable to the Lender sufficient to permit the security
interests and liens contemplated hereunder. To the extent any franchise
agreement materially limits the security interests and liens contemplated
hereunder or under any Collateral Document, the Borrower shall notify the Lender
of such restriction or limitation and to the extent such franchise agreement
relates to an Acquisition to be effected by the Borrower, prior to such
Acquisition becoming a Permitted Acquisition, the Lender shall have provided its
written approval of such franchise agreement.
(O) Pledge of Capital Stock. The Borrower shall, and shall cause each of
the Subsidiary Holding Companies to pledge to and grant Lender a first perfected
security interest in all of its Capital Stock in each Sonic Dealership and/or
other Subsidiary Holding Company, as the case may be; provided, however, such
Capital Stock will be required to be pledged only to the extent permitted by the
manufacturer under the applicable franchise agreement. In the event that a
manufacturer refuses to consent to the pledge by the Borrower or a Subsidiary
Holding Company of the Borrower's or Subsidiary Holding Companies' Capital Stock
in a Sonic Dealership, the Borrower and/or Subsidiary Holding Company must
execute a Waiver, Guaranty and Disbursement Agreement.
5.3 Negative Covenants.
(A) Indebtedness. Neither the Borrower nor any of its Subsidiaries shall
directly or indirectly create, incur, assume or otherwise become or remain
directly or indirectly liable with respect to any Indebtedness, except:
(i) the Obligations;
(ii) Permitted Existing Indebtedness and Permitted Refinancing
Indebtedness;
(iii) Indebtedness in respect of obligations secured by Customary
Permitted Liens;
(iv) Indebtedness constituting Contingent Obligations in respect of
Indebtedness otherwise permitted hereunder;
(v) Indebtedness arising from intercompany loans from the Borrower
to any Guarantor Dealership or from any Subsidiary to the Borrower or any
Guarantor
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Dealership; provided that in each case such Indebtedness is subordinated
upon terms satisfactory to the Lender to the obligations of the Borrower
and its Subsidiaries with respect to the Obligations;
(vi) Guaranties by the Borrower of Indebtedness permitted to be
incurred by any Subsidiary;
(vii) Indebtedness with respect to surety, appeal and performance
bonds obtained by the Borrower or any of its Subsidiaries in the ordinary
course of business;
(viii) Indebtedness arising under the Borrower Guaranty, any
Subsidiary Holding Company Guaranty, or any Dealership Guaranty;
(ix) Indebtedness constituting that portion of the deferred purchase
price payable by the Borrower in connection with an Acquisition, which
such Indebtedness shall not be secured by any of the Collateral; and
(x) Indebtedness not in excess of $250,000.00 in connection with the
Liens set forth in Section 5.3(C)(iv).
.
(B) Sales of Assets. Neither the Borrower nor any of its Subsidiaries
shall sell, assign, transfer, lease, convey or otherwise dispose of any property
(including the Capital Stock of any Subsidiary), whether now owned or hereafter
acquired, or any income or profits therefrom, or enter into any agreement to do
so, except:
(i) sales of inventory in the ordinary course of business;
(ii) the disposition in the ordinary course of business of equipment
that is obsolete, excess or no longer useful in the Borrower's or its
Subsidiaries' business; and
(iii) sales, assignments, transfers, leases, conveyances or other
dispositions of other assets (including sales of Capital Stock of a
Subsidiary) if such transaction (a) is for all cash consideration, (b) is
for not less than Fair Value, (c) when combined with all such other
transactions (each such transaction being valued at book value) (i) during
the immediately preceding twelve-month period, represents the disposition
of not greater than $250,000.00, and (ii) during the period from the date
hereof to the date of such proposed transaction, represents the
disposition of not greater than $500,000.00 and (d) is a sale by the
Borrower of Capital Stock in any Subsidiary, except as provided in
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subclause (c) above, the Borrower shall continue to own, of record and
beneficially, with sole voting and dispositive power, 100% (unless required by
the Subsidiary's franchise agreement to be less, in which event at least 80%) of
the outstanding shares of Capital Stock of any such Subsidiary.
(C) Liens. Neither the Borrower nor any of its Subsidiaries shall directly
or indirectly create, incur, assume or permit to exist any Lien on or with
respect to any of their respective property or assets, except:
(i) Permitted Existing Liens;
(ii) Customary Permitted Liens;
(iii) Liens securing the Obligations; and
(iv) Liens (other than on the stock of any Subsidiaries) securing
other obligations not exceeding $250,000.00 in the aggregate at any time
outstanding.
In addition, neither the Borrower nor any of its Subsidiaries shall become a
party to any agreement, note, indenture or other instrument, or take any other
action, which would prohibit the creation of a Lien on any of its properties or
other assets in favor of the Lender, as collateral for the Obligations; provided
that any agreement, note, indenture or other instrument in connection with Liens
permitted pursuant to clause (i) above may prohibit the creation of a Lien in
favor of the Lender on the items of property subject to such Lien.
(D) Investments. Except to the extent permitted pursuant to paragraph (G)
below, neither the Borrower nor any of its Subsidiaries shall directly or
indirectly make or own any Investment except:
(i) Investments in Cash Equivalents;
(ii) Permitted Existing Investments in an amount not greater than
the amount thereof on the date hereof;
(iii) Investments in trade receivables or received in connection
with the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(iv) Investments consisting of deposit accounts maintained by the
Borrower or its Subsidiaries in the ordinary course of business in
connection with the Cash Management Agreement entered into with the
Lender;
(v) Investments consisting of intercompany loans from any Subsidiary
to the Borrower or any other Subsidiary permitted by Section 5.3(A)(v);
(vi) Investments in any Guarantor Dealership;
(vii) Investments constituting Permitted Acquisitions; and
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(viii) Investments in addition to those referred to elsewhere in
this Section 5.3(D) in an amount not to exceed $500,000.00 in the
aggregate at any time outstanding;
provided, however, that the Investments described in clauses (vii) and (viii)
above shall not be permitted if either an Event of Default or Unmatured Default
shall have occurred and be continuing on the date thereof or would result
therefrom.
(E) Restricted Payments. Neither the Borrower nor any of its Subsidiaries
shall declare or make any Restricted Payment, except:
(i) where the consideration therefor consists solely of Equity
Interests (but excluding Disqualified Stock) of the Borrower or its
Subsidiaries provided no Change of Control would occur as a result
thereof; and
(ii) in connection with the payment of dividends by a Subsidiary to
the Borrower.
(F) Conduct of Business; Subsidiaries; Acquisitions. (i) Neither the
Borrower nor any of its Subsidiaries shall engage in any business other than the
businesses engaged in by the Borrower on the date hereof and any business or
activities which are substantially similar, related or incidental thereto.
(ii) The Borrower may create, acquire and/or capitalize any
Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any
transaction that is permitted by or not otherwise prohibited by this Agreement;
provided that upon the creation or acquisition of each New Subsidiary, the
requirements set forth in Section 5.2(L) hereof shall have been satisfied and
all New Subsidiaries that are Material Subsidiaries shall be Controlled
Subsidiaries. To the extent any Subsidiary has Equity Interests issued to a
Minority Holder, the franchise agreement under which such Subsidiary operates
shall be limited to a Restricted Franchise Agreement.
(iii) The Borrower shall not make any Acquisitions, other than
Acquisitions meeting the following requirements (each such Acquisition
constituting a "PERMITTED ACQUISITION"):
(a) no Event of Default or Unmatured Default shall have occurred and
be continuing or would result from such Acquisition or the incurrence of
any Indebtedness in connection therewith;
(b) in the case of an Acquisition of Equity Interests of an entity,
such Acquisition shall be of one hundred percent (100%) of the Equity
Interests of such entity or if so restricted by such entity's franchise
agreement (a "RESTRICTED FRANCHISE AGREEMENT"), such Acquisition shall be
of at least eighty percent (80%) of the Equity Interests of such entity,
provided, however, that such Equity Interests of Minority Holders will be
required to be pledged directly to the Lender as a precondition to such
Acquisition;
(c) the businesses being acquired shall be substantially similar,
related or incidental to the businesses or activities engaged in by the
Borrower and its Subsidiaries on the date hereof;
(d) after the end of each Quarter, or at such other frequency as
Lender may
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request, the Borrower shall deliver to the Lender a certificate from one
of the Authorized Officers, demonstrating to the reasonable satisfaction
of the Lender that after giving effect to such Acquisition and the
incurrence of any Indebtedness hereunder and in connection herewith, on a
pro forma basis (both historically and on a projected basis), as if the
Acquisition and such incurrence of Indebtedness had occurred on the first
day of the twelve-month period ending on the last day of the Borrower's
most recently completed fiscal quarter, the Borrower would have been in
compliance with all of the covenants contained in this Agreement,
including, without limitation, the financial covenants set forth in
Section 5.4;
(f) the purchase is consummated pursuant to a negotiated acquisition
agreement on a non-hostile basis;
(g) after giving effect to such Acquisition, the representations and
warranties set forth in Article IV hereof shall be true and correct in all
material respects on and as of the date of such Acquisition with the same
effect as though made on and as of such date; and
(h) the written consent of the Lender shall have been obtained,
which such consent shall not be unreasonably withheld, in connection with
any Acquisition if the acquisition price therefore (including the maximum
amount of any deferred portion thereof or contingency payments payable in
connection therewith) (computed with any non-cash portion of the
acquisition price being valued at the fair value thereof as of the date of
computation) exceeds $3,000,000.00 for such Acquisition or series of
related Acquisitions.
(i) the Borrower shall have obtained (and shall have based the
calculations set forth above on) historical audited financial statements
for the target and/or reviewed unaudited financial statements for the
target for a period of not less than (A) two (2) years for Acquisitions in
excess of $20,000,000.00 and (B) one (1) year for any other Acquisition,
together with tax returns for the one year prior to such year, in each
case obtained from the seller or provided by independent certified public
accountants retained for the purposes of such Acquisition, broken down by
fiscal quarter in the Borrower's reasonable judgment, copies of which
shall be provided to the Lender.
(j) the Borrower shall have obtained either (i) a new franchise
agreement between the Sonic Dealership and the manufacturer on
substantially the same terms as the franchise agreement entered into
between the manufacturer and the entity to be acquired in such Permitted
Acquisition or (ii) any consent required from a manufacturer for the
continued enforceability and validity of such franchise agreement after
the completion of a Permitted Acquisition shall have been obtained.
(G) Transactions with Shareholders and Affiliates. Neither the Borrower
nor any of its Subsidiaries shall directly or indirectly enter into or permit to
exist any transaction (including, without limitation, the purchase, sale, lease
or exchange of any property or the rendering of any service) with any holder or
holders of any of the Equity Interests of the Borrower, or with any Affiliate of
the Borrower which is not a Guarantor Dealership, on terms that are less
favorable to the Borrower or any of its Subsidiaries, as applicable, than those
that might be obtained in an arm's length transaction at the time from Persons
who are not such a holder or Affiliate.
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(H) Restriction on Fundamental Changes. Neither the Borrower nor any of
its Subsidiaries shall enter into any merger or consolidation, or liquidate,
wind-up or dissolve (or suffer any liquidation or dissolution), or convey,
lease, sell, transfer or otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any such
Subsidiary's business or property, whether now or hereafter acquired, except (i)
transactions permitted under Sections 5.3(B) or 5.3(G) (ii) the merger of a
Subsidiary of the Borrower into a Person acquired in connection with a Permitted
Acquisition; (iii) the merger of a wholly-owned Subsidiary of the Borrower with
and into the Borrower; and (iv) the merger of a Subsidiary of the Borrower with
another Subsidiary of the Borrower; provided, however, (i) with respect to any
such permitted mergers involving any Dealership Guarantor, the surviving
corporation in the merger shall also be or become a Dealership Guarantor; and
(ii) after the consummation of any such transaction, the Borrower shall be in
compliance with the provisions of Sections 5.2(K) and 5.3(E).
(I) Sales and Leasebacks. Neither the Borrower nor any of its Subsidiaries
shall become liable, directly, by assumption or by Contingent Obligation, with
respect to any lease, whether an operating lease or a Capitalized Lease, of any
property (whether real or personal or mixed) (i) which it or one of its
Subsidiaries sold or transferred or is to sell or transfer to any other Person,
or (ii) which it or one of its Subsidiaries intends to use for substantially the
same purposes as any other property which has been or is to be sold or
transferred by it or one of its Subsidiaries to any other Person in connection
with such lease. Notwithstanding the above, the Borrower may, in connection with
a refinancing of indebtedness secured by Excluded Real Property effect the type
of transaction described in the preceding sentence.
(J) Margin Regulations. Neither the Borrower nor any of its Subsidiaries,
shall use all or any portion of the proceeds of any credit extended under this
Agreement to purchase or carry Margin Stock.
(K) ERISA. The Borrower shall not
(i) engage, or permit any of its Subsidiaries to engage, in any
prohibited transaction described in Sections 406 of ERISA or 4975 of the
Code for which a statutory or class exemption is not available or a
private exemption has not been previously obtained from the DOL;
(ii) permit to exist any accumulated funding deficiency (as defined
in Sections 302 of ERISA and 412 of the Code), with respect to any Benefit
Plan, whether or not waived;
(iii) fail, or permit any Controlled Group member to fail, to pay
timely required contributions or annual installments due with respect to
any waived funding deficiency to any Benefit Plan;
(iv) terminate, or permit any Controlled Group member to terminate,
any Benefit Plan which would result in any liability of the Borrower or
any Controlled Group member under Title IV of ERISA;
(v) fail to make any contribution or payment to any Multiemployer
Plan which the Borrower or any Controlled Group member may be required to
make under any agreement relating to such Multiemployer Plan, or any law
pertaining thereto;
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(vi) fail, or permit any Controlled Group member to fail, to pay any
required installment or any other payment required under Section 412 of
the Code on or before the due date for such installment or other payment;
or
(vii) amend, or permit any Controlled Group member to amend, a Plan
resulting in an increase in current liability for the plan year such that
the Borrower or any Controlled Group member is required to provide
security to such Plan under Section 401(a)(29) of the Code,
except where such transactions, events, circumstances, or failures will not have
or is not reasonably likely to subject the Borrower and its Subsidiaries to
liability individually or in the aggregate in excess of $250,000.00.
(L) Issuance of Equity Interests. The Borrower shall not issue any Equity
Interests if as a result of such issuance a Change of Control shall occur. None
of the Borrower's Subsidiaries shall issue any Equity Interests other than to
the Borrower or if required by the applicable manufacturer in connection with a
Restricted Franchise Agreement or the state motor vehicle dealer licensing
authority, to Minority Holders whose Equity Interests (i) do not exceed 20% of
the Equity Interests of such Subsidiary and (ii) have been pledged to the Lender
(other than with respect to Equity Interests held by Minority Holders as of the
Effective Date); provided, however, that no such issuance of Equity Interests
shall be permitted hereunder unless the Subsidiary with respect to which
operates only under a Restricted Franchise Agreement.
(M) Corporate Documents; Franchise Agreements. Neither the Borrower nor
any of its Subsidiaries shall amend, modify or otherwise change any of the terms
or provisions in any of their respective constituent documents as in effect on
the date hereof in any manner adverse in any material respect to the interests
of the Lender without the prior written consent of the Lender. The Borrower
shall not permit any Sonic Dealership to amend, modify or otherwise change any
of the terms or provisions of such Sonic Dealership's franchise agreement in any
manner adverse in any material respect to the interests of the Lender without
the prior written consent of the Lender.
(N) Fiscal Year. Neither the Borrower nor any of its consolidated
Subsidiaries shall change its fiscal year for accounting or tax purposes from a
period consisting of the 12-month period ending on December 31 of each calendar
year.
(O) Subsidiary Covenants. The Borrower will not, and will not permit any
Subsidiary to, create or otherwise cause to become effective any consensual
encumbrance or restriction of any kind on the ability of any Subsidiary to pay
dividends or make any other distribution on its stock, or make any other
Restricted Payment, pay any Indebtedness or other Obligation owed to the
Borrower or any other Subsidiary, make loans or advances or other Investments in
the Borrower or any other Subsidiary, or sell, transfer or otherwise convey any
of its property to the Borrower or any other Subsidiary.
(P) Hedging Obligations. The Borrower shall not and shall not permit any
of its Subsidiaries to enter into any interest rate, commodity or foreign
currency exchange, swap, collar, cap or similar agreements evidencing Hedging
Obligations, other than interest rate, foreign currency or commodity exchange,
swap, collar, cap or similar agreements entered into by the
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Borrower or a Subsidiary pursuant to which the Borrower or such Subsidiary has
hedged its actual interest rate, foreign currency or commodity exposure.
(R) Payments on Subordinated Debt. The Borrower shall not make any
payments on the Debt Offering Notes except in accordance with the Indenture
dated as of July 1, 1998 entered into by and among Borrower, its Subsidiaries
and U.S. Bank Trust National Association, as trustee (the "Indenture").
5.4 Financial Covenants. The Borrower shall comply with the following:
(A) Total Adjusted Debt to Tangible Base Capital Ratio. The Borrower shall
not at any time permit the ratio ("ADJUSTED TBC RATIO") of Total Adjusted Debt
of the Sonic Group on a consolidated basis to Tangible Base Capital of the Sonic
Group on a consolidated basis to be greater than 15:1.
(B) Current Ratio. The Borrower shall not at any time permit the ratio
(the "CURRENT RATIO") of Current Assets of the Sonic Group on a consolidated
basis to Current Liabilities of the Sonic Group on a consolidated basis to be
less than 1.25: 1.
(C) Fixed Charge Coverage Ratio. The Borrower shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of (i) EBITDAR less Capital Expenditures, to
(ii) (a) Interest Expense plus (b) scheduled amortization of the principal
portion of all Indebtedness for money borrowed plus (c) Rentals plus (d) taxes
paid in cash during such period of the Borrower and its consolidated
Subsidiaries of at least 1.3: 1 for each fiscal quarter ending from and after
the Effective Date. In each case the Fixed Charge Coverage Ratio shall be
determined as of the last day of each fiscal quarter for the four-quarter period
ending on such day.
(D) Interest Coverage Ratio. The Borrower shall maintain a ratio (the
"INTEREST COVERAGE RATIO") of EBITDA to Interest Expense of at least 2: 1 for
each fiscal quarter ending from and after the Effective Date. In each case the
Interest Coverage Ratio shall be determined as of the last day of each fiscal
quarter for the four-quarter period ending on such day.
(E) Total Adjusted Debt to EBITDA Ratio. The Borrower shall not at any
time permit the ratio (the "ADJUSTED LEVERAGE RATIO") of (i) Total Adjusted Debt
of the Borrower and its consolidated Subsidiaries to (ii) EBITDA of the Borrower
and its consolidated Subsidiaries, to be greater than 2.25: 1. The Adjusted
Leverage Ratio shall be calculated, in each case, determined as of the last day
of each fiscal quarter based upon (a) for Total Adjusted Debt, Total Adjusted
Debt as of the last day of each such fiscal quarter; and (b) for EBITDA, EBITDA
for the twelve-month period ending on such day calculated as set forth in the
definition thereof provided however, (a) for the fiscal quarter ending December
31, 1997, the Adjusted Leverage Ratio shall be calculated using EBITDA for the
fiscal quarter ending December 31, 1997 multiplied by four (4), (b) for the
fiscal quarter ending March 31, 1998, the Adjusted Leverage Ratio shall be
calculated using EBITDA for the two fiscal quarters ending March 31, 1998
multiplied by two (2), and (c) for the fiscal quarter ending June 30, 1998, the
Adjusted Leverage Ratio shall be calculated using EBITDA for the three fiscal
quarters ending June 30, 1998 multiplied by four- thirds (4/3).
All financial covenants set forth in this Section 5.4 shall be
calculated by the Lender based on the calculations set forth in and the
financial statements attached to Officer's
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Certificates delivered hereunder and shall be binding on the Borrower for all
purposes of this Agreement absent manifest error.
ARTICLE VI: EVENT OF DEFAULTS
6.1 Event of Defaults. Each of the following occurrences shall constitute
an Event of Default under this Agreement:
(a) Failure to Make Payments When Due. The Borrower shall (i) fail to pay
when due any of the Obligations consisting of principal with respect to the
Advances or (ii) shall fail to pay within ten (10) days of the date when due any
of the other Obligations under this Agreement or the other Loan Documents.
(b) Breach of Certain Covenants. The Borrower shall fail duly and
punctually to perform or observe any agreement, covenant or obligation binding
on the Borrower under Sections 5.2(F), 5.2(K), 5.3 or 5.4.
(c) Breach of Representation or Warranty. Any representation or warranty
made or deemed made by the Borrower to the Lender herein or by the Borrower or
any of its Subsidiaries in any of the other Loan Documents or in any written
statement or certificate at any time given by any such Person pursuant to any of
the Loan Documents shall be false or misleading in any material respect on the
date as of which made (or deemed made).
(d) Other Defaults. The Borrower shall default in the performance of or
compliance with any term contained in this Agreement (other than as covered by
paragraphs (a), (b) or (c) of this Section 6.1), or the Borrower or any of its
Subsidiaries shall default in the performance of or compliance with any term
contained in any of the other Loan Documents, and such default shall continue
for thirty (30) days after the occurrence thereof.
(e) Default as to Other Indebtedness. The Borrower or any of its
Subsidiaries shall fail to make any payment when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) with respect
to any Indebtedness (other than Indebtedness constituting the deferred portion
of the purchase price of an asset which is subject to a good faith dispute,
which, together with all such other outstanding disputed Indebtedness, is not in
excess of $500,000.00 and which is being contested by the Borrower, and provided
that the Borrower has set aside adequate reserves covering such disputed
Indebtedness) the outstanding principal amount of which Indebtedness is in
excess of $100,000.00; or any breach, default or event of default shall occur,
or any other condition shall exist under any instrument, agreement or indenture
pertaining to any such Indebtedness, if the effect thereof is to cause an
acceleration, mandatory redemption, a requirement that the Borrower offer to
purchase such Indebtedness or other required repurchase of such Indebtedness, or
permit the holder(s) of such Indebtedness to accelerate the maturity of any such
Indebtedness or require a redemption or other repurchase of such Indebtedness;
or any such Indebtedness shall be otherwise declared to be due and payable (by
acceleration or otherwise) or required to be prepaid, redeemed or otherwise
repurchased by the Borrower or any of its Subsidiaries (other than by a
regularly scheduled required prepayment) prior to the stated maturity thereof.
(f) Involuntary Bankruptcy; Appointment of Receiver, Etc.
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(i) An involuntary case shall be commenced against the Borrower or
any of the Borrower's Subsidiaries and the petition shall not be
dismissed, stayed, bonded or discharged within sixty (60) days after
commencement of the case; or a court having jurisdiction in the premises
shall enter a decree or order for relief in respect of the Borrower or any
of the Borrower's Subsidiaries in an involuntary case, under any
applicable bankruptcy, insolvency or other similar law now or hereinafter
in effect; or any other similar relief shall be granted under any
applicable federal, state, local or foreign law.
(ii) A decree or order of a court having jurisdiction in the
premises for the appointment of a receiver, liquidator, sequestrator,
trustee, custodian or other officer having similar powers over the
Borrower or any of the Borrower's Subsidiaries or over all or a
substantial part of the property of the Borrower or any of the Borrower's
Subsidiaries shall be entered; or an interim receiver, trustee or other
custodian of the Borrower or any of the Borrower's Subsidiaries or of all
or a substantial part of the property of the Borrower or any of the
Borrower's Subsidiaries shall be appointed or a warrant of attachment,
execution or similar process against any substantial part of the property
of the Borrower or any of the Borrower's Subsidiaries shall be issued and
any such event shall not be stayed, dismissed, bonded or discharged within
sixty (60) days after entry, appointment or issuance.
(g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower or
any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, (ii) consent to the entry of an order for relief in an involuntary case,
or to the conversion of an involuntary case to a voluntary case, under any such
law, (iii) consent to the appointment of or taking possession by a receiver,
trustee or other similar custodian for the benefit of creditors for all or a
substantial part of its property, (iv) make any assignment for the benefit of
creditors or (v) take any corporate action to authorize any of the foregoing.
(h) Judgments and Attachments. Any money judgment(s) (other than a money
judgment covered by insurance as to which the insurance company has not
disclaimed coverage or if it has reserved the right to disclaim coverage, such
letter reserving the right to disclaim coverage is outstanding twelve months
after such money judgment was rendered), writ or warrant of attachment, or
similar process against the Borrower or any of its Subsidiaries or any of their
respective assets involving in any single case or in the aggregate an amount in
excess of $250,000.00 is or are entered and shall remain undischarged,
unvacated, unbonded or unstayed for a period of sixty (60) days or in any event
later than fifteen (15) days prior to the date of any proposed sale thereunder.
(i) Dissolution. Any order, judgment or decree shall be entered against
the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or
split up and such order shall remain undischarged and unstayed for a period in
excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall
otherwise dissolve or cease to exist except as specifically permitted by this
Agreement.
(j) Loan Documents; Failure of. At any time, for any reason, (i) any Loan
Document as a whole that materially affects the ability of the Lender to enforce
the Obligations or enforce its rights against the Collateral ceases to be in
full force and effect or the Borrower or any of the
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Borrower's Subsidiaries party thereto seeks to repudiate its obligations
thereunder and the Liens intended to be created thereby are, or the Borrower or
any such Subsidiary seeks to render such Liens, invalid or unperfected, or (ii)
any Lien on Collateral in favor of the Lender contemplated by the Loan Documents
shall, at any time, for any reason, be invalidated or otherwise cease to be in
full force and effect or such Lien shall not have the priority contemplated by
this Agreement or the Loan Documents and such failure shall continue for three
(3) days after the occurrence thereof.
(k) Termination Event. Any Termination Event occurs which is reasonably
likely to subject the Borrower or any of its Subsidiaries to liability
individually or in the aggregate in excess of $250,000.00, and such Termination
Event shall continue for three (3) days after the occurrence thereof, provided
however, if such Termination Event is a Reportable Event, then prior to such
Termination Event causing an Event of Default under this Section 6.1(k), such
Termination Event shall continue for ten (10) days after the occurrence thereof.
(l) Waiver of Minimum Funding Standard. If the plan administrator of any
Plan applies under Section 412(d) of the Code for a waiver of the minimum
funding standards of Section 412(a) of the Code and the Lender believes the
substantial business hardship upon which the application for the waiver is based
could reasonably be expected to subject either the Borrower or any Controlled
Group member to liability individually or in the aggregate in excess of
$250,000.00.
(m) Change of Control. A Change of Control shall occur.
(n) Hedging Agreements. Nonpayment by the Borrower or any Subsidiary of
any obligation under any contract with respect to Hedging Obligations entered
into by the Borrower or such Subsidiary with the Lender (or Affiliate thereof)
or the breach by the Borrower or Subsidiary of any other term, provision or
condition contained in any agreement and such nonpayment or breach shall
continue for ten (10) days after the occurrence thereof.
(o) Guarantor Default or Revocation. Any Sonic Guaranty shall fail to
remain in full force or effect or any action shall be taken by the Borrower or
any Dealership Guarantor to discontinue or to assert the invalidity or
unenforceability of any Sonic Guaranty or the Borrower or any Dealership
Guarantor shall fail to comply with any of the terms or provisions of any Sonic
Guaranty to which it is a party, or the Borrower or any Dealership Guarantor
denies that it has any further liability under any Sonic Guaranty to which it is
a party, or gives notice to such effect.
(p) Environmental Matters. The Borrower or any of its Subsidiaries shall
be the subject of any proceeding or investigation pertaining to (i) the Release
by the Borrower or any of its Subsidiaries of any Contaminant into the
environment, (ii) the liability of the Borrower or any of its Subsidiaries
arising from the Release by any other person of any Contaminant into the
environment, or (iii) any violation of any Environmental, Health or Safety
Requirements of Law by the Borrower or any of its Subsidiaries, which, in any
case, has subjected or is reasonably likely to subject the Borrower or any of
its Subsidiaries to liability individually or in the aggregate in excess of
$250,000.00.
An Event of Default shall be deemed "continuing" until cured or until
waived in writing in accordance with Section 7.3.
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ARTICLE VII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
7.1 Termination of Commitments; Acceleration. If any Event of Default
described in Section 6.1(f) or 6.1(g) occurs with respect to the Borrower, the
obligation of the Lender to make Advances hereunder shall automatically
terminate and the Obligations shall immediately become due and payable without
any election or action on the part of the Lender. If any other Event of Default
occurs, the Lender may terminate or suspend its obligations to make Advances
hereunder, or declare the Obligations to be due and payable, or both, whereupon,
after written notice to the Borrower, the Obligations shall become immediately
due and payable, without presentment, demand, protest or other notice of any
kind, all of which the Borrower expressly waives.
7.2 Amendments. No amendment, waiver or modification of any provision of
this Agreement shall be effective unless signed by each of the parties hereto
and then only to the extent in such writing specifically set forth.
7.3 Preservation of Rights. No delay or omission of the Lender to exercise
any right under the Loan Documents shall impair such right or be construed to be
a waiver of any Event of Default or an acquiescence therein, and the making of
an Advance notwithstanding the existence of an Event of Default or the inability
of the Borrower to satisfy the conditions precedent to such Advance shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lender, and then only to the extent in such writing
specifically set forth. All remedies contained in the Loan Documents or by law
afforded shall be cumulative and all shall be available to the Lender until the
Obligations have been paid in full.
ARTICLE VIII: GENERAL PROVISIONS
8.1 Survival of Representations. All representations and warranties of the
Borrower contained in this Agreement shall survive delivery of the Note and the
making of the Advances herein contemplated.
8.2 Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, the Lender shall not be obligated to extend credit to
the Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
8.3 Performance of Obligations. The Borrower agrees that the Lender may,
but shall have no obligation to (i) at any time, pay or discharge taxes, liens,
security interests or other encumbrances levied or placed on or threatened
against any Collateral, unless such claims are being contested in good faith by
the Borrower and the Borrower has set aside adequate reserves covering such tax,
lien, security interest or other encumbrance and no Event of Default has
occurred and is outstanding and (ii) after the occurrence and during the
continuance of an Event of Default to make any payment or perform any act
required of the Borrower under any Loan Document or take any other action which
the Lender in its reasonable discretion deems necessary or desirable to protect
or preserve the Collateral, including, without limitation, any action to (y)
effect any repairs or obtain any insurance called for by the terms of any of the
Loan Documents and to pay all or any part of the premiums therefor and the costs
thereof and (z) pay
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any rents payable by the Borrower which are more than 30 days past due, or as to
which the landlord has given notice of termination, under any lease. The Lender
shall use its reasonable efforts to give the Borrower notice of any action taken
under this Section 8.3 prior to the taking of such action or promptly thereafter
provided the failure to give such notice shall not affect the Borrower's
obligations in respect thereof. The Borrower agrees to pay the Lender, upon
demand, the principal amount of all funds advanced by the Lender under this
Section 8.3, together with interest thereon at the rate from time to time
applicable to Advances (in excess of the Scaled Assets) from the date of such
advance until the outstanding principal balance thereof is paid in full. All
outstanding principal of, and interest on, advances made under this Section 8.3
shall constitute Obligations for purposes hereof.
8.4 Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
8.5 Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower and the Lender and the Loan Documents delivered
on the Effective Date supersede all prior agreements and understandings among
the Borrower and the Lender relating to the subject matter thereof.
8.6 Expenses; Indemnification.
(A) Expenses. The Borrower shall reimburse the Lender for any reasonable
costs, internal charges and out-of-pocket expenses (including reasonable
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Lender, which attorneys and paralegals may be employees of the Lender) paid
or incurred by the Lender in connection with the preparation, negotiation,
execution, delivery, review, amendment, modification, and administration of the
Loan Documents. The Borrower also agrees to reimburse the Lender for any
reasonable costs, internal charges and out-of-pocket expenses (including
attorneys' and paralegals' fees and time charges of attorneys and paralegals for
the Lender, which attorneys and paralegals may be employees of the Lender) paid
or incurred by the Lender in connection with the collection of the Obligations
and enforcement of the Loan Documents. In addition to expenses set forth above,
the Borrower agrees to reimburse the Lender, promptly after the Lender's request
therefor, for each audit or other business analysis performed by it in
connection with this Agreement or the other Loan Documents at a time when an
Event of Default exists in an amount equal to the Lender's then reasonable and
customary charges for each person employed to perform such audit or analysis,
plus all costs and expenses (including without limitation, travel expenses)
incurred by the Lender in the performance of such audit or analysis. Lender
shall provide the Borrower with a detailed statement of all reimbursements
requested under this Section 8.6(A).
(B) Indemnity. The Borrower further agrees to defend, protect, indemnify,
and hold harmless the Lender and each of its Affiliates, and each of the
Lender's, or Affiliate's respective officers, directors, employees, attorneys
and agents (including, without limitation, those retained in connection with the
satisfaction or attempted satisfaction of any of the conditions set forth in
Article III) (collectively, the "INDEMNITEES") from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, costs, expenses of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding,
whether
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or not such Indemnitees shall be designated a party thereto), imposed on,
incurred by, or asserted against such Indemnitees in any manner relating to or
arising out of:
(i) this Agreement, the other Loan Documents or any of the
Transaction Documents, or any act, event or transaction related or
attendant thereto, the making of the Advances, hereunder, the management
of such Advances, the use or intended use of the proceeds of the Advances
hereunder, or any of the other transactions contemplated by the
Transaction Documents; or
(ii) any liabilities, obligations, responsibilities, losses,
damages, personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or wanton
injury, damage or threat to the environment, natural resources or public
health or welfare, costs and expenses (including, without limitation,
attorney, expert and consulting fees and costs of investigation,
feasibility or remedial action studies), fines, penalties and monetary
sanctions, interest, direct or indirect, known or unknown, absolute or
contingent, past, present or future relating to violation of any
Environmental, Health or Safety Requirements of Law arising from or in
connection with the past, present or future operations of the Borrower,
its Subsidiaries or any of their respective predecessors in interest, or,
the past, present or future environmental, health or safety condition of
any respective property of the Borrower or its Subsidiaries, the presence
of asbestos-containing materials at any respective property of the
Borrower or its Subsidiaries or the Release or threatened Release of any
Contaminant into the environment (collectively, the "INDEMNIFIED
MATTERS");
provided, however, the Borrower shall have no obligation to an Indemnitee
hereunder with respect to Indemnified Matters caused by or resulting from the
willful misconduct or Gross Negligence of such Indemnitee as determined by the
final non-appealed judgment of a court of competent jurisdiction. If the
undertaking to indemnify, pay and hold harmless set forth in the preceding
sentence may be unenforceable because it is violative of any law or public
policy, the Borrower shall contribute the maximum portion which it is permitted
to pay and satisfy under applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by the Indemnitees.
(C) Notwithstanding anything else in this Agreement to the contrary, no
party shall have any obligation to reimburse any person for attorneys' fees and
expenses unless such fees and expenses are (i) reasonable in amount, (ii)
determined without reference to any statutory presumption and (iii) calculated
using the actual time expended and the standard hourly rate for the attorneys
and paralegals performing the tasks in question and the actual out-of-pocket
expenses incurred.
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(D) Waiver of Certain Claims; Settlement of Claims. The Borrower further
agrees to assert no claim against any of the Indemnitees on any theory of
liability for consequential, special, indirect, exemplary or punitive damages.
No settlement shall be entered into by the Borrower or any if its Subsidiaries
with respect to any claim, litigation, arbitration or other proceeding relating
to or arising out of the transactions evidenced by this Agreement, the other
Loan Documents (whether or not the Lender or any Indemnitee is a party thereto)
unless such settlement releases all Indemnitees from any and all liability with
respect thereto.
(E) Survival of Agreements. The obligations and agreements of the Borrower
under this Section 8.6 shall survive the termination of this Agreement.
8.7 Accounting. Except as provided to the contrary herein, all accounting
terms used herein shall be interpreted and all accounting determinations
hereunder shall be made in accordance with Agreement Accounting Principles.
8.8 Severability of Provisions. Any provision in any Loan Document that is
held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as
to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
8.9 Nonliability of Lender. The relationship between the Borrower and the
Lender shall be solely that of borrower and lender. The Lender shall have no
fiduciary responsibilities to the Borrower and the Lender does not take any
responsibility to the Borrower to review or inform the Borrower of any matter in
connection with any phase of the Borrower's business or operations.
8.10 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE LENDER, OR
ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT
REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NORTH CAROLINA.
8.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. EXCEPT AS
PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES
AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF
THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR
OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN
NORTH CAROLINA, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE
COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NORTH CAROLINA. EACH
OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION
(A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE
DISPUTE.
(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE LENDER OR
ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR
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ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN
PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS OR ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY
PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON
THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS
COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).
(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS,
PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY
THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER
ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT
THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY
OTHER MANNER PERMITTED BY APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY
OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.
(D) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY
OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY
AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES
HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
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(E) WAIVER OF BOND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE
BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO
IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE
COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT.
(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY
HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF
THIS SECTION 8.11, WITH ITS COUNSEL.
8.12 No Strict Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
8.13 Subordination of Intercompany Indebtedness. The Borrower agrees that
any and all claims of the Borrower against any Subsidiary Holding Company
Guarantor or any Dealership Guarantor, any endorser or any other guarantor of
all or any part of the Obligations, or against any of its properties, including,
without limitation, pursuant to the any intercompany Indebtedness permitted
under Section 5.3(A)(vi), shall be subordinate and subject in right of payment
to the prior payment, in full and in cash, of all Obligations. Notwithstanding
any right of the Borrower to ask, demand, sue for, take or receive any payment
from any Subsidiary Holding Company Guarantor or any Dealership Guarantor, all
rights, liens and security interests of the Borrower, whether now or hereafter
arising and howsoever existing, in any assets of any Subsidiary Holding Company
Guarantor or any Dealership Guarantor shall be and are subordinated to the
rights, if any, of the Lender in those assets. The Borrower shall have no right
to possession of any such asset or to foreclose upon any such asset, whether by
judicial action or otherwise, unless and until all of the Obligations shall have
been paid in full in cash and satisfied and all financing arrangements under
this Agreement and the other Loan Documents between the Borrower and the Lender
have been terminated. If, during the continuance of an Event of Default, all or
any part of the assets of any Subsidiary Holding Company Guarantor or any
Dealership Guarantor, or the proceeds thereof, are subject to any distribution,
division or application to the creditors of any Subsidiary Holding Company
Guarantor or any Dealership Guarantor, whether partial or complete, voluntary or
involuntary, and whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding, then, and in any such event, any payment or distribution of any kind
or character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any indebtedness of any
Subsidiary Holding Company Guarantor or any Dealership Guarantor to the
Borrower, including, without limitation, pursuant to the any intercompany
Indebtedness permitted under Section 5.3(A)(vi) ("INTERCOMPANY INDEBTEDNESS")
shall be paid or delivered directly to the Lender for application on any of the
Obligations, due or to become due, until such Obligations shall have first been
paid in full in cash and satisfied; provided, however, ordinary course payments
or distributions made by any Subsidiary Holding Company Guarantor or any
Dealership Guarantor to the Borrower shall be required to be paid or delivered
to the Lender only upon the Lender's request. The Borrower irrevocably
authorizes
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and empowers the Lender to demand, sue for, collect and receive every such
payment or distribution and give acquittance therefor and to make and present
for and on behalf of the Borrower such proofs of claim and take such other
action, in the Lender's own name or in the name of the Borrower or otherwise, as
the Lender may deem necessary or advisable for the enforcement of this Section
8.13. The Lender may vote such proofs of claim in any such proceeding, receive
and collect any and all dividends or other payments or disbursements made
thereon in whatever form the same may be paid or issued and apply the same on
account of any of the Obligations. Should any payment, distribution, security or
instrument or proceeds thereof be received by the Borrower upon or with respect
to the Intercompany Indebtedness during the continuance of an Event of Default
and prior to the satisfaction of all of the Obligations and the termination of
all financing arrangements under this Agreement and the other Loan Documents
between the Borrower and the Lender, the Borrower shall receive and hold the
same in trust, as trustee, for the benefit of the Lender and shall forthwith
deliver the same to the Lender, in precisely the form received (except for the
endorsement or assignment of the Borrower where necessary), for application to
any of the Obligations, due or not due, and, until so delivered, the same shall
be held in trust by the Borrower as the property of the Lender; provided,
however, ordinary course payments or distributions made to or by any Subsidiary
Holding Company Guarantor or any Dealership Guarantor to the Borrower shall be
required to be paid or delivered to the Lender only upon the Lender's request
after the occurrence and Continuance of an Event of Default. If the Borrower
fails to make any such endorsement or assignment to the Lender, the Lender or
any of its officers or employees are irrevocably authorized to make the same.
The Borrower agrees that until the Obligations have been paid in full in cash
and satisfied and all financing arrangements under this Agreement and the other
Loan Documents between the Borrower and the Lender have been terminated, the
Borrower will not assign or transfer to any Person (other than the Lender) any
claim the Borrower has or may have against any Subsidiary Holding Company
Guarantor or any Dealership Guarantor.
8.14 Usury Not Intended. It is the intent of the Borrower and the Lender
in the execution and performance of this Agreement and the other Loan Documents
to contract in strict compliance with applicable usury laws, including conflicts
of law concepts, governing the Advances of the Lender including such applicable
laws of the State of North Carolina and the United States of America from
time-to-time in effect. In furtherance thereof, the Lender and the Borrower
stipulate and agree that none of the terms and provisions contained in this
Agreement or the other Loan Documents shall ever be construed to create a
contract to pay, as consideration for the use, forbearance or detention of
money, interest at a rate in excess of the Maximum Rate and that for purposes
hereof "interest" shall include the aggregate of all charges which constitute
interest under such laws that are contracted for, charged or received under this
Agreement; and in the event that, notwithstanding the foregoing, under any
circumstances the aggregate amounts taken, reserved, charged, received or paid
on the Advances, include amounts which by applicable law are deemed interest
which would exceed the Maximum Rate, then such excess shall be deemed to be a
mistake and the Lender receiving same shall credit the same on the principal of
its Note (or if the Note shall have been paid in full, refund said excess to the
Borrower). In the event that the maturity of the Note is accelerated by reason
of any election of the holder thereof resulting from any Event of Default under
this Agreement or otherwise, or in the event of any required or permitted
prepayment, then such consideration that constitutes interest may never include
more than the Maximum Rate and excess interest, if any, provided for in this
Agreement or otherwise shall be canceled automatically as of the date of such
acceleration or prepayment and, if theretofore paid, shall be credited on the
applicable Note (or, if the Note shall have been paid in full, refunded to the
Borrower of such interest). In
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determining wheher or not the interest paid or payable under any specific
contingencies exceeds the Maximum Rate, the Borrower and the Lender shall to the
maximum extent permitted under applicable law amortize, prorate, allocate and
spread in equal parts during the period of the full stated term of the Note all
amounts considered to be interest under applicable law at any time contracted
for, charged, received or reserved in connection with the Obligations. The
provisions of this Section shall control over all other provisions of this
Agreement or the other Loan Documents which may be in apparent conflict
herewith.
ARTICLE IX: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
9.1 Successors and Assigns. The terms and provisions of the Loan Documents
shall be binding upon and inure to the benefit of the Borrower and the Lender
and their respective successors and assigns, except that the Borrower shall not
have the right to assign its rights or obligations under the Loan Documents.
9.2 Participations.
(A) Permitted Participants; Effect. Subject to the terms set forth in this
Section 9.2, the Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
financial institutions ("PARTICIPANTS") participating interests in any Advance
owing to the Lender, the Note, the Commitment or any other interest of the
Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of
such participation to the Borrower shall be required prior to any participation
becoming effective. In the event of any such sale by the Lender of participating
interests to a Participant, the Lender's obligations under the Loan Documents
shall remain unchanged, the Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, the Lender shall remain
the holder of the Note for all purposes under the Loan Documents, all amounts
payable by the Borrower under this Agreement shall be determined as if the
Lender had not sold such participating interests, and the Borrower shall
continue to deal solely and directly with the Lender in connection with the
Lender's rights and obligations under the Loan Documents.
(B) Voting Rights. The Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any amendment, modification or
waiver with respect to any Advance or Commitment in which such Participant has
an interest.
9.3 Assignments. The Lender may, in the ordinary course of its business
and in accordance with applicable law, at any time assign to one or more banks
or other financial institutions approved by the Borrower within 10 days of
notice to the Borrower by the Lender of such assignment (which such approval
shall not be unreasonably withheld) all or a portion of its rights and
obligations under this Agreement (including, without limitation, its Commitment
and all Advances owing to it) pursuant to an assignment agreement in form and
substance satisfactory to the Lender. Notwithstanding the foregoing, the
Borrower shall not have any right to approve an assignee under this Section 9.3,
after the occurrence and continuance of an Event of Default or to the extent
such assignee is an Affiliate of the Lender, provided, however, that to the
extent the Lender assigns its obligations hereunder, such Affiliate shall be a
United States Person and the Lender shall have provided such financial
statements as the Borrower shall have reasonably requested.
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9.4 Confidentiality. Subject to Section 9.5, the Lender shall hold all
nonpublic information obtained pursuant to the requirements of this Agreement
and identified as such by the Borrower in accordance with the Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices and in any event may make
disclosure reasonably required by a prospective Transferee in connection with
the contemplated participation or as required or requested by any Governmental
Authority or representative thereof or pursuant to legal process and shall
require any such Transferee to agree (and require any of its Transferees to
agree) to comply with this Section 9.4. In no event shall the Lender be
obligated or required to return any materials furnished by the Borrower;
provided, however, each prospective Transferee shall be required to agree that
if it does not become a participant it shall return all materials furnished to
it by or on behalf of the Borrower in connection with this Agreement.
9.5 Dissemination of Information. The Borrower authorizes the Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any
prospective Transferee any and all information in the Lender's possession
concerning the Borrower and its Subsidiaries; provided that prior to any such
disclosure, such prospective Transferee shall agree to preserve in accordance
with Section 9.4 the confidentiality of any confidential information described
therein.
ARTICLE X: NOTICES
10.1 Giving Notice. Except as otherwise permitted by Section 2.8 with
respect to borrowing notices, all notices and other communications provided to
any party hereto under this Agreement or any other Loan Documents shall be in
writing or by telex or by facsimile and addressed or delivered to such party at
its address set forth below its signature hereto or at such other address as may
be designated by such party in a notice to the other parties. Any notice, if
mailed and properly addressed with postage prepaid, shall be deemed given when
received; any notice, if transmitted by telex or facsimile, shall be deemed
given when transmitted (answerback confirmed in the case of telexes).
10.2 Change of Address. The Borrower and the Lender may each change the
address for service of notice upon it by a notice in writing to the other
parties hereto.
ARTICLE XI: COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower and the Lender.
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ARTICLE XII: RESTATEMENT OF ORIGINAL CREDIT AGREEMENT
Effective as of the Effective Date, this Agreement amends and restates the
Original Credit Agreement in its entirety. It is the intent of the parties
hereto that this Agreement not constitute a novation, that this Agreement
replace in its entirety the Original Credit Agreement, and that from and after
the Effective Date the Original Credit Agreement be of no further force or
effect. Upon and as of the Effective Date, all references in any Loan Document
to the "Credit Agreement" shall mean and be a reference to this Agreement.
IN WITNESS WHEREOF, the Borrower and the Lender have executed this
Agreement as of the date first above written.
SONIC AUTOMOTIVE, INC.,
as the Borrower
By: /s/ B. Scott Smith
Name: B. Scott Smith
Title:President
Address:
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28218
Attention: O. Bruton Smith
Telephone No.:
Facsimile No.:
FORD MOTOR CREDIT COMPANY,
as Lender
By: /s/ William J. Beck IV
Name: William J. Beck IV
Title: National Account Manager
Address:
6302 Fairview Road
Suite 500
Charlotte, North Carolina 28210
Attention: Nancy Carner
Telephone No.: (704) 442-9220
Facsimile No.: (704) 442-1909
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EXHIBIT 10.4
THIRD AMENDED AND RESTATED PROMISSORY NOTE
(ACQUISITION/REVOLVING LINE OF CREDIT)
(Commercial Paper Rate)
$150,000,000.00 ______________, North Carolina
July 28, 1999
FOR VALUE RECEIVED, SONIC AUTOMOTIVE, INC., a Delaware corporation
("Borrower"), whose address is 5401 East Independence Blvd., P.O. Box 18747,
Charlotte, North Carolina 28218, promises to pay to FORD MOTOR CREDIT COMPANY, a
Delaware corporation ("Lender"), or order, at 6302 Fairview Road, Suite 500,
Charlotte, North Carolina 28210, or at such other place as Lender may from time
to time in writing designate, in lawful money of the United States of America,
the principal sum of ONE HUNDRED FIFTY MILLION AND 00/100 DOLLARS
($150,000,000.00), or so much thereof as may be advanced from time to time,
together with interest, adjusted monthly, on the principal balance outstanding
from time to time (the "Principal Balance"), in like money, from the date of
this Third Amended and Restated Promissory Note (this "Note"), to and including
the Termination Date, at the following rate (the "Applicable Interest Rate"):
(a) with respect to that portion of the obligations the principal amount
of which is less than the value of the Sonic Group's Scaled Assets (as defined
in the Agreement), two and seventy-five hundredths percent (2.75%) per annum
above the Commercial Paper Rate (as defined herein) in effect from time to time;
and
(b) with respect to that portion of the Obligations the principal amount
of which is equal to or exceeds the value of the Sonic Group's Scaled Assets,
three and seventy-five hundredths percent (3.75%) per annum above the Commercial
Paper Rate in effect from time to time.
Capitalized terms used herein and not otherwise defined herein shall have
the meaning given to such terms in the Agreement.
For purposes of computing interest during the term of this Note, the
Applicable Interest Rate for each month shall be based on the Commercial Paper
Rate in effect on the last day of the prior month. All changes in the Applicable
Interest Rate shall become effective on the first day of a month following a
change in the Commercial Paper Rate and shall be deemed in effect throughout
such month.
The Principal Balance and interest thereon at the Applicable Interest Rate
shall be due and payable as hereinafter set forth.
The outstanding Principal Balance hereunder may fluctuate up and down from
time to time as Advances (as defined in the Agreement) are made, and Borrower
repays the Principal Balance, or any portion thereof; PROVIDED, HOWEVER, that at
any one time, the aggregate of all Advances made hereunder may not exceed the
lesser of (a) $150,000,000.00 and (b) the Scaled Assets of the Sonic Group plus
$25,000,000.00.
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This Note amends, restates, replaces and supersedes the Promissory Note
dated as of October 15, 1997 in the original principal amount of $26,000,000.00,
as amended and restated by that certain Amended and Restated Promissory Note
dated December 15, 1997, in the original principal amount of $75,000,000.00, as
amended and restated by that certain Second Amended and Restated Promissory Note
dated March 2, 1999 in the principal amount of $100,000,000.00 from Borrower to
Lender (collectively, the "Original Note"). Any interest accrued on such
promissory note as of the date hereof will be included in the next monthly
payment due hereunder.
The term "AGREEMENT" shall mean the Credit Agreement dated as of October
15, 1997, as amended by that certain Credit Agreement Amendment dated November
12, 1997, as amended and restated by that certain Amended and Restated Credit
Agreement dated as of December 15, 1997, as amended by that certain Letter
Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated
September 21, 1998, as amended by that certain Letter Agreement dated October
15, 1998, as amended by that certain Amendment to Amended and Restated Credit
Agreement dated March 2, 1999, as further amended and restated by that certain
Second Amended and Restated Credit Agreement dated as of even date herewith
between Borrower and Lender.
The term "AVERAGE SCALED ASSETS" shall mean, as of any Quarterly Payment
Date, the average of (a) the Sonic Group's Scaled Assets on the first day of the
immediately preceding Quarter, and (b) the Sonic Group's Scaled Assets on the
last day of the immediately preceding Quarter.
The term "COLLECTION RATE" shall mean two and seventy-five hundredths
percent (2.75%) per annum above the Commercial Paper Rate in effect from time to
time.
The term "COMMERCIAL PAPER RATE" shall mean the interest rate for "1-Month
Finance Paper Placed Directly" under the column entitled "Week Ending" for the
Friday preceding the last Monday of a calendar month as reported in the Federal
Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve Board.
In the event such Release is discontinued or modified to eliminate the reporting
of a 30-day commercial paper rate, then Lender will substitute, in its sole
discretion, a comparable report or release of the 30-day commercial paper rate
published by a comparable source.
The term "DAILY ADJUSTMENT AMOUNT" means, as of each day during a Quarter,
the difference between (a) the Average Scaled Assets for such Quarter, and (b)
the Revolving Credit Obligations (as defined in the Agreement) for each such
day, multiplied by 100 basis points per annum.
The term "TERMINATION DATE" shall mean the earlier of (a) March 2, 2001 or
such other Termination Date specified in an Extension Notice and agreed to by
Lender and (b) the date of the termination of the Commitment pursuant to either
of Section 2.3 or Section 7.1 of the Agreement.
The term "PAYMENT DATE" shall mean the fifteenth day of each calendar
month, provided, however, if such day is not a Business Day, then the Payment
Date shall be the next succeeding Business Day following such fifteenth day.
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The term "QUARTER" means each three-month period commencing January 1,
April 1, July 1, and October 1, beginning July 1, 1999.
The term "QUARTERLY PAYMENT DATE" shall mean each Payment Date occurring
on January 15, April 15, July 15, and October 15, commencing with July 15, 1999.
The term "SCALED ASSETS ADJUSTMENT AMOUNT" means, as of any Quarterly
Payment Date, the sum of the Daily Adjustment Amounts for each day of the
immediately preceding Quarter.
The term "SECURITY DOCUMENTS" shall mean the Agreement and any and all of
the documents now or hereafter executed by Borrower and/or others, and by or in
favor of Lender, which wholly or partially guarantee or secure this Note or are
executed in connection with this Note.
From the date hereof to and including the Termination Date, the Principal
Balance and interest thereon shall be due and shall be payable as follows:
consecutive monthly installments of interest at the Collection Rate on the
unpaid Principal Balance outstanding commencing on the first Payment
Date following the date hereof and continuing thereafter on each
Payment Date through and including the Termination Date; and
on each Payment Date which is a Quarterly Payment Date, the Borrower shall
pay, in addition to interest at the Collection Rate, an amount equal to
the Scaled Assets Adjustment Amount to the Lender; and
if at any time and for any reason the outstanding Principal Balance
exceeds the lesser of (i) $150,000,000.00, and (ii) the Scaled Assets
of Sonic Group plus $25,000,000.00, the Borrower shall immediately make
a mandatory prepayment in an amount equal to such excess; and
on the Termination Date, a final installment which shall include all
unpaid amounts of the Principal Balance and interest accrued and unpaid
thereon and any and all other payments due under this Note and the
Security Documents.
Each of such payments shall be applied first to interest at the Applicable
Interest Rate and the balance to reduction of the Principal Balance.
Borrower may prepay the unpaid Principal Balance in whole or from time to
time in part, upon payment of interest accrued on the unpaid Principal Balance
outstanding through the day of prepayment and all other charges, without
premium. Prepayments of the Principal Balance shall be applied to installments
of the Principal Balance remaining unpaid in the inverse order of their maturity
and shall be credited to the Principal Balance as of the date of receipt by
Lender. PROVIDED HOWEVER, THAT THE BORROWER MAY NOT SO PREPAY THE UNPAID
PRINCIPAL BALANCE UNLESS IT SHALL HAVE PROVIDED AT LEAST ONE BUSINESS DAY'S
NOTICE TO THE LENDER OF SUCH PREPAYMENT.
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Payment of this Note is secured by the Security Documents. All of the
agreements, conditions, covenants, provisions and stipulations contained in the
Security Documents which are to be kept and performed by Borrower are hereby
made a part of this Note to the same extent and with the same force and effect
as if they were fully set forth herein, and Borrower covenants and agrees to
keep and perform them, or cause them to be kept and performed, strictly in
accordance with their terms.
Time is of the essence hereof and if any of the Principal Balance or
interest on this Note or other sum due hereunder is not paid when due, to the
extent not in excess of the Maximum Rate (as such term is defined in the
Agreement) and in accordance with applicable law, any amount not paid by the
Borrower when due shall accrue interest at an additional five percent (5.0%) per
annum above the rate applicable thereto until such amounts have been paid in
full and shall be payable on demand by the Lender and at any rate not later than
the next succeeding Payment Date. If any Event of Default shall occur, then
Lender, at its option and without further notice, demand or presentment for
payment to Borrower or others, may declare immediately due and payable the
unpaid Principal Balance and interest accrued thereon to the date of such Event
of Default and thereafter at the Applicable Rate plus three percent (3%) per
annum, together with all other sums owed by Borrower under this Note and the
Security Documents.
This Note is the "Note" referred to in, and is entitled to the benefits
of, the Agreement. The Agreement, among other things, (i) provides for the
making of Advances by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. Dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
advance being evidenced by this Note, and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for the prepayments of the principal hereof prior to the Termination
Date upon the terms and conditions therein specified.
Principal and interest are payable in lawful money of the United States of
America to the Lender, so such domestic account as the Lender may designate, in
same day funds. At the time of each Advance, and upon each payment or prepayment
of principal of each Advance, the Lender shall make a notation either on the
schedule attached hereto and made a part hereof, or in such Lender's own books
and records, in each case specifying the amount of such Advance, or the amount
of principal paid or prepaid with respect to such Advance, as the case may be;
PROVIDED that the failure of the Lender to make any such recordation or notation
shall not affect the Obligations of the Borrower hereunder or under the
Agreement.
The remedies of Lender, as provided in this Note and the Security
Documents, shall be cumulative and concurrent and may be pursued singularly,
successively or together, at the sole discretion of Lender, and may be exercised
as often as occasion therefor shall occur; and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release thereof.
Borrower waives presentment for payment, demand, notice of demand, notice
of nonpayment or dishonor, protest and notice of protest of this Note, and all
other notices in connection with the delivery, acceptance, performance, default,
or enforcement of the payment of this Note.
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Lender shall not be deemed, by any act of omission or commission, to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and signed by Lender and, then, only to the extent specifically set forth in the
writing. A waiver with reference to one event shall not be construed as
continuing or as a bar to or waiver of any right or remedy as to a subsequent
event.
This instrument shall be interpreted, and the rights and liabilities of
the parties hereto determined, in accordance with the internal laws (as
distinguished from the conflicts of law provisions) of the State of North
Carolina.
Whenever used, the singular shall include the plural, the plural shall
include the singular, and the words "Lender" and "Borrower" shall be deemed to
include their respective heirs, administrators, executors, successors and
assigns. The provisions of this Note shall be binding upon and inure to the
benefit of said heirs, administrators, executors, successors and assigns.
Borrower's successors and assigns shall include, without limitation, a receiver,
trustee or debtor in possession of or for Borrower.
In the event any one or more of the provisions hereof shall be invalid,
illegal or unenforceable in any respect, the validity of the remaining
provisions hereof shall be in no way affected, prejudiced or disturbed hereby.
This Note amends and restates in full the Original Note and is issued in
substitution for and not in payment of such prior Original Note and is not
intended to constitute a novation thereof.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
duly executed this Note under seal, the day and year first above written.
SONIC AUTOMOTIVE, INC.,
a Delaware corporation
By: /s/ B. Scott Smith
------------------------ (SEAL)
Name: B. Scott Smith
Title: President
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EXHIBIT 10.5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 30th day of
September, 1999 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"BUYER"), RIVERSIDE CHEVROLET, INC., an Oklahoma corporation (the "SELLER"), and
the stockholders of the Seller set forth on the signature page hereto
(individually, a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the ownership and operation of a
Chevrolet automobile dealership business located at 707 W. 51st Street, Tulsa,
Oklahoma 74107 (the "BUSINESS"); and
WHEREAS, the Seller desires to sell and the Buyer desires to buy, or to
cause one or more subsidiaries or affiliates of the Buyer to buy, substantially
all of the assets pertaining to the Business, upon the terms and subject to the
conditions of this Agreement; and
WHEREAS, at the closing of the transactions contemplated by this
Agreement, the Landlords (as defined in Section 1.4 below) and the Buyer, as the
Tenant, shall enter into the Dealership Lease (as defined in Section 1.4 below);
and
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Seller is notifying the Manufacturer (as defined in Article I below) of the
transactions contemplated by this Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, the Buyer
has entered into an Asset Purchase Agreement dated as of the date hereof (the
"JIM GLOVER PURCHASE AGREEMENT") with Jim Glover Dodge, Inc. ("JIM GLOVER
DODGE") and certain stockholders of Jim Glover Dodge, with respect to the
acquisition by the Buyer of the Dodge automobile dealership business owned by
Jim Glover Dodge, and the Buyer has entered into a Stock Purchase Agreement
dated as of the date hereof (the "RIVERSIDE NISSAN PURCHASE AGREEMENT") with
Riverside Nissan, Inc. ("RIVERSIDE NISSAN") and the stockholders of Riverside
Nissan, with respect to the acquisition by the Buyer of the Nissan automobile
dealership business owned by Riverside Nissan;
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Jim Glover Purchase Agreement and the Riverside Nissan Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
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ARTICLE I
CERTAIN DEFINITIONS
1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1); the
Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in
Section 3.5); the Parts (as defined in Section 4.3); the Miscellaneous
Inventories (as defined in Section 5.1); the Work in Progress (as defined in
Section 5.3); the Fixtures and Equipment (as defined in Section 5.4); the
Miscellaneous Assets (as defined in Section 5.5); the goodwill of the Business;
and any other assets and properties of the Seller to be transferred to the Buyer
hereunder.
1.2 "CLOSING DATE" shall mean the date, not later than the Closing Date
Deadline (as hereinafter defined), of the closing of the purchase and sale of
the Assets (the "CLOSING"), which shall be a date designated by the Buyer not
later than fifteen (15) days after receipt by the Buyer of the approvals, and
the satisfaction of the other conditions, set forth in Sections 8.8, 8.13, 8.17,
and 8.19, or such other date as is mutually agreed upon by the parties hereto.
The Closing shall be held at the offices of Parker, Poe, Adams & Bernstein
L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina at 9:00 a.m. on the
Closing Date. The Closing shall be deemed to be effective as of the opening of
business on the Closing Date.
1.3 "CLOSING DATE DEADLINE" shall mean December 31, 1999; provided,
however, if, as of December 31, 1999, the approvals or other conditions set
forth in Sections 8.13, 8.17 or 8.19 of this Agreement shall not have been
obtained, the Buyer may elect to extend the Closing Date Deadline for up to an
additional thirty (30) days.
1.4 "DEALERSHIP LEASE" shall mean that certain Lease Agreement
substantially in the form of Exhibit 1.4 hereto, to be dated as of the Closing
Date between the Buyer and the other persons and entities set forth on the
signature page thereto (collectively, the "LANDLORDS") pursuant to which the
Buyer will lease the real property, buildings and other improvements located at
the real property described on Schedule 7.9(b).
1.5 "INVENTORY DATE" shall mean the close of business on the date of
completion of the Inventory (as defined in Section 4.1), which date shall not be
more than three (3) days prior to the Closing Date, or such other date prior to
the Closing as is mutually agreed by the Seller and the Buyer.
1.6 "LIABILITIES" shall mean: (a) all obligations of the Seller arising in
the ordinary course of business after the Closing Date, and not as a result of
any breach or default, under (i) all contracts and leases of the Seller that are
set forth on Annex A of Part I of Schedule 2.4 attached hereto, and (ii) all
other contracts and leases of the Seller that are entered into in connection
with the Business in the ordinary course of business at any time after the date
hereof and on or prior to the Closing Date, but only if, in the case of both
clauses (i) and (ii) above, the Buyer has agreed to assume such contracts and
leases pursuant to the Assumption Agreement (as
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defined in Section 2.4 below); (b) the Inducement Fee as provided in Section 2.6
below; and (c) any floor plan indebtedness of the Seller assumed by the Buyer
pursuant to Section 2.4(b) hereof.
1.7 "MANUFACTURER" shall mean General Motors Corporation. For purposes of
the Buyer's application to the Manufacturer, as contemplated by Section 10.11
below, the address of the Manufacturer and the relevant contact person at the
Manufacturer are: Bill Albert (Zone Manager) (913/469-3009) and Mike Hudnell
(Dealer Placement Manager) (913/469-3012) at 7500 College Boulevard, Suite 1000,
Overland Park, Kansas 66210.
ARTICLE II
SALE AND PURCHASE OF THE ASSETS; OTHER AGREEMENTS
2.1 SALE AND PURCHASE. Upon the terms and subject to the conditions
hereinafter set forth, at the Closing, the Seller will sell, transfer and convey
the Assets to the Buyer and the Buyer will purchase the Assets from the Seller
for the consideration set forth in this Agreement. The sale, transfer and
conveyance of the Assets shall be made by the execution and delivery at the
Closing of a bill of sale from the Seller in a form reasonably satisfactory to
the Buyer's counsel (the "BILL OF SALE") and such other instruments of
assignment, transfer and conveyance as the Buyer shall reasonably request.
Except to the extent specifically included within the Assets, the Seller will
not sell, and the Buyer will not purchase, any other tangible or intangible
assets of the Seller including, but not limited to, the assets of the Seller
listed on Schedule 2.1 attached hereto.
2.2 AGGREGATE PURCHASE PRICE. (a) The purchase price (the "INITIAL
PURCHASE PRICE") to be paid for the Assets shall consist of the sum of (i)
Seventeen Million Five Hundred Thousand Dollars ($17,500,000), as the purchase
price for the Business and the intangible assets included in the Assets (the
"BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"); (ii) the New Vehicle Purchase
Price (as defined in Section 3.1); (iii) the Demonstrator Purchase Price (as
defined in Section 3.2); (iv) the Used Vehicle Purchase Price (as defined in
Section 3.5); (v) the Parts Purchase Price (as defined in Section 4.4); (vi) the
Miscellaneous Inventories Purchase Price (as defined in Section 5.1); (vii) the
Work in Progress Purchase Price (as defined in Section 5.3); and (viii) the
Fixtures and Equipment Purchase Price (as defined in Section 5.4). The parties
acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price, the
Miscellaneous Inventories Purchase Price and the Work in Progress Purchase Price
will be based upon information contained in Schedule 3.1 and the Inventory (as
defined in Section 4.1), both of which are to be completed and delivered prior
to the Closing Date. The parties also acknowledge that adjustments to those
categories of Assets will have to be made after the Closing to reflect ordinary
course increases or decreases in those assets between the time of delivery of
such Schedule 3.1 and the Inventory and the Closing Date, and that the related
components of the Initial Purchase Price will have to be adjusted to reflect any
such adjustments to those Assets. All of the foregoing adjustments (with
appropriate payments by the parties) will be made as promptly as possible after
the Closing, the parties hereby agreeing to cooperate with each other in making
such adjustments. Each party will use the Aggregate Purchase
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Price (as defined below) and Liabilities allocation described in Schedule 2.2
hereto in all reporting to, and all tax returns filed with, the Internal Revenue
Service and other state and local taxing authorities. The Seller and the Buyer
will execute and deliver to each other at Closing a declaration under Section
1060 of the Internal Revenue Code of 1986, as amended (the "CODE"), in the form
set forth in the regulations promulgated thereunder, which declaration shall
reflect the allocation on Schedule 2.2.
(b) In addition to the Initial Purchase Price as hereinabove
provided, the Buyer shall pay to the Seller an amount equal to Five Hundred
Thousand Dollars ($500,000) (the "CONTINGENT PURCHASE PRICE" and sometimes
referred to herein, together with the Initial Purchase Price, as the "AGGREGATE
PURCHASE PRICE") in the event that the Business acquired pursuant to this
Agreement (the "DEALERSHIP BUSINESS") generates Pre-Tax Profits (as defined in
Section 2.8 below) of at least Four Million Five Hundred Thousand Dollars
($4,500,000) during the one (1) year period commencing on the later to occur of
(i) January 1, 2000 and (ii) the first day of the calendar month immediately
following the month during which the Closing shall occur.
2.3 PAYMENT OF PURCHASE PRICE. At the Closing, the Buyer shall pay the
Initial Purchase Price and, if due and payable, the Contingent Purchase Price as
follows:
(a) PAYMENT OF CASH. The Buyer shall deliver to the Seller cash, by
wire transfer to an account or accounts designated by the Seller at least one
Business Day prior to the Closing, in an amount equal to the sum of: (i) one
hundred percent (100%) of the New Vehicle Purchase Price; plus (ii) eighty
percent (80%) of each of (A) the Demonstrator Purchase Price, (B) the Used
Vehicle Purchase Price, (C) the Parts Purchase Price, (D) the Miscellaneous
Inventories Purchase Price, (E) the Work in Progress Purchase Price, (F) the
Fixtures and Equipment Purchase Price and (G) the Business and Intangibles
Assets Purchase Price. As used herein, the term "BUSINESS DAY" shall mean a day
other than a Saturday, Sunday or a day on which banks are required to be closed
in the State of North Carolina.
(b) ISSUANCE OF PREFERRED STOCK.
(i) In payment of the balance of the Initial Purchase Price
(such balance being hereinafter called the "STOCK COMPONENT"), the Buyer shall
issue and deliver to the Seller that number of whole shares of the Buyer's Class
A Convertible Preferred Stock, Series II, obtained by dividing the Stock
Component by $1,000 (the "PREFERRED STOCK"). No fractional shares of Preferred
Stock shall be issued; any such fraction of a share of Preferred Stock shall be
paid in cash at the rate of $1,000 per whole share of Preferred Stock. The
Preferred Stock shall be convertible into shares of the Buyer's Class A Common
Stock, par value $.01 per share (the "COMMON STOCK"), and shall have such rights
and preferences, all as set forth in the Certificate of Designation, Preferences
and Rights with respect to the Preferred Stock, a copy of which is attached as
Exhibit 2.3(b) hereto (the "CERTIFICATE OF DESIGNATION"). Inasmuch as the Seller
intends to distribute the Preferred Stock to certain of its stockholders at
Closing, the Buyer shall issue and deliver the Preferred Stock to such
stockholders in accordance with any written instructions delivered by the Seller
to the Buyer at least five (5) Business Days prior to the Closing Date.
Notwithstanding the foregoing or any such written
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instructions, no stockholder of the Seller shall be issued any Preferred Stock
by the Buyer unless (A) such stockholder is an "accredited investor" within the
meaning of Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT"), (B) such stock holder shall have
completed, executed and delivered to the Buyer an investor qualification
questionaire in form and substance reasonably acceptable to the Buyer, (C) such
stockholder shall have delivered to the Buyer such balance sheets and income tax
returns reasonably requested by the Buyer to confirm such stockholder's status
as an "accredited investor" and (D) if such stockholder is not a party to this
Agreement, such stockholder shall have executed and delivered to the Buyer a
certificate, in form and substance reasonably acceptable to the Buyer, whereby
such stockholder shall make the representations and warranties contained in
Section 7.16.
(ii) Upon the issuance and delivery of the Preferred Stock to
the Seller at the Closing, the Buyer's sole obligations with respect to the
Preferred Stock and the Common Stock issuable upon conversion thereof (the
"CONVERSION STOCK") shall be as follows:
(A) The Buyer shall use its best reasonable efforts to
make available "current public information" about itself within the meaning of
subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act, to the extent
necessary to facilitate resales of the Conversion Stock pursuant to Rule 144 or
any successor rule; and
(B) The Buyer shall remove stop transfer instructions on
and restrictive legends from certificates representing the Conversion Stock to
the extent that either (I) the offer and sale of the Preferred Stock or the
Conversion Stock may hereafter be registered under the Securities Act and under
any applicable state securities or blue sky laws, (II) the Buyer has received an
opinion of counsel, in form and substance reasonably satisfactory to the Buyer,
that registration of such offer and sale is not required, or (III) the Sellers
are eligible to sell the Conversion Stock pursuant to Rule 144 or any successor
rule.
(iii) Except as set forth in the last sentence of this
subsection (iii), during the Lock-Up Period (as defined below), the Seller and
the Stockholders covenant and agree that none of them shall, without the prior
written consent of the Buyer, directly or indirectly, (A) offer, pledge, sell,
sell short, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant for the sale
of, or otherwise dispose of or transfer any shares of the Conversion Stock, the
Preferred Stock or any securities convertible into or exchangeable or
exercisable for the Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act, with respect to any of the foregoing, or (B) enter into any swap
or any other agreement or hedging arrangement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the Conversion Stock or the Preferred Stock, whether any such swap
or transaction is to be settled by delivery of Conversion Stock or other
securities, in cash or otherwise. The "LOCKUP PERIOD" shall be for a period
beginning on the Closing Date and ending on the date that is one (1) year after
the date on which all of such shares of Preferred Stock have been converted into
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Conversion Stock. Notwithstanding the foregoing, the provisions of this Section
2.3(b)(iii) shall not prevent the Seller and the Stockholders from selling any
shares of Conversion Stock pursuant to Rule 144 or any successor rule or from
converting any shares of Preferred Stock.
(c) PAYMENT OF CONTINGENT PURCHASE PRICE. As soon as reasonably
practicable after December 31, 2000, the Buyer shall calculate the Pre-Tax
Profits and determine whether the Contingent Purchase Price is due and payable.
The Buyer shall deliver to the Seller a statement in writing setting forth in
reasonable detail the determination of the Pre-Tax Profits. Provided that the
condition set forth in Section 2.2(b) hereof shall have been met, the Buyer
shall deliver to the Seller, in immediately available funds, by wire transfer to
an account or accounts designated by the Seller, an amount equal to the
Contingent Purchase Price. The Contingent Purchase Price shall be due and
payable no later than the tenth (10th) business day after the date upon which
the Pre-Tax Profits shall be determined by the Buyer.
2.4 ASSIGNMENT AND ASSUMPTION.
(a) At the Closing, the Seller will assign to the Buyer the
Liabilities, and the Buyer will assume and agree to perform and discharge the
Liabilities, pursuant to an assignment and assumption agreement with the Seller
in a form reasonably acceptable to the Seller's counsel (the "ASSUMPTION
AGREEMENT"). At the option of the Buyer, the Buyer may assume the Seller's
liabilities with regard to accrued vacation and sick leave, as of the Closing,
for all employees of the Business. If the Buyer assumes such liabilities, the
Buyer will receive, at closing, a credit against the Purchase Price in the
aggregate amount of such liabilities. Notwithstanding anything herein to the
contrary, except as expressly provided in this Section 2.4 and in the Assumption
Agreement, the Buyer does not and will not assume or become liable, or otherwise
be responsible, for any obligations or liabilities of the Seller, of any kind
whatsoever, fixed or contingent, known or unknown, and whether or not any of
such liabilities or obligations are the subject matter of any of the
representations and warranties of the Seller in this Agreement (collectively,
the "RETAINED LIABILITIES"), as a result of the transactions contemplated in
this Agreement. The Seller shall retain and agrees to satisfy and discharge, and
otherwise be responsible for, all of the Retained Liabilities, including without
limitation the Retained Liabilities set forth on Part II of Schedule 2.4.
(b) Notwithstanding the provisions of Section 2.4(a) above, at the
Closing, the Buyer may, if reasonably necessary, elect to assume the Seller's
floor plan indebtedness outstanding as of the Closing and/or other indebtedness
outstanding as of the Closing, in which case the Initial Purchase Price payable
in cash at the Closing will be reduced by the unpaid principal of, and accrued
interest on, such indebtedness outstanding as of the Closing, as set forth in
estoppel and/or payoff letters from the respective lenders, or as otherwise
mutually agreed by the Buyer and the Seller. In the event of such assumption,
such indebtedness shall become part of the "Liabilities" for all purposes of
this Agreement (including, without limitation, the indemnification obligations
of the Buyer under Section 10.6 below); provided, however that the Seller and
the Stockholders shall indemnify the Buyer for any breaches or defaults of the
Seller with respect to such floor plan arrangements and agreements.
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2.5 DEALERSHIP LEASE. At the Closing, the Buyer and the Landlords will
execute and deliver the Dealership Lease.
2.6 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 Seller hereby agrees to pay to the Buyer not later than January 29,
2000, the sum of $500,000 (the "Inducement Fee"). The Inducement Fee will be
included in the Liabilities 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 Assets) who acquires,
directly or indirectly, the Assets, or any portion thereof, as a result of the
execution and delivery by the Seller of this Agreement. 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 the Manufacturer or any person claiming by, through or under it. Subject to
the foregoing, the obligation to pay the Inducement Fee shall survive the
termination of this Agreement.
2.7 EMPLOYMENT AGREEMENT. At the Closing, Rod Maupin shall enter into an
employment agreement with the Buyer substantially in the form of Exhibit 2.7
attached hereto (the "EMPLOYMENT AGREEMENT").
2.8 PRE-TAX PROFITS. For purposes of this Agreement, "PRE-TAX PROFITS"
shall be the pre-tax profits as determined from the Manufacturer's annual
financial statement for the Dealership Business, subject to the following
special rules:
(a) no deduction shall be taken for federal and state income taxes
owed by the Dealership Business;
(b) Pre-Tax Profits shall be determined before any management fee
expense allocation from the Buyer;
(c) overhead expenses which are allocated to the Dealership Business
but do not directly relate to the operation of the Dealership Business shall not
be deducted in determining Pre- Tax Profits;
(d) no deduction shall be taken for goodwill amortization of the
Dealership Business;
(e) no deduction shall be taken for any interest expense of the
Dealership Business other than floor plan financing interest attributable to the
Dealership Business and other interest expense directly attributable to the
operation of the Dealership Business; and
(f) Pre-Tax Profits shall be determined before calculation of Rod
Maupin's monthly special bonus pursuant to his employment agreement with the
Buyer, but after calculation of bonuses for all other employees of the
Dealership Business.
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ARTICLE III
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES
3.1 NEW VEHICLES. At the Closing, the Buyer shall purchase all of the
Seller's untitled new motor vehicles (meaning (i) current model year vehicles as
of the Closing Date and (ii) if the Closing occurs on or before January 31,
1999, 1999 model year vehicles but excluding from clauses (i) and (ii)
conversion vans or similar-type vehicles that have been in inventory longer than
180 days, rental cars and company vehicles) in the Seller's stock and unsold by
the Seller as of the Closing Date and which are listed on Schedule 3.1 hereto,
which schedule the Seller shall deliver to the Buyer not more than three (3)
days prior to the Closing (the "NEW VEHICLES"). The purchase price to be paid by
the Buyer for each New Vehicle shall be the price at which the New Vehicle was
invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article
III (the sum of all such amounts to be paid for New Vehicles as determined by
this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE");
provided, however, the purchase price of any pre-reported sold vehicles for
which the sale cannot be reversed shall be as mutually agreed by the Buyer and
the Seller. In the event the Buyer and the Seller cannot agree upon a price with
respect to any such pre- reported sold vehicle, the Buyer shall not be obligated
to purchase, and the Seller shall not be obligated to sell, such vehicle.
Schedule 3.1 shall set forth the model, invoice cost, and all other information
necessary to calculate the New Vehicle Purchase Price with respect to each New
Vehicle listed in such Schedule 3.1. At the Closing, the Seller shall assign to
the Buyer, without any additional consideration therefor, by appropriate
documents reasonably satisfactory to the Buyer, all unfilled retail orders and
deposits made thereon. Any profits or proceeds derived from such unfilled retail
orders shall belong to the Buyer.
3.2 DEMONSTRATORS. At the Closing, the Buyer shall purchase all of the
Seller's untitled new motor vehicles (meaning (i) current model year vehicles as
of the Closing Date and (ii) if the Closing occurs on or before January 31,
1999, 1999 model year vehicles but excluding from clauses (i) and (ii)
conversion vans or similar-type vehicles that have been in inventory longer than
180 days, rental cars and company vehicles) in the Seller's stock and unsold by
the Seller as of the Closing Date which are used in the ordinary course of
business for the purpose of demonstration, and that are listed on Schedule 3.2,
which schedule the Seller shall deliver to the Buyer no more than three (3) days
prior to the Closing (the "DEMONSTRATORS"). For purposes of this Agreement, (a)
each motor vehicle with more than 6,000 miles on its odometer and (b) each
vehicle which is used for the purpose of demonstration and which is not a
current model year vehicle as of the Closing Date shall be deemed to be "used"
rather than a "Demonstrator" or "New Vehicle". The purchase price to be paid by
the Buyer for each Demonstrator shall be the price at which the Demonstrator was
invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article
III, and, if such Demonstrator has an odometer reading in excess of 500 miles,
as reduced by an amount equal to ten cents ($.10) multiplied by the total
mileage on the odometer (the sum of all such amounts to be paid for
Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE
PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost,
odometer reading and all other
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information necessary to calculate the Demonstrator Purchase Price with respect
to such Demonstrator.
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The
purchase price paid for each New Vehicle and each Demonstrator purchased under
this Article III shall be: (a) increased by the dealer cost of any equipment and
accessories which have been installed in such vehicle; and (b) decreased by the
sum of (i) the dealer cost of any equipment and accessories which have been
removed from such vehicle, (ii) if such vehicle shall have been in inventory for
less than thirty (30) days as of the Closing Date, any factory floor plan
assistance and advertising credits relative to such vehicle, and (iii) all paid
or unpaid rebates, discounts, holdback for dealer account and other factory
incentives (including without limitation rebates applied for and paid but not
earned and incentive monies claimed on pre-reported units). Notwithstanding
clause (ii) above, in the event that the amount of advertising funds which are
held by the Manufacturer and are transferable to the Buyer exceed the amount of
the advertising credits taken by the Buyer in clause (ii) above, then the
purchase price paid for each New Vehicle and Demonstrator purchased under this
Article III shall be increased by the sum of (A) one hundred percent (100%) of
such excess advertising funds which are withheld by the Manufacturer relative to
such vehicle and (B) fifty percent (50%) of such excess advertising funds which
are matched by the Manufacturer relative to such vehicle .
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. If any New
Vehicles or Demonstrators shall have suffered any damage prior to the Closing
Date which is not reflected on Schedule 3.1 or Schedule 3.2, the Seller shall
notify the Buyer in writing on or prior to the Closing Date. In such case, the
Seller and the Buyer will attempt to agree on the cost to cover such repairs or
some other equitable reduction in value to reflect such condition, which amount
shall be deducted from the price to be paid for such New Vehicle or
Demonstrator. In the event the Buyer and the Seller cannot agree on the cost of
repairs or the amount of reduction, the Buyer shall have no obligation to
purchase any such damaged New Vehicle or Demonstrator and the Seller shall have
no obligation to sell such damaged New Vehicle or Demonstrator. With respect to
any New Vehicle or Demonstrator which shall have been damaged and repaired prior
to the Closing Date, the Seller and the Buyer will attempt to agree on an
adjustment to the price to reflect the decrease, if any, in the wholesale value
of such New Vehicle or Demonstrator resulting from such damage and repair, which
amount shall be deducted from the price to be paid for such New Vehicle or
Demonstrator. In the event the Buyer and the Seller cannot agree on such
adjustment, the Buyer shall have no obligation to purchase such New Vehicle or
Demonstrator and the Seller shall have no obligation to sell such New Vehicle or
Demonstrator.
3.5 USED VEHICLES. The Buyer shall have no obligation to purchase any
vehicle from the Seller other than its obligation hereunder to purchase the New
Vehicles and the Demonstrators. The Seller and the Buyer shall perform an
inventory of the Seller's motor vehicles that are not New Vehicles or
Demonstrators (including conversion vans or similar-type vehicles that have been
in inventory longer than 180 days, rental cars and company vehicles) as of the
Inventory Date and, in connection with such inventory, the Seller and the Buyer
shall attempt to assign a mutually agreed price to each such vehicle owned by
the Seller as of the Closing Date. Any such vehicles as to which the Seller and
the Buyer are unable to agree upon a price shall not be purchased by the Buyer
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in connection herewith. Any such vehicles as to which the Seller and the Buyer
shall agree upon a price are collectively referred to herein as the "USED
VEHICLES," and shall be purchased by the Buyer, and sold by the Seller, at the
Closing. The aggregate sum of all prices assigned to such Used Vehicles to be
purchased by the Buyer pursuant to the terms of this Section 3.5 shall be
referred to herein as the "USED VEHICLE PURCHASE PRICE."
ARTICLE IV
PARTS/ACCESSORIES
4.1 THE INVENTORY. The Buyer and the Seller shall engage a mutually
acceptable third party engaged in the business of appraising, valuing and
preparing inventories for automobile dealerships (hereinafter referred to as the
"INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts
and accessories, as well as of the Miscellaneous Inventories (as defined in
Section 5.1), owned by and either used or held for use by the Seller in the
Business. The Inventory (insofar as it relates to parts and accessories) shall
be posted to the Manufacturer's approved system of inventory control. The cost
of the Inventory shall be borne 50% by the Buyer and 50% by the Seller. The
Buyer shall have the right to deduct the Seller's portion of such expense from
the consideration to be paid to the Seller under the terms of this Agreement and
to remit such sums directly to the Inventory Service. The Inventory shall be
completed by the Inventory Date. The Inventory shall identify each part and
accessory and its purchase price.
4.2 RETURNABLE AND NON-RETURNABLE REPLACEMENT PARTS AND ACCESSORIES. The
Inventory shall classify replacement parts and accessories as "returnable" or
"nonreturnable." For purposes of this Agreement, the terms "returnable parts"
and "returnable accessories" shall describe and include only those new
replacement parts and new accessories (excluding prior model year vehicle parts
and accessories) for vehicles which are listed (coded) in the latest current
Master Parts Price List Suggested List Prices and Dealer Prices, or other
applicable similar price lists, of the Manufacturer, with supplements or the
equivalent in effect as of the Closing Date (the "MASTER PRICE LIST"), as
returnable to the Manufacturer at not less than the purchase price reflected in
the Master Price List or in the most recent applicable price list. All parts and
accessories listed (coded) in the Master Price List as non-returnable to the
Manufacturer shall be classified as "nonreturnable." The purchase price for each
"returnable part" and "returnable accessory" will be the price therefor listed
in the Master Price List. The purchase price of each "nonreturnable" part and
accessory shall be equal to a value mutually agreed upon by Buyer and the
Seller. Any such "nonreturnable" part or accessory as to which the Buyer and the
Seller are unable to agree upon a price shall not be purchased by the Buyer in
connection herewith. The purchase price of all special order, non-stock,
"Jobber" or "NPN" parts shall be equal to the Seller's original cost of such
parts. The purchase price of all nuts, bolts and any other parts not addressed
in this Section 4.2 shall equal the fair market value thereof as determined by
the Inventory Service. The Buyer shall not be required to purchase any damaged
parts or accessories, parts and accessories with component parts missing,
superseded or obsolete parts or accessories, or used parts or accessories.
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4.3 PARTS. At the Closing, the Buyer shall purchase all parts and
accessories owned by the Seller on the Closing Date and listed on the Inventory
(the "PARTS") provided, however, that the Buyer shall not be obligated to
purchase any damaged parts or accessories, parts and accessories with component
parts missing, superseded or obsolete parts or accessories, or used parts or
accessories. The Seller agrees that if parts and accessories that the Buyer is
not obligated to purchase hereunder are not removed from the Leased Premises
within thirty (30) days after the Closing Date, they shall become the property
of the Buyer without the payment of any consideration in addition to the
consideration otherwise provided herein. The Buyer agrees to provide access to
the Seller for the purpose of removing such property during such thirty (30) day
period.
4.4 PARTS PURCHASE PRICE. The purchase price for the Parts will equal the
value of such items shown on the Inventory, subject to the provisions of Section
4.2 above (the "PARTS PURCHASE PRICE").
4.5 PARTS RETURN PRIVILEGES. The Seller shall assign to the Buyer at
Closing any net parts return privileges under the Manufacturer's Parts Return
Plans that may have accrued to the Seller prior to the Closing (and any other
special parts return authorizations which may have been granted to the Seller by
Manufacturer). At the request of the Buyer, the Seller shall use its reasonable
best efforts to assist the Buyer in effecting any one-time parts return offered
by the Manufacturer, and will promptly pay over to the Buyer any monies received
from the Manufacturer related thereto.
ARTICLE V
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT
5.1 MISCELLANEOUS INVENTORIES. At the Closing, the Buyer shall purchase
(a) all useable gas, oil and grease, all undercoat material and body materials
in unopened cans and such other miscellaneous useable and saleable articles in
unbroken lots (including office supplies) which (i) are on the Seller's
dealership premises, (ii) are owned by the Seller on the Closing Date, (iii) do
not represent more than a sixty (60) day supply of any particular item(s), and
(iv) are identified in the Inventory taken by the Inventory Service on the
Inventory Date and (b) all t-shirts, caps and other clothing items which bear
the Seller's logo and are not defective or damaged in any manner (the
"MISCELLANEOUS INVENTORIES"). The purchase price for the Miscellaneous
Inventories shall be the sum of the replacement cost of the items set forth in
clause (a) above, as determined by the Inventory Service and set forth on the
Inventory, plus the actual cost incurred by the Seller for the items set forth
in clause (b) above (the sum of all prices of the Miscellaneous Inventories
pursuant to the terms of this Section 5.1 shall be referred to herein as the
"MISCELLANEOUS INVENTORIES PURCHASE PRICE").
5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. The Buyer shall
have no obligation to purchase any miscellaneous items that are not included in
the Miscellaneous Inventories. The Seller agrees that any miscellaneous items
that are not included in the
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Miscellaneous Inventories and are not removed from the Leased Premises within
thirty (30) days after the Closing Date shall become the property of the Buyer
without the payment of any consideration in addition to the consideration
otherwise provided herein. The Buyer agrees to provide access to the Seller for
the purpose of removing such property during such thirty (30) day period.
5.3 WORK IN PROGRESS. At the Closing, the Buyer shall buy at the Seller's
actual cost for parts and labor such shop labor and sublet repairs as the Seller
shall have caused to be performed on any repair orders which are in process at
the opening of business on the Closing Date for which there are adequate credit
arrangements (the "WORK IN PROGRESS") (the aggregate sum of all costs of the
Seller for the Work in Progress pursuant to the terms of this Section 5.3 shall
be referred to herein as the "WORK IN PROGRESS PURCHASE PRICE"). The Buyer shall
complete such repair work and shall be entitled to the entire proceeds to be
collected for such services.
5.4 FIXTURES AND EQUIPMENT. At the Closing, the Buyer shall purchase all
fixtures, machinery, equipment (including special tools and shop equipment, but
excluding leasehold improvements), furniture and all signs and office equipment
(including, without limitation, computer equipment used in normal dealership
operations) owned by the Seller and used or held for use by the Seller in
connection with the Business, including the items listed on Schedule 5.4 hereto,
which the Seller shall deliver to the Buyer not later than five (5) days prior
to the Closing (collectively referred to herein as the "FIXTURES AND
EQUIPMENT"). The purchase price for all Fixtures and Equipment which have been
purchased by the Seller on or after January 1, 1999 shall be the actual cost
thereof as depreciated by the modified accelerated costs recovery system
depreciation method as reflected in Schedule 5.4. The purchase price for all
Fixtures and Equipment which were purchased by the Seller prior to January 1,
1999 shall be equal to the depreciated book value thereof as of December 31,
1998 less an amount equal to seventy-five percent (75%) of the book depreciation
thereof from January 1, 1999 through the Closing Date as reflected in Schedule
5.4. The aggregate purchase price for all Fixtures and Equipment shall be
referred to herein as the "FIXTURES AND EQUIPMENT PURCHASE PRICE"; provided,
however, the Fixtures and Equipment Purchase Price shall not include the value
of any items of Fixtures and Equipment which are leased pursuant to contracts or
leases included in the Assumed Liabilities.
5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any
additional consideration, the Buyer shall purchase all of the Seller's (i)
unused shop repair orders, parts sales tickets, accounting forms, binders,
office and shop supplies (not in unbroken lots) and such shop reference manuals,
parts reference catalogs, non-accounting file copies for all sales of the Seller
for the three (3) years preceding the Closing Date, (ii) copies of new and used
car sales records and specifically wholesale parts sales records, new and used
parts sales records, and service sales records for the three (3) years preceding
the Closing Date, (iii) product sales training material and reference books on
hand as of the Closing Date, (iv) customer and registration lists pertaining to
the sale of motor vehicles, service files, repair orders, owner follow-up lists
and similar records relating to the operation of the Business, (v) telephone
numbers and listings used by the Seller in connection with the Business, (vi)
names and addresses of the Seller's service customers and prospective
purchasers, (vii) all lawfully transferrable licenses and permits of the
Business, (viii) all rights and claims under
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or arising out of the contracts and leases included in the Liabilities, and (ix)
the Seller's rights to the tradename "Riverside" and any other tradename used by
the Seller, all of which are listed on Schedule 5.5 hereto, and any similar
variations thereof (all the foregoing items collectively referred to herein as
the "MISCELLANEOUS ASSETS").
5.6 CERTAIN RECORDS OF THE SELLER; ACCESS BY THE SELLER. The Seller may
retain all corporate records, financial records and correspondence which are not
necessary for the continued operation of the Business by the Buyer. All records
not retained by the Seller shall be referred to as the "TRANSFERRED RECORDS."
Buyer agrees to maintain the Transferred Records for a period not less than six
(6) years after the Closing Date. The Seller and the Seller's representatives
may have access to review and copy such information during the Buyer's regular
business hours, upon reasonable notice, if such information is necessary to wind
up the Seller's business affairs.
5.7 WARRANTY OBLIGATIONS OF THE SELLER. To the extent that the Seller may
have issued warranties on the vehicles sold by the Seller on or prior to the
Closing Date and to the extent such warranties are not included in the Work in
Progress, the Buyer shall have no responsibility to perform any services
required under such warranties, unless authorized in writing by the Seller
accompanied by arrangements in writing satisfactory to the Buyer to assure the
Buyer of payment for all work performed by the Buyer, and, if so authorized by
the Seller, the Seller shall reimburse the Buyer for all of the Buyer's costs
for parts and labor in connection therewith at established internal rates for
parts and labor. At the Closing Date, the Seller shall supply the Buyer with a
list to which such warranties and guaranties, if any, are applicable, which list
shall include the names of the purchasers, the make and year model of the
vehicles purchased and the date of purchase. The Seller shall also supply to the
Buyer at or prior to the Closing Date an address for and a designation of the
person who will be responsible for authorizing the Buyer to perform any services
under such warranties, if any, issued by the Seller on vehicles sold by it on or
prior to the Closing Date. The Seller shall reimburse the Buyer promptly upon
demand for all sums due or payable by the Seller to the Buyer hereunder.
5.8 ACCOUNTS RECEIVABLE. The Seller shall retain all accounts receivable
arising out of the operation of the Business prior to the Closing Date and the
Buyer shall retain all accounts receivable arising out of sales and/or services
of the Business on or after the Closing Date. After the Closing Date, the Buyer
shall cooperate with the Seller and shall use reasonable and ordinary efforts,
including providing the Seller access to the Buyer's books, records and
employees (at the Seller's expense) to assist the Seller in its efforts to
collect its accounts receivable for a period of six (6) months after the
Closing. The Buyer shall accept payment of the Seller's accounts receivable at
no charge to the Seller for a period of six (6) months after the Closing, and
shall forward to the Seller, promptly upon receipt, all the money so received on
said accounts. Notwithstanding anything to the contrary stated herein, the Buyer
shall have no responsibility to collect any of the Seller's accounts receivable.
ARTICLE VI
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REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller and the Stockholders as
follows:
6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. The Board of Directors of the Buyer has, or prior to the
Closing will have, duly approved this Agreement, all other agreements,
certificates and documents executed or to be executed by the Buyer in connection
herewith, and the transactions contemplated hereby and thereby. The Buyer has
full corporate power and authority to execute and deliver this Agreement and all
other agreements, certificates and documents executed or to be executed by the
Buyer in connection herewith, to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. This
Agreement, and all other agreements, certificates and documents executed or to
be executed by the Buyer in connection herewith, constitute or, when executed
and delivered, will constitute legal, valid and binding agreements of the Buyer
enforceable against the Buyer in accordance with their respective terms.
6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of the Buyer's Restated Certificate of Incorporation or Bylaws, each as amended,
or any resolution of the Board of Directors or the stockholders 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; (c) violate or
conflict with or result in a breach of, or constitute a default under, any
material instrument, agreement or indenture or any mortgage, deed of trust or
similar contract to which the Buyer is a party or by which the Buyer is 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.
6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to
the knowledge of the Buyer, threatened against or affecting the Buyer which
might adversely affect the power or authority of the Buyer to carry out the
transactions to be performed by it hereunder.
6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock,
as well as the shares of Conversion Stock, has been duly authorized by all
necessary corporate action of the Buyer. Upon the issuance of the Preferred
Stock pursuant to this Agreement, and upon the issuance of shares of Conversion
Stock, such Preferred Stock and/or Conversion Stock, as the case may be, shall
be validly issued, fully paid and non-assessable.
6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of:
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(a) 3,000,000 shares of Preferred Stock, par value $0.10 per share,
of which 300,000 shares are designated Class A Convertible Preferred Stock and
are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED
STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and
100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of August
23, 1999, approximately 12,947 shares of Series I Preferred Stock are issued and
outstanding and/or are committed to be issued by the Buyer, approximately 6,775
shares of Series II Preferred Stock are issued and outstanding and/or are
committed to be issued by the Buyer, and approximately 11,683 shares of Series
III Preferred Stock are issued and outstanding and/or are committed to be issued
by the Buyer;
(b) 100,000,000 shares of Class A Common Stock, par value $0.01 per
share, of which 23,447,763 shares are issued and outstanding as of August 23,
1999; and
(c) 30,000,000 shares of Class B Common Stock, par value $0.01 per
share, of which 12,300,000 shares are issued and outstanding as of August 23,
1999.
All outstanding capital stock of the Buyer is duly authorized, validly issued,
fully paid and non-assessable and has been issued in conformity with all
applicable federal and state securities laws.
6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent
copies of (i) the Buyer's Prospectus dated April 29, 1999 (the "PROSPECTUS"),
(ii) the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December
31, 1998, (iii) the Buyer's Quarterly Report on Form 10-Q for the three-month
period ended on each of March 31, 1999 and June 30, 1999, (iv) any Current
Reports on Form 8-K, filed after January 1, 1999, each in the form (excluding
exhibits) filed with the SEC, and (v) the Buyer's proxy statement dated May 19,
1999 (collectively, such Forms 10-K, 10-Q and 8-K and the proxy statement being
hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the
Reports contained, at the time of filing thereof with the SEC, 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 light of
the circumstances in which they were made, not misleading.
6.7 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by
the Buyer in this Agreement, and no statement contained in any agreement,
instrument, certificate or schedule furnished or to be furnished by the Buyer
pursuant hereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
such representation or warranty or such statement not misleading.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE STOCKHOLDERS
The Seller and each of the Stockholders, jointly and severally, represent
and warrant to the Buyer, as follows:
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. The Stockholders own all of the issued and outstanding stock of
the Seller. Schedule 7.1 sets forth each person or entity which has an ownership
interest in the Seller and the extent and nature of such ownership interest held
by such owner. There are no outstanding options or warrants with respect to the
capital stock of the Seller, nor are there any outstanding securities which are
convertible or exchangeable into capital stock of the Seller. There are no
voting trusts, shareholder agreements or other agreements, instrument or rights
of any kind or nature whatsoever outstanding with respect to shares of capital
stock of the Seller. The Seller has full corporate power and authority to
execute and deliver this Agreement and all other agreements, certificates and
documents executed or to be executed by the Seller in connection herewith, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder. The Stockholders have full capacity, power
and authority to execute and deliver this Agreement and all other agreements,
certificates and documents executed or to be executed by the Stockholders in
connection herewith, to consummate the transactions contemplated hereby and
thereby and to perform their obligations hereunder and thereunder. This
Agreement, and all other agreements, certificates and documents executed or to
be executed by the Seller in connection herewith, have been duly authorized by
all necessary corporate action and constitute or, when executed and delivered,
will constitute legal, valid and binding agreements of the Seller enforceable
against the Seller in accordance with their respective terms. This Agreement,
and all other agreements, certificates and documents executed or to be executed
by the Stockholders in connection herewith, constitute or, when executed and
delivered, will constitute legal, valid and binding agreements of the
Stockholders enforceable against the Stockholders in accordance with their
respective terms. The Seller has never operated the Business under any
tradenames other than the tradenames listed or referred to in Section 5.5.
7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of the Seller's Articles of Incorporation or Bylaws, each as amended, or any
resolution of the Board of Directors or stockholders of the Seller; (b) violate
any law, ordinance, rule or regulation or any judgment, order, writ, injunction
or decree or similar command of any court, administrative or governmental agency
or other body applicable to the Seller, any of the Assets, the Business or any
of the Liabilities; (c) violate or conflict with or result in a breach of, or
constitute a default under, or an event giving rise to a right of termination
of, any Contract (as
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defined in Section 7.10), any material instrument, agreement or indenture or any
mortgage, deed of trust or similar contract to which the Seller or any of the
Stockholders is a party or by which the Seller, any of the Stockholders or any
of the Assets are bound or affected; (d) result in the creation or imposition of
any Encumbrance upon any of the 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.
7.3 LITIGATION. There are no actions, suits or proceedings pending or, to
the knowledge of the Seller and the Stockholders, threatened against the Seller
or any of the Stockholders which might adversely affect the power or authority
of any of them to carry out the transactions to be performed by any of them
hereunder. There are no actions, suits or proceedings pending, or, to the
knowledge of the Seller and the Stockholders, threatened against or affecting
the Seller, other than those disclosed on Schedule 7.3 attached hereto, and none
of the actions, suits or proceedings described on Schedule 7.3, if determined
adversely to the Seller, will have, or could reasonably be expected to have, a
material adverse effect upon the Assets or the Liabilities of the Seller or the
business, prospects, properties, earnings, results of operations or condition
(financial or otherwise) of the Business. All actions, suits or proceedings
pending, or, to the knowledge of the Seller and the Stockholders, threatened
against or affecting the Seller are covered in full by insurance, without any
reservation of rights, subject only to the payment of applicable deductibles.
7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4
attached hereto, the Seller has good title to the Assets, free and clear of all
liens (including tax liens), security interests, encumbrances, actions, claims,
payments or demands of any kind and character (collectively, "ENCUMBRANCES"),
except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad
valorem personal property taxes not yet due and payable. All of the Assets to be
transferred hereunder conform, as to condition and character, to the
descriptions of such Assets contained herein and will be transferred at the
Closing free and clear of all Encumbrances, except Encumbrances for ad valorem
personal property taxes not yet due and payable. There is no existing claim, or,
to the knowledge of the Seller and the Stockholders, any basis for any claim,
against the Seller that the Business or any of its operations, activities or
products infringe the patents, trademarks, trade names, copyrights or other
property rights of others or that the Seller is wrongfully or otherwise using
the property rights of others. There is no existing claim, or, to the knowledge
of the Seller and the Stockholders, any basis for any claim, by the Seller
against any third party that the operations, activities or products of such
third party infringe the patents, trademarks, trade names, copyrights or other
property rights of the Seller or that such other third party is wrongfully or
otherwise using the property rights of the Seller.
7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached
hereto, there are no permits or approvals used or obtained for use by the Seller
which are required under applicable law in connection with the ownership or
operation of the Business.
7.6 FINANCIAL STATEMENTS.
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(a) The Seller has delivered to the Buyer the Seller's annual
financial statements for each of the last two fiscal years of the Seller, as
well as the monthly year-to-date financial statements of the Seller, all as
described in Schedule 7.6(a)(i) attached hereto (the "FINANCIAL STATEMENTS").
The Financial Statements have been prepared in accordance with the
Manufacturer's published accounting manual and generally accepted industry
accounting standards, each consistently applied. Each balance sheet included in
the Financial Statements fairly presents the financial condition of the Seller
as of the date thereof, and each related statement of income included in the
Financial Statements fairly presents the results of the operations of the Seller
for the period indicated, all in accordance with the Manufacturer's published
accounting manual and generally accepted industry accounting standards, each
consistently applied. Except as set forth on Schedule 7.6(a)(ii), to the
knowledge of the Seller and the Stockholders, the Financial Statements contain
adequate reserves for all reasonably anticipated claims relating to matters with
respect to which the Seller is self insured. The Financial Statements are in
accord with the books and records of the Seller, which books and records are
true, correct and complete in all material respects.
(b) The Seller has no outstanding material claims, liabilities,
obligations or indebtedness of any nature, fixed or (to the knowledge of the
Seller or the Stockholders) contingent, of a kind or type required by the
Manufacturer's published accounting manual or generally accepted industry
accounting standards to be reflected in the Financial Statements other than
those which are (i) set forth in the Financial Statements; (ii) specified in the
Schedules to this Agreement; or (iii) incurred in the ordinary course of
business since the date of the Financial Statements and are of the kind and type
reflected in the Financial Statements.
7.7 BROKERS AND FINDERS. Neither the Seller nor any of the Stockholders
has engaged any broker or any other person or entity who would be entitled to
any brokerage commission or finder's fee in respect of the execution of this
Agreement and/or the consummation of the transactions contemplated hereby, other
than Ben Hicks & Associates, Inc., which fee or commission the entire cost will
be borne by the Seller.
7.8 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 7.8(a) attached hereto, the
Assets and the Leased Premises comply in all material respects with, and the
Business has been conducted in all material respects in compliance with, all
laws, rules and regulations (including all worker safety and all Environmental
Laws (as hereinafter defined)), applicable zoning and other laws, ordinances,
regulations and building codes, and neither the Seller nor any of the
Stockholders has received any notice of any violation thereof which has not been
remedied.
(b) Except as set forth on Schedule 7.8(b) attached hereto, (i) the
Seller has not at any time generated, used, treated or stored Hazardous
Materials (as hereinafter defined) on, or transported Hazardous Materials to or
from, the Leased Premises or any property adjoining or adjacent to the Leased
Premises and, to the knowledge of the Seller and the Stockholders, no party has
taken such actions on or with respect to the Leased Premises, provided, however,
certain petroleum products are stored and handled by the Seller in the ordinary
course of business in
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compliance in all material respects with all Environmental Laws, (ii) the Seller
has not at any time released or disposed of Hazardous Materials on the Leased
Premises or any property adjoining or adjacent to the Leased Premises, and, to
the knowledge of the Seller and the Stockholders, no party has taken any such
actions on the Leased Premises, (iii) the Seller has at all times been in
compliance in all material respects with all Environmental Laws and the
requirements of any permits issued under such Environmental Laws with respect to
the Leased Premises, the Assets and the operation of the Business, (iv) there
are no past, pending or, to the knowledge of the Seller and the Stockholders,
threatened environmental claims against the Seller, the Leased Premises, any of
the Assets or the Business, (v) to the knowledge of the Seller and the
Stockholders, there are no facts or circumstances, conditions or occurrences
regarding the Seller, the Leased Premises, any of the Assets or the Business
that could reasonably be anticipated to form the basis of an environmental claim
against the Seller, any of the Assets or the Business or to cause the Leased
Premises, Assets or Business to be subject to any restrictions on its ownership,
occupancy, use or transferability under any Environmental Law, (vi) there are
not now and, to the knowledge of the Seller and the Stockholders, never have
been any underground storage tanks located on the Leased Premises, (vii) the
Seller has not, nor to the knowledge of the Seller and the Stockholders has any
other person, ever transported or arranged for the transportation of any
Hazardous Materials to any site other than the Leased Premises, and (viii)
except as set forth on Schedule 7.8(b), neither the Seller nor any Stockholder
has operated the Business at any location other than the Leased Premises. The
Seller has not received any notice, claim or demand from governmental entity or
other person regarding the presence of Hazardous Materials at, on, under or
around the Leased Premises or alleging that the Leased Premises is in violation
of any Environmental Laws. As used herein, the term "ENVIRONMENTAL LAWS" shall
mean 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 governmental authority relating to pollution or Hazardous
Materials or protection of human health or the environment, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), as amended. As used herein, the term "HAZARDOUS MATERIALS" means
any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, asbestos, radioactive materials,
polychlorinated biphenyls, 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, regulated under or as defined
by any Environmental Law.
(c) Neither the Seller nor any of the Stockholders, nor any
director, officer, agent or employee of the Seller or, to the knowledge of the
Seller and the Stockholders, any other person or entity associated with or
acting for or on behalf of the Seller, has, directly or indirectly, made any
unlawful contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any person or entity, regardless of form, whether in money,
property or services: (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, or (iii) to obtain
special concessions or for special concessions already obtained from the Seller.
7.9 FIXTURES AND EQUIPMENT; LEASED PREMISES. (a) The Fixtures and
Equipment constitute in the aggregate all of the fixtures, machinery, equipment,
furniture, signs and office
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equipment used or intended for use by the Seller in the Business. All
Demonstrators have been operated in the ordinary course of business, are
operated with dealer tags and have not had certificates of title issued with
respect to them.
(b) The Seller does not have any rights, title or interest in or to
any real property other than its leasehold interests in the Leased Premises, and
the only real property used by the Seller in connection with the Business is the
Leased Premises. Schedule 7.9(b) hereto contains a complete list and description
(including buildings and other structures thereon and the name of the owner
thereof) of all real property of which the Seller is a tenant (herein
collectively referred to as the "LEASED PREMISES,"). True, correct and complete
copies of all leases of all Leased Premises (the "LEASES") have been delivered
to the Buyer. The Fixtures and Equipment and the Leased Premises (including,
without limitation, the roof, the walls and all plumbing, wiring, electrical,
heating, air conditioning, fire protection and other systems, as well as all
paved areas, included therein or located thereat) are in good working order,
condition and repair and are not in need of maintenance or repairs except for
maintenance and repairs which are routine, ordinary and not material in nature
or cost. The Seller and the Stockholders do not have any knowledge of any event
or condition which currently exists which would create a legal or other
impediment to the use of the Leased Premises as currently used, or would
increase the additional charges or other sums payable by the tenant under any of
the Leases (including, without limitation, any pending tax reassessment or other
special assessment affecting the Leased Premises).
(c) 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 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 mechanics' or
materialman's lien against the Leased Premises; and there is no person or entity
other than the Seller in or entitled to possession of the Leased Premises.
(d) The Seller has 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, all such
easements and rights are perpetual, unconditional appurtenant rights to the
Leased Premises, and none of such easements or rights are subject to any
forfeiture or divestiture rights.
(e) Neither the whole nor any portion of any of the Leased Premises
has been condemned, expropriated, ordered to be sold or otherwise taken by any
public authority, with or without payment or compensation therefor, and the
Seller and the Stockholders do not know of any such condemnation, expropriation,
sale or taking, or have any grounds to anticipate that any such condemnation,
expropriation, sale or taking is threatened or contemplated. The Seller and the
Stockholders have no knowledge of any pending assessments which would affect the
Leased Premises.
(f) None of the Leased Premises is in violation of any public or
private restriction or any federal, state or local laws, rules, ordinances,
codes or regulations, including without
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limitation, any building, zoning, health, safety or fire laws, rules,
ordinances, codes or regulations, and no notice from any governmental body has
been served upon the Seller or upon any of the Leased Premises claiming any
violation of any such law, ordinance, code or regulation or requiring or calling
to the attention of the Seller the need for any work, repair, construction,
alterations or installation on or in connection with said properties which has
not been complied with. All improvements which comprise a part of the Leased
Premises are located within the record lines of the Leased Premises and none of
the improvements located on the Leased Premises 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 Leased Premises or any easements or
rights of way servicing the Leased Premises.
7.10 CONTRACTS. The Seller has in all material respects performed all of
its obligations required to be performed by it to the date hereof, and is not in
default or alleged to be in default in any material respect, under any contract
or lease to be assigned to the Buyer hereunder (collectively, the "CONTRACTS"),
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
and the Stockholders, no other party to any Contract is in default in any
respect of any of its obligations thereunder. Each of the Contracts is valid and
in full force and effect and enforceable against the Seller in accordance with
its terms, and, to the knowledge of the Seller and the Stockholders, enforceable
against the other parties thereto in accordance with its terms. Except as set
forth in Schedule 7.2 hereto, each Contract is assignable to the Buyer without
the consent of the other party(ies) thereto.
7.11 ADEQUACY OF ASSETS. Except for the Seller's cash and accounts
receivable and rights under its dealership agreements with the Manufacturer, the
Assets of the Seller, together with the Leased Premises and the Contracts
(including all equipment leased pursuant to the equipment leases included in the
Contracts) of the Seller, comprise all of the assets, properties, contracts,
leases and rights necessary for the Buyer to operate the Business substantially
in the manner operated by the Seller prior to the Closing. The failure by the
Seller to satisfy and discharge in full any of the Retained Liabilities will not
have, and could not reasonably be expected to have, a material adverse effect
upon any of the Assets or Liabilities or the prospects, properties, earnings,
results of operations or condition (financial or otherwise) of the Business.
7.12 TAXES. The Seller has filed all federal, state and local governmental
tax returns required to be filed by it in accordance with the provisions of law
pertaining thereto and has paid all taxes and assessments (including, without
limitation of the foregoing, income, excise, unemployment, social security,
occupation, franchise, property and import taxes, duties or charges and all
penalties and interest in respect thereof) required by such tax returns or
otherwise to have been paid to date.
7.13 EMPLOYEES; EMPLOYEE BENEFIT PLANS.
(a) Schedule 7.13(a) attached hereto discloses, as of the date
hereof, all of the Seller's employees, as well as each employee's compensation
(including, separately, base pay and any incentive or commission pay), title,
length of employment, employment contract, if any, and
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accrued vacation time. The Seller is not currently, nor has it ever been, a
party to any collective bargaining agreement or other labor contract, and there
has not been, nor is there pending or, to the knowledge of the Seller and the
Stockholders, threatened, any union organizational drive or application for
certification of a collective bargaining agent with respect to the Seller's
employees.
(b) The Seller has listed on Schedule 7.13(b) and has delivered to
the Buyer true and complete copies of all Employee Benefit Plans (as defined
below) and related documents, established, maintained or contributed to by the
Seller. For the purpose of all of the representations in this Section 7.13(b),
the term "Seller" shall include the Seller and all employers, whether or not
incorporated, that are treated together with the Seller as a single employer
within the meaning of Section 414 of the Code. The term "EMPLOYEE BENEFIT PLAN"
shall include all plans described in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and also shall include,
without limitation, any deferred compensation, stock, employee or retiree
pension benefit, welfare benefit or other similar fringe or employee benefit
plan, program, policy, contract or arrangement, written or oral, qualified or
nonqualified, funded or unfunded, foreign or domestic, covering employees or
former employees of the Seller and maintained or contributed to by the Seller.
Where applicable, each Employee Benefit Plan (i) has been administered in
material compliance with the terms of such Employee Benefit Plan and the
requirements of ERISA and the Code, and (ii) is in material compliance with the
reporting and disclosure requirements of ERISA and the Code. The Seller neither
maintains nor contributes to, and has never maintained or contributed to, an
Employee Benefit Plan subject to Title IV of ERISA or a "multiemployer plan."
There are no facts relating to any Employee Benefit Plan that (i) have resulted
in a "prohibited transaction" of a material nature or have resulted or are
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 in or are reasonably likely to result in any material
liability (whether or not asserted as of the date hereof) of the Seller or any
ERISA affiliate pursuant to Section 412 of the Code arising under or related to
any event, act or omission occurring on or prior to the date hereof. Each
Employee Benefit Plan that is intended to qualify under Section 401(a) or to be
exempt under Section 501(c) of the Code is so qualified or exempt as of the date
hereof in each case, and such Employee Benefit Plan has received favorable
determination letters from the Internal Revenue Service with respect thereto. To
the knowledge of the Seller and the Stockholders, the amendments to and
operation of any Employee Benefit Plan subsequent to the issuance of such
determination letters do not adversely affect the qualified status of any such
Employee Benefit Plan. No Employee Benefit Plan has an "accumulated funding
deficiency" as of the date hereof, whether or not waived, and no waiver has been
applied for. The Seller has not made any promises or incurred any liability
under any Employee Benefit Plan or otherwise to provide health or other welfare
benefits to current or future retirees or other former employees of the Seller,
except as specifically required by law. There are no pending or, to the
knowledge of the Seller and the Stockholders, threatened, claims (other than
routine claims for benefit) or lawsuits with respect to the Employee Benefit
Plans. Except as disclosed on Schedule 7.13(b), none of the Seller's employees
or former employees has elected COBRA continuation coverage or has incurred a
COBRA qualifying event since January 1, 1997.
7.14 [INTENTIONALLY DELETED]
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7.15 MANUFACTURER COMMUNICATIONS. Except as set forth on Schedule 7.15,
the Manufacturer has not (a) notified the Seller or any of the Stockholders of
any deficiency in dealership operations, including, but not limited to, the
following areas: (i) brand imaging, (ii) facility conditions, (iii) sales
efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or
(vi) sales incentives; (b) otherwise advised the Seller or any of the
Stockholders of a present or future need for facility improvements or upgrades
in connection with the Business; or (c) notified the Seller or any of the
Stockholders of the awarding or possible awarding of its franchise to any person
or entity in the Metropolitan Statistical Areas in which the Business operates.
7.16 SPECIAL REPRESENTATIONS REGARDING THE PREFERRED STOCK AND THE
CONVERSION STOCK:
(a) The Seller and the Stockholders are individually referred to in
this Section as an "INVESTOR". Each Investor understands that the Preferred
Stock and the Conversion Stock (collectively, the "SECURITIES") will not be
registered under the Securities Act or applicable state securities laws on the
basis that the sale provided for in this Agreement and the issuance of the
Securities hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that the Buyer's reliance on such
exemption is predicated on the representations and warranties of such Investor.
(b) The Securities are being acquired for the account of the
Investor for the purposes of investment and not with a view to the distribution
thereof, as those terms are used in the Securities Act and the rules and
regulations promulgated thereunder.
(c) Each Investor is an "accredited investor" within the meaning of
Rule 501(a) of Regulation D promulgated under the Securities Act; and each
Investor has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of acquiring the
Securities; each Investor has delivered to the Buyer an Investor Qualification
Questionnaire and any balance sheets and income tax returns reasonably requested
by the Buyer to confirm such Investor's status as an "accredited investor."
(d) Each Investor has received copies of: (i) the Prospectus dated
April 29, 1999; (ii) the Form 10-K filing of Buyer for the year ended December
31, 1998 (without exhibits); (iii) the Form 10-Q filing of Buyer for the first
and second quarters of 1999 (without exhibits); (iv) all Form 8-K filings of the
Buyer filed after January 1, 1999 (without exhibits); and has been furnished
such other information, and has had an opportunity to ask such questions and
have them answered by the Buyer, as such Investor has deemed necessary in order
to make an informed investment decision with respect to the acquisition of the
Securities.
(e) Each Investor understands, and has the financial capability of
assuming, the economic risk of an investment in the Securities for an indefinite
period of time.
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(f) Each Investor has been advised that such Investor will not be
able to sell, pledge or otherwise dispose of the Securities, or any interest
therein, without first complying with the relevant provisions of the Securities
Act and any applicable state securities laws, and that the provisions of Rule
144, permitting routine sales of securities of certain issuers subject to the
terms and conditions thereof, may not currently be available to such Investor
with respect to the Securities.
(g) Each Investor has, to the extent such Investor has deemed
necessary, consulted with such Investor's own investment advisors, legal counsel
and tax advisors regarding an investment in the Securities.
(h) Each Investor acknowledges that the Buyer is under no obligation
to (i) register the Securities or (ii) except as specifically set forth in this
Agreement, to furnish any information or to take any other action to assist the
Investor in complying with the terms and conditions of any exemption which might
be available under the Securities Act or any state securities laws with respect
to sales of the Securities by the Investor in the future; provided, however,
that the Buyer will, at the Stockholders request and expense, provide such legal
opinions and secretary certificates as are reasonably necessary for the
Stockholders to sell or dispose of the Securities under Rule 144.
7.17 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by
the Seller or the Stockholders in this Agreement, and no statement contained in
any agreement, instrument, certificate or schedule furnished or to be furnished
by the Seller or the Stockholders 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 VIII
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to perform this Agreement at Closing are
subject to the following conditions precedent which shall be fully satisfied at
or before the Closing, unless waived in writing by the Buyer.
8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Seller and the Stockholders herein contained shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of the Closing Date, and the Buyer shall have received a certificate from the
Stockholders and a duly authorized officer of the Seller, dated the Closing
Date, to such effect.
8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Seller or the
Stockholders at or before the Closing shall have been duly performed or complied
with in all material respects, and the Buyer
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shall have received a certificate from the Stockholders and a duly authorized
officer of the Seller, dated the Closing Date, to such effect.
8.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any other third party to prohibit or
restrain the sale contemplated by this Agreement or otherwise challenge the
power and authority of the parties to enter into this Agreement or to carry out
their obligations hereunder or the legality or validity of the sale contemplated
by this Agreement.
8.4 INVENTORY. The Inventory shall have been completed to the reasonable
satisfaction of the Buyer.
8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. The Seller shall have furnished
to the Buyer: (a) a certificate of good standing of the Seller issued by the
Secretary of State of the State of Oklahoma dated no earlier than fifteen (15)
business days prior to the Closing Date; (b) a copy of the Articles of
Incorporation of the Seller certified by the Secretary of State of the State of
Oklahoma dated no earlier than fifteen (15) business days prior to the Closing
Date; (c) a certificate of the Seller, dated the Closing Date, in form and
substance reasonably satisfactory to the Buyer, certifying as to (i) no
amendments to the Articles of Incorporation of the Seller since the date of the
certificate delivered in accordance with Section 8.5(b); (ii) the Bylaws of the
Seller attached to such certificate being true and correct; and (iii) the
incumbency and signatures of the officers of the Seller executing this Agreement
and any other agreements, instruments or documents to be executed by the Seller
in connection herewith; and (d) recent UCC-11 search reports for the Seller
(including reports for each of the trade names required to be listed under
Section 5.5) or other evidence reasonably satisfactory to the Buyer and its
counsel that the Assets are free and clear of all Encumbrances.
8.6 BOARD RESOLUTIONS. The Seller shall have furnished to the Buyer a copy
of the resolutions duly adopted by the directors and the stockholders of the
Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, certified by an authorized
officer of the Seller as of the Closing Date.
8.7 NO DAMAGE. There shall have been no material adverse change or
development in any of the Assets or the Liabilities of the Seller or in the
prospects, properties, earnings, results of operations or condition (financial
or otherwise) of the Business, and no event shall have occurred or circumstance
exist that may, or could reasonably be expected to, result in such a material
adverse change.
8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor
Vehicle Dealer under applicable Oklahoma motor vehicle dealer registration laws
and shall have obtained all other authorizations, consents, licenses and permits
from applicable governmental agencies having or asserting jurisdiction, which
the Buyer deems necessary or appropriate to conduct business as an automobile
dealer at the Leased Premises or such other location as the Buyer may determine.
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8.9 CONSENTS AND APPROVALS. The Seller shall have obtained and delivered
to the Buyer all other authorizations, consents and approvals from third persons
and entities as are (a) required to assign the Contracts or (b) otherwise
required of the Seller to consummate the transactions contemplated hereby.
8.10 CERTIFICATES OF ORIGIN; ETC. The Seller shall have transferred to the
Buyer certificates of title or origin for all New Vehicles, Demonstrators and,
if applicable, Used Vehicles and all of its registration lists, owner follow-up
lists and service files on hand as of the Closing Date with respect to the
Business.
8.11 TERMINATION OF THE SELLER'S AGREEMENTS WITH MANUFACTURER. The Seller
shall have terminated in writing the Seller's dealer agreement and any other
applicable sales and service agreements with the Manufacturer.
8.12 BILL OF SALE; ETC. The Seller shall have executed and delivered to
the Buyer a Bill of Sale, other documents of transfer of title contemplated
hereby and any and all other documents necessary or desirable in connection with
the transfer of the Assets, which documents shall warrant title to the Buyer
consistent with this Agreement and shall in all respects be in such form as may
be reasonably required by the Buyer and its counsel.
8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved (a) the
Buyer or the Buyer's affiliate as an authorized dealer at the present dealership
locations in the Seller's existing facilities as currently configured for
dealership operations, and (b) O. Bruton Smith or O. Bruton Smith's designee as
the authorized dealer operator; and the Manufacturer shall have executed a
dealer agreement, and any other applicable sales and service agreements, on
terms reasonably satisfactory to the Buyer.
8.14 CONSENTS; RELEASES OF ENCUMBRANCES. All consents, approvals, notices,
filings and/or registrations set forth on Schedule 7.2 hereto shall have been
obtained or made and the Seller shall have delivered to the Buyer evidence
thereof reasonably satisfactory to the Buyer. The Seller shall have obtained
releases or discharges of, or shall otherwise have made provision satisfactory
to the Buyer for the release or discharge of, all Encumbrances set forth on
Schedule 7.4 hereto, except for Encumbrances which secure only the Liabilities.
8.15 DEALERSHIP LEASE. The Landlords shall have executed and delivered the
Dealership Lease to the Buyer. Any outstanding Leases shall have been
terminated.
8.16 CHANGE OF NAME. The Seller shall have delivered to the Buyer all
documents, including, without limitation, resolutions of the directors and the
Stockholders of the Seller, necessary to effect a change of name of the Seller
after the Closing to names other than the corporate name and trade names
referred to in Section 5.5 hereof or any variation thereof.
8.17 HSR. All applicable waiting periods under the HSR Act (as defined in
Section 10.14 below) shall have expired without any indication by the Antitrust
Division (as defined in Section
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10.14 below) or the FTC (as defined in Section 10.14 below) that either of them
intends to challenge the transactions contemplated hereby or, if any such
challenge or investigation is made or commenced, such challenge or investigation
shall have been concluded in a way which lawfully permits the transactions
contemplated hereby in all material respects.
8.18 EMPLOYMENT AGREEMENT. Rod Maupin shall have executed and delivered to
the Buyer the Employment Agreement.
8.19 AUDITED FINANCIAL STATEMENTS OF THE BUYER. The Buyer shall have
completed preparation of such audited financial statements of the Seller as may
be required by applicable regulations of the SEC or by the Buyer's lenders.
8.20 OPINION OF COUNSEL. The Buyer shall have received an opinion,
reasonably acceptable in form and substance to Buyer's counsel, of Randall K.
Calvert, Calvert Law Firm, counsel to the Seller and the Stockholders.
8.21 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Buyer under the Jim Glover Purchase Agreement and the Riverside Nissan Purchase
Agreement shall have been satisfied or fulfilled unless waived in writing by the
Buyer, and the closings under the Jim Glover Purchase Agreement and the
Riverside Nissan Purchase Agreement shall have occurred or shall be occurring
contemporaneously with the Closing of the transactions contemplated by this
Agreement.
8.22 COMPUTER SERVER ACCESSIBILITY. Hudiburg Chevrolet, Inc. shall have
entered into a lease agreement with the Buyer in accordance with Section 10.20.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE STOCKHOLDERS
The obligations of the Seller and the Stockholders to perform this
Agreement at Closing are subject to the following conditions precedent which
shall be fully satisfied at or before the Closing, unless waived in writing by
the Seller:
9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Buyer herein contained shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date, and the Seller shall have received a certificate from a duly
authorized officer of the Buyer, dated the Closing Date, to such effect.
9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Buyer at or
before the Closing shall have been duly performed or complied with in all
material respects, and the Seller shall have received a certificate from a duly
authorized officer of the Buyer, dated the Closing Date, to such effect.
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9.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any third party to prohibit or restrain
the sale contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the sale contemplated by
this Agreement.
9.4 INVENTORY. The Inventory shall have been completed to the reasonable
satisfaction of the Seller.
9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have
furnished to the Seller: (a) a certificate of good standing of the Buyer issued
by the Secretary of State of the State of Delaware dated no earlier than fifteen
(15) business days prior to the Closing Date; and (b) a certificate of the
Secretary or an Assistant Secretary of the Buyer, dated the Closing Date, in
form and substance reasonably satisfactory to the Seller, certifying as to (i)
the Restated Certificate of Incorporation of the Buyer attached to such
certificate being true and correct; (ii) the Bylaws of the Buyer attached to
such certificate being true and correct; (iii) the incumbency and signatures of
the officers of the Buyer executing this Agreement and any other agreements,
instruments or documents to be executed by the Buyer in connection herewith; and
(iv) the resolutions of the Board of Directors of the Buyer authorizing the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
9.6 PAYMENT OF INITIAL PURCHASE PRICE; ASSUMPTION AGREEMENT. The Buyer
shall have tendered to the Seller the Initial Purchase Price and shall have
executed and delivered the Assumption Agreement.
9.7 DEALERSHIP LEASE. The Buyer shall have executed and delivered the
Dealership Lease to the Landlords.
9.8 HSR. All applicable waiting periods under the HSR Act shall have
expired without any indication of 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, such challenge or
investigation shall have been concluded in a way which lawfully permits the
transactions contemplated hereby in all material respects.
9.9 EMPLOYMENT AGREEMENT. The Buyer shall have executed and delivered the
Employment Agreement to Rod Maupin.
9.10 OPINION OF COUNSEL. The Seller and the Stockholders shall have
received an opinion of Parker, Poe, Adams & Bernstein, L.L.P., counsel to the
Buyer, reasonably acceptable in form and substance to Seller's counsel.
9.11 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Seller (as defined in the Jim Glover Purchase Agreement) under the Jim Glover
Purchase Agreement and all the conditions to the obligations of the Sellers (as
defined in the Riverside Nissan Purchase Agreement)
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under the Riverside Nissan Purchase Agreement shall have been satisfied or
fulfilled unless waived in writing by such party, and the closings under the Jim
Glover Purchase Agreement and the Riverside Nissan Purchase Agreement shall have
occurred or shall be occurring contemporaneously with the Closing of the
transactions contemplated by this Agreement.
ARTICLE X
COVENANTS AND AGREEMENTS
10.1 [INTENTIONALLY DELETED]
10.2 FURTHER ASSURANCES. The Seller and the Stockholders agree that they
will, at any time and from time to time, after the Closing, upon request of the
Buyer, do, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances, in a
form reasonably satisfactory to the Buyer's counsel, as may be reasonably
required to convey and transfer to and vest in the Buyer, and protect its
rights, title and interest in and enjoyment of, all the Assets.
10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use
their reasonable best efforts to obtain, and to cooperate with each other in
obtaining, all authorizations, approvals, licenses, permits and other consents
contemplated by Articles VIII and IX.
10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of this
Agreement through the Closing Date, the Seller will operate the Business only in
the ordinary course of business and in accordance with past practices. The
Seller shall promptly notify the Buyer of any material adverse change or
development in any of the Assets or the Liabilities or in the prospects,
properties, earnings, results of operations or condition (financial or
otherwise) of the Business, and of the occurrence of any event or circumstance
that will, or could reasonably be expected to, result in such a material adverse
change.
10.5 ACCESS; ENVIRONMENTAL AUDIT. Until Closing, the Seller shall afford
to the Buyer, its officers, employees, attorneys, accountants and such other
representatives of the Buyer as the Buyer shall designate to the Seller, free
and full access at all reasonable times, and upon reasonable prior notice, to
the Assets and the properties, books and records of the Seller, and to interview
personnel, suppliers and customers of the Seller, in order that the Buyer may
have full opportunity to make such further investigation as it shall reasonably
desire of the Assets, the Liabilities and the Business. The Seller and the
Stockholders shall furnish to the Buyer the due diligence materials set forth in
Schedule 10.5 hereto as soon as practicable, and shall provide to the Buyer and
its representatives, including, without limitation, the aforementioned
individuals, such additional information as the Buyer may reasonably request.
The contact person(s) of the Seller for purposes of arranging such access and
requesting such additional information is Rod Maupin. The Seller shall allow
Dames & Moore (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Leased
Premises in order to conduct an environmental investigation satisfactory to the
Buyer in scope and
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reasonably acceptable to the Seller (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 Leased
Premises (the "ENVIRONMENTAL AUDIT"). The Seller shall provide to the
Environmental Auditor: (a) reasonable access to all of its existing records
concerning the matters which are the subject of the Environmental Audit; and (b)
reasonable access to the employees of the Seller and the last known addresses of
former employees of the Seller who are most familiar with the matters which are
the subject of the Environmental Audit (the Seller agreeing to use reasonable
efforts to have such former employees respond to any reasonable requests or
inquiries by the Environmental Auditor). The Environmental Auditor shall
coordinate all visits to the Leased Premises and conversations with employees of
the Seller with the Stockholders or their designee and shall use reasonable
efforts to minimize any disruption of the Seller's business in performing such
investigations. The Seller shall otherwise cooperate with the Environmental
Auditor in connection with the Environmental Audit. The Buyer shall pay 50% of
the costs, fees and expenses in connection with the Environmental Audit and the
Seller shall pay 50% of the costs, fees and expenses in connection with the
Environmental Audit. The Buyer shall bear the costs, fees and expenses in
connection with any financial audit.
10.6 INDEMNIFICATION BY THE SELLER AND THE STOCKHOLDERS.
(a) All representations and warranties of the Seller and the
Stockholders contained herein, or in any agreement, certificate or document
executed by either the Seller or the Stockholders in connection herewith, shall
survive the Closing for a period of three (3) years with the exception of (i)
the representations and warranties of the Seller and the Stockholders contained
in Section 7.12, which shall survive the Closing until the expiration of the
applicable tax statutes of limitation plus a period of sixty (60) days; (ii) the
representations and warranties of the Seller and the Stockholders contained in
Sections 7.6(b) and 7.8, which shall survive the Closing for a period of seven
(7) years; and (iii) the representations and warranties of the Seller and the
Stockholders contained in Section 7.4, which shall survive the Closing for a
period of five (5) years. The foregoing limitations of survival shall not in any
way reduce the Seller's obligations with respect to the Retained Liabilities. As
to each representation and warranty of the parties to this Agreement, the date
to which such representation and warranty shall survive is hereinafter referred
to as the "SURVIVAL DATE." All information contained in any Schedule furnished
hereunder by the Seller shall be deemed a representation and warranty by the
Seller and the Stockholders made in this Agreement as to the accuracy of such
information.
(b) The Seller and the Stockholders, jointly and severally, agree to
indemnify and hold harmless the Buyer and its stockholders, officers, directors,
employees and agents, and their respective successors and assignees
(collectively, the "BUYER INDEMNITEES"), from and against any and all losses,
damages, liabilities, obligations, assessments, suits, actions, proceedings,
claims or demands, including costs, expenses and fees (including reasonable
attorneys' fees and expert witness fees incurred in connection therewith)
("LOSSES"), suffered by any of them or asserted against any of them or any of
the Assets, arising out of or based upon (i) the breach or failure of any
representation or warranty of the Seller or any Stockholder contained herein, or
in any agreement, certificate or document executed by the Seller or any
Stockholder in connection herewith, to be true
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and correct (regardless of any investigation made by or on behalf of the Buyer
and regardless of any knowledge or information the Buyer may have), (ii) the
breach of any covenant or agreement of the Seller or any Stockholder contained
in this Agreement, (iii) the Retained Liabilities or any liability or obligation
of any Stockholder, (iv) any arrangements or agreements made or alleged to have
been made by the Seller or any Stockholder with any broker, finder or other
agent in connection with the transactions contemplated hereby, (v) any waiver by
the Buyer of the provisions of any applicable bulk sales laws, (vi) any breach
or default by the Seller under any of its floor plan arrangements and
agreements, (vii) any matter, item, circumstance or condition listed, contained
or otherwise referred to on Schedule 7.8(a) or Schedule 7.8(b), (viii) any loss
of life, injury to persons or property, or damage to natural resources caused by
the actual, alleged, or threatened release, storage, transportation, treatment
or generation, of Hazardous Materials generated, stored, used, disposed of,
treated, handled or shipped by the Seller before the Closing Date, (ix) any
cleanup of Hazardous Materials released, disposed of or discharged: (A) on, in,
beneath or around to the Real Property prior to the date of the Closing; or (B)
at any other location if such substances were generated, used, stored, treated,
transported or released by the Seller prior to the Closing Date; (x) any and all
costs of installing pollution control equipment or other equipment to bring any
of the Leased Premises into compliance with any Environmental Law if such
equipment is installed because any of the Leased Premises were not in compliance
with any Environmental Laws as of the date of the Closing; or (xi) the use by
the Stockholders of the "Riverside" tradename at the Riverside Autoplex Dodge,
Jeep, Chrysler, Mazda and Honda automobile dealership operated by certain of the
Stockholders in McAlester, Oklahoma. Neither the Seller nor the Stockholders
shall be required to indemnify under Section 10.6(b)(i) unless the amount of all
Losses (including claims for Losses) thereunder exceeds a cumulative aggregate
total of $175,000, at which time rights to indemnification for Losses may be
asserted for any amounts in excess of such cumulative aggregate total of
$175,000. The aggregate amount of indemnification obligations of the Seller and
the Stockholders under this Section 10.6(b) shall not exceed the Purchase Price.
(c) No claim for indemnification with respect to a breach of a
representation and warranty shall be made by a Buyer Indemnitee after the
applicable Survival Date unless prior to such Survival Date the Buyer Indemnitee
shall have given an indemnifying party 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. The provisions of this Section 10.6 shall be
effective upon consummation of the Closing, and prior to the Closing, shall have
no force and effect.
10.7 INDEMNIFICATION BY THE BUYER.
(a) All representations and warranties of the Buyer contained
herein, or in any agreement, certificate or document executed by the Buyer in
connection herewith, shall survive the Closing for a period of three years. All
information contained in any Schedule furnished hereunder by the Buyer shall be
deemed a representation and warranty by the Buyer made in this Agreement as to
the accuracy of such information.
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(b) The Buyer agrees to indemnify and hold harmless the Seller and
its stockholders, officers, employees, agents, successors and assigns (the
"SELLER INDEMNITEES"), from and against any and all Losses incurred in
connection with, suffered by any of them, or asserted against any of them,
arising out of or based upon (i) the breach or failure of any representation or
warranty of the Buyer contained herein, or in any agreement, certificate or
document executed by the Buyer in connection herewith, to be true and correct
(regardless of any investigation made by or on behalf of the Seller and
regardless of any information the Seller may have), (ii) the breach of any
covenant or agreement of the Buyer contained in this Agreement, (iii) the
Buyer's failure to discharge the Liabilities, or (iv) any arrangements or
agreements made or alleged to have been made by the Buyer with any broker,
finder or other agent in connection with the transactions contemplated hereby.
The Buyer shall not be required to indemnify under Section 10.7(b)(i) unless the
amount of all Losses (including claims for Losses) thereunder exceeds a
cumulative aggregate total of $175,000, at which time rights to indemnification
for Losses may be asserted for any amounts in excess of such cumulative
aggregate total of $175,000. The aggregate amount of indemnification obligations
of the Buyer under this Section 10.7(b) shall not exceed the Purchase Price.
(c) No claim for indemnification with respect to a breach of a
representation and warranty shall be made by any Seller Indemnitee under this
Agreement after the applicable Survival Date unless prior to such Survival Date
the Seller Indemnitee shall have given the Buyer 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 Seller Indemnitee. The provisions of this Section 10.7
shall be effective upon consummation of the Closing, and prior to the Closing,
shall have no force and effect.
10.8 CERTAIN TAXES. Personal property, use and intangible taxes and
assessments and utility charges with respect to the Assets shall be prorated on
a per diem basis and apportioned on a calendar year basis between the Seller, on
the one hand, and the Buyer, on the other hand, as of the date of the Closing.
The Seller shall be liable for that portion of such taxes and assessments
relating to, or arising in respect of, periods prior to the Closing Date and,
with respect to any period commencing prior to the Closing Date and ending on or
after the Closing Date (a "STRADDLE PERIOD"), the portion of the Straddle Period
prior to the Closing Date. The Buyer shall be liable for that portion of such
taxes and assessments relating to, or arising in respect of, any period after
the Closing Date and, with respect to any Straddle Period, the portion of the
Straddle Period on or after the Closing Date. Any taxes attributable to the sale
or transfer of the Assets to the Buyer hereunder shall be paid by the Seller.
10.9 NO PUBLICITY. Except as may be required by law or the rules of the
New York Stock Exchange or as necessary in connection with the transactions
contemplated hereby, no party hereto shall (a) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior approval of the other parties hereto or (b) otherwise
disclose the existence and nature of the transactions contemplated hereby to any
person or entity other than such party's accountants, attorneys, agents and
representatives, all of whom shall be subject to this nondisclosure obligation
as agents of such party. The parties shall cooperate with
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each other in the preparation and dissemination of any public announcements of
the transactions contemplated by this Agreement.
10.10 NO NEGOTIATIONS OR DISCUSSIONS. Neither the Seller nor any of the
Stockholders shall, directly or indirectly, at any time on or prior to the
Closing Date, 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 or
possible sale to any such person or entity of the Assets of the Seller or
capital stock of the Seller or any merger or consolidation or similar
transaction involving the Seller.
10.11 REGARDING THE MANUFACTURER. Immediately upon the execution of this
Agreement, the Seller will notify the Manufacturer regarding the transactions
contemplated by this Agreement, utilizing a form of notification acceptable to
the Buyer. The Buyer shall promptly apply to the Manufacturer for, or cause an
affiliate of the Buyer to apply to the Manufacturer for, the issuance of a
franchise to operate an automobile dealership upon the Leased Premises or at
such other location the Buyer shall determine in its sole discretion. Effective
as of the Closing, the Seller shall terminate its Dealer Sales and Service
Agreements with the Manufacturer. The Seller shall fully cooperate with the
Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts
to obtain its own similar Dealer Sales and Service Agreements with the
Manufacturer. The contact person(s) of the Seller for purposes of requests by
the Buyer for such assistance are Bill Albert (Zone Manager) (913/469-3009) and
Mike Hudnell (Dealer Placement Manager) (913/469-3012) at 7500 College
Boulevard, Suite 1000, Overland Park, Kansas 66210. The parties acknowledge that
the Buyer's Dealer Agreements are subject to the approval of the Manufacturer
and that the Buyer would be unable to obtain its own, similar Dealer Sales and
Service Agreements absent the Seller's termination of its agreements.
Notwithstanding the foregoing, at the request of the Buyer, the Seller shall
allow the Buyer, if reasonably necessary, for a period not to exceed thirty (30)
days after the Closing, to utilize the Seller's dealer code with the
Manufacturer until the Manufacturer has issued a new dealer code to the Buyer.
The Buyer hereby agrees to indemnify the Seller from any and all liabilities
arising out of the use by the Buyer of the Seller's dealer code including,
without limitation, liabilities and obligations to the Manufacturer and to any
floor plan lender or other creditor providing financing for products purchased
under the Seller's dealer code by the Buyer (or by the Seller on behalf of the
Buyer) after the Closing.
10.12 THE SELLER'S EMPLOYEES. The Buyer shall have the right, but not the
obligation, to employ any or all of the Seller's employees. If permitted by law
and applicable regulations, the Seller shall, in consideration for the sale of
substantially all of the Seller's assets in bulk, assign and transfer to the
Buyer, without additional charge therefor, the amount of reserve in the Seller's
State Unemployment Compensation Fund with respect to the Business and the
corresponding experience rate. The Seller shall terminate its 401(k) plan prior
to the Closing Date and in connection therewith shall amend the 401(k) plan to
fully vest all accounts of all participants in the 401(k) plan and to provide
for the distribution of all such accounts. The Seller shall deliver to the Buyer
at Closing a duly executed plan amendment and resolutions of the Board of
Directors and, if necessary, the Seller's stockholders reflecting the
termination of the 401(k) Plan and related amendments to the 401(k) plan. The
Seller also shall terminate all other Employee Plans as of the Closing Date and
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shall provide the Buyer with formal documentation evidencing such terminations
and the Seller shall indemnify and reimburse the Buyer for all Losses (as
defined in Section 10.6(b)) incurred by the Buyer in connection with the
termination and winding up of the Employee Plans. The Seller shall retain all
liability and responsibility for its Employee Plans and shall promptly take any
and all actions necessitated by or related to the amendment and/or termination
of any Employee Plan, including but not limited to liquidation of plan assets
and processing distributions to participants; filing of determination letter
applications, final Forms 5500, and/or other notices with governmental
authorities; and cancellation of insurance policies. Notwithstanding the
foregoing, the Buyer shall have the option, in its sole discretion and exercised
by the delivery to the Seller of a written request, to require the Seller to
transfer any or all of the Seller's plans or related insurance policies to the
Buyer (or other related entity which will continue the Seller's business).
10.13 TERMINATION.
(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(i) by the written mutual consent of the parties heret
prior to the Closing Date Deadline;
(ii) by the Buyer prior to the Closing Date Deadline (as the
same may have been extended pursuant to Section 1.3 hereof) in the event of any
material breach by the Seller or any of the Stockholders of any of their
respective representations, warranties, covenants or agreements contained
herein;
(iii) by the Seller prior to the Closing Date Deadline (as the
same may have been extended pursuant to Section 1.3 hereof) in the event of any
material breach by the Buyer of any of the Buyer's representations, warranties,
covenants or agreements contained herein;
(iv) at any time after the Closing Date Deadline (as the same
may have been extended pursuant to Section 1.3 hereof), by written notice by the
Buyer or the Seller to the other parties hereto if the Closing shall not have
occurred on or before the Closing Date Deadline (as the same may have been
extended in accordance with Section 1.3);
(v) by the Buyer, by written notice to the Seller, if the
Buyer in its sole discretion is not satisfied with its due diligence
investigation of the Seller, at any time during the period (the "DUE DILIGENCE
PERIOD") commencing on the date hereof and ending on the close of business on
the thirtieth (30th) day after the later to occur of: (A) the date upon which
the Seller and the Buyer agree upon the form and substance of Schedule 5.5 and
the Schedules delivered by the Seller pursuant to Article VII hereof and (B) the
date of delivery by the Seller to the Buyer of the due diligence materials
listed on Schedule 10.5 attached hereto;
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(vi) by the Seller, by written notice to the Buyer, if the
Seller in its sole discretion is not satisfied with its due diligence
investigation of the Buyer, at any time during the Due Diligence Period.
(vii) by the Buyer, by written notice to the Seller, in the
event that the Manufacturer, or any other person claiming by, through or under
the Manufacturer, shall exercise any right of first refusal, preemptive right or
other similar right, with respect to any of the Assets;
(viii)by the Buyer, by written notice to the Seller if, after
any initial HSR Act filing, the FTC makes a "second request" for information
pursuant to 16 C.F.R. ss.803.20, or if the FTC or the Antitrust Division
challenges the transactions contemplated hereby; or
(ix) by the Buyer, by written notice to the Seller, in the
event that approval by the Manufacturer of the transactions contemplated hereby
is not received by the Closing Date Deadline (as the same may have been extended
pursuant to Section 1.3 hereof);
provided, however, no party may terminate this Agreement pursuant to clauses
(ii), (iii), or (iv) above if such party is in material breach of any of its
representations, warranties, covenants or agreements contained herein.
(b) In the event of termination of this Agreement pursuant to
Section 10.13(a), this Agreement shall be of no further force or effect;
provided, however, that any termination pursuant to Section 10.13(a) shall not
relieve: (i) the Buyer of any liability under Section 10.13(c) below; (ii) the
Seller and the Stockholders of any liability under Section 10.13(d) below; (iii)
subject to Section 10.13(e) below, any party hereto of any liability for breach
of any representation, warranty, covenant or agreement hereunder occurring prior
to such termination; or (iv) any party hereto of its or his obligations
hereunder to pay the fees and expenses of third parties; provided, further, that
all filings, applications and other submissions made pursuant to this Agreement
or prior to the execution of this Agreement in contemplation hereof shall, to
the extent practicable, be withdrawn from the agency or other entity to which
made.
(c) If this Agreement is terminated by the Seller pursuant to
Section 10.13(a)(iv) hereof and the failure to complete the Closing on or before
the Closing Date Deadline (as the same may have been extended pursuant to
Section 1.3) shall have been due to the Buyer's material breach of its
representations, warranties, covenants or agreements 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, an aggregate termination fee of $1,750,000 ("the BUYER TERMINATION
FEE").
(d) If this Agreement is terminated by the Buyer pursuant to Section
10.13(a)(iv) hereof and the failure to complete the Closing on or before the
Closing Date Deadline (as the same may have been extended pursuant to Section
1.3) shall have been due to a material breach by any of the Stockholders or the
Seller of a representation, warranty, covenant or agreement of such party under
this Agreement, then the Seller shall, upon demand of the Buyer, promptly pay to
the Buyer
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in immediately available funds, as liquidated damages for the loss of the
transaction, a termination fee of $1,750,000 (the "SELLER TERMINATION FEE").
(e) In the case of termination of this Agreement pursuant to Section
10.13(a)(iv) hereof, the rights of the terminating party to be paid the Seller
Termination Fee or the Buyer Termination Fee, as the case may be, shall be such
party's sole and exclusive remedy 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 Buyer Termination Fee, as
the case may be. Nothing contained in this Agreement shall prevent any party
from electing not to exercise any right it may have to terminate this Agreement
and, instead, seeking any equitable relief (including specific performance) to
which it would otherwise be entitled in the event of breach of any other party
hereto.
(f) The Seller and the Stockholders acknowledge and agree that the
Buyer's due diligence investigation of the Seller and the Business, including,
without limitation, its review of the Schedules attached hereto and the
information and documentation received from the Seller, shall not constitute a
waiver of, or otherwise modify, the Buyer's right to terminate this Agreement
under Section 10.13(a)(v) hereof.
10.14 HSR. Subject to the determination by the Buyer that compliance by
the Seller and the Buyer with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR ACT"), is not required, the Seller and the Buyer
shall each prepare and file 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 Buyer
shall pay any HSR Act filing fees.
10.15 THE BUYER'S FINANCIAL STATEMENTS. The Seller shall allow, cooperate
with and assist the Buyer's accountants, and shall instruct the Seller's
accountants to cooperate, in the preparation of audited financial statements of
the Seller as necessary for any required filings by the Buyer with the SEC or as
required by the Buyer's lenders; provided, however, that the expense of such
audit shall be borne by the Buyer.
10.16 CURING BREACHES OF REPRESENTATIONS AND WARRANTIES. Upon written
notice by the Buyer of the discovery by the Buyer prior to the Closing of a
breach of any representation and warranty of the Seller contained in this
Agreement, the Seller will, if requested by the Buyer, at its expense, undertake
to cure such breach prior to the Closing. In the event that such breach cannot,
despite reasonable efforts, be fully cured prior to the Closing, the Seller
shall diligently prosecute such efforts to effect such cure before and after the
Closing until so cured. If the Buyer shall have requested the Seller to cure any
such breach pursuant to this Section 10.16, the Buyer shall not be entitled to
claim such breach as a failure of the Buyer's condition to close under Section
8.1 of the Agreement provided that (a) the Seller shall have cured such breach
prior to the Closing or (b) in the event that such breach cannot, despite
reasonable efforts, be fully cured prior to the Closing, the Seller shall be
diligently prosecuting such efforts to effect such cure before the Closing.
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10.17 RIGHT OF FIRST OFFER.
(a) If, at any time prior to the fifth (5th) anniversary of the
Closing Date, the Buyer shall propose to sell the Business acquired from the
Seller pursuant to this Agreement, the Buyer shall first give notice in writing
to Rod Maupin, as agent for the Seller and the Stockholders (the "SELLER'S
AGENT"), of its intention to do so, which notice (the "FIRST OFFER") shall
constitute an offer to the Seller and the Stockholders to purchase the Business
from the Buyer at the price and upon payment terms set forth in such notice. The
Seller and the Stockholders, acting through the Seller's Agent, shall have a
period of thirty (30) days after the giving of such notice by the Buyer to
accept in writing (the "FIRST OFFER ACCEPTANCE") the Buyer's offer set forth in
the First Offer. If the Seller and the Stockholders, acting through the Seller's
Agent, shall have delivered the First Offer Acceptance to the Buyer prior to the
expiration of such thirty (30) day period, the parties shall negotiate in good
faith in an effort to finalize, execute and deliver a definitive purchase
agreement containing customary terms with respect to such proposed sale. If the
parties are unable to execute and deliver such definitive purchase agreement
within a period of thirty (30) days after receipt by the Buyer of the First
Offer Acceptance (the last day of such thirty (30) day period at 5:00 p.m.,
Eastern Time, being the "FIRST OFFER AGREEMENT DEADLINE"), the Buyer shall be
free to sell the Business to any other person or entity during the one (1) year
period commencing with the expiration of the First Offer Agreement Deadline at a
price that is not less than 90% of the price proposed by the Buyer in the First
Offer, and on payment terms which, overall, are no less favorable than such
payment terms proposed by the Buyer in the First Offer.
(b) The parties hereto acknowledge and agree that any rights granted
to the Seller and the Stockholders pursuant to Section 10.17(a) are subject to
the Manufacturer's (or any person claiming by, through or under the
Manufacturer) right of first refusal, preemptive right or other similar right,
with respect to the Business, and that any exercise of such right by a
Manufacturer shall not be subject to Section 10.17(a). Accordingly, the parties
hereto acknowledge that any potential closing of a purchase transaction pursuant
to Section 10.17(a) will be contingent upon a determination by the Manufacturer
that it does not wish to exercise its right of first refusal, preemptive right
or other similar right with respect to the Business.
10.18 CERTAIN INDEMNIFICATION PROCEDURES. 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.
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(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 and agrees, in writing,
that it is obligated hereunder to indemnify and hold harmless the Indemnified
Party with respect to such damages in their entirety pursuant to Sections 10.6
or 10.7 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. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay, settle or compromise any such
action, proceeding or claim, provided that in such event the Indemnified Party
shall waive any right to indemnity therefor hereunder unless the Indemnified
Party shall have sought the consent of the Indemnifying Party to such payment,
settlement or compromise and such consent was unreasonably withheld or delayed,
in which event no claim for indemnity therefor hereunder shall be waived.
(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, (ii) the
Indemnifying Party shall not have exercised its right to assume the defense or
(iii) the Indemnifying Party shall have lost its right to continue the defense,
the Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
action, proceeding or claim, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Indemnified Party to the extent that such
fees and expenses relate to claims as to which indemnification is due under
Sections 10.6 or 10.7 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 10.6 or 10.7 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.
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10.19 USE OF RIVERSIDE NAME. The Buyer agrees not to institute any legal
action to prevent the limited use by the Stockholders of the "Riverside"
tradename at the Riverside Autoplex Dodge, Jeep, Chrysler, Mazda and Honda
automobile dealership operated by certain of the Stockholders in McAlester,
Oklahoma; provided, that, the use of the Riverside tradename shall not be used
in any manner other than in connection with such automobile dealership at its
present location and such automobile dealership shall not operate as a Nissan or
Chrysler motor vehicle franchise. It is stipulated that any improper use by the
Stockholders of the Riverside tradename would cause irreparable damage to the
Buyer. The Buyer, in addition to any other rights or remedies which the Buyer
may have, shall be entitled to an injunction restraining the Stockholders from
violating or continuing any violation of this section. Such right to obtain
injunctive relief may be exercised, at the option of the Buyer, concurrently
with, prior to, after or in lieu of the exercise of any other rights or remedies
which the Buyer may have as a result of any such breach or threatened breach.
10.20 COMPUTER MATTERS. The Buyer acknowledges that the Seller does not
own the computer hardware server currently used in the Business and that,
pursuant to a lease, Hudiburg Chevrolet, Inc. provides access to its computer
hardware server to the Seller. The Seller acknowledges that the Buyer is not
purchasing the computer hardware server from the Seller and that the Buyer will
not be able to have its own server in place at the Closing. The Seller and the
Stockholders agree to take such steps as are necessary to permit the Buyer, upon
reasonable terms and conditions, to access and utilize the computer hardware
server owned by Hudiburg Chevrolet, Inc. and to cause Hudiburg Chevrolet, Inc.
to enter into an agreement with the Buyer to such effect. The Buyer will use
commercially reasonable efforts to obtain its own server as soon as reasonably
practicable.
ARTICLE XI
MISCELLANEOUS
11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall
not be assignable by any party hereto without the prior written consent of the
other parties. The Buyer may assign this Agreement, without the consent of the
other parties hereto, to a corporation, partnership, limited liability company
or other entity controlled by the Buyer, including a corporation, partnership,
limited liability company or other entity to be formed at any time prior to the
Closing Date, and to any person or entity who shall acquire all or substantially
all of the assets of the Buyer or of such corporation, partnership, limited
liability company or other entity controlled by the Buyer (including any such
acquisition by merger or consolidation); provided said assignment shall be in
writing and the assignee shall assume all obligations of the Buyer hereunder,
whereupon the assignee shall be substituted in lieu of the Buyer named herein
for all purposes, and provided further, that the Buyer originally named herein
shall continue to be liable with respect to its obligations hereunder. The Buyer
may assign this Agreement, without the consent of the other parties hereto, as
collateral security, and the other parties hereto agree to execute and deliver
any acknowledgment of such assignment by the Buyer as may be required by any
lender to the Buyer.
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11.2 GOVERNING LAW. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
Oklahoma.
11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated
by this Agreement shall be in accordance with generally accepted accounting
principles.
11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this
Agreement, each of the parties hereto shall be responsible for the payment of
such party's fees, costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated hereby.
11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules
and other documents referred to herein which form a part hereof, contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement may not be amended except by a
writing executed by all of the parties hereto. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
11.6 WAIVER. To the extent permitted by applicable law, no claim or right
arising out of this Agreement or the documents referred to in this Agreement can
be discharged by a party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by all the parties hereto. Any
waiver by a 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. Neither the failure nor any
delay by any party hereto in exercising any right or power under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right or power, and no single or partial exercise of any such right or power
will preclude any other or further exercise of such right or power or the
exercise of any other right or power.
11.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally or by confirmed facsimile 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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If to the Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Fax No.: (704) 563-5116
Attention: Chief Financial Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Fax No.: (704) 334-4706
Attention: John R. Hairr III
If to the Seller or the Stockholders, to:
David Hudiburg
6000 Tinker Diagonal
Midwest City, OK 73110
Fax No.: (405) 733-8041
With a copy to:
Randall Calvert
Calvert Law Firm
6520 N. Western, Suite 100
Oklahoma City, OK 73116
Fax No.: (405) 848-5052
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts. Each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
11.9 KNOWLEDGE. Whenever any representation or warranty of the Seller or
any of the Stockholders contained herein or in any other document executed and
delivered in connection herewith is based upon the knowledge of the Seller or
any of the Stockholders, (a) such knowledge shall be deemed to include (i) the
best actual knowledge, information and belief of the Seller and each Stockholder
and (ii) any information which any of the Stockholders would reasonably be
expected to be aware of in the prudent discharge of his duties in the ordinary
course of business (including consultation with legal counsel) on behalf of the
Seller, and (b) the knowledge of the Seller or any of the Stockholders shall be
deemed to be the knowledge of the Seller and all the Stockholders.
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11.10 ARBITRATION.
(a) [Intentionally Deleted]
(b) Except as otherwise provided herein, any dispute, claim or
controversy arising out of or relating to this Agreement 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 the Buyer and one of whom shall be appointed by
the Seller 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 thirty (30) days after their appointment, either arbitrator may petition
the American Arbitration Association to make the appointment. The place of
arbitration shall be Charlotte, North Carolina. The arbitrators shall be
instructed to render their decision within sixty (60) days after their selection
and to allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(c) Notwithstanding the provisions of Section 11.10(b), any dispute
relating to accounting matters shall be resolved as provided in this Section
11.10(c). The parties first shall use reasonable efforts to resolve any such
accounting dispute. In the event the dispute has not been resolved within a
reasonable amount of time, either the Buyer, on the one hand, or the Seller, on
the other hand, may provide written notice to the other party that the matter
will be submitted to a "Big Five" 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: (i) 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 present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
such determination by the Accountants, as set forth in a notice delivered to
both parties by the Accountants, will be binding and conclusive on the parties;
and (iii) the Buyer and the Seller shall each bear 50% of the fees and expenses
of the Accountants for such determination.
(d) Nothing contained in this Section 11.10 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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11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject
to Section 11.1, this Agreement shall be binding upon, inure to the benefit of
and be enforceable by the respective successors, heirs 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 Seller, 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.
11.12 HEADINGS. The article headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.13 SEVERABILITY; CONSTRUCTION.
(a) 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.
(b) This Agreement shall be construed equitably, in accordance with
its terms, without regard to the degree which the Seller or the Buyer, or their
respective legal counsel, have participated in the drafting of this Agreement.
11.14 COOPERATION IN SEC FILINGS. At the request of the Buyer and at the
Buyer's expense, the Seller and the Stockholders shall cooperate in the
preparation by the Buyer of any filings to be made by the Buyer with the SEC
including, without limitation, any filing with respect to a registered offering
of its securities by the Buyer and the closing of the offering registered
thereby.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
-------------------------------------
Its: Chairman and CEO
SELLER: RIVERSIDE CHEVROLET, INC.
By: /s/ David Hudiburg
-------------------------------------
Its: Vice President
STOCKHOLDERS: /s/ Rod Maupin
-------------------------------------(SEAL)
Rod Maupin
/s/ David Hudiburg
-------------------------------------(SEAL)
David Hudiburg
/s/ Steven Hudiburg
-------------------------------------(SEAL)
Steven Hudiburg
/s/ Donna Dodson
-------------------------------------(SEAL)
Donna Dodson
/s/ Paula Tate
-------------------------------------(SEAL)
Paula Tate
/s/ Leslie Hudiburg
-------------------------------------(SEAL)
Leslie Hudiburg
Paul Hudiburg 1997 Dynasty Trust
(dated December 26, 1997)
By: /s/ David Hudiburg
-------------------------------------
David Hudiburg, Co-Trustee
By: /s/ Steven Hudiburg
-------------------------------------
Steven Hudiburg, Co-Trustee
By: /s/ Donna Dodson
-------------------------------------
Donna Dodson, Co-Trustee
By: /s/ Paula Tate
-------------------------------------
Paula Tate, Co-Trustee
EXHIBIT 10.6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 30th day of
September, 1999 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"BUYER"), JIM GLOVER DODGE, INC., an Oklahoma corporation (the "SELLER"), and
the stockholders of the Seller set forth on the signature page hereto
(individually, a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the ownership and operation of a Dodge
automobile dealership business located at 2920 N. Aspen, Broken Arrow, Oklahoma
74012 (the "BUSINESS"); and
WHEREAS, the Seller desires to sell and the Buyer desires to buy, or to
cause one or more subsidiaries or affiliates of the Buyer to buy, substantially
all of the assets pertaining to the Business, upon the terms and subject to the
conditions of this Agreement; and
WHEREAS, at the closing of the transactions contemplated by this
Agreement, the Landlords (as defined in Section 1.4 below) and the Buyer, as the
Tenant, shall enter into the Dealership Lease (as defined in Section 1.4 below);
and
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Seller is notifying the Manufacturer (as defined in Article I below) of the
transactions contemplated by this Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, the Buyer
has entered into an Asset Purchase Agreement dated as of the date hereof (the
"RIVERSIDE CHEVROLET PURCHASE AGREEMENT") with Riverside Chevrolet, Inc.
("RIVERSIDE CHEVROLET") and certain stockholders of Riverside Chevrolet, with
respect to the acquisition by the Buyer of the Chevrolet automobile dealership
business owned by Riverside Chevrolet, and the Buyer has entered into a Stock
Purchase Agreement dated as of the date hereof (the "RIVERSIDE NISSAN PURCHASE
AGREEMENT") with Riverside Nissan, Inc. ("RIVERSIDE NISSAN") and the
stockholders of Riverside Nissan, with respect to the acquisition by the Buyer
of the Nissan automobile dealership business owned by Riverside Nissan;
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Riverside Chevrolet Purchase Agreement and the Riverside Nissan Purchase
Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1); the
Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in
Section 3.5); the Parts (as defined in Section 4.3); the Miscellaneous
Inventories (as defined in Section 5.1); the Work in Progress (as defined in
Section 5.3); the Fixtures and Equipment (as defined in Section 5.4); the
Miscellaneous Assets (as defined in Section 5.5); the goodwill of the Business;
and any other assets and properties of the Seller to be transferred to the Buyer
hereunder.
1.2 "CLOSING DATE" shall mean the date, not later than the Closing Date
Deadline (as hereinafter defined), of the closing of the purchase and sale of
the Assets (the "CLOSING"), which shall be a date designated by the Buyer not
later than fifteen (15) days after receipt by the Buyer of the approvals, and
the satisfaction of the other conditions, set forth in Sections 8.8, 8.13, 8.17,
and 8.19, or such other date as is mutually agreed upon by the parties hereto.
The Closing shall be held at the offices of Parker, Poe, Adams & Bernstein
L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina at 9:00 a.m. on the
Closing Date. The Closing shall be deemed to be effective as of the opening of
business on the Closing Date.
1.3 "CLOSING DATE DEADLINE" shall mean December 31, 1999; provided,
however, if, as of December 31, 1999, the approvals or other conditions set
forth in Sections 8.13, 8.17 or 8.19 of this Agreement shall not have been
obtained, the Buyer may elect to extend the Closing Date Deadline for up to an
additional thirty (30) days.
1.4 "DEALERSHIP LEASE" shall mean that certain Lease Agreement
substantially in the form of Exhibit 1.4 hereto, to be dated as of the Closing
Date between the Buyer and the other persons and entities set forth on the
signature page thereto (collectively, the "LANDLORDS"), pursuant to which the
Buyer will lease the real property, buildings and other improvements located at
the real property described on Schedule 7.9(b).
1.5 "INVENTORY DATE" shall mean the close of business on the date of
completion of the Inventory (as defined in Section 4.1), which date shall not be
more than three (3) days prior to the Closing Date, or such other date prior to
the Closing as is mutually agreed by the Seller and the Buyer.
1.6 "LIABILITIES" shall mean: (a) all obligations of the Seller arising in
the ordinary course of business after the Closing Date, and not as a result of
any breach or default, under (i) all contracts and leases of the Seller that are
set forth on Annex A of Part I of Schedule 2.4 attached hereto, and (ii) all
other contracts and leases of the Seller that are entered into in connection
with the Business in the ordinary course of business at any time after the date
hereof and on or prior to the Closing Date, but only if, in the case of both
clauses (i) and (ii) above, the Buyer has agreed to assume such contracts and
leases pursuant to the Assumption Agreement (as
2
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defined in Section 2.4 below); (b) the Inducement Fee as provided in Section 2.6
below; and (c) any floor plan indebtedness of the Seller assumed by the Buyer
pursuant to Section 2.4(b) hereof.
1.7 "MANUFACTURER" shall mean Daimler-Chrysler Corporation. For purposes
of the Buyer's application to the Manufacturer, as contemplated by Section 10.11
below, the address of the Manufacturer and the relevant contact person at the
Manufacturer are: Bill Albert (Zone Manager) (913/469-3009) and Mike Hudnell
(Dealer Placement Manager) (913/469-3012) at 7500 College Boulevard, Suite 1000,
Overland Park, Kansas 66210.
ARTICLE II
SALE AND PURCHASE OF THE ASSETS; OTHER AGREEMENTS
2.1 SALE AND PURCHASE. Upon the terms and subject to the conditions
hereinafter set forth, at the Closing, the Seller will sell, transfer and convey
the Assets to the Buyer and the Buyer will purchase the Assets from the Seller
for the consideration set forth in this Agreement. The sale, transfer and
conveyance of the Assets shall be made by the execution and delivery at the
Closing of a bill of sale from the Seller in a form reasonably satisfactory to
the Buyer's counsel (the "BILL OF SALE") and such other instruments of
assignment, transfer and conveyance as the Buyer shall reasonably request.
Except to the extent specifically included within the Assets, the Seller will
not sell, and the Buyer will not purchase, any other tangible or intangible
assets of the Seller including, but not limited to, the assets of the Seller
listed on Schedule 2.1 attached hereto.
2.2 AGGREGATE PURCHASE PRICE. The aggregate purchase price (the "AGGREGATE
PURCHASE PRICE") to be paid for the Assets shall consist of the sum of (i)
Thirteen Million Seven Hundred Fifty Thousand Dollars ($13,750,000), as the
purchase price for the Business and the intangible assets included in the Assets
(the "BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"); (ii) the New Vehicle
Purchase Price (as defined in Section 3.1); (iii) the Demonstrator Purchase
Price (as defined in Section 3.2); (iv) the Used Vehicle Purchase Price (as
defined in Section 3.5); (v) the Parts Purchase Price (as defined in Section
4.4); (vi) the Miscellaneous Inventories Purchase Price (as defined in Section
5.1); (vii) the Work in Progress Purchase Price (as defined in Section 5.3); and
(viii) the Fixtures and Equipment Purchase Price (as defined in Section 5.4).
The parties acknowledge that the New Vehicle Purchase Price, the Parts Purchase
Price, the Miscellaneous Inventories Purchase Price and the Work in Progress
Purchase Price will be based upon information contained in Schedule 3.1 and the
Inventory (as defined in Section 4.1), both of which are to be completed and
delivered prior to the Closing Date. The parties also acknowledge that
adjustments to those categories of Assets will have to be made after the Closing
to reflect ordinary course increases or decreases in those assets between the
time of delivery of such Schedule 3.1 and the Inventory and the Closing Date,
and that the related components of the Aggregate Purchase Price will have to be
adjusted to reflect any such adjustments to those Assets. All of the foregoing
adjustments (with appropriate payments by the parties) will be made as promptly
as possible after the Closing, the parties hereby agreeing to cooperate with
each other in making such adjustments.
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Each party will use the Aggregate Purchase Price and Liabilities allocation
described in Schedule 2.2 hereto in all reporting to, and all tax returns filed
with, the Internal Revenue Service and other state and local taxing authorities.
The Seller and the Buyer will execute and deliver to each other at Closing a
declaration under Section 1060 of the Internal Revenue Code of 1986, as amended
(the "CODE"), in the form set forth in the regulations promulgated thereunder,
which declaration shall reflect the allocation on Schedule 2.2.
2.3 PAYMENT OF AGGREGATE PURCHASE PRICE. At the Closing, the Buyer shall
pay the Aggregate Purchase Price as follows:
(a) PAYMENT OF CASH. The Buyer shall deliver to the Seller cash, by
wire transfer to an account or accounts designated by the Seller at least one
Business Day prior to the Closing, in an amount equal to the sum of: (i) one
hundred percent (100%) of the New Vehicle Purchase Price; plus (ii) eighty
percent (80%) of each of (A) the Demonstrator Purchase Price, (B) the Used
Vehicle Purchase Price, (C) the Parts Purchase Price, (D) the Miscellaneous
Inventories Purchase Price, (E) the Work in Progress Purchase Price, (F) the
Fixtures and Equipment Purchase Price and (G) the Business and Intangibles
Assets Purchase Price. As used herein, the term "BUSINESS DAY" shall mean a day
other than a Saturday, Sunday or a day on which banks are required to be closed
in the State of North Carolina.
(b) ISSUANCE OF PREFERRED STOCK.
(i) In payment of the balance of the Aggregate Purchase Price
(such balance being hereinafter called the "STOCK COMPONENT"), the Buyer shall
issue and deliver to the Seller that number of whole shares of the Buyer's Class
A Convertible Preferred Stock, Series II, obtained by dividing the Stock
Component by $1,000 (the "PREFERRED STOCK"). No fractional shares of Preferred
Stock shall be issued; any such fraction of a share of Preferred Stock shall be
paid in cash at the rate of $1,000 per whole share of Preferred Stock. The
Preferred Stock shall be convertible into shares of the Buyer's Class A Common
Stock, par value $.01 per share (the "COMMON STOCK"), and shall have such rights
and preferences, all as set forth in the Certificate of Designation, Preferences
and Rights with respect to the Preferred Stock, a copy of which is attached as
Exhibit 2.3(b) hereto (the "CERTIFICATE OF DESIGNATION"). Inasmuch as the Seller
intends to distribute the Preferred Stock to certain of its stockholders at
Closing, the Buyer shall issue and deliver the Preferred Stock to the Seller's
stockholders in accordance with any written instructions delivered by the Seller
to the Buyer at least five (5) Business Days prior to the Closing Date.
Notwithstanding the foregoing or any such written instructions, no stockholder
of the Seller shall be issued any Preferred Stock by the Buyer unless (A) such
stockholder is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), (B) such stockholder shall have completed, executed and
delivered to the Buyer an investor qualification questionaire in form and
substance reasonably acceptable to the Buyer, (C) such stockholder shall have
delivered to the Buyer such balance sheets and income tax returns reasonably
requested by the Buyer to confirm such stockholder's status as an "accredited
investor" and (D) if such stockholder is not a party to this Agreement, such
stockholder shall have executed and delivered to the Buyer a certificate, in
form and substance
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reasonably acceptable to the Buyer, whereby such stockholder shall make the
representations and warranties contained in Section 7.16.
(ii) Upon the issuance and delivery of the Preferred Stock to
the Seller at the Closing, the Buyer's sole obligations with respect to the
Preferred Stock and the Common Stock issuable upon conversion thereof (the
"CONVERSION STOCK") shall be as follows:
(A) The Buyer shall use its best reasonable efforts to
make available "current public information" about itself within the meaning of
subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the Securities and
Exchange Commission (the "SEC") under the Securities Act, to the extent
necessary to facilitate resales of the Conversion Stock pursuant to Rule 144 or
any successor rule; and
(B) The Buyer shall remove stop transfer instructions on
and restrictive legends from certificates representing the Conversion Stock to
the extent that either (I) the offer and sale of the Preferred Stock or the
Conversion Stock may hereafter be registered under the Securities Act and under
any applicable state securities or blue sky laws, (II) the Buyer has received an
opinion of counsel, in form and substance reasonably satisfactory to the Buyer,
that registration of such offer and sale is not required, or (III) the Sellers
are eligible to sell the Conversion Stock pursuant to Rule 144 or any successor
rule.
(iii) Except as set forth in the last sentence of this
subsection (iii), during the Lock-Up Period (as defined below), the Seller and
the Stockholders covenant and agree that none of them shall, without the prior
written consent of the Buyer, directly or indirectly, (A) offer, pledge, sell,
sell short, contract to sell, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant for the sale
of, or otherwise dispose of or transfer any shares of the Conversion Stock, the
Preferred Stock or any securities convertible into or exchangeable or
exercisable for the Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act, with respect to any of the foregoing, or (B) enter into any swap
or any other agreement or hedging arrangement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence of
ownership of the Conversion Stock or the Preferred Stock, whether any such swap
or transaction is to be settled by delivery of Conversion Stock or other
securities, in cash or otherwise. The "LOCKUP PERIOD" shall be for a period
beginning on the Closing Date and ending on the date that is one (1) year after
the date on which all of such shares of Preferred Stock have been converted into
Conversion Stock. Notwithstanding the foregoing, the provisions of this Section
2.3(b)(iii) shall not prevent the Seller and the Stockholders from selling any
shares of Conversion Stock pursuant to Rule 144 or any successor rule or from
converting any shares of Preferred Stock.
2.4 ASSIGNMENT AND ASSUMPTION.
(a) At the Closing, the Seller will assign to the Buyer the
Liabilities, and the Buyer will assume and agree to perform and discharge the
Liabilities, pursuant to an assignment and
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assumption agreement with the Seller in a form reasonably acceptable to the
Seller's counsel (the "ASSUMPTION AGREEMENT"). At the option of the Buyer, the
Buyer may assume the Seller's liabilities with regard to accrued vacation and
sick leave, as of the Closing, for all employees of the Business. If the Buyer
assumes such liabilities, the Buyer will receive, at closing, a credit against
the Purchase Price in the aggregate amount of such liabilities. Notwithstanding
anything herein to the contrary, except as expressly provided in this Section
2.4 and in the Assumption Agreement, the Buyer does not and will not assume or
become liable, or otherwise be responsible, for any obligations or liabilities
of the Seller, of any kind whatsoever, fixed or contingent, known or unknown,
and whether or not any of such liabilities or obligations are the subject matter
of any of the representations and warranties of the Seller in this Agreement
(collectively, the "RETAINED LIABILITIES"), as a result of the transactions
contemplated in this Agreement. The Seller shall retain and agrees to satisfy
and discharge, and otherwise be responsible for, all of the Retained
Liabilities, including without limitation the Retained Liabilities set forth on
Part II of Schedule 2.4.
(b) Notwithstanding the provisions of Section 2.4(a) above, at the
Closing, the Buyer may, if reasonably necessary, elect to assume the Seller's
floor plan indebtedness outstanding as of the Closing and/or other indebtedness
outstanding as of the Closing, in which case the Aggregate Purchase Price
payable in cash at the Closing will be reduced by the unpaid principal of, and
accrued interest on, such indebtedness outstanding as of the Closing, as set
forth in estoppel and/or payoff letters from the respective lenders, or as
otherwise mutually agreed by the Buyer and the Seller. In the event of such
assumption, such indebtedness shall become part of the "Liabilities" for all
purposes of this Agreement (including, without limitation, the indemnification
obligations of the Buyer under Section 10.6 below); provided, however that the
Seller and the Stockholders shall indemnify the Buyer for any breaches or
defaults of the Seller with respect to such floor plan arrangements and
agreements.
2.5 DEALERSHIP LEASE. At the Closing, the Buyer and the Landlords
will execute and deliver the Dealership Lease.
2.6 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 Seller hereby agrees to pay to the Buyer not later than January 29,
2000, the sum of $500,000 (the "Inducement Fee"). The Inducement Fee will be
included in the Liabilities 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 Assets) who acquires,
directly or indirectly, the Assets, or any portion thereof, as a result of the
execution and delivery by the Seller of this Agreement. 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 the Manufacturer or any person claiming by, through or under it. Subject to
the foregoing, the obligation to pay the Inducement Fee shall survive the
termination of this Agreement.
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2.7 EMPLOYMENT AGREEMENT. At the Closing, Jim Glover shall enter into an
employment agreement with the Buyer substantially in the form of Exhibit 2.7
attached hereto (the "EMPLOYMENT AGREEMENT").
ARTICLE III
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES
3.1 NEW VEHICLES. At the Closing, the Buyer shall purchase all of the
Seller's untitled new motor vehicles (meaning (i) current model year vehicles as
of the Closing Date and (ii) if the Closing occurs on or before January 31,
1999, 1999 model year vehicles but excluding from clauses (i) and (ii)
conversion vans or similar-type vehicles that have been in inventory longer than
180 days, rental cars and company vehicles) in the Seller's stock and unsold by
the Seller as of the Closing Date and which are listed on Schedule 3.1 hereto,
which schedule the Seller shall deliver to the Buyer not more than three (3)
days prior to the Closing (the "NEW VEHICLES"). The purchase price to be paid by
the Buyer for each New Vehicle shall be the price at which the New Vehicle was
invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article
III (the sum of all such amounts to be paid for New Vehicles as determined by
this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE");
provided, however, the purchase price of any pre-reported sold vehicles for
which the sale cannot be reversed shall be as mutually agreed by the Buyer and
the Seller. In the event the Buyer and the Seller cannot agree upon a price with
respect to any such pre- reported sold vehicle, the Buyer shall not be obligated
to purchase, and the Seller shall not be obligated to sell, such vehicle.
Schedule 3.1 shall set forth the model, invoice cost, and all other information
necessary to calculate the New Vehicle Purchase Price with respect to each New
Vehicle listed in such Schedule 3.1. At the Closing, the Seller shall assign to
the Buyer, without any additional consideration therefor, by appropriate
documents reasonably satisfactory to the Buyer, all unfilled retail orders and
deposits made thereon. Any profits or proceeds derived from such unfilled retail
orders shall belong to the Buyer.
3.2 DEMONSTRATORS. At the Closing, the Buyer shall purchase all of the
Seller's untitled new motor vehicles (meaning (i) current model year vehicles as
of the Closing Date and (ii) if the Closing occurs on or before January 31,
1999, 1999 model year vehicles but excluding from clauses (i) and (ii)
conversion vans or similar-type vehicles that have been in inventory longer than
180 days, rental cars and company vehicles) in the Seller's stock and unsold by
the Seller as of the Closing Date which are used in the ordinary course of
business for the purpose of demonstration, and that are listed on Schedule 3.2,
which schedule the Seller shall deliver to the Buyer no more than three (3) days
prior to the Closing (the "DEMONSTRATORS"). For purposes of this Agreement, (a)
each motor vehicle with more than 6,000 miles on its odometer and (b) each
vehicle which is used for the purpose of demonstration and which is not a
current model year vehicle as of the Closing Date shall be deemed to be "used"
rather than a "Demonstrator" or "New Vehicle". The purchase price to be paid by
the Buyer for each Demonstrator shall be the price at which the Demonstrator was
invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article
III, and, if such Demonstrator has an odometer reading in excess of 500 miles,
as reduced by an amount equal to ten cents ($.10)
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multiplied by the total mileage on the odometer (the sum of all such amounts to
be paid for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR
PURCHASE PRICE"). Schedule 3.2 shall set forth each Demonstrator's model,
invoice cost, odometer reading and all other information necessary to calculate
the Demonstrator Purchase Price with respect to such Demonstrator.
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The
purchase price paid for each New Vehicle and each Demonstrator purchased under
this Article III shall be: (a) increased by the dealer cost of any equipment and
accessories which have been installed in such vehicle; and (b) decreased by the
sum of (i) the dealer cost of any equipment and accessories which have been
removed from such vehicle, (ii) if such vehicle shall have been in inventory for
less than thirty (30) days as of the Closing Date, any factory floor plan
assistance and advertising credits relative to such vehicle, and (iii) all paid
or unpaid rebates, discounts, holdback for dealer account and other factory
incentives (including without limitation rebates applied for and paid but not
earned and incentive monies claimed on pre-reported units).
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. If any New
Vehicles or Demonstrators shall have suffered any damage prior to the Closing
Date which is not reflected on Schedule 3.1 or Schedule 3.2, the Seller shall
notify the Buyer in writing on or prior to the Closing Date. In such case, the
Seller and the Buyer will attempt to agree on the cost to cover such repairs or
some other equitable reduction in value to reflect such condition, which amount
shall be deducted from the price to be paid for such New Vehicle or
Demonstrator. In the event the Buyer and the Seller cannot agree on the cost of
repairs or the amount of reduction, the Buyer shall have no obligation to
purchase any such damaged New Vehicle or Demonstrator and the Seller shall have
no obligation to sell such damaged New Vehicle or Demonstrator. With respect to
any New Vehicle or Demonstrator which shall have been damaged and repaired prior
to the Closing Date, the Seller and the Buyer will attempt to agree on an
adjustment to the price to reflect the decrease, if any, in the wholesale value
of such New Vehicle or Demonstrator resulting from such damage and repair, which
amount shall be deducted from the price to be paid for such New Vehicle or
Demonstrator. In the event the Buyer and the Seller cannot agree on such
adjustment, the Buyer shall have no obligation to purchase such New Vehicle or
Demonstrator and the Seller shall have no obligation to sell such New Vehicle or
Demonstrator.
3.5 USED VEHICLES. The Buyer shall have no obligation to purchase any
vehicle from the Seller other than its obligation hereunder to purchase the New
Vehicles and the Demonstrators. The Seller and the Buyer shall perform an
inventory of the Seller's motor vehicles that are not New Vehicles or
Demonstrators (including conversion vans or similar-type vehicles that have been
in inventory longer than 180 days, rental cars and company vehicles) as of the
Inventory Date and, in connection with such inventory, the Seller and the Buyer
shall attempt to assign a mutually agreed price to each such vehicle owned by
the Seller as of the Closing Date. Any such vehicles as to which the Seller and
the Buyer are unable to agree upon a price shall not be purchased by the Buyer
in connection herewith. Any such vehicles as to which the Seller and the Buyer
shall agree upon a price are collectively referred to herein as the "USED
VEHICLES," and shall be purchased by the Buyer, and sold by the Seller, at the
Closing. The aggregate sum of all prices assigned to such Used
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Vehicles to be purchased by the Buyer pursuant to the terms of this Section 3.5
shall be referred to herein as the "USED VEHICLE PURCHASE PRICE."
ARTICLE IV
PARTS/ACCESSORIES
4.1 THE INVENTORY. The Buyer and the Seller shall engage a mutually
acceptable third party engaged in the business of appraising, valuing and
preparing inventories for automobile dealerships (hereinafter referred to as the
"INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts
and accessories, as well as of the Miscellaneous Inventories (as defined in
Section 5.1), owned by and either used or held for use by the Seller in the
Business. The Inventory (insofar as it relates to parts and accessories) shall
be posted to the Manufacturer's approved system of inventory control. The cost
of the Inventory shall be borne 50% by the Buyer and 50% by the Seller. The
Buyer shall have the right to deduct the Seller's portion of such expense from
the consideration to be paid to the Seller under the terms of this Agreement and
to remit such sums directly to the Inventory Service. The Inventory shall be
completed by the Inventory Date. The Inventory shall identify each part and
accessory and its purchase price.
4.2 RETURNABLE AND NON-RETURNABLE REPLACEMENT PARTS AND ACCESSORIES. The
Inventory shall classify replacement parts and accessories as "returnable" or
"nonreturnable." For purposes of this Agreement, the terms "returnable parts"
and "returnable accessories" shall describe and include only those new
replacement parts and new accessories (excluding prior model year vehicle parts
and accessories) for vehicles which are listed (coded) in the latest current
Master Parts Price List Suggested List Prices and Dealer Prices, or other
applicable similar price lists, of the Manufacturer, with supplements or the
equivalent in effect as of the Closing Date (the "MASTER PRICE LIST"), as
returnable to the Manufacturer at not less than the purchase price reflected in
the Master Price List or in the most recent applicable price list. All parts and
accessories listed (coded) in the Master Price List as non-returnable to the
Manufacturer shall be classified as "nonreturnable." The purchase price for each
"returnable part" and "returnable accessory" will be the price therefor listed
in the Master Price List. The purchase price of each "nonreturnable" part and
accessory shall be equal to a value mutually agreed upon by Buyer and the
Seller. Any such "nonreturnable" part or accessory as to which the Buyer and the
Seller are unable to agree upon a price shall not be purchased by the Buyer in
connection herewith. The purchase price of all special order, non-stock,
"Jobber" or "NPN" parts shall be equal to the Seller's original cost of such
parts. The purchase price of all nuts, bolts and any other parts not addressed
in this Section 4.2 shall equal the fair market value thereof as determined by
the Inventory Service. The Buyer shall not be required to purchase any damaged
parts or accessories, parts and accessories with component parts missing,
superseded or obsolete parts or accessories, or used parts or accessories.
4.3 PARTS. At the Closing, the Buyer shall purchase all parts and
accessories owned by the Seller on the Closing Date and listed on the Inventory
(the "PARTS") provided, however, that the Buyer shall not be obligated to
purchase any damaged parts or accessories, parts and accessories with component
parts missing, superseded or obsolete parts or accessories, or used parts or
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accessories. The Seller agrees that if parts and accessories that the Buyer is
not obligated to purchase hereunder are not removed from the Leased Premises
within thirty (30) days after the Closing Date, they shall become the property
of the Buyer without the payment of any consideration in addition to the
consideration otherwise provided herein. The Buyer agrees to provide access to
the Seller for the purpose of removing such property during such thirty (30) day
period.
4.4 PARTS PURCHASE PRICE. The purchase price for the Parts will equal the
value of such items shown on the Inventory, subject to the provisions of Section
4.2 above (the "PARTS PURCHASE PRICE").
4.5 PARTS RETURN PRIVILEGES. The Seller shall assign to the Buyer at
Closing any net parts return privileges under the Manufacturer's Parts Return
Plans that may have accrued to the Seller prior to the Closing (and any other
special parts return authorizations which may have been granted to the Seller by
Manufacturer). At the request of the Buyer, the Seller shall use its reasonable
best efforts to assist the Buyer in effecting any one-time parts return offered
by the Manufacturer, and will promptly pay over to the Buyer any monies received
from the Manufacturer related thereto.
ARTICLE V
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT
5.1 MISCELLANEOUS INVENTORIES. At the Closing, the Buyer shall purchase
all useable gas, oil and grease, all undercoat material and body materials in
unopened cans and such other miscellaneous useable and saleable articles in
unbroken lots (including office supplies) which (i) are on the Seller's
dealership premises, (ii) are owned by the Seller on the Closing Date, (iii) do
not represent more than a sixty (60) day supply of any particular item(s), and
(iv) are identified in the Inventory taken by the Inventory Service on the
Inventory Date the ("MISCELLANEOUS INVENTORIES"). The purchase price for the
Miscellaneous Inventories shall be equal to the replacement cost of the
Miscellaneous Inventories as determined by the Inventory Service and set forth
on the Inventory (the sum of all prices of the Miscellaneous Inventories
pursuant to the terms of this Section 5.1 shall be referred to herein as the
"MISCELLANEOUS INVENTORIES PURCHASE PRICE").
5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. The Buyer shall
have no obligation to purchase any miscellaneous items that are not included in
the Miscellaneous Inventories. The Seller agrees that any miscellaneous items
that are not included in the Miscellaneous Inventories and are not removed from
the Leased Premises within thirty (30) days after the Closing Date shall become
the property of the Buyer without the payment of any consideration in addition
to the consideration otherwise provided herein. The Buyer agrees to provide
access to the Seller for the purpose of removing such property during such
thirty (30) day period.
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5.3 WORK IN PROGRESS. At the Closing, the Buyer shall buy at the Seller's
actual cost for parts and labor such shop labor and sublet repairs as the Seller
shall have caused to be performed on any repair orders which are in process at
the opening of business on the Closing Date for which there are adequate credit
arrangements (the "WORK IN PROGRESS") (the aggregate sum of all costs of the
Seller for the Work in Progress pursuant to the terms of this Section 5.3 shall
be referred to herein as the "WORK IN PROGRESS PURCHASE PRICE"). The Buyer shall
complete such repair work and shall be entitled to the entire proceeds to be
collected for such services.
5.4 FIXTURES AND EQUIPMENT. At the Closing, the Buyer shall purchase all
fixtures, machinery, equipment (including special tools and shop equipment, but
excluding leasehold improvements), furniture and all signs and office equipment
(including, without limitation, computer equipment used in normal dealership
operations) owned by the Seller and used or held for use by the Seller in
connection with the Business, including the items listed on Schedule 5.4 hereto,
which the Seller shall deliver to the Buyer not later than five (5) days prior
to the Closing (collectively referred to herein as the "FIXTURES AND
EQUIPMENT"). The purchase price for all Fixtures and Equipment which have been
purchased by the Seller on or after December 1, 1998 shall be the actual cost
thereof as depreciated by the modified accelerated costs recovery system
depreciation method as reflected in Schedule 5.4. The purchase price for all
Fixtures and Equipment which were purchased by the Seller prior to December 1,
1998 shall be equal to the depreciated book value thereof as of November 30,
1998 less an amount equal to seventy-five percent (75%) of the book depreciation
thereof from December 1, 1998 through the Closing Date as reflected in Schedule
5.4. The aggregate purchase price for all Fixtures and Equipment shall be
referred to herein as the "FIXTURES AND EQUIPMENT PURCHASE PRICE"; provided,
however, the Fixtures and Equipment Purchase Price shall not include the value
of any items of Fixtures and Equipment which are leased pursuant to contracts or
leases included in the Assumed Liabilities.
5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any
additional consideration, the Buyer shall purchase all of the Seller's (i)
unused shop repair orders, parts sales tickets, accounting forms, binders,
office and shop supplies (not in unbroken lots) and such shop reference manuals,
parts reference catalogs, non-accounting file copies for all sales of the Seller
for the three (3) years preceding the Closing Date, (ii) copies of new and used
car sales records and specifically wholesale parts sales records, new and used
parts sales records, and service sales records for the three (3) years preceding
the Closing Date, (iii) product sales training material and reference books on
hand as of the Closing Date, (iv) customer and registration lists pertaining to
the sale of motor vehicles, service files, repair orders, owner follow-up lists
and similar records relating to the operation of the Business, (v) telephone
numbers and listings used by the Seller in connection with the Business, (vi)
names and addresses of the Seller's service customers and prospective
purchasers, (vii) all lawfully transferrable licenses and permits of the
Business, (viii) all rights and claims under or arising out of the contracts and
leases included in the Liabilities, and (ix) the Seller's rights to the
tradenames listed on Schedule 5.5 hereto, and any similar variations thereof
(all the foregoing items collectively referred to herein as the "MISCELLANEOUS
ASSETS").
5.6 CERTAIN RECORDS OF THE SELLER; ACCESS BY THE SELLER. The Seller may
retain all corporate records, financial records and correspondence which are not
necessary for the continued
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operation of the Business by the Buyer. All records not retained by the Seller
shall be referred to as the "TRANSFERRED RECORDS." The Buyer agrees to maintain
the Transferred Records for a period not less than six (6) years after the
Closing Date. The Seller and the Seller's representatives may have access to
review and copy such information during the Buyer's regular business hours, upon
reasonable notice, if such information is necessary to wind up the Seller's
business affairs.
5.7 WARRANTY OBLIGATIONS OF THE SELLER. To the extent that the Seller may
have issued warranties on the vehicles sold by the Seller on or prior to the
Closing Date and to the extent such warranties are not included in the Work in
Progress, the Buyer shall have no responsibility to perform any services
required under such warranties, unless authorized in writing by the Seller
accompanied by arrangements in writing satisfactory to the Buyer to assure the
Buyer of payment for all work performed by the Buyer, and, if so authorized by
the Seller, the Seller shall reimburse the Buyer for all of the Buyer's costs
for parts and labor in connection therewith at established internal rates for
parts and labor. At the Closing Date, the Seller shall supply the Buyer with a
list to which such warranties and guaranties, if any, are applicable, which list
shall include the names of the purchasers, the make and year model of the
vehicles purchased and the date of purchase. The Seller shall also supply to the
Buyer at or prior to the Closing Date an address for and a designation of the
person who will be responsible for authorizing the Buyer to perform any services
under such warranties, if any, issued by the Seller on vehicles sold by it on or
prior to the Closing Date. The Seller shall reimburse the Buyer promptly upon
demand for all sums due or payable by the Seller to the Buyer hereunder.
5.8 ACCOUNTS RECEIVABLE. The Seller shall retain all accounts receivable
arising out of the operation of the Business prior to the Closing Date and the
Buyer shall retain all accounts receivable arising out of sales and/or services
of the Business on or after the Closing Date. After the Closing Date, the Buyer
shall cooperate with the Seller and shall use reasonable and ordinary efforts,
including providing the Seller access to the Buyer's books, records and
employees (at the Seller's expense) to assist the Seller in its efforts to
collect its accounts receivable for a period of six (6) months after the
Closing. The Buyer shall accept payment of the Seller's accounts receivable at
no charge to the Seller for a period of six (6) months after the Closing, and
shall forward to the Seller, promptly upon receipt, all the money so received on
said accounts. Notwithstanding anything to the contrary stated herein, the Buyer
shall have no responsibility to collect any of the Seller's accounts receivable.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller and the Stockholders as
follows:
6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or
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use the properties it purports to own and use and to carry on its business as
now being conducted. The Board of Directors of the Buyer has, or prior to the
Closing will have, duly approved this Agreement, all other agreements,
certificates and documents executed or to be executed by the Buyer in connection
herewith, and the transactions contemplated hereby and thereby. The Buyer has
full corporate power and authority to execute and deliver this Agreement and all
other agreements, certificates and documents executed or to be executed by the
Buyer in connection herewith, to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. This
Agreement, and all other agreements, certificates and documents executed or to
be executed by the Buyer in connection herewith, constitute or, when executed
and delivered, will constitute legal, valid and binding agreements of the Buyer
enforceable against the Buyer in accordance with their respective terms.
6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of the Buyer's Restated Certificate of Incorporation or Bylaws, each as amended,
or any resolution of the Board of Directors or the stockholders 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; (c) violate or
conflict with or result in a breach of, or constitute a default under, any
material instrument, agreement or indenture or any mortgage, deed of trust or
similar contract to which the Buyer is a party or by which the Buyer is 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.
6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to
the knowledge of the Buyer, threatened against or affecting the Buyer which
might adversely affect the power or authority of the Buyer to carry out the
transactions to be performed by it hereunder.
6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock,
as well as the shares of Conversion Stock, has been duly authorized by all
necessary corporate action of the Buyer. Upon the issuance of the Preferred
Stock pursuant to this Agreement, and upon the issuance of shares of Conversion
Stock, such Preferred Stock and/or Conversion Stock, as the case may be, shall
be validly issued, fully paid and non-assessable.
6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of:
(a) 3,000,000 shares of Preferred Stock, par value $0.10 per share,
of which 300,000 shares are designated Class A Convertible Preferred Stock and
are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED
STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and
100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of August
23, 1999, approximately 12,947 shares of Series I Preferred Stock are issued and
outstanding and/or are committed to be issued by the Buyer, approximately 6,775
shares of Series II Preferred Stock are issued and outstanding and/or are
committed to be issued by the Buyer, and approximately
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11,683 shares of Series III Preferred Stock are issued and outstanding and/or
are committed to be issued by the Buyer;
(b) 100,000,000 shares of Class A Common Stock, par value $0.01 per
share, of which 23,447,763 shares are issued and outstanding as of August 23,
1999; and
(c) 30,000,000 shares of Class B Common Stock, par value $0.01 per
share, of which 12,300,000 shares are issued and outstanding as of August 23,
1999.
All outstanding capital stock of the Buyer is duly authorized, validly issued,
fully paid and non-assessable and has been issued in conformity with all
applicable federal and state securities laws.
6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent
copies of (i) the Buyer's Prospectus dated April 29, 1999 (the "PROSPECTUS"),
(ii) the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December
31, 1998, (iii) the Buyer's Quarterly Report on Form 10-Q for the three-month
period ended on each of March 31, 1999 and June 30, 1999, (iv) any Current
Reports on Form 8-K, filed after January 1, 1999, each in the form (excluding
exhibits) filed with the SEC, and (v) the Buyer's proxy statement dated May 19,
1999 (collectively, such Forms 10-K, 10-Q, and 8-K and the proxy statement being
hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the
Reports contained, at the time of filing thereof with the SEC, 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 light of
the circumstances in which they were made, not misleading.
6.7 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by
the Buyer in this Agreement, and no statement contained in any agreement,
instrument, certificate or schedule furnished or to be furnished by the Buyer
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 VII
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE STOCKHOLDERS
The Seller and each of the Stockholders, jointly and severally, represent
and warrant to the Buyer, as follows:
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Oklahoma, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. The Stockholders own all of the issued and outstanding stock of
the Seller. Schedule 7.1 sets forth each person or entity which has an ownership
interest in the Seller and the extent and nature of such
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ownership interest held by such owner. There are no outstanding options or
warrants with respect to the capital stock of the Seller, nor are there any
outstanding securities which are convertible or exchangeable into capital stock
of the Seller. There are no voting trusts, shareholder agreements or other
agreements, instrument or rights of any kind or nature whatsoever outstanding
with respect to shares of capital stock of the Seller. The Seller has full
corporate power and authority to execute and deliver this Agreement and all
other agreements, certificates and documents executed or to be executed by the
Seller in connection herewith, to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. The
Stockholders have full capacity, power and authority to execute and deliver this
Agreement and all other agreements, certificates and documents executed or to be
executed by the Stockholders in connection herewith, to consummate the
transactions contemplated hereby and thereby and to perform their obligations
hereunder and thereunder. This Agreement, and all other agreements, certificates
and documents executed or to be executed by the Seller in connection herewith,
have been duly authorized by all necessary corporate action and constitute or,
when executed and delivered, will constitute legal, valid and binding agreements
of the Seller enforceable against the Seller in accordance with their respective
terms. This Agreement, and all other agreements, certificates and documents
executed or to be executed by the Stockholders in connection herewith,
constitute or, when executed and delivered, will constitute legal, valid and
binding agreements of the Stockholders enforceable against the Stockholders in
accordance with their respective terms. The Seller has never operated the
Business under any tradenames other than the tradenames listed or referred to in
Section 5.5.
7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of the Seller's Articles of Incorporation or Bylaws, each as amended, or any
resolution of the Board of Directors or stockholders of the Seller; (b) violate
any law, ordinance, rule or regulation or any judgment, order, writ, injunction
or decree or similar command of any court, administrative or governmental agency
or other body applicable to the Seller, any of the Assets, the Business or any
of the Liabilities; (c) violate or conflict with or result in a breach of, or
constitute a default under, or an event giving rise to a right of termination
of, any Contract (as defined in Section 7.10), any material instrument,
agreement or indenture or any mortgage, deed of trust or similar contract to
which the Seller or any of the Stockholders is a party or by which the Seller,
any of the Stockholders or any of the Assets are bound or affected; (d) result
in the creation or imposition of any Encumbrance upon any of the 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.
7.3 LITIGATION. There are no actions, suits or proceedings pending or, to
the knowledge of the Seller and the Stockholders, threatened against the Seller
or any of the Stockholders which might adversely affect the power or authority
of any of them to carry out the transactions to be performed by any of them
hereunder. There are no actions, suits or proceedings pending, or, to the
knowledge of the Seller and the Stockholders, threatened against or affecting
the Seller, other than those disclosed on Schedule 7.3 attached hereto, and none
of the actions, suits or proceedings described on Schedule 7.3, if determined
adversely to the Seller, will have, or could reasonably be
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expected to have, a material adverse effect upon the Assets or the Liabilities
of the Seller or the business, prospects, properties, earnings, results of
operations or condition (financial or otherwise) of the Business. All actions,
suits or proceedings pending, or, to the knowledge of the Seller and the
Stockholders, threatened against or affecting the Seller are covered in full by
insurance, without any reservation of rights, subject only to the payment of
applicable deductibles.
7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4
attached hereto, the Seller has good title to the Assets, free and clear of all
liens (including tax liens), security interests, encumbrances, actions, claims,
payments or demands of any kind and character (collectively, "ENCUMBRANCES"),
except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad
valorem personal property taxes not yet due and payable. All of the Assets to be
transferred hereunder conform, as to condition and character, to the
descriptions of such Assets contained herein and will be transferred at the
Closing free and clear of all Encumbrances, except Encumbrances for ad valorem
personal property taxes not yet due and payable. There is no existing claim, or,
to the knowledge of the Seller and the Stockholders, any basis for any claim,
against the Seller that the Business or any of its operations, activities or
products infringe the patents, trademarks, trade names, copyrights or other
property rights of others or that the Seller is wrongfully or otherwise using
the property rights of others. There is no existing claim, or, to the knowledge
of the Seller and the Stockholders, any basis for any claim, by the Seller
against any third party that the operations, activities or products of such
third party infringe the patents, trademarks, trade names, copyrights or other
property rights of the Seller or that such other third party is wrongfully or
otherwise using the property rights of the Seller.
7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached
hereto, there are no permits or approvals used or obtained for use by the Seller
which are required under applicable law in connection with the ownership or
operation of the Business.
7.6 FINANCIAL STATEMENTS.
(a) The Seller has delivered to the Buyer the Seller's annual
financial statements for each of the last two fiscal years of the Seller, as
well as the monthly year-to-date financial statements of the Seller, all as
described in Schedule 7.6(a)(i) attached hereto (the "FINANCIAL STATEMENTS").
The Financial Statements have been prepared in accordance with the
Manufacturer's published accounting manual and generally accepted industry
accounting standards, each consistently applied. Each balance sheet included in
the Financial Statements fairly presents the financial condition of the Seller
as of the date thereof, and each related statement of income included in the
Financial Statements fairly presents the results of the operations of the Seller
for the period indicated, all in accordance with the Manufacturer's published
accounting manual and generally accepted industry accounting standards, each
consistently applied. Except as set forth on Schedule 7.6(a)(ii), to the
knowledge of the Seller and the Stockholders, the Financial Statements contain
adequate reserves for all reasonably anticipated claims relating to matters with
respect to which the Seller is self insured. The Financial Statements are in
accord with the books and records of the Seller, which books and records are
true, correct and complete in all material respects.
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(b) The Seller has no outstanding material claims, liabilities,
obligations or indebtedness of any nature, fixed or (to the knowledge of the
Seller or the Stockholders) contingent, of a kind or type required by the
Manufacturer's published accounting manual or generally accepted industry
accounting standards to be reflected in the Financial Statements other than
those which are (i) set forth in the Financial Statements; (ii) specified in the
Schedules to this Agreement; or (iii) incurred in the ordinary course of
business since the date of the Financial Statements and are of the kind and type
reflected in the Financial Statements.
7.7 BROKERS AND FINDERS. Neither the Seller nor any of the Stockholders
has engaged any broker or any other person or entity who would be entitled to
any brokerage commission or finder's fee in respect of the execution of this
Agreement and/or the consummation of the transactions contemplated hereby, other
than Ben Hicks & Associates, Inc., which fee or commission the entire cost will
be borne by the Seller.
7.8 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 7.8(a) attached hereto, the
Assets and the Leased Premises comply in all material respects with, and the
Business has been conducted in all material respects in compliance with, all
laws, rules and regulations (including all worker safety and all Environmental
Laws (as hereinafter defined)), applicable zoning and other laws, ordinances,
regulations and building codes, and neither the Seller nor any of the
Stockholders has received any notice of any violation thereof which has not been
remedied.
(b) Except as set forth on Schedule 7.8(b) attached hereto, (i) the
Seller has not at any time generated, used, treated or stored Hazardous
Materials (as hereinafter defined) on, or transported Hazardous Materials to or
from, the Leased Premises or any property adjoining or adjacent to the Leased
Premises and, to the knowledge of the Seller and the Stockholders, no party has
taken such actions on or with respect to the Leased Premises, provided, however,
certain petroleum products are stored and handled by the Seller in the ordinary
course of business in compliance in all material respects with all Environmental
Laws, (ii) the Seller has not at any time released or disposed of Hazardous
Materials on the Leased Premises or any property adjoining or adjacent to the
Leased Premises, and, to the knowledge of the Seller and the Stockholders, no
party has taken any such actions on the Leased Premises, (iii) the Seller has at
all times been in compliance in all material respects with all Environmental
Laws and the requirements of any permits issued under such Environmental Laws
with respect to the Leased Premises, the Assets and the operation of the
Business, (iv) there are no past, pending or, to the knowledge of the Seller and
the Stockholders, threatened environmental claims against the Seller, the Leased
Premises, any of the Assets or the Business, (v) to the knowledge of the Seller
and the Stockholders, there are no facts or circumstances, conditions or
occurrences regarding the Seller, the Leased Premises, any of the Assets or the
Business that could reasonably be anticipated to form the basis of an
environmental claim against the Seller, any of the Assets or the Business or to
cause the Leased Premises, Assets or Business to be subject to any restrictions
on its ownership, occupancy, use or transferability under any Environmental Law,
(vi) there are not now and, to the knowledge of the Seller and the Stockholders,
never have been any underground storage tanks located on the Leased Premises,
(vii)
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the Seller has not, nor to the knowledge of the Seller and the Stockholders has
any other person, ever transported or arranged for the transportation of any
Hazardous Materials to any site other than the Leased Premises, and (viii)
except as set forth on Schedule 7.8(b), neither the Seller nor any Stockholder
has operated the Business at any location other than the Leased Premises. The
Seller has not received any notice, claim or demand from governmental entity or
other person regarding the presence of Hazardous Materials at, on, under or
around the Leased Premises or alleging that the Leased Premises is in violation
of any Environmental Laws. As used herein, the term "ENVIRONMENTAL LAWS" shall
mean 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 governmental authority relating to pollution or Hazardous
Materials or protection of human health or the environment, including, but not
limited to, the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), as amended. As used herein, the term "HAZARDOUS MATERIALS" means
any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, asbestos, radioactive materials,
polychlorinated biphenyls, 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, regulated under or as defined
by any Environmental Law.
(c) Neither the Seller nor any of the Stockholders, nor any
director, officer, agent or employee of the Seller or, to the knowledge of the
Seller and the Stockholders, any other person or entity associated with or
acting for or on behalf of the Seller, has, directly or indirectly, made any
unlawful contribution, gift, bribe, rebate, payoff, influence payment, kickback,
or other payment to any person or entity, regardless of form, whether in money,
property or services: (i) to obtain favorable treatment in securing business,
(ii) to pay for favorable treatment for business secured, or (iii) to obtain
special concessions or for special concessions already obtained from the Seller.
7.9 FIXTURES AND EQUIPMENT; LEASED PREMISES. (a) The Fixtures and
Equipment constitute in the aggregate all of the fixtures, machinery, equipment,
furniture, signs and office equipment used or intended for use by the Seller in
the Business. All Demonstrators have been operated in the ordinary course of
business, are operated with dealer tags and have not had certificates of title
issued with respect to them.
(b) The Seller does not have any rights, title or interest in or to
any real property other than its leasehold interests in the Leased Premises, and
the only real property used by the Seller in connection with the Business is the
Leased Premises. Schedule 7.9(b) hereto contains a complete list and description
(including buildings and other structures thereon and the name of the owner
thereof) of all real property of which the Seller is a tenant (herein
collectively referred to as the "LEASED PREMISES,"). True, correct and complete
copies of all leases of all Leased Premises (the "LEASES") have been delivered
to the Buyer. The Fixtures and Equipment and the Leased Premises (including,
without limitation, the roof, the walls and all plumbing, wiring, electrical,
heating, air conditioning, fire protection and other systems, as well as all
paved areas, included therein or located thereat) are in good working order,
condition and repair and are not in need of maintenance or repairs except for
maintenance and repairs which are routine, ordinary and not
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material in nature or cost. The Seller and the Stockholders do not have any
knowledge of any event or condition which currently exists which would create a
legal or other impediment to the use of the Leased Premises as currently used,
or would increase the additional charges or other sums payable by the tenant
under any of the Leases (including, without limitation, any pending tax
reassessment or other special assessment affecting the Leased Premises).
(c) 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 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 mechanics' or
materialman's lien against the Leased Premises; and there is no person or entity
other than the Seller in or entitled to possession of the Leased Premises.
(d) The Seller has 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, all such
easements and rights are perpetual, unconditional appurtenant rights to the
Leased Premises, and none of such easements or rights are subject to any
forfeiture or divestiture rights.
(e) Neither the whole nor any portion of any of the Leased Premises
has been condemned, expropriated, ordered to be sold or otherwise taken by any
public authority, with or without payment or compensation therefor, and the
Seller and the Stockholders do not know of any such condemnation, expropriation,
sale or taking, or have any grounds to anticipate that any such condemnation,
expropriation, sale or taking is threatened or contemplated. The Seller and the
Stockholders have no knowledge of any pending assessments which would affect the
Leased Premises.
(f) None of the Leased Premises is in violation of any public or
private restriction or any federal, state or local laws, rules, ordinances,
codes or regulations, including without limitation, any building, zoning,
health, safety or fire laws, rules, ordinances, codes or regulations, and no
notice from any governmental body has been served upon the Seller or upon any of
the Leased Premises claiming any violation of any such law, ordinance, code or
regulation or requiring or calling to the attention of the Seller the need for
any work, repair, construction, alterations or installation on or in connection
with said properties which has not been complied with. All improvements which
comprise a part of the Leased Premises are located within the record lines of
the Leased Premises and none of the improvements located on the Leased Premises
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 Leased
Premises or any easements or rights of way servicing the Leased Premises.
7.10 CONTRACTS. The Seller has in all material respects performed all of
its obligations required to be performed by it to the date hereof, and is not in
default or alleged to be in default in any material respect, under any contract
or lease to be assigned to the Buyer hereunder (collectively, the "CONTRACTS"),
and there exists no event, condition or occurrence which, after notice or lapse
of
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time or both, would constitute such a default. To the knowledge of the Seller
and the Stockholders, no other party to any Contract is in default in any
respect of any of its obligations thereunder. Each of the Contracts is valid and
in full force and effect and enforceable against the Seller in accordance with
its terms, and, to the knowledge of the Seller and the Stockholders, enforceable
against the other parties thereto in accordance with its terms. Except as set
forth in Schedule 7.2 hereto, each Contract is assignable to the Buyer without
the consent of the other party(ies) thereto.
7.11 ADEQUACY OF ASSETS. Except for the Seller's cash and accounts
receivable and rights under its dealership agreements with the Manufacturer, the
Assets of the Seller, together with the Leased Premises and the Contracts
(including all equipment leased pursuant to the equipment leases included in the
Contracts) of the Seller, comprise all of the assets, properties, contracts,
leases and rights necessary for the Buyer to operate the Business substantially
in the manner operated by the Seller prior to the Closing. The failure by the
Seller to satisfy and discharge in full any of the Retained Liabilities will not
have, and could not reasonably be expected to have, a material adverse effect
upon any of the Assets or Liabilities or the prospects, properties, earnings,
results of operations or condition (financial or otherwise) of the Business.
7.12 TAXES. The Seller has filed all federal, state and local governmental
tax returns required to be filed by it in accordance with the provisions of law
pertaining thereto and has paid all taxes and assessments (including, without
limitation of the foregoing, income, excise, unemployment, social security,
occupation, franchise, property and import taxes, duties or charges and all
penalties and interest in respect thereof) required by such tax returns or
otherwise to have been paid to date.
7.13 EMPLOYEES; EMPLOYEE BENEFIT PLANS.
(a) Schedule 7.13(a) attached hereto discloses, as of the date
hereof, all of the Seller's employees, as well as each employee's compensation
(including, separately, base pay and any incentive or commission pay), title,
length of employment, employment contract, if any, and accrued vacation time.
The Seller is not currently, nor has it ever been, a party to any collective
bargaining agreement or other labor contract, and there has not been, nor is
there pending or, to the knowledge of the Seller and the Stockholders,
threatened, any union organizational drive or application for certification of a
collective bargaining agent with respect to the Seller's employees.
(b) The Seller has listed on Schedule 7.13(b) and has delivered to
the Buyer true and complete copies of all Employee Benefit Plans (as defined
below) and related documents, established, maintained or contributed to by the
Seller. For the purpose of all of the representations in this Section 7.13(b),
the term "Seller" shall include the Seller and all employers, whether or not
incorporated, that are treated together with the Seller as a single employer
within the meaning of Section 414 of the Code. The term "EMPLOYEE BENEFIT 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,
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covering employees or former employees of the Seller and maintained or
contributed to by the Seller. Where applicable, each Employee Benefit Plan (i)
has been administered in material compliance with the terms of such Employee
Benefit Plan and the requirements of ERISA and the Code, and (ii) is in material
compliance with the reporting and disclosure requirements of ERISA and the Code.
The Seller neither maintains nor contributes to, and has never maintained or
contributed to, an Employee Benefit Plan subject to Title IV of ERISA or a
"multiemployer plan." There are no facts relating to any Employee Benefit Plan
that (i) have resulted in a "prohibited transaction" of a material nature or
have resulted or are 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 in or are reasonably likely to result in any
material liability (whether or not asserted as of the date hereof) of the Seller
or any ERISA affiliate pursuant to Section 412 of the Code arising under or
related to any event, act or omission occurring on or prior to the date hereof.
Each Employee Benefit Plan that is intended to qualify under Section 401(a) or
to be exempt under Section 501(c) of the Code is so qualified or exempt as of
the date hereof in each case, and such Employee Benefit Plan has received
favorable determination letters from the Internal Revenue Service with respect
thereto. To the knowledge of the Seller and the Stockholders, the amendments to
and operation of any Employee Benefit Plan subsequent to the issuance of such
determination letters do not adversely affect the qualified status of any such
Employee Benefit Plan. No Employee Benefit Plan has an "accumulated funding
deficiency" as of the date hereof, whether or not waived, and no waiver has been
applied for. The Seller has not made any promises or incurred any liability
under any Employee Benefit Plan or otherwise to provide health or other welfare
benefits to current or future retirees or other former employees of the Seller,
except as specifically required by law. There are no pending or, to the
knowledge of the Seller and the Stockholders, threatened, claims (other than
routine claims for benefit) or lawsuits with respect to the Employee Benefit
Plans. Except as disclosed on Schedule 7.13(b), none of the Seller's employees
or former employees has elected COBRA continuation coverage or has incurred a
COBRA qualifying event since January 1, 1997.
7.14 [INTENTIONALLY DELETED]
7.15 MANUFACTURER COMMUNICATIONS. Except as set forth on Schedule 7.15,
the Manufacturer has not (a) notified the Seller or any of the Stockholders of
any deficiency in dealership operations, including, but not limited to, the
following areas: (i) brand imaging, (ii) facility conditions, (iii) sales
efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or
(vi) sales incentives; (b) otherwise advised the Seller or any of the
Stockholders of a present or future need for facility improvements or upgrades
in connection with the Business; or (c) notified the Seller or any of the
Stockholders of the awarding or possible awarding of its franchise to any person
or entity in the Metropolitan Statistical Areas in which the Business operates.
7.16 SPECIAL REPRESENTATIONS REGARDING THE PREFERRED STOCK AND THE
CONVERSION STOCK:
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(a) The Seller and the Stockholders are individually referred to in
this Section as an "INVESTOR". Each Investor understands that the Preferred
Stock and the Conversion Stock (collectively, the "SECURITIES") will not be
registered under the Securities Act or applicable state securities laws on the
basis that the sale provided for in this Agreement and the issuance of the
Securities hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that the Buyer's reliance on such
exemption is predicated on the representations and warranties of such Investor.
(b) The Securities are being acquired for the account of the
Investor for the purposes of investment and not with a view to the distribution
thereof, as those terms are used in the Securities Act and the rules and
regulations promulgated thereunder.
(c) Each Investor is an "accredited investor" within the meaning of
Rule 501(a) of Regulation D promulgated under the Securities Act; and each
Investor has sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risks of acquiring the
Securities; each Investor has delivered to the Buyer an Investor Qualification
Questionnaire and any balance sheets and income tax returns reasonably requested
by the Buyer to confirm such Investor's status as an "accredited investor."
(d) Each Investor has received copies of: (i) the Prospectus dated
April 29, 1999; (ii) the Form 10-K filing of Buyer for the year ended December
31, 1998 (without exhibits); (iii) the Form 10-Q filing of Buyer for the first
and second quarters of 1999 (without exhibits); (iv) all Form 8-K filings of the
Buyer filed after January 1, 1999 (without exhibits); and has been furnished
such other information, and has had an opportunity to ask such questions and
have them answered by the Buyer, as such Investor has deemed necessary in order
to make an informed investment decision with respect to the acquisition of the
Securities.
(e) Each Investor understands, and has the financial capability of
assuming, the economic risk of an investment in the Securities for an indefinite
period of time.
(f) Each Investor has been advised that such Investor will not be
able to sell, pledge or otherwise dispose of the Securities, or any interest
therein, without first complying with the relevant provisions of the Securities
Act and any applicable state securities laws, and that the provisions of Rule
144, permitting routine sales of securities of certain issuers subject to the
terms and conditions thereof, may not currently be available to such Investor
with respect to the Securities.
(g) Each Investor has, to the extent such Investor has deemed
necessary, consulted with such Investor's own investment advisors, legal counsel
and tax advisors regarding an investment in the Securities.
(h) Each Investor acknowledges that the Buyer is under no obligation
to (i) register the Securities or (ii) except as specifically set forth in this
Agreement, to furnish any information or to take any other action to assist the
Investor in complying with the terms and conditions of any exemption which might
be available under the Securities Act or any state
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securities laws with respect to sales of the Securities by the Investor in the
future; provided, however, that the Buyer will, at the Stockholders request and
expense, provide such legal opinions and secretary certificates as are
reasonably necessary for the Stockholders to sell or dispose of the Securities
under Rule 144.
7.17 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by
the Seller or the Stockholders in this Agreement, and no statement contained in
any agreement, instrument, certificate or schedule furnished or to be furnished
by the Seller or the Stockholders 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 VIII
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to perform this Agreement at Closing are
subject to the following conditions precedent which shall be fully satisfied at
or before the Closing, unless waived in writing by the Buyer.
8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Seller and the Stockholders herein contained shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of the Closing Date, and the Buyer shall have received a certificate from the
Stockholders and a duly authorized officer of the Seller, dated the Closing
Date, to such effect.
8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Seller or the
Stockholders at or before the Closing shall have been duly performed or complied
with in all material respects, and the Buyer shall have received a certificate
from the Stockholders and a duly authorized officer of the Seller, dated the
Closing Date, to such effect.
8.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any other third party to prohibit or
restrain the sale contemplated by this Agreement or otherwise challenge the
power and authority of the parties to enter into this Agreement or to carry out
their obligations hereunder or the legality or validity of the sale contemplated
by this Agreement.
8.4 INVENTORY. The Inventory shall have been completed to the reasonable
satisfaction of the Buyer.
8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. The Seller shall have furnished
to the Buyer: (a) a certificate of good standing of the Seller issued by the
Secretary of State of the State of Oklahoma dated no earlier than fifteen (15)
business days prior to the Closing Date; (b) a copy
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of the Articles of Incorporation of the Seller certified by the Secretary of
State of the State of Oklahoma dated no earlier than fifteen (15) business days
prior to the Closing Date; (c) a certificate of the Seller, dated the Closing
Date, in form and substance reasonably satisfactory to the Buyer, certifying as
to (i) no amendments to the Articles of Incorporation of the Seller since the
date of the certificate delivered in accordance with Section 8.5(b); (ii) the
Bylaws of the Seller attached to such certificate being true and correct; and
(iii) the incumbency and signatures of the officers of the Seller executing this
Agreement and any other agreements, instruments or documents to be executed by
the Seller in connection herewith; and (d) recent UCC-11 search reports for the
Seller (including reports for each of the trade names required to be listed
under Section 5.5) or other evidence reasonably satisfactory to the Buyer and
its counsel that the Assets are free and clear of all Encumbrances.
8.6 BOARD RESOLUTIONS. The Seller shall have furnished to the Buyer a copy
of the resolutions duly adopted by the directors and the stockholders of the
Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, certified by an authorized
officer of the Seller as of the Closing Date.
8.7 NO DAMAGE. There shall have been no material adverse change or
development in any of the Assets or the Liabilities of the Seller or in the
prospects, properties, earnings, results of operations or condition (financial
or otherwise) of the Business, and no event shall have occurred or circumstance
exist that may, or could reasonably be expected to, result in such a material
adverse change.
8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor
Vehicle Dealer under applicable Oklahoma motor vehicle dealer registration laws
and shall have obtained all other authorizations, consents, licenses and permits
from applicable governmental agencies having or asserting jurisdiction, which
the Buyer deems necessary or appropriate to conduct business as an automobile
dealer at the Leased Premises or such other location as the Buyer may determine.
8.9 CONSENTS AND APPROVALS. The Seller shall have obtained and delivered
to the Buyer all other authorizations, consents and approvals from third persons
and entities as are (a) required to assign the Contracts or (b) otherwise
required of the Seller to consummate the transactions contemplated hereby.
8.10 CERTIFICATES OF ORIGIN; ETC. The Seller shall have transferred to the
Buyer certificates of title or origin for all New Vehicles, Demonstrators and,
if applicable, Used Vehicles and all of its registration lists, owner follow-up
lists and service files on hand as of the Closing Date with respect to the
Business.
8.11 TERMINATION OF THE SELLER'S AGREEMENTS WITH MANUFACTURER. The Seller
shall have terminated in writing the Seller's dealer agreement and any other
applicable sales and service agreements with the Manufacturer.
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8.12 BILL OF SALE; ETC. The Seller shall have executed and delivered to
the Buyer a Bill of Sale, other documents of transfer of title contemplated
hereby and any and all other documents necessary or desirable in connection with
the transfer of the Assets, which documents shall warrant title to the Buyer
consistent with this Agreement and shall in all respects be in such form as may
be reasonably required by the Buyer and its counsel.
8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved (a) the
Buyer or the Buyer's affiliate as an authorized dealer at the present dealership
locations in the Seller's existing facilities as currently configured for
dealership operations, and (b) O. Bruton Smith or O. Bruton Smith's designee as
the authorized dealer operator; and the Manufacturer shall have executed a
dealer agreement, and any other applicable sales and service agreements, on
terms reasonably satisfactory to the Buyer.
8.14 CONSENTS; RELEASES OF ENCUMBRANCES. All consents, approvals, notices,
filings and/or registrations set forth on Schedule 7.2 hereto shall have been
obtained or made and the Seller shall have delivered to the Buyer evidence
thereof reasonably satisfactory to the Buyer. The Seller shall have obtained
releases or discharges of, or shall otherwise have made provision satisfactory
to the Buyer for the release or discharge of, all Encumbrances set forth on
Schedule 7.4 hereto, except for Encumbrances which secure only the Liabilities.
8.15 DEALERSHIP LEASE. The Landlords shall have executed and delivered the
Dealership Lease to the Buyer. All Leases shall have been terminated.
8.16 CHANGE OF NAME. The Seller shall have delivered to the Buyer all
documents, including, without limitation, resolutions of the directors and the
Stockholders of the Seller, necessary to effect a change of name of the Seller
after the Closing to names other than the corporate name and trade names
referred to in Section 5.5 hereof or any variation thereof.
8.17 HSR. All applicable waiting periods under the HSR Act (as defined in
Section 10.14 below) shall have expired without any indication by the Antitrust
Division (as defined in Section 10.14 below) or the FTC (as defined in Section
10.14 below) that either of them intends to challenge the transactions
contemplated hereby or, if any such challenge or investigation is made or
commenced, such challenge or investigation shall have been concluded in a way
which lawfully permits the transactions contemplated hereby in all material
respects.
8.18 EMPLOYMENT AGREEMENT. Jim Glover shall have executed and delivered to
the Buyer the Employment Agreement.
8.19 AUDITED FINANCIAL STATEMENTS OF THE BUYER. The Buyer shall have
completed preparation of such audited financial statements of the Seller as may
be required by applicable regulations of the SEC or by the Buyer's lenders.
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8.20 OPINION OF COUNSEL. The Buyer shall have received an opinion,
reasonably acceptable in form and substance to Buyer's counsel, of Randall K.
Calvert, Calvert Law Firm, counsel to the Seller and the Stockholders.
8.21 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Buyer under the Riverside Chevrolet Purchase Agreement and the Riverside Nissan
Purchase Agreement shall have been satisfied or fulfilled unless waived in
writing by the Buyer, and the closings under the Riverside Chevrolet Purchase
Agreement and the Riverside Nissan Purchase Agreement shall have occurred or
shall be occurring contemporaneously with the Closing of the transactions
contemplated by this Agreement.
8.22 COMPUTER SERVER ACCESSIBILITY. Jim Glover shall have entered into a
lease agreement with the Buyer in accordance with Section 10.19.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE STOCKHOLDERS
The obligations of the Seller and the Stockholders to perform this
Agreement at Closing are subject to the following conditions precedent which
shall be fully satisfied at or before the Closing, unless waived in writing by
the Seller:
9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Buyer herein contained shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date, and the Seller shall have received a certificate from a duly
authorized officer of the Buyer, dated the Closing Date, to such effect.
9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Buyer at or
before the Closing shall have been duly performed or complied with in all
material respects, and the Seller shall have received a certificate from a duly
authorized officer of the Buyer, dated the Closing Date, to such effect.
9.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any third party to prohibit or restrain
the sale contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the sale contemplated by
this Agreement.
9.4 INVENTORY. The Inventory shall have been completed to the reasonable
satisfaction of the Seller.
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9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have
furnished to the Seller: (a) a certificate of good standing of the Buyer issued
by the Secretary of State of the State of Delaware dated no earlier than fifteen
(15) business days prior to the Closing Date; and (b) a certificate of the
Secretary or an Assistant Secretary of the Buyer, dated the Closing Date, in
form and substance reasonably satisfactory to the Seller, certifying as to (i)
the Restated Certificate of Incorporation of the Buyer attached to such
certificate being true and correct; (ii) the Bylaws of the Buyer attached to
such certificate being true and correct; (iii) the incumbency and signatures of
the officers of the Buyer executing this Agreement and any other agreements,
instruments or documents to be executed by the Buyer in connection herewith; and
(iv) the resolutions of the Board of Directors of the Buyer authorizing the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
9.6 PAYMENT OF AGGREGATE PURCHASE PRICE; ASSUMPTION AGREEMENT. The Buyer
shall have tendered to the Seller the Aggregate Purchase Price and shall have
executed and delivered the Assumption Agreement.
9.7 DEALERSHIP LEASE. The Buyer shall have executed and delivered the
Dealership Lease to the Landlords.
9.8 HSR. All applicable waiting periods under the HSR Act shall have
expired without any indication of 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, such challenge or
investigation shall have been concluded in a way which lawfully permits the
transactions contemplated hereby in all material respects.
9.9 EMPLOYMENT AGREEMENT. The Buyer shall have executed and delivered the
Employment Agreement to Jim Glover.
9.10 OPINION OF COUNSEL. The Seller and the Stockholders shall have
received an opinion, reasonably acceptable in form and substance to Seller's
counsel, of Parker, Poe, Adams & Bernstein, L.L.P., counsel to the Buyer.
9.11 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Seller (as defined in the Riverside Chevrolet Purchase Agreement) under the
Riverside Chevrolet Purchase Agreement and all the conditions to the obligations
of the Sellers (as defined in the Riverside Nissan Purchase Agreement) under the
Riverside Nissan Purchase Agreement shall have been satisfied or fulfilled
unless waived in writing by such party, and the closings under the Riverside
Chevrolet Purchase Agreement and the Riverside Nissan Purchase Agreement shall
have occurred or shall be occurring contemporaneously with the Closing of the
transactions contemplated by this Agreement.
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ARTICLE X
COVENANTS AND AGREEMENTS
10.1 [INTENTIONALLY DELETED]
10.2 FURTHER ASSURANCES. The Seller and the Stockholders agree that they
will, at any time and from time to time, after the Closing, upon request of the
Buyer, do, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances, in a
form reasonably satisfactory to the Buyer's counsel, as may be reasonably
required to convey and transfer to and vest in the Buyer, and protect its
rights, title and interest in and enjoyment of, all the Assets.
10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use
their reasonable best efforts to obtain, and to cooperate with each other in
obtaining, all authorizations, approvals, licenses, permits and other consents
contemplated by Articles VIII and IX.
10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of this
Agreement through the Closing Date, the Seller will operate the Business only in
the ordinary course of business and in accordance with past practices. The
Seller shall promptly notify the Buyer of any material adverse change or
development in any of the Assets or the Liabilities or in the prospects,
properties, earnings, results of operations or condition (financial or
otherwise) of the Business, and of the occurrence of any event or circumstance
that will, or could reasonably be expected to, result in such a material adverse
change.
10.5 ACCESS; ENVIRONMENTAL AUDIT. Until Closing, the Seller shall afford
to the Buyer, its officers, employees, attorneys, accountants and such other
representatives of the Buyer as the Buyer shall designate to the Seller, free
and full access at all reasonable times, and upon reasonable prior notice, to
the Assets and the properties, books and records of the Seller, and to interview
personnel, suppliers and customers of the Seller, in order that the Buyer may
have full opportunity to make such further investigation as it shall reasonably
desire of the Assets, the Liabilities and the Business. The Seller and the
Stockholders shall furnish to the Buyer the due diligence materials set forth in
Schedule 10.5 hereto as soon as practicable, and shall provide to the Buyer and
its representatives, including, without limitation, the aforementioned
individuals, such additional information as the Buyer may reasonably request.
The contact person(s) of the Seller for purposes of arranging such access and
requesting such additional information is Jim Glover. The Seller shall allow
Dames & Moore (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Leased
Premises in order to conduct an environmental investigation satisfactory to the
Buyer in scope and reasonably acceptable to the Seller (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 Leased Premises (the "ENVIRONMENTAL AUDIT"). The Seller
shall provide to the Environmental Auditor: (a) reasonable access to all of its
existing records concerning the matters which are the subject of the
Environmental Audit; and (b) reasonable access to the employees of the Seller
and the last known addresses of former employees of the Seller who are
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most familiar with the matters which are the subject of the Environmental Audit
(the Seller agreeing to use reasonable efforts to have such former employees
respond to any reasonable requests or inquiries by the Environmental Auditor).
The Environmental Auditor shall coordinate all visits to the Leased Premises and
conversations with employees of the Seller with the Stockholders or their
designee and shall use reasonable efforts to minimize any disruption of the
Seller's business in performing such investigations. The Seller shall otherwise
cooperate with the Environmental Auditor in connection with the Environmental
Audit. The Buyer shall pay 50% of the costs, fees and expenses in connection
with the Environmental Audit and the Seller shall pay 50% of the costs, fees and
expenses in connection with the Environmental Audit. The Buyer shall bear the
costs, fees and expenses in connection with any financial audit.
10.6 INDEMNIFICATION BY THE SELLER AND THE STOCKHOLDERS.
(a) All representations and warranties of the Seller and the
Stockholders contained herein, or in any agreement, certificate or document
executed by either the Seller or the Stockholders in connection herewith, shall
survive the Closing for a period of three (3) years with the exception of (i)
the representations and warranties of the Seller and the Stockholders contained
in Section 7.12, which shall survive the Closing until the expiration of the
applicable tax statutes of limitation plus a period of sixty (60) days; (ii) the
representations and warranties of the Seller and the Stockholders contained in
Sections 7.6(b) and 7.8, which shall survive the Closing for a period of seven
(7) years; and (iii) the representations and warranties of the Seller and the
Stockholders contained in Section 7.4, which shall survive the Closing for a
period of five (5) years. The foregoing limitations of survival shall not in any
way reduce the Seller's obligations with respect to the Retained Liabilities. As
to each representation and warranty of the parties to this Agreement, the date
to which such representation and warranty shall survive is hereinafter referred
to as the "SURVIVAL DATE." All information contained in any Schedule furnished
hereunder by the Seller shall be deemed a representation and warranty by the
Seller and the Stockholders made in this Agreement as to the accuracy of such
information.
(b) The Seller and the Stockholders, jointly and severally, agree to
indemnify and hold harmless the Buyer and its stockholders, officers, directors,
employees and agents, and their respective successors and assignees
(collectively, the "BUYER INDEMNITEES"), from and against any and all losses,
damages, liabilities, obligations, assessments, suits, actions, proceedings,
claims or demands, including costs, expenses and fees (including reasonable
attorneys' fees and expert witness fees incurred in connection therewith)
("LOSSES"), suffered by any of them or asserted against any of them or any of
the Assets, arising out of or based upon (i) the breach or failure of any
representation or warranty of the Seller or any Stockholder contained herein, or
in any agreement, certificate or document executed by the Seller or any
Stockholder in connection herewith, to be true and correct (regardless of any
investigation made by or on behalf of the Buyer and regardless of any knowledge
or information the Buyer may have), (ii) the breach of any covenant or agreement
of the Seller or any Stockholder contained in this Agreement, (iii) the Retained
Liabilities or any liability or obligation of any Stockholder, (iv) any
arrangements or agreements made or alleged to have been made by the Seller or
any Stockholder with any broker, finder or other agent in connection with the
transactions contemplated hereby, (v) any waiver by the Buyer of the provisions
of any applicable
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bulk sales laws, (vi) any breach or default by the Seller under any of its floor
plan arrangements and agreements, (vii) any matter, item, circumstance or
condition listed, contained or otherwise referred to on Schedule 7.8(a) or
Schedule 7.8(b), (viii) any loss of life, injury to persons or property, or
damage to natural resources caused by the actual, alleged, or threatened
release, storage, transportation, treatment or generation, of Hazardous
Materials generated, stored, used, disposed of, treated, handled or shipped by
the Seller before the Closing Date, (ix) any cleanup of Hazardous Materials
released, disposed of or discharged: (A) on, in, beneath or around to the Real
Property prior to the date of the Closing; or (B) at any other location if such
substances were generated, used, stored, treated, transported or released by the
Seller prior to the Closing Date; or (x) any and all costs of installing
pollution control equipment or other equipment to bring any of the Leased
Premises into compliance with any Environmental Law if such equipment is
installed because any of the Leased Premises were not in compliance with any
Environmental Laws as of the date of the Closing. Neither the Seller nor the
Stockholders shall be required to indemnify under Section 10.6(b)(i) unless the
amount of all Losses (including claims for Losses) thereunder exceeds a
cumulative aggregate total of $137,500, at which time rights to indemnification
for Losses may be asserted for any amounts in excess of such cumulative
aggregate total of $137,500. The aggregate amount of indemnification obligations
of the Seller and the Stockholders under this Section 10.6(b) shall not exceed
the Purchase Price.
(c) No claim for indemnification with respect to a breach of a
representation and warranty shall be made by a Buyer Indemnitee after the
applicable Survival Date unless prior to such Survival Date the Buyer Indemnitee
shall have given an indemnifying party 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. The provisions of this Section 10.6 shall be
effective upon consummation of the Closing, and prior to the Closing, shall have
no force and effect.
10.7 INDEMNIFICATION BY THE BUYER.
(a) All representations and warranties of the Buyer contained
herein, or in any agreement, certificate or document executed by the Buyer in
connection herewith, shall survive the Closing for a period of three years. All
information contained in any Schedule furnished hereunder by the Buyer shall be
deemed a representation and warranty by the Buyer made in this Agreement as to
the accuracy of such information.
(b) The Buyer agrees to indemnify and hold harmless the Seller and
its stockholders, officers, employees, agents, successors and assigns (the
"SELLER INDEMNITEES"), from and against any and all Losses incurred in
connection with, suffered by any of them, or asserted against any of them,
arising out of or based upon (i) the breach or failure of any representation or
warranty of the Buyer contained herein, or in any agreement, certificate or
document executed by the Buyer in connection herewith, to be true and correct
(regardless of any investigation made by or on behalf of the Seller and
regardless of any information the Seller may have), (ii) the breach of any
covenant or agreement of the Buyer contained in this Agreement, (iii) the
Buyer's failure to discharge the Liabilities, or (iv) any arrangements or
agreements made or alleged to have been made
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by the Buyer with any broker, finder or other agent in connection with the
transactions contemplated hereby. The Buyer shall not be required to indemnify
under Section 10.7(b)(i) unless the amount of all Losses (including claims for
Losses) thereunder exceeds a cumulative aggregate total of $137,500, at which
time rights to indemnification for Losses may be asserted for any amounts in
excess of such cumulative aggregate total of $137,500. The aggregate amount of
indemnification obligations of the Buyer under this Section 10.7(b) shall not
exceed the Purchase Price.
(c) No claim for indemnification with respect to a breach of a
representation and warranty shall be made by any Seller Indemnitee under this
Agreement after the applicable Survival Date unless prior to such Survival Date
the Seller Indemnitee shall have given the Buyer 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 Seller Indemnitee. The provisions of this Section 10.7
shall be effective upon consummation of the Closing, and prior to the Closing,
shall have no force and effect.
10.8 CERTAIN TAXES. Personal property, use and intangible taxes and
assessments and utility charges with respect to the Assets shall be prorated on
a per diem basis and apportioned on a calendar year basis between the Seller, on
the one hand, and the Buyer, on the other hand, as of the date of the Closing.
The Seller shall be liable for that portion of such taxes and assessments
relating to, or arising in respect of, periods prior to the Closing Date and,
with respect to any period commencing prior to the Closing Date and ending on or
after the Closing Date (a "STRADDLE PERIOD"), the portion of the Straddle Period
prior to the Closing Date. The Buyer shall be liable for that portion of such
taxes and assessments relating to, or arising in respect of, any period after
the Closing Date and, with respect to any Straddle Period, the portion of the
Straddle Period on or after the Closing Date. Any taxes attributable to the sale
or transfer of the Assets to the Buyer hereunder shall be paid by the Seller.
10.9 NO PUBLICITY. Except as may be required by law or the rules of the
New York Stock Exchange or as necessary in connection with the transactions
contemplated hereby, no party hereto shall (a) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior approval of the other parties hereto or (b) otherwise
disclose the existence and nature of the transactions contemplated hereby to any
person or entity other than such party's accountants, attorneys, agents and
representatives, all of whom shall be subject to this nondisclosure obligation
as agents of such party. The parties shall cooperate with each other in the
preparation and dissemination of any public announcements of the transactions
contemplated by this Agreement.
10.10 NO NEGOTIATIONS OR DISCUSSIONS. Neither the Seller nor any of the
Stockholders shall, directly or indirectly, at any time on or prior to the
Closing Date, 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 or
possible sale to any such person or entity of the Assets of the Seller or
capital stock of the Seller or any merger or consolidation or similar
transaction involving the Seller.
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10.11 REGARDING THE MANUFACTURER. Immediately upon the execution of this
Agreement, the Seller will notify the Manufacturer regarding the transactions
contemplated by this Agreement, utilizing a form of notification acceptable to
the Buyer. The Buyer shall promptly apply to the Manufacturer for, or cause an
affiliate of the Buyer to apply to the Manufacturer for, the issuance of a
franchise to operate an automobile dealership upon the Leased Premises or at
such other location the Buyer shall determine in its sole discretion. Effective
as of the Closing, the Seller shall terminate its Dealer Sales and Service
Agreements with the Manufacturer. The Seller shall fully cooperate with the
Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts
to obtain its own similar Dealer Sales and Service Agreements with the
Manufacturer. The contact person(s) of the Seller for purposes of requests by
the Buyer for such assistance are Bill Albert (Zone Manager) (913/469-3009) and
Mike Hudnell (Dealer Placement Manager) (913/469-3012) at 7500 College
Boulevard, Suite 1000, Overland Park, Kansas 66210. The parties acknowledge that
the Buyer's Dealer Agreements are subject to the approval of the Manufacturer
and that the Buyer would be unable to obtain its own, similar Dealer Sales and
Service Agreements absent the Seller's termination of its agreements.
Notwithstanding the foregoing, at the request of the Buyer, the Seller shall
allow the Buyer, if reasonably necessary, for a period not to exceed thirty (30)
days after the Closing, to utilize the Seller's dealer code with the
Manufacturer until the Manufacturer has issued a new dealer code to the Buyer.
The Buyer hereby agrees to indemnify the Seller from any and all liabilities
arising out of the use by the Buyer of the Seller's dealer code including,
without limitation, liabilities and obligations to the Manufacturer and to any
floor plan lender or other creditor providing financing for products purchased
under the Seller's dealer code by the Buyer (or by the Seller on behalf of the
Buyer) after the Closing.
10.12 THE SELLER'S EMPLOYEES. The Buyer shall have the right, but not the
obligation, to employ any or all of the Seller's employees. If permitted by law
and applicable regulations, the Seller shall, in consideration for the sale of
substantially all of the Seller's assets in bulk, assign and transfer to the
Buyer, without additional charge therefor, the amount of reserve in the Seller's
State Unemployment Compensation Fund with respect to the Business and the
corresponding experience rate. The Seller shall terminate its 401(k) plan prior
to the Closing Date and in connection therewith shall amend the 401(k) plan to
fully vest all accounts of all participants in the 401(k) plan and to provide
for the distribution of all such accounts. The Seller shall deliver to the Buyer
at Closing a duly executed plan amendment and resolutions of the Board of
Directors and, if necessary, the Seller's stockholders reflecting the
termination of the 401(k) Plan and related amendments to the 401(k) plan. The
Seller also shall terminate all other Employee Plans as of the Closing Date and
shall provide the Buyer with formal documentation evidencing such terminations
and the Seller shall indemnify and reimburse the Buyer for all Losses (as
defined in Section 10.6(b)) incurred by the Buyer in connection with the
termination and winding up of the Employee Plans. The Seller shall retain all
liability and responsibility for its Employee Plans and shall promptly take any
and all actions necessitated by or related to the amendment and/or termination
of any Employee Plan, including but not limited to liquidation of plan assets
and processing distributions to participants; filing of determination letter
applications, final Forms 5500, and/or other notices with governmental
authorities; and cancellation of insurance policies. Notwithstanding the
foregoing, the Buyer shall have the option, in its sole discretion and exercised
by the delivery to the Seller of a written request, to require the Seller to
transfer any or all of the Seller's plans or related insurance policies to the
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Buyer (or other related entity which will continue the Seller's business).
10.13 TERMINATION.
(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(i) by the written mutual consent of the parties hereto prior
to the Closing Date Deadline;
(ii) by the Buyer prior to the Closing Date Deadline (as the
same may have been extended pursuant to Section 1.3 hereof) in the event of any
material breach by the Seller or any of the Stockholders of any of their
respective representations, warranties, covenants or agreements contained
herein;
(iii) by the Seller prior to the Closing Date Deadline (as the
same may have been extended pursuant to Section 1.3 hereof) in the event of any
material breach by the Buyer of any of the Buyer's representations, warranties,
covenants or agreements contained herein;
(iv) at any time after the Closing Date Deadline (as the same
may have been extended pursuant to Section 1.3 hereof), by written notice by the
Buyer or the Seller to the other parties hereto if the Closing shall not have
occurred on or before the Closing Date Deadline (as the same may have been
extended in accordance with Section 1.3);
(v) by the Buyer, by written notice to the Seller, if the
Buyer in its sole discretion is not satisfied with its due diligence
investigation of the Seller, at any time during the period (the "DUE DILIGENCE
PERIOD") commencing on the date hereof and ending on the close of business on
the thirtieth (30th) day after the later to occur of: (A) the date upon which
the Seller and the Buyer agree upon the form and substance of Schedule 5.5 and
the Schedules delivered by the Seller pursuant to Article VII hereof and (B) the
date of delivery by the Seller to the Buyer of the due diligence materials
listed on Schedule 10.5 attached hereto;
(vi) by the Seller, by written notice to the Buyer, if the
Seller in its sole discretion is not satisfied with its due diligence
investigation of the Buyer, at any time during the Due Diligence Period.
(vii) by the Buyer, by written notice to the Seller, in the
event that the Manufacturer, or any other person claiming by, through or under
the Manufacturer, shall exercise any right of first refusal, preemptive right or
other similar right, with respect to any of the Assets;
(viii) by the Buyer, by written notice to the Seller if, after
any initial HSR Act filing, the FTC makes a "second request" for information
pursuant to 16 C.F.R. ss.803.20, or if the FTC or the Antitrust Division
challenges the transactions contemplated hereby; or
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(ix) by the Buyer, by written notice to the Seller, in the
event that approval by the Manufacturer of the transactions contemplated hereby
is not received by the Closing Date Deadline (as the same may have been extended
pursuant to Section 1.3 hereof);
provided, however, no party may terminate this Agreement pursuant to clauses
(ii), (iii), or (iv) above if such party is in material breach of any of its
representations, warranties, covenants or agreements contained herein.
(b) In the event of termination of this Agreement pursuant to
Section 10.13(a), this Agreement shall be of no further force or effect;
provided, however, that any termination pursuant to Section 10.13(a) shall not
relieve: (i) the Buyer of any liability under Section 10.13(c) below; (ii) the
Seller and the Stockholders of any liability under Section 10.13(d) below; (iii)
subject to Section 10.13(e) below, any party hereto of any liability for breach
of any representation, warranty, covenant or agreement hereunder occurring prior
to such termination; or (iv) any party hereto of its or his obligations
hereunder to pay the fees and expenses of third parties; provided, further, that
all filings, applications and other submissions made pursuant to this Agreement
or prior to the execution of this Agreement in contemplation hereof shall, to
the extent practicable, be withdrawn from the agency or other entity to which
made.
(c) If this Agreement is terminated by the Seller pursuant to
Section 10.13(a)(iv) hereof and the failure to complete the Closing on or before
the Closing Date Deadline (as the same may have been extended pursuant to
Section 1.3) shall have been due to the Buyer's material breach of its
representations, warranties, covenants or agreements 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, an aggregate termination fee of $1,375,000 ("the BUYER TERMINATION
FEE").
(d) If this Agreement is terminated by the Buyer pursuant to Section
10.13(a)(iv) hereof and the failure to complete the Closing on or before the
Closing Date Deadline (as the same may have been extended pursuant to Section
1.3) shall have been due to a material breach by any of the Stockholders or the
Seller of a representation, warranty, covenant or agreement of such party under
this Agreement, then the Seller 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 $1,375,000 (the "SELLER TERMINATION FEE").
(e) In the case of termination of this Agreement pursuant to Section
10.13(a)(iv) hereof, the rights of the terminating party to be paid the Seller
Termination Fee or the Buyer Termination Fee, as the case may be, shall be such
party's sole and exclusive remedy 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 Buyer Termination Fee, as
the case may be. Nothing contained in this Agreement shall prevent any party
from electing not to exercise any right it may have to terminate this Agreement
and, instead, seeking any equitable relief (including specific performance) to
which it would otherwise be entitled in the event of breach of any other party
hereto.
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(f) The Seller and the Stockholders acknowledge and agree that the
Buyer's due diligence investigation of the Seller and the Business, including,
without limitation, its review of the Schedules attached hereto and the
information and documentation received from the Seller, shall not constitute a
waiver of, or otherwise modify, the Buyer's right to terminate this Agreement
under Section 10.13(a)(v) hereof.
10.14 HSR. Subject to the determination by the Buyer that compliance by
the Seller and the Buyer with the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR ACT"), is not required, the Seller and the Buyer
shall each prepare and file 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 Buyer
shall pay any HSR Act filing fees.
10.15 THE BUYER'S FINANCIAL STATEMENTS. The Seller shall allow, cooperate
with and assist the Buyer's accountants, and shall instruct the Seller's
accountants to cooperate, in the preparation of audited financial statements of
the Seller as necessary for any required filings by the Buyer with the SEC or as
required by the Buyer's lenders; provided, however, that the expense of such
audit shall be borne by the Buyer.
10.16 CURING BREACHES OF REPRESENTATIONS AND WARRANTIES. Upon written
notice by the Buyer of the discovery by the Buyer prior to the Closing of a
breach of any representation and warranty of the Seller contained in this
Agreement, the Seller will, if requested by the Buyer, at its expense, undertake
to cure such breach prior to the Closing. In the event that such breach cannot,
despite reasonable efforts, be fully cured prior to the Closing, the Seller
shall diligently prosecute such efforts to effect such cure before and after the
Closing until so cured. If the Buyer shall have requested the Seller to cure any
such breach pursuant to this Section 10.16, the Buyer shall not be entitled to
claim such breach as a failure of the Buyer's condition to close under Section
8.1 of the Agreement provided that (a) the Seller shall have cured such breach
prior to the Closing or (b) in the event that such breach cannot, despite
reasonable efforts, be fully cured prior to the Closing, the Seller shall be
diligently prosecuting such efforts to effect such cure before the Closing.
10.17 RIGHT OF FIRST OFFER.
(a) If, at any time prior to the fifth (5th) anniversary of the
Closing Date, the Buyer shall propose to sell the Business acquired from the
Seller pursuant to this Agreement, the Buyer shall first give notice in writing
to Jim Glover, as agent for the Seller and the Stockholders (the "SELLER'S
AGENT"), of its intention to do so, which notice (the "FIRST OFFER") shall
constitute an offer to the Seller and the Stockholders to purchase the Business
from the Buyer at the price and upon payment terms set forth in such notice. The
Seller and the Stockholders, acting through the Seller's Agent, shall have a
period of thirty (30) days after the giving of such notice by the Buyer to
accept in writing (the "FIRST OFFER ACCEPTANCE") the Buyer's offer set forth in
the First Offer. If the Seller and the Stockholders, acting through the Seller's
Agent, shall have delivered the First
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Offer Acceptance to the Buyer prior to the expiration of such thirty (30) day
period, the parties shall negotiate in good faith in an effort to finalize,
execute and deliver a definitive purchase agreement containing customary terms
with respect to such proposed sale. If the parties are unable to execute and
deliver such definitive purchase agreement within a period of thirty (30) days
after receipt by the Buyer of the First Offer Acceptance (the last day of such
thirty (30) day period at 5:00 p.m., Eastern Time, being the "FIRST OFFER
AGREEMENT DEADLINE"), the Buyer shall be free to sell the Business to any other
person or entity during the one (1) year period commencing with the expiration
of the First Offer Agreement Deadline at a price that is not less than 90% of
the price proposed by the Buyer in the First Offer, and on payment terms which,
overall, are no less favorable than such payment terms proposed by the Buyer in
the First Offer.
(b) The parties hereto acknowledge and agree that any rights granted
to the Seller and the Stockholders pursuant to Section 10.17(a) are subject to
the Manufacturer's (or any person claiming by, through or under the
Manufacturer) right of first refusal, preemptive right or other similar right,
with respect to the Business, and that any exercise of such right by a
Manufacturer shall not be subject to Section 10.17(a). Accordingly, the parties
hereto acknowledge that any potential closing of a purchase transaction pursuant
to Section 10.17(a) will be contingent upon a determination by the Manufacturer
that it does not wish to exercise its right of first refusal, preemptive right
or other similar right with respect to the Business.
10.18 CERTAIN INDEMNIFICATION PROCEDURES. 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 and agrees, in writing,
that it is obligated hereunder to indemnify and hold harmless the Indemnified
Party with respect to such damages in their entirety pursuant to Sections 10.6
or 10.7 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
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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. Notwithstanding the foregoing, the Indemnified Party shall have the right
to pay, settle or compromise any such action, proceeding or claim, provided that
in such event the Indemnified Party shall waive any right to indemnity therefor
hereunder unless the Indemnified Party shall have sought the consent of the
Indemnifying Party to such payment, settlement or compromise and such consent
was unreasonably withheld or delayed, in which event no claim for indemnity
therefor hereunder shall be waived.
(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, (ii) the
Indemnifying Party shall not have exercised its right to assume the defense or
(iii) the Indemnifying Party shall have lost its right to continue the defense,
the Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
action, proceeding or claim, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Indemnified Party to the extent that such
fees and expenses relate to claims as to which indemnification is due under
Sections 10.6 or 10.7 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 10.6 or 10.7 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.
10.19 COMPUTER MATTERS. The Buyer acknowledges that it will not purchase
the computer hardware server and peripheral computer equipment owned by Jim
Glover and currently used in the Business. The Seller and the Stockholders
acknowledge that the Buyer will not be able to have its own server in place at
the Closing. Jim Glover agrees to take such steps as are necessary to permit the
Buyer, upon reasonable terms and conditions, to access and utilize the computer
hardware server and peripheral equipment owned by him and to enter into an
agreement with the Buyer to such effect. The Buyer will use commercially
reasonable efforts to obtain its own server as soon as reasonably practicable.
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ARTICLE XI
MISCELLANEOUS
11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall
not be assignable by any party hereto without the prior written consent of the
other parties. The Buyer may assign this Agreement, without the consent of the
other parties hereto, to a corporation, partnership, limited liability company
or other entity controlled by the Buyer, including a corporation, partnership,
limited liability company or other entity to be formed at any time prior to the
Closing Date, and to any person or entity who shall acquire all or substantially
all of the assets of the Buyer or of such corporation, partnership, limited
liability company or other entity controlled by the Buyer (including any such
acquisition by merger or consolidation); provided said assignment shall be in
writing and the assignee shall assume all obligations of the Buyer hereunder,
whereupon the assignee shall be substituted in lieu of the Buyer named herein
for all purposes, and provided further, that the Buyer originally named herein
shall continue to be liable with respect to its obligations hereunder. The Buyer
may assign this Agreement, without the consent of the other parties hereto, as
collateral security, and the other parties hereto agree to execute and deliver
any acknowledgment of such assignment by the Buyer as may be required by any
lender to the Buyer.
11.2 GOVERNING LAW. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
Oklahoma.
11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated
by this Agreement shall be in accordance with generally accepted accounting
principles.
11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this
Agreement, each of the parties hereto shall be responsible for the payment of
such party's fees, costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated hereby.
11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules
and other documents referred to herein which form a part hereof, contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement may not be amended except by a
writing executed by all of the parties hereto. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
11.6 WAIVER. To the extent permitted by applicable law, no claim or right
arising out of this Agreement or the documents referred to in this Agreement can
be discharged by a party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by all the parties hereto. Any
waiver by a 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. Neither the failure nor any
delay by any party hereto in exercising any right or power under this Agreement
or the documents referred to in this Agreement will operate as
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a waiver of such right or power, and no single or partial exercise of any such
right or power will preclude any other or further exercise of such right or
power or the exercise of any other right or power.
11.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally or by confirmed facsimile 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
Fax No.: (704) 563-5116
Attention: Chief Financial Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Fax No.: (704) 334-4706
Attention: John R. Hairr III
If to the Seller or the Stockholders, to:
David Hudiburg
6000 Tinker Diagonal
Midwest City, Oklahoma 73110
Fax No.: (405) 733-8041
Jim Glover
1724 East 151st
Bixby, Oklahoma 74008
With a copy to:
Randall Calvert
Calvert Law Firm
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6520 N. Western, Suite 100
Oklahoma City, OK 73116
Fax No.: (405) 848-5052
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts. Each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
11.9 KNOWLEDGE. Whenever any representation or warranty of the Seller or
any of the Stockholders contained herein or in any other document executed and
delivered in connection herewith is based upon the knowledge of the Seller or
any of the Stockholders, (a) such knowledge shall be deemed to include (i) the
best actual knowledge, information and belief of the Seller and each Stockholder
and (ii) any information which any of the Stockholders would reasonably be
expected to be aware of in the prudent discharge of his duties in the ordinary
course of business (including consultation with legal counsel) on behalf of the
Seller, and (b) the knowledge of the Seller or any of the Stockholders shall be
deemed to be the knowledge of the Seller and all the Stockholders.
11.10 ARBITRATION.
(a) [INTENTIONALLY DELETED]
(b) Except as otherwise provided herein, any dispute, claim or
controversy arising out of or relating to this Agreement 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 the Buyer and one of whom shall be appointed by
the Seller 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 thirty (30) days after their appointment, either arbitrator may petition
the American Arbitration Association to make the appointment. The place of
arbitration shall be Charlotte, North Carolina. The arbitrators shall be
instructed to render their decision within sixty (60) days after their selection
and to allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
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(c) Notwithstanding the provisions of Section 11.10(b), any dispute
relating to accounting matters shall be resolved as provided in this Section
11.10(c). The parties first shall use reasonable efforts to resolve any such
accounting dispute. In the event the dispute has not been resolved within a
reasonable amount of time, either the Buyer, on the one hand, or the Seller, on
the other hand, may provide written notice to the other party that the matter
will be submitted to a "Big Five" 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: (i) 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 present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
such determination by the Accountants, as set forth in a notice delivered to
both parties by the Accountants, will be binding and conclusive on the parties;
and (iii) the Buyer and the Seller shall each bear 50% of the fees and expenses
of the Accountants for such determination.
(d) Nothing contained in this Section 11.10 shall prevent any party
hereto from seeking any equitable relief to which it would otherwise be entitled
from a court of competent jurisdiction.
11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject
to Section 11.1, this Agreement shall be binding upon, inure to the benefit of
and be enforceable by the respective successors, heirs 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 Seller, 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.
11.12 HEADINGS. The article headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.13 SEVERABILITY; CONSTRUCTION.
(a) 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.
(b) This Agreement shall be construed equitably, in accordance with
its terms, without regard to the degree which the Seller or the Buyer, or their
respective legal counsel, have participated in the drafting of this Agreement.
11.14 COOPERATION IN SEC FILINGS. At the request of the Buyer and at the
Buyer's expense, the Seller and the Stockholders shall cooperate in the
preparation by the Buyer of any filings to be made by the Buyer with the SEC
including, without limitation, any filing with respect
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to a registered offering of its securities by the Buyer and the closing of
the offering registered thereby.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the day and year first above written.
BUYER: SONIC AUTOMOTIVE, INC.
/s/ O. Bruton Smith
By: O. Bruton Smith
Its: Chairman and CEO
SELLER: JIM GLOVER DODGE, INC.
/s/ James E. Glover
--------------------------------
By: James E. Glover
Its: President
STOCKHOLDERS: /s/ James E. Glover
------------------------------ (SEAL)
James E. Glover
/s/ Steven Hudiburg
------------------------------ (SEAL)
Steven Hudiburg
/s/ Paula Tate
------------------------------ (SEAL)
Paula Tate
/s/ Karen Stevens
------------------------------ (SEAL)
Karen Stevens
/s/ Daniel Dodson
------------------------------ (SEAL)
Daniel Dodson
/s/ Timothy Dodson
------------------------------ (SEAL)
Timothy Dodson
EXHIBIT 10.7
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT dated as of September 30, 1999 (this
"AGREEMENT") by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"BUYER"), RIVERSIDE NISSAN, INC., an Oklahoma corporation (the "COMPANY"), and
the shareholders of the Company set forth on the signature page hereto
(collectively, the "SELLERS").
W I T N E S S E T H:
WHEREAS, the Company is engaged in a Nissan automobile dealership business
located at 8190 E. Skelly Drive, Tulsa, Oklahoma 74129;
WHEREAS, the Sellers own in the aggregate 245,500 shares of common stock
of the Company (the "SHARES"), which shares represent all of the issued and
outstanding shares of capital stock of the Company and are owned of record and
beneficially by the Sellers in the amounts set forth opposite their respective
names on Exhibit 3.1 hereto;
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; and
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Sellers are notifying the Manufacturer (as defined in Article 2 below) of
the transactions contemplated by this Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, the Buyer
has entered into an Asset Purchase Agreement dated as of the date hereof (the
"RIVERSIDE CHEVROLET PURCHASE AGREEMENT") with Riverside Chevrolet, Inc.
("RIVERSIDE CHEVROLET") and certain stockholders of Riverside Chevrolet, with
respect to the acquisition by the Buyer of the Chevrolet automobile dealership
business owned by Riverside Chevrolet, and the Buyer has also entered into an
Asset Purchase Agreement dated as of the date hereof (the "GLOVER DODGE PURCHASE
AGREEMENT") with Jim Glover Dodge, Inc. ("GLOVER DODGE") and certain
stockholders of Glover Dodge, with respect to the acquisition by the Buyer of
the Dodge automobile dealership business owned by Glover Dodge; and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Riverside Chevrolet Purchase Agreement and the Glover Dodge Purchase Agreement;
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
PURCHASE AND SALE
1.1 AGREEMENT OF PURCHASE AND SALE. Upon 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 THE PURCHASE PRICE.
(a) THE PURCHASE PRICE. The purchase price to be paid by the Buyer
for the Shares (the "PURCHASE PRICE") shall be an aggregate amount consisting of
the sum of (i) Five Million Three Hundred Fifty Thousand Dollars ($5,350,000),
plus (ii) the Net Book Value (as defined in Section 1.2(c)(i) below).
(b) PAYMENT OF THE PURCHASE PRICE. The Purchase Price shall be paid
as follows:
(i) At the Closing, Bob Hurley and David Hudiburg, as agent
for the Sellers (the "SELLERS' AGENT"), shall deliver to the Buyer a certificate
setting forth the Sellers' estimate of the Net Book Value as of the Closing (the
"ESTIMATED NET BOOK VALUE"). Provided that the Buyer, in its sole discretion,
shall determine that the Estimated Net Book Value is acceptable (such
determination to be without prejudice to the rights of the parties hereunder
with respect to the determination of the Net Book Value pursuant to Section
1.2(c) below), the Buyer shall pay an amount equal to the sum of (i) Four
Million Eight Hundred Fifty Thousand Dollars ($4,850,000) plus (ii) the
Estimated Net Book Value, to the Sellers, in the respective amounts set forth
opposite their names on Exhibit 3.1 hereto, by wire transfer to an account or
accounts designated to the Buyer by the Sellers' Agent at least one Business Day
prior to the Closing Date (as defined in Article 2 below). For purposes of this
Agreement, a "BUSINESS DAY" is a day other than a Saturday, a Sunday or a day on
which banks are required to be closed in the State of North Carolina.
(ii) At the Closing, the Buyer shall place into escrow with
First Union National Bank or another escrow agent mutually acceptable to the
parties hereto (the "ESCROW AGENT") the sum of Five Hundred Thousand Dollars
($500,000) (the "ESCROWED AMOUNT"), all in accordance with the escrow agreement
in the form of Exhibit 1.2(b) hereto, with such other changes thereto as the
Escrow Agent shall reasonably request (the "ESCROW AGREEMENT"). The term of the
Escrow Agreement shall be for a period of one hundred twenty (120) days from the
Closing Date (or such shorter or longer period of time as shall be necessary to
complete the determination of Net Book Value pursuant to Section 1.2(c) below).
Interest on the Escrowed Amount shall be paid to the Buyer and the Sellers in
the proportions of the Escrowed Amount paid to them.
(c) ADJUSTMENT PROCEDURES.
(i) Not later than 120 days after the Closing Date, the Buyer
will prepare and deliver to the Sellers' Agent an unaudited balance sheet (the
"CLOSING BALANCE
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SHEET") of the Company as of the Closing Date, consisting of a computation of
the net book value of the tangible assets of the Company (including leasehold
improvements excluding and the Distributed Assets (as defined in Section 1.5
hereof)) as of the Closing Date, less the book value of the liabilities of the
Company as of the Closing Date, all in accordance with generally accepted
accounting principles consistently applied ("GAAP"), subject to the additional
principles set forth below. The tangible net book value reflected on the Closing
Balance Sheet is hereinafter called the "NET BOOK VALUE." The Closing Balance
Sheet will be prepared in accordance with the following additional principles:
(A) it will utilize the last in-first out (LIFO) method of inventory accounting
provided that sixty percent (60%) of the LIFO reserve will be added to the Net
Book Value; (B) there shall be included appropriate write-offs for doubtful
accounts receivable and bad debts and for damaged, spoiled, obsolete or
slow-moving inventory; (C) any receivables due the Company from any of the
Sellers or any of the directors, officers, employees or Affiliates (as defined
in Section 3.5 below) of the Company shall be excluded as assets; (D) the
liabilities of the Company shall include appropriate accruals for all Tax
liabilities of the Company associated with the distribution of the Distributed
Assets; and (E) the values of the following asset categories shall be calculated
as follows:
(I) NEW VEHICLES. The value of each of the Company's
untitled new motor vehicles (meaning (i) current model year vehicles as of the
Closing Date and, (ii) if the Closing occurs on or before December 31, 1999,
1999 model year vehicles, but excluding from clauses (i) and (ii) conversion
vans or similar-type vehicles that have been in inventory longer than 180 days,
rental cars and company vehicles) in stock and unsold as of the Closing Date
(collectively, the "NEW VEHICLES") shall be the price at which the New Vehicle
was invoiced to the Company by the Manufacturer (as defined in Article 2 below),
as adjusted pursuant to clauses (III) and (IV) below; provided, however, the
value of any pre-reported sold vehicles for which the sale cannot be reversed
shall be as mutually agreed by the Buyer and the Sellers' Agent. In the event
the Buyer and the Sellers' Agent cannot agree upon a value with respect to any
such pre-reported sold vehicle, then such vehicle shall be considered an
Excluded Asset (as defined in Section 1.2(c)(i)(xi)), and such vehicle shall be
valued on the Closing Balance Sheet and disposed of in accordance with
Subsection XI.
(II) DEMONSTRATORS. The value of each of the Company's
untitled new motor vehicles (meaning current model year vehicles as of the
Closing Date in stock and unsold as of the Closing Date which is used in the
ordinary course of business for the purpose of demonstration provided that it
has, as of the Closing Date, less than 6,000 miles on its odometer
(collectively, the "DEMONSTRATORS") shall be the price at which the Demonstrator
was invoiced to the Company by the Manufacturer, as adjusted pursuant to clauses
(III) and (IV) below and, if such Demonstrator has an odometer reading in excess
of 500 miles, as reduced by an amount equal to ten cents ($.10) multiplied by
the total mileage on such odometer. Any demonstrator having an odometer reading
in excess of 6,000 miles or which is not a current model year vehicle as of the
Closing Date shall be treated as a used vehicle under Clause V below.
(III) ADJUSTMENT TO VALUE OF NEW VEHICLES AND
DEMONSTRATORS. The value of each New Vehicle and each Demonstrator shall be: (x)
increased by the dealer cost of any equipment and accessories which have been
installed by the Company; and (y) decreased by the sum of (1) the dealer cost of
any equipment and accessories which have been removed
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from such vehicle, (2) all paid or unpaid rebates, discounts, holdback for
dealer account and other factory incentives (including without limitation
rebates applied for and paid but not earned and incentive monies claimed on
pre-reported units), and (3) if such vehicle shall have been in inventory for
less than thirty (30) days as of the Closing Date, any factory floor plan
assistance and advertising credits relative to such vehicle.
(IV) DAMAGED NEW VEHICLES AND DEMONSTRATORS. If any New
Vehicles or Demonstrators shall have suffered any damage on or prior to the
Closing Date, the Sellers' Agent and the Buyer will attempt to agree on the cost
to cover such repairs or some other equitable reduction in value to reflect such
condition, which amount shall be deducted from the value of such New Vehicle or
Demonstrator. With respect to any New Vehicle or Demonstrator which shall have
been damaged and repaired prior to the Closing Date, the Sellers' Agent and the
Buyer will attempt to agree on an adjustment to the price to reflect the
decrease, if any, in the wholesale value of such New Vehicle or Demonstrator
resulting from such damage and repair, which amount shall be deducted from the
value of such New Vehicle or Demonstrator. In the event the Buyer and the
Sellers' Agent cannot agree on the cost of repairs, the amount of reduction or
such adjustment with respect to a vehicle, then such vehicle shall be considered
an Excluded Asset, and such vehicle shall be valued on the Closing Balance Sheet
and disposed of in accordance with Subsection XI below.
(V) USED VEHICLES. The value of each motor vehicle owned
by the Company that is not a New Vehicle or a Demonstrator as of the Closing
Date, including conversion vans and similar-type vehicles that have been in
inventory for longer than 180 days, rental cars and company vehicles
(collectively, the "USED VEHICLES"), shall be equal to a value mutually agreed
upon by Buyer and the Sellers' Agent. In the event the Buyer and the Sellers'
Agent cannot agree upon a value with respect to any Used Vehicle, then such Used
Vehicle shall be considered an Excluded Asset, and such Used Vehicle shall be
valued on the Closing Balance Sheet and disposed of in accordance with
Subsection XI below.
(VI) INVENTORY. The Buyer and the Sellers' Agent shall
engage a mutually acceptable third party engaged in the business of appraising,
valuing and preparing inventories for automobile dealerships (hereinafter
referred to as the "INVENTORY SERVICE") to prepare an inventory list (the
"INVENTORY") of the parts and accessories, as well as the Miscellaneous
Inventories (as defined in Clause VIII below), owned by the Company. The
Inventory (insofar as it relates to parts and accessories) shall be posted to
the Manufacturer's approved system of inventory control. The Inventory shall be
completed as of the Closing Date. The Inventory shall identify each part and
accessory and its purchase price. The cost of the Inventory shall be borne
equally by the Buyer, on the one hand, and the Sellers, on the other hand.
(VII) RETURNABLE AND NON-RETURNABLE REPLACEMENT PARTS
AND ACCESSORIES. The Inventory shall classify replacement parts and accessories
as "returnable" or "nonreturnable." For purposes of this Agreement, the terms
"returnable parts" and "returnable accessories" shall describe and include only
those new replacement parts and new accessories (excluding prior model year
vehicle accessories) for vehicles which are listed (coded) in the latest current
Master Parts Price List Suggested List Prices and Dealer Prices, or other
applicable similar price lists, of the Manufacturer, with supplements or the
equivalent in effect as of the
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Closing Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer at not
less than the purchase price reflected in the Master Price List or in the most
recent applicable price list. All parts and accessories listed (coded) in the
Master Price List as non-returnable to the Manufacturer shall be classified as
"nonreturnable." The value of each "returnable part" and "returnable accessory"
will be the price therefor listed in the Master Price List. The value of each
"nonreturnable" part and accessory shall be equal to a value mutually agreed
upon by Buyer and the Sellers' Agent. In the event the Buyer and the Sellers'
Agent cannot agree upon a price with respect to any "nonreturnable" part or
accessory, the Closing Balance Sheet shall allocate no value to such
"nonreturnable" part or accessory, and the Sellers may cause the Company to
divest any such "nonreturnable" part or accessory prior to Closing in accordance
with Section 1.5. The value of all special order, non-stock, "Jobber" or "NPN"
parts shall be equal to the Company's original cost of such parts. The value of
all nuts, bolts and any other parts not addressed in this Subsection shall equal
the fair market value thereof as determined by the Inventory Service. The value
of the Company's core deposits, if any, with the Manufacturer shall be included
as an asset on the Closing Balance Sheet. Any damaged parts or accessories,
parts and accessories with component parts missing, superseded or obsolete parts
or accessories, or used parts or accessories, shall be, unless the Buyer and the
Sellers' Agent agree upon a value therefor, considered Excluded Assets and
valued on the Closing Balance Sheet and disposed of in accordance with
Subsection XI below.
(VIII) MISCELLANEOUS INVENTORIES. "MISCELLANEOUS
INVENTORIES" shall include (a) all useable gas, oil and grease, all undercoat
material and body materials in unopened cans and such other miscellaneous
useable and saleable articles in unbroken lots (including office supplies) which
are owned by the Company on the Closing Date provided that Miscellaneous
Inventories shall not include any miscellaneous inventories which represent more
than a sixty (60) day supply of any particular item(s) and (b) all t-shirts,
caps and other clothing items which bear the Company's logo and are not
defective or damaged in any manner. The value of the Miscellaneous Inventories
shall be equal to the current replacement cost of the Miscellaneous Inventories
as determined by the Inventory Service and set forth on the Inventory; provided,
however, the value of such shirts, caps and other clothing items shall be equal
to the Company's actual cost thereof. In the event that the Buyer and the
Sellers' Agent cannot agree upon a value with respect to any particular
miscellaneous items, then such items shall not be included in the Miscellaneous
Inventories. Such miscellaneous items shall be considered Excluded Assets, and
such miscellaneous items shall be valued on the Closing Balance Sheet and
disposed of in accordance with Subsection XI.
(IX) WORK IN PROCESS. The value of any repair orders
which are in process at the opening of business on the Closing Date shall be the
Company's actual cost for parts and labor for such orders as the Company shall
have caused to be performed.
(X) FIXTURES AND EQUIPMENT. The value of all fixtures,
machinery, equipment (including special tools and shop equipment reasonably
necessary to the servicing of motor vehicles), furniture and all signs and
office equipment (including, without limitation, computer equipment used in
normal dealership operations) owned by the Company (collectively, "FIXTURES AND
EQUIPMENT") which (a) were purchased by the Company on or after January 1, 1999
shall be the actual cost thereof as depreciated by the modified accelerated
costs recovery system depreciation method and (b) which were purchased by the
Company prior
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to January 1, 1999 shall be equal to the depreciated book value thereof of
December 31, 1998 less an amount equal to seventy-five percent (75%) of the book
depreciation thereof from January 1, 1999 through the Closing Date; PROVIDED,
HOWEVER, the Closing Balance Sheet shall allocate no value to any items of
Fixtures and Equipment which are leased.
(XI) EXCLUDED ASSETS. As used herein, the term "EXCLUDED
ASSETS" shall refer to any assets of the Company with respect to which the terms
of this Section 1.2 do not specify a value and the Buyer and the Sellers' Agent
are otherwise unable to agree upon such a value at or in connection with the
Closing. The Closing Balance Sheet shall allocate to each Excluded Asset the
value of such Excluded Asset as determined by the Buyer. Immediately following
the Closing, the Buyer will cause the company to transfer all Excluded Assets to
the Sellers at a purchase price equal to the aggregate value allocated to the
Excluded Assets on the Closing Balance Sheet.
(XII) CHARGEBACKS. With respect to each of the Company's
finance arrangements which provide for no chargeback after the initial three (3)
payments have been made on such arrangement, and with respect to all vehicle
service contracts, the Closing Balance Sheet shall reflect the actual chargeback
on such arrangement.
(ii) If within 30 days following delivery of the Closing
Balance Sheet (or the next Business Day if such 30th day is not a Business Day),
the Sellers' Agent has not given the Buyer notice of the Sellers' objection to
the computation of the Net Book Value as set forth in the Closing Balance Sheet
(such notice to contain a statement in reasonable detail of the nature of the
Sellers' objection), then the Net Book Value reflected in the Closing Balance
Sheet will be deemed mutually agreed by the Buyer and the Sellers. If the
Sellers' Agent shall have given such notice of objection in a timely manner,
then the issues in dispute will be resolved pursuant to Section 12.13(c) below.
(iii) If the Net Book Value, as deemed mutually agreed by the
parties or as determined by the Accountants, as aforesaid, is at least equal to
the Estimated Net Book Value, the Buyer and the Sellers shall promptly execute
and deliver to the Escrow Agent a joint instruction to deliver the entire Escrow
Amount, including all interest accrued thereon under the Escrow Agreement, to
the Sellers in the respective percentages set forth opposite their name on
Exhibit 3.1. To the extent that the Net Book Value, as deemed mutually agreed by
the parties or as determined by the Accountants, as aforesaid, is greater than
the Estimated Net Book Value, the Buyer shall be obligated to pay the amount of
such excess (the "NET BOOK VALUE EXCESS"), 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, promptly to the Sellers in the respective percentages set forth
opposite their names on Exhibit 3.1. The payment of the Net Book Value Excess,
plus interest as aforesaid, shall be made by wire transfer to the Sellers in the
manner specified in Section 1.2(b)(i) above. 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
Sellers shall be obligated, jointly and severally, to pay the amount of such
shortfall (the "NET BOOK VALUE SHORTFALL"), together with interest on the amount
of the Net Book Value Shortfall at the Interest Rate from the Closing Date to
the date of such payment, in cash, promptly to the Buyer. In furtherance of such
obligation of the Sellers, the parties shall execute and deliver to
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the Escrow Agent a joint instruction to deliver up to all of the Escrowed
Amount, plus interest earned on the Escrow Amount, to the Buyer. To the extent
that the Net Book Value Shortfall, plus interest at the Interest Rate as
aforesaid, exceeds the value of the Escrowed Amount plus interest earned on the
Escrow Amount, the Sellers shall be obligated, jointly and severally, to pay in
cash or by wire transfer the amount of such excess promptly to the Buyer.
1.3 DELIVERY OF THE SHARES. 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 3.1 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. 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 EMPLOYMENT AGREEMENT. At the Closing, Bob Hurley will enter into an
employment agreement with the Buyer and the Company in the form of Exhibit 1.4
hereto (the "EMPLOYMENT AGREEMENT").
1.5 CERTAIN DIVESTITURES PRIOR TO CLOSING. Prior to the Closing, the
Sellers shall cause the Company to distribute to the Sellers all of its rights,
title and interests in and to the Real Property (as defined in Section 3.16(b))
by a written instrument(s) in form and substance reasonably satisfactory to the
Buyer. All such distributed Real Property is referred to herein as the
"DISTRIBUTED ASSETS".
1.6 REAL PROPERTY LEASE. At the Closing, the Landlords (as defined below)
will enter into a lease agreement with the Company in the form of Exhibit 1.6
hereto (the "DEALERSHIP LEASE"). As used herein, the term "LANDLORDS" shall mean
all of the other persons and entities set forth on the signature page of the
Dealership Lease other than the Company.
ARTICLE 2
CLOSING
The Closing shall take place at the offices of Parker, Poe, Adams &
Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina at 9:30 a.m.,
local time, on the Closing Date. The Closing Date shall be the date designated
by the Buyer, which date shall be no later than fifteen (15) days after the date
of receipt by Buyer of the approvals of Nissan Motor Corporation (the
"MANUFACTURER") contemplated in Section 7.10, and the satisfaction of the other
conditions set forth in Sections 7.13 and 7.14. In no event shall the Closing
Date be later than December 31, 1999 (the "CLOSING DATE DEADLINE"); PROVIDED,
HOWEVER, if, as of December 31, 1999, any of the conditions set forth in
Sections 7.10, 7.13 or 7.14 shall not have been satisfied, the Buyer may elect
to extend the Closing Date Deadline for up to an additional thirty (30) 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 SELLERS
Each of the Sellers, jointly and severally, hereby represents and warrants
to the Buyer as follows:
3.1 OWNERSHIP OF SHARES. Each Seller owns of record and beneficially the
number and percentage of Shares set forth opposite such Seller's name on Exhibit
3.1 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. There are no outstanding options or warrants with respect to
the capital stock of the Company, nor are there any outstanding securities which
are convertible or exchangeable into capital stock of the Company. There are no
voting trusts, shareholder agreements or other agreements, instruments or rights
of any kind or nature whatsoever outstanding with respect to shares of capital
stock of the Company.
3.2 THE SELLERS' POWER AND AUTHORITY; CONSENTS AND APPROVALS.
(a) Each Seller has full capacity, right, power and authority to
execute and deliver this Agreement and the other agreements, documents and
instruments to be executed and delivered by such Seller in connection herewith,
to consummate the transactions contemplated hereby and thereby and to perform
its, his or her 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 its, his or her
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.
3.4 LITIGATION REGARDING THE SELLERS. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to each of the Sellers' knowledge, threatened or probable of assertion, against
such 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.
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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 any Seller
nor any Affiliate of any Seller (i) has any direct or indirect interest in any
person or entity engaged or involved in any business which is similar to or
competitive with the Company's business, (ii) has any direct or indirect
interest in any person or entity which is a lessor of assets or properties to,
material supplier of, or provider of services to, the Company, or (iii) has a
beneficial interest in any contract or agreement to which the Company 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 Sellers, on an
aggregate basis, own less than 3% of the issued and outstanding voting stock.
For purposes of this Agreement, the term "AFFILIATE" shall mean any entity
directly or indirectly controlling, controlled by or under common control with
the specified person, whether by stock ownership, agreement or otherwise, or any
parent, child or sibling of such specified person and the concept of "CONTROL"
means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
(b) Except as set forth in Schedule 3.5 hereto, there are no
transactions between the Company and any of the Sellers (including the Sellers'
Affiliates), or any of the directors, officers or salaried employees of the
Company, or the family members or Affiliates of any of the above (other than for
services as employees, officers and directors), including, without limitation,
any contract, agreement or other arrangement providing for the furnishing of
services to or by, providing for rental of real or personal property to or from,
or otherwise requiring payments to or from, any of the Sellers, or any such
officer, director or salaried employee, family member, or Affiliate or any
corporation, partnership, trust or other entity in which such family member,
Affiliate, officer, director or employee has a substantial interest or is a
shareholder, officer, director, trustee or partner.
3.6 THE 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, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Oklahoma 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 Company is
not qualified, and the nature of its business does not require it to be
qualified, to do business as a foreign corporation in any other jurisdictions.
3.8 CAPITALIZATION. The authorized capital stock of the Company consists
of 245,500 shares of common stock, par value $1.00 per share, of which 245,500
shares are issued and outstanding and constitute all of the Shares. All of the
Shares are duly authorized, validly issued, fully paid and non-assessable and
are held by the Sellers in the amounts indicated on Exhibit 3.1 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 Company, and there
are no
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outstanding options, warrants, "phantom" stock plans, subscriptions, agreements,
plans or other commitments pursuant to which the Company 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 or
exchangeable into shares of such capital stock or any other debt or equity
security. There are no voting trusts, shareholder agreements or other
agreements, instruments or rights of any kind or nature whatsoever outstanding
with respect to shares of capital stock of the Seller.
3.9 SUBSIDIARIES AND INVESTMENTS. The Company 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 and the Company 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 Company, (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 Company, (c) violate or conflict with the terms of, or result in the
acceleration of, any indebtedness or obligation of the Company 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 Company
is a party or by which the Company 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 Company, (e) constitute an
event permitting termination of any material agreement, license or other right
of the Company, 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 Company or any of its properties or
assets.
3.11 TITLE TO ASSETS; RELATED MATTERS. The Company 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 Company and used or held for use in the conduct of
its business; and (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 transferrable 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 Company 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
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Leased Premises (each as defined in Section 3.16 hereof) under their respective
contracts and leases.
3.13 FINANCIAL STATEMENTS.
(a) The Sellers have delivered to the Buyer prior to the date
hereof:
(i) the unaudited balance sheet of the Company as of December
31, 1997 and December 31, 1998 and the related unaudited statements of income
for the fiscal years then ended (including the notes thereto and any other
information included therein) (collectively, the "ANNUAL FINANCIAL STATEMENTS");
and
(ii) the most recent unaudited balance sheet of the Company
and the related unaudited statements of income for the year-to-date period then
ended, as certified by the Company's President (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 are in accordance with the books and
records of the Company, which books and records are true, correct and complete,
in all material respects. The Financial Statements have been prepared in
accordance with the Manufacturer's published accounting manual and generally
accepted industry accounting standards, each consistently applied. Each balance
sheet included in the Financial Statements fairly presents the financial
condition of the Company as of the date thereof, and each related statement of
income included in the Financial Statements fairly presents the results of the
operations of the Company for the period indicated, all in accordance with the
Manufacturer's published accounting manual and generally accepted industry
accounting standards, each consistently applied. Except as set forth on Schedule
3.13(b), to the knowledge of the Sellers, the Financial Statements contain
adequate reserves for all reasonably anticipated claims relating to matters with
respect to which the Company is self-insured.
3.14 ACCOUNTS RECEIVABLE. All accounts receivable of the Company are
collectible at the aggregate recorded amounts thereof, subject to the reserve
for doubtful accounts maintained by the Company in the ordinary course of
business, and are not subject to any known counterclaims or setoffs. An adequate
reserve for doubtful accounts for the Company has been established and such
reserve is consistent with the operation of the Company in both the ordinary
course of business and past practice.
3.15 INVENTORIES. All inventories of the Company consist of items of a
quality and quantity usable and saleable in the ordinary course of business of
the Company, and the levels of inventories are consistent with the levels
maintained by the Company in the ordinary course consistent with past practice
and the Company's obligations under its agreements with the Manufacturer and all
applicable distributors. The values at which such inventories are carried are
based on the FIFO method and are stated in accordance with GAAP by the Sellers
at the lower of historic cost or market. An adequate reserve has been
established by the Company for damaged, spoiled, obsolete, defective, or
slow-moving goods and such reserve is consistent with both the operation of the
Company in the ordinary course of business and past practice.
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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 (including leasehold
improvements) owned by the Company 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 Company is the sole
owner of the Owned Real Property and holds 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 Company in connection with the Company's business
is the Owned Real Property. The Owned Real Property (including, without
limitation, the roof, the walls and all plumbing, wiring, electrical, heating,
air conditioning, fire protection and other systems, as well as all paved areas,
included therein or located thereat) is in good working order, condition and
repair and is not in need of maintenance or repairs except for maintenance and
repairs which are routine, ordinary and not material in nature or cost.
(b) LEASED PREMISES. Schedule 3.16(b)(i) hereto contains a complete
list and description (including buildings and other structures thereon and the
name of the owner thereof) of all real property of which the Company is a tenant
(herein collectively 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. Except as provided in
Schedule 3.16(b)(ii), the Leased Premises (including, without limitation, the
roof, the walls and all plumbing, wiring, electrical, heating, air conditioning,
fire protection and other systems, as well as all paved areas, included therein
or located thereat) are in good working order, condition and repair and are not
in need of maintenance or repairs except for maintenance and repairs which are
routine, ordinary and not material in nature or cost. With respect to each
Lease, no event or condition currently exists which would give rise to a
material repair or restoration obligation if such Lease were to terminate. The
Sellers have no knowledge of any event or condition which currently exists which
would create a legal or other impediment to the use of the Leased Premises as
currently used, or would increase the additional charges or other sums payable
by the tenant under any of the Leases (including, without limitation, any
pending tax reassessment or other special assessment affecting the Leased
Premises).
(c) CLAIMS. 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 Real Property
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 mechanics' or
materialman's lien against the Real Property; and there is no person or entity
other than the Company in or entitled to possession of the Real Property.
(d) EASEMENTS, ETC. The Company has all easements and rights,
including, but not limited to, easements for power lines, water lines, sewers,
roadways and other means of
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ingress and egress, necessary to conduct the business the Company now conducts,
all such easements and rights are perpetual, unconditional appurtenant rights to
the Real Property, and none of such easements or rights are subject to any
forfeiture or divestiture rights. Insofar as the representations and warranties
in this Subsection are made with respect to the Leased Premises, they are made
to the Sellers' knowledge.
(e) CONDEMNATION. Neither the whole nor any portion of any of the
Real Property has been condemned, expropriated, ordered to be sold or otherwise
taken by any public authority, with or without payment or compensation therefor,
and the Sellers do not know of any such condemnation, expropriation, sale or
taking, or have any grounds to anticipate that any such condemnation,
expropriation, sale or taking is threatened or contemplated. The Sellers have no
knowledge of any pending assessments which would affect the Real Property.
(f) ZONING, ETC. None of the Real Property is in violation of any
public or private restriction or any federal, state or local laws, rules,
ordinances, codes or regulations, including without limitation, any building,
zoning, health, safety, or fire laws, rules, ordinances, codes or regulations,
and no notice from any governmental body has been served upon the Company 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 Company the
need for any work, repair, construction, alterations or installation on or in
connection with said properties which has not been complied with. 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.
(g) OWNED EQUIPMENT. Schedule 3.16(g) hereto sets forth a list of
all material machinery, equipment, motor vehicles, furniture and fixtures owned
by the Company (collectively, the "OWNED EQUIPMENT").
(h) LEASED EQUIPMENT. Schedule 3.16(h) hereto contains a list of all
leases or other agreements, whether written or oral, under which the Company 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").
(i) MAINTENANCE OF EQUIPMENT. The Owned Equipment and the Leased
Equipment are in good operating condition, maintenance and repair in accordance
with industry standards taking into account the age thereof.
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
or other proprietary information, know-how and intellectual property rights,
whether patentable or unpatentable, that are owned or leased by the
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Company or used in the conduct of the Company's business. The Company is not a
party to, and the Company pays no 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 Company that any of its
operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that the Company is
wrongfully or otherwise using the property rights of others. There is no
existing claim, or, to the knowledge of the Sellers, any basis for any claim, by
the Company against any third party that the operations, activities or products
of such third party infringe the patents, trademarks, trade names, copyrights or
other property rights of the Company or that such other third party is
wrongfully or otherwise using the property rights of the Company.
(b) The Company has the right to use the name Riverside Nissan in
the State of Oklahoma 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 Company 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 Company, 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 Company owed to stockholders and former stockholders, the
deferred purchase price of assets, letters of credit and capitalized leases,
indicating, in each case, the name or names of the lender, the date of maturity,
the rate of interest, any prepayment penalties or premiums and the unpaid
principal amount of such indebtedness as of such date.
3.19 NO UNDISCLOSED LIABILITIES. The Company has no 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 or otherwise reasonably
disclosed in this Agreement or the other schedules hereto.
3.20 ABSENCE OF CHANGES. Since December 31, 1998, the business of the
Company 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 Company
in excess of $50,000; (b) any strikes, work stoppages or other labor disputes
involving the employees of the Company; (c) any sale, transfer, pledge or other
disposition of any of the assets of the Company 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 declaration or payment of any dividend or other
distribution in respect of its capital stock or any redemption, repurchase or
other acquisition of its capital stock; (e) any amendment, termination, waiver
or cancellation of any Material Agreement (as defined in Section 3.29 hereof) or
any
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termination, amendment, waiver or cancellation of any material right or claim of
the Company under any Material Agreement (except in each case in the ordinary
course of business and consistent with past practice); (f) any (1) general
uniform increase in the compensation of the employees of the Company (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 Company to any officer,
director, stockholder, employee, consultant or agent of the Company; (g) any
change in the accounting methods, procedures or practices followed by the
Company or any change in depreciation or amortization policies or rates
theretofore adopted by the Company; (h) any material change in policies,
operations or practices of the Company with respect to business operations
followed by the Company, 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 Company concerning the employees of the
Company; (i) any capital appropriation or expenditure or commitment therefor on
behalf of the Company in excess of $50,000 individually or $100,000 in the
aggregate; (j) any write-down or write-up of the value of any inventory or
equipment of the Company or any increase in inventory levels in excess of
historical levels for comparable periods; (k) any account receivable in excess
of $50,000 or note receivable in excess of $50,000 owing to the Company 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; (l) any other change in
the condition (financial or otherwise), business operations, assets, earnings,
business or prospects of the Company which has, or could reasonably be expected
to have, a material adverse effect on the assets, business or operations of the
Company; or (m) any agreement, whether in writing or otherwise, for the Company
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 Company 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 Company
with the appropriate governmental agencies, and all such returns and reports are
true, correct and complete.
(b) All federal, state and local income, profits, franchise, sales,
use, occupation, property, excise, payroll, withholding, employment, estimated
and other taxes of any nature, including interest, penalties and other additions
to such taxes ("TAXES"), payable by, or due from, the Company for all periods
prior to the date hereof have been fully paid or adequately reserved for by the
Company or, with respect to Taxes required to be accrued, the Company has
properly accrued or will properly accrue such Taxes in the ordinary course of
business consistent with past practice of the Company.
(c) The federal and state income tax returns of the Company have been
audited by the Internal Revenue Service ("IRS") or are closed by the applicable
statutes of limitations for all taxable years through 1995. Except as set forth
on Schedule 3.21 hereto, the Company has not received any notice of any assessed
or proposed claim or deficiency against it
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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 Company 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 Company. Copies of all federal,
state and local tax returns and reports required to be filed by the Company for
the years ended 1998, 1997, 1996, 1995, 1994 and 1993, together with all
schedules and attachments thereto, have been delivered by the Sellers to the
Buyer.
(d) The Company is not now, nor has it 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 the Company. The Company 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 Company 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 Company.
3.22 COMPLIANCE WITH LAWS, ETC. The Company has conducted its operations
and business in compliance with, and all of the Assets (including all of the
Real Property) 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 3.36 hereof) and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances.
The Company 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, judgments, injunctions, decrees and other awards
of any court or governmental agency applicable to the Company and/or its
business or operations. The Sellers have delivered to the Buyer copies of all
reports, if any, of the Company 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 Company and any deficiencies
noted by inspection through the Closing Date will have been corrected by the
Company by the Closing Date.
3.23 LITIGATION REGARDING THE COMPANY. 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 Company or relating
to any of its assets, business or operations or the transactions contemplated by
this Agreement, and the Sellers do not know of any basis for the institution of
any such suit or proceeding. All actions, suits or proceedings pending, or, to
the knowledge of the Sellers, threatened against or affecting the Company are
covered in full by insurance, without any reservation of rights, subject only to
the payment of applicable deductibles. 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 Company
relating to the Company or any of its assets, business or operations.
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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 Company to
own and operate its business as presently conducted (collectively, the
"PERMITS"). All such Permits have been duly and lawfully secured or made by the
Company and are in full force and effect. There is no proceeding pending, or, to
the Sellers' knowledge, threatened or probable of assertion, to revoke or limit
any such Permit. Except as set forth on Schedule 3.24 hereto, 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 Company
employs a total of approximately 95 employees. As of the date hereof: (a) the
Company 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 Company and
labor unions or organizations representing any employees of the Company; (c) no
collective bargaining agreement is currently being negotiated by the Company;
(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 Company 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 Company
and any of its sales representatives or, to the knowledge of the Sellers,
between any such sales representatives with respect to territory, commissions,
products or any other terms of their representation.
3.26 COMPENSATION. Schedule 3.26 contains a schedule of all employees
(including sales representatives) and consultants of the Company whose
individual cash compensation 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, 1998 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 Company
(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 Company as a single
employer within 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 Company and maintained or contributed to by
the Company.
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(b) Where applicable, each Employee Plan (i) has been administered
in material compliance with the terms of such Employee Plan and the requirements
of ERISA, the Code and all other applicable laws; and (ii) is in material
compliance with the reporting and disclosure requirements of ERISA and the Code.
The Company neither maintains nor contributes to, and has never maintained or
contributed to, an Employee Plan subject to Title IV of ERISA or a
"multiemployer plan." There are no facts relating to any Employee Plan that (i)
have resulted in a "prohibited transaction" of a material nature or have
resulted or is reasonably likely to result in the imposition of a material
excise tax, penalty or liability pursuant to Section 4975 of the Code, (ii) have
resulted in a material breach of fiduciary duty or violation of Part 4 of Title
I of ERISA, or (iii) have resulted or is reasonably likely to result in any
material liability (whether or not asserted as of the date hereof) of the
Company 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) 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 Company has not made any promises or
incurred any liability under any Employee Plan or otherwise to provide health or
other welfare benefits to current or future retirees or other former employees
of the Company, 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 the Company'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 or the Code, as the case may be.
3.28 POWERS OF ATTORNEY. There are no persons, firms, associations,
corporations or business organizations or entities holding general or special
powers of attorney from the Company.
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 leases and all
other contracts, agreements, documents, instruments, guarantees, plans,
understandings or arrangements, written or oral, which are material to the
Company 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 Company 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 material respect of any of its
obligations thereunder. Each of the
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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 Company 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 Ben
Hicks & Associates, Inc., which 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 Company, and all cellular
telephones provided and/or paid for by the Company, 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 Company on their respective properties, operations, inventories,
assets, business or personnel (specifying the insurer, amount of coverage, type
of insurance, policy number and any pending claims in excess of $5,000
thereunder). Each such insurance policy identified therein is and shall remain
in full force and effect on and as of the Closing Date and the Company 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 material claim under any such
insurance policy in a due and timely fashion. The insurance maintained by, or on
behalf of, the Company is adequate in accordance with the standards of business
of comparable size in the location and industry in which the Company operates
and no notice of cancellation or termination has been received with respect to
any such policy. The Company 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 Company 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 Company.
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 Company (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 Company. There have been no breach of warranty or
breach of representation claims against the Company during the past five (5)
years which have resulted in
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any cost, expenditure or exposure to the Company 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
Company.
3.35 SUPPLIERS AND CUSTOMERS. The Company 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 Company.
3.36 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 3.36, the following terms shall
have the following meaning: (i) "ENVIRONMENTAL LAW" means all present and future
federal, state and local laws, statutes, regulations, rules, ordinances and
common law, and all judgments, decrees, orders, agreements, or permits, issued,
promulgated, approved or entered thereunder by any government authority relating
to pollution, Hazardous Materials, worker safety or protection of human health
or the environment; (ii) "HAZARDOUS MATERIALS" means any waste, pollutant,
chemical, hazardous material, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, asbestos, radioactive materials,
polychlorinated biphenyls, 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 Company 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 Company ("ENVIRONMENTAL
PERMITS"). All such Environmental Permits are in good standing, the Company 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 threatened to revoke any such Environmental Permit.
(c) The Company and its business, operations and assets are and have
been in compliance in all material respects with all Environmental Laws.
(d) Neither the Company 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 Company, (ii) any
other circumstances forming the basis of any actual or alleged violation by the
Company or the Sellers of any Environmental Law or any liability of the Company
or the Sellers under any Environmental Law, (iii) any remedial or removal action
required to be taken by the Company or the Sellers
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under any Environmental Law, or (iv) any harm, injury or damage to real or
personal property, natural resources, the environment or any person alleged to
have resulted from the foregoing, nor are the Sellers aware of any facts which
might reasonably give rise to such notice or communication. Neither the Company
nor any 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 the Company,
the Sellers or the Real Property.
(f) No Hazardous Materials are or have been released, discharged,
spilled or disposed of or have migrated onto, the Real Property or any other
property previously owned, operated or leased by the Company, and no
environmental condition exists (including, without limitation, the presence,
release, threatened release or disposal of Hazardous Materials) related to the
Real Property, to any property previously owned, operated or leased by the
Company, or to the Company's past or present operations, which would constitute
a violation of any Environmental Law or otherwise give rise to costs,
liabilities or obligations under any Environmental Law.
(g) Neither the Company or the Sellers, nor, to the knowledge of the
Sellers, any of their respective predecessors in interest, has transported or
disposed of, or arranged for the transportation or disposal of, any Hazardous
Materials to any location (i) which is listed on the National Priorities List,
the CERCLIS list under the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, or any similar federal, state or local
list, (ii) which is the subject of any federal, state or local enforcement
action or other investigation, or (iii) about which the Company 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 is threatened to be
attached to the Real Property.
(i) No employee of the Company in the course of his or her
employment with the Company has been exposed to any Hazardous Materials or other
substance, generated, produced or used by the Company which could give rise to
any claim (whether or not such claim has been asserted) against the Company.
(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 the Company.
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(l) The Company 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 or entity under any Environmental Law for environmental matters or
conditions.
3.37 [INTENTIONALLY DELETED]
3.38 BUSINESS GENERALLY. None of the Sellers is aware of the existence of
any conditions, including, without limitation, any actual or potential
competitive factors in the markets in which the Company participates, which have
not been disclosed in writing to the Buyer and which could reasonably be
expected to have a material adverse effect on the business and operations of the
Company, other than general business and economic conditions generally affecting
the industry and markets in which the Company participates.
3.39 MANUFACTURER COMMUNICATIONS. Except as set forth on Schedule 3.39,
the Manufacturer has not (a) notified the Sellers of any deficiency in
dealership operations, including, but not limited to, the following areas: (i)
brand imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer
satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives; (b)
otherwise advised the Sellers of a present or future need for facility
improvements or upgrades in connection with the Company's business; or (c)
notified the Sellers of the awarding or possible awarding of its franchise to an
entity or entities other than the Company in the Metropolitan Statistical Area
in which the Company operates.
3.40 MISSTATEMENTS AND OMISSIONS. No representation and warranty by the
Sellers contained in this Agreement, and no statement contained in any
certificate or Schedule furnished or to be furnished by the Sellers to the Buyer
in connection with this Agreement, contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary in
order to make such representation and warranty or such statement not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
4.1 ORGANIZATION AND GOOD STANDING. The Buyer is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware.
4.2 BUYER'S POWER AND AUTHORITY; CONSENTS AND APPROVALS.
(a) The Buyer has, or will have prior to Closing, 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.
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(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, or will be prior to Closing, 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 creditor's 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 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.
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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. As promptly as possible after the date hereof, the
Sellers shall deliver to the Buyer all of the due diligence materials described
on Schedule 5.1 hereto. The Sellers shall afford, and cause the Company to
afford, to the Buyer, its employees, 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 Company, and to interview personnel,
suppliers and customers of the Company, 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,
businesses and operations of the Company (including, without limitation, any
appraisals or inspections thereof), and provide to the Buyer and its
representatives, including, without limitation, the aforementioned individuals,
such additional financial and operating data and other information as to the
businesses and properties of the Company as the Buyer shall from time to time
reasonably request. The contact person(s) at the Seller for purposes of
arranging such access and requesting such additional information are Bob Hurley
and David Hudiburg.
(b) COOPERATION IN OBTAINING MANUFACTURER APPROVAL; PARTS RETURN.
The Sellers shall promptly notify the Manufacturer of the execution and delivery
of this Agreement, and thereafter shall use reasonable best efforts in
cooperating with the Buyer in the preparation of and delivery to the
Manufacturer, as soon as practicable after the date hereof, of applications and
any other information necessary to obtain the Manufacturer's consent to or the
approval of the transactions contemplated by this Agreement. At the request of
the Buyer, the Sellers shall use their reasonable best efforts to assist the
Buyer in effecting any one-time parts return offered by the Manufacturer, and
will promptly pay over to the Buyer any monies received from the Manufacturer
related thereto. For purposes of the Buyer's application to the Manufacturer, as
contemplated by Section 7.10 below, the address of the Manufacturer and the
relevant contact person at the Manufacturer are: Michael R. Liddell (Dealer
Operations Manager) and Mark Igo (Regional Vice President) at 4400 Regent
Boulevard, Irving, Texas 75063 (Post Office Box 167728, Irving, Texas 75016).
The contact person at the Company for purposes of requests by the Buyer for such
assistance are Bob Hurley and David Hudiburg.
5.2 OPERATION OF BUSINESSES OF THE COMPANY. The Sellers shall cause the
Company to (a) maintain its corporate existence in good standing, (b) operate
its business substantially as presently operated and only in the ordinary course
and consistent with past operations and its obligations under any existing
agreements with all applicable automobile manufacturers or distributors, (c) use
its reasonable 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
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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 Company 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 Company as the Buyer may designate in writing to
remain employees of the Company after the date of the Closing, and (ii) not take
any action, or permit the Company to take any action, to encourage any of the
personnel of the Company to leave their positions with the Company.
5.5 CERTAIN PROHIBITIONS. The Sellers shall not permit the Company 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
Company 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 or sell or otherwise dispose of any
of its assets, other than sales of inventory in the ordinary course of business,
(v) declare or make payment of any dividend or other distribution in respect of
its capital stock or redeem, repurchase or otherwise acquire any of its capital
stock, or (vi) agree to take any of the foregoing actions.
5.6 OTHER CHANGES. The Sellers shall not permit the Company 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
Company to furnish to the Buyer such additional information with respect to any
matters or events arising or discovered subsequent to the date hereof which, if
existing or known on the date hereof, would have rendered any representation or
warranty made by the Sellers or any information contained in any Schedule hereto
or in other information supplied in connection herewith then inaccurate or
incomplete. The receipt of such additional information by the Buyer shall not
operate as a waiver by the Buyer of the obligations of the Sellers to satisfy
the conditions to Closing set forth in Section 7.1 hereof.
5.8 PUBLICITY. Except as may be required by law or the applicable rules or
regulations of any securities exchange, the Sellers shall not (i) make or permit
the Company 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
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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 Company 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 Company or any merger or similar transaction involving the Company.
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 Company to allow the
environmental consulting firm Dames & Moore (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
Company 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 Company
and the last known addresses of former employees of the Company 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
Environmental Auditor shall coordinate visits to the Real Property and
conversations with employees of the Company with the Sellers' Agent, who shall
reasonably cooperate with the Buyer in such regard, and shall use reasonable
efforts to minimize disruption of the Company's business performing such
investigations. The Sellers shall otherwise cooperate and cause the Company to
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 Environmental Audit.
5.12 AUDITED FINANCIAL STATEMENTS. The Sellers shall allow, cooperate with
and assist Buyer's accountants, and shall instruct the Company's accountants to
cooperate, in the preparation of audited financial statements of the Company as
necessary for any required filings by the Buyer with the SEC 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 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
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all inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
5.14 CURING BREACHES OF REPRESENTATIONS AND WARRANTIES. Upon written
notice by the Buyer of the discovery by the Buyer prior to the Closing of a
breach of any representation and warranty of the Sellers contained in this
Agreement, the Sellers will, if requested by the Buyer, at their expense,
undertake to cure such breach prior to the Closing. In the event that such
breach cannot, despite reasonable efforts, be fully cured prior to the Closing,
the Sellers shall continue their efforts to complete such cure after the
Closing. If the Buyer shall have requested the Sellers to cure any such breach
pursuant to this Section 5.14, the Buyer shall not be entitled to claim such
breach as a failure of the Buyer's condition to close under Section 7.1 below
provided that (a) the Sellers shall have cured such breach prior to the Closing
or (b) in the event that such breach cannot, despite reasonable efforts, be
fully cured prior to the Closing, the Sellers shall be diligently prosecuting
such efforts to effect such cure before the Closing.
5.15 CONCERNING EMPLOYEE PLANS.
(a) The Sellers shall cause the Company to terminate its 401(k) plan
not later than the day prior to the Closing Date and, in connection therewith,
the Company shall amend such 401(k) plan to fully vest all accounts of all
participants in such 401(k) plan and to provide for the distribution of all such
accounts. At the Closing, the Sellers shall deliver to the Buyer a duly executed
plan amendment and resolutions of the Company's Board of Directors reflecting
the termination of such 401(k) plan and such related amendments to such 401(k)
plan. The Seller shall also cause the Company to terminate all other Employee
Plans as of the Closing Date and shall provide the Buyer at Closing with
documentation satisfactory to the Buyer evidencing such terminations. The
Sellers shall reimburse the Buyer for all fees and expenses (including but not
limited to attorneys' fees) paid or incurred by the Company or the Buyer in
connection with the termination and winding up of the Employee Plans.
Notwithstanding the foregoing, the Buyer shall have the option, in its sole
discretion and exercised by the delivery to the Sellers of a written request, to
require the Sellers to cause the Company to transfer any or all of the Company's
plans or related insurance policies to the Buyer (or other related entity which
will continue the Company's business).
(b) If the Company participates in any Employee Plans in which other
entities owned or controlled by the Sellers will continue to participate after
the Closing (hereinafter called "OTHER PLANS"), the Sellers shall cause the
Company to terminate its participation in any or all of such Other Plans as of
the Closing Date (such Other Plans as to which the Company's participation shall
be terminated being hereinafter called the "TERMINATED OTHER PLANS"), with no
resulting cost, liability or expense to the Company or its employees, except to
the extent provided by this Agreement. To the extent permitted by Code Section
401(k)(10) and the regulations thereunder, all employees of the Company as of
the Closing Date shall be treated as having incurred a separation from service
for purposes of the Terminated Other Plans and shall be entitled to receive
distributions of their accounts under the Terminated Other Plans. At the
Closing, the Sellers shall deliver to the Buyer resolutions of the Company's
Board of Directors and any related plan amendments reflecting the termination of
the Company's participation in the Terminated Other Plans.
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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 MANUFACTURER. Subject to the reasonable cooperation of
the Sellers, the Buyer shall provide to the Manufacturer 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 consent of the Manufacturer to the transactions
contemplated by this Agreement. For purposes of the Buyer's application to the
Manufacturer, as contemplated herein, the address of the Manufacturer and the
relevant contact person at the Manufacturer are:
Michael R. Liddell (Dealer Operations Manager) and Mark Igo (Regional Vice
President) at 4400 Regent Boulevard, Irving, Texas 75063 (Post Office Box
167728, Irving, Texas 75016)
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.
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.
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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, including, without
limitation, delivery of the stock certificates and stock powers for the Shares
described in Section 1.3 hereof.
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) such duly signed resignations of the directors and officers of
the Company as the Buyer shall have previously requested;
(c) wire transfer instructions from the Sellers' Agent, with respect
to the payment at the Closing of the Purchase Price;
(d) an opinion of Randall K. Calvert, P.C., dated the date of the
Closing and addressed to the Buyer, reasonably acceptable in form and substance
to Buyer's counsel;
(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, specifically including any consents required under the Leases, other
than from the Manufacturers;
(f) certificates dated as of a recent date from the Secretary of
State of the State of Oklahoma to the effect that the Company is duly
incorporated and in good standing in such state and stating that the Company
owes no franchise taxes in such state and listing all documents of the Company
on file with said Secretary of State;
(g) a copy of the Articles of Incorporation of the Company,
including all amendments thereto, certified as of a recent date by the Secretary
of State of the State of Oklahoma;
(h) evidence, reasonably satisfactory to the Buyer, of the authority
and incumbency of the persons acting on behalf of the Company 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 Company from the states and local jurisdictions where the
principal place of business of the Company and its assets are located;
(j) a certificate of each of the Sellers as to such Seller's
non-foreign status in appropriate form;
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(k) the corporate minute books and stock record books of the
Company, and all other books and records of, or pertaining to, the businesses
and operations of the Company;
(l) estoppel letters of lenders to the Company, in form and
substance reasonably satisfactory to the Buyer, with respect to amounts owing by
the Company 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. There shall have been no material adverse
change or development in the business, prospects, properties, earnings, results
of operations or financial condition of the Company, 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 Company.
7.8 AFFILIATE AND OTHER TRANSACTIONS. All amounts owing to the Company
from the Sellers or any Affiliate of the Company or any Seller or from any of
the Company's officers and employees shall have been paid in full on or prior to
the Closing Date.
7.9 ESCROW AGREEMENT. The Sellers and the Escrow Agent shall have duly
executed and delivered to the Buyer the Escrow Agreement.
7.10 MANUFACTURER APPROVAL. The Manufacturer shall have given any required
approval of the transfer of the Shares to the Buyer and shall have given any
required approval of O. Bruton Smith or his designee as the authorized dealer
operator of the Company's dealership franchise with the Manufacturer at the
present dealership locations in their existing facilities as currently
configured for dealership operations, and the Manufacturer shall have executed
any
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required dealer agreements and/or amendments or supplements thereto in
connection with the foregoing.
7.11 EMPLOYMENT AGREEMENT. Bob Hurley shall have executed and delivered to
the Buyer and the Company the Employment Agreement.
7.12 CANCELLATION OF STOCK OPTIONS. All outstanding options, warrants,
"phantom" stock options and other plans, agreements or arrangements of the
Company with respect to the purchase, or the issuance of, or otherwise relating
to, any capital stock or other securities of the Company 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 Company as may be
required by applicable regulations of the SEC 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.
7.15 DEALERSHIP LEASE. The Landlords shall have executed and delivered to
the Buyer and the Company the Dealership Lease. All Leases shall have been
terminated.
7.16 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Buyer under the Riverside Chevrolet Purchase Agreement and the Glover Dodge
Purchase Agreement shall have been satisfied or fulfilled unless waived in
writing by the Buyer, and the closings under the Riverside Chevrolet Purchase
Agreement and the Glover Dodge Purchase Agreement shall have occurred or shall
be occurring contemporaneously with the Closing of the transactions contemplated
by this Agreement.
7.17 COMPUTER SERVER ASSESSIBILITY. The Sellers shall have caused the
Company and Hudiburg Chevrolet, Inc. to have entered into a lease agreement in
accordance with Section 11.3.
7.18 RENOVATIONS. The Company shall have completed the renovations it is
undertaking on the Leased Premises with regard to (a) the asphalt lot overlay;
(b) the remodeling of the service drive; and (c) the replacement of the roof on
the "old" building.
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:
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8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Buyer in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
8.2 PERFORMANCE OF OBLIGATIONS OF THE BUYER. The Buyer shall have
performed all obligations required to be performed by it under this Agreement,
and complied with all covenants for which compliance by it is required under
this Agreement, prior to or at the Closing, including, without limitation,
payment of the Purchase Price pursuant to Section 1.2(b) hereof.
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, reasonably
acceptable in form and substance to Sellers' counsel;
(d) 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;
(e) a copy of the Buyer's Certificate of Incorporation, including
all amendments thereto, certified by the Secretary of State of the State of
Delaware;
(f) a certificate of the Secretary or an Assistant Secretary of the
Buyer as to (i) the bylaws of the Buyer, (ii) the resolutions of the Buyer's
Board of Directors authorizing this Agreement and the transactions contemplated
hereby, and (iii) 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
(g) 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
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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 ESCROW AGREEMENT. The Buyer and the Escrow Agent shall have duly
executed and delivered the Escrow Agreement to the Sellers.
8.7 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.
8.8 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Seller (as defined in the Riverside Chevrolet Purchase Agreement) under the
Riverside Chevrolet Purchase Agreement and all the conditions to the obligations
of the Seller (as defined in the Glover Dodge Purchase Agreement) under the
Glover Dodge Purchase Agreement shall have been satisfied or fulfilled unless
waived in writing by such party, and the closings under the Riverside Chevrolet
Purchase Agreement and the Glover Dodge Purchase Agreement shall have occurred
or shall be occurring contemporaneously with the Closing of the transactions
contemplated by this Agreement.
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 or 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 (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; (ii) the representations and
warranties of the Sellers contained in Section 3.36 shall survive the Closing
for a period of seven (7) years; and (iii) the representations and warranties of
the Sellers contained in Section 3.11, which shall survive the Closing
indefinitely. 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 SELLERS. Subject to the terms and
conditions of Sections 9.4 and 9.5 hereof, the Sellers hereby, jointly and
severally, agree to indemnify and
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save the Buyer, the Company, their respective shareholders, officers, directors
and employees, and the successors and assigns of each of the foregoing (each, a
"BUYER INDEMNITEE") harmless from and against, for and in respect of, any and
all damages, losses, obligations, liabilities, demands, judgments, injuries,
penalties, claims, actions or causes of action, encumbrances, costs, and
expenses (including, without limitation, reasonable attorneys' fees and expert
witness fees), suffered, sustained, incurred or required to be paid by any Buyer
Indemnitee (collectively, "BUYER'S DAMAGES") arising out of, based upon, in
connection with, or as a result of:
(a) the untruth, inaccuracy or breach of any representation and
warranty of the Sellers (regardless of any knowledge thereof by the Buyer at or
prior to the Closing) 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 any
Seller 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 Hazardous Materials generated,
stored, used, disposed of, treated, handled or shipped by the Company on or
before the Closing Date;
(d) any cleanup of Hazardous Materials released, disposed of or
discharged: (i) on, in, beneath or around 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 Company prior
to or on the Closing Date;
(e) all known or unknown environmental liabilities and claims of or
against the Company or arising out of the ownership the Shares 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;
(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 date of the
Closing; or
(g) any and all Taxes arising out of or based upon the Distributed
Assets or the distribution thereof as contemplated by Section 1.5;
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 not
obligated) to make demand for payment under the Escrow Agreement.
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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
(collectively, "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 (regardless of any knowledge thereof by the Sellers at or
prior to the Closing) 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.
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, respectively, 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. None of
the Sellers shall be required to indemnify under this Section 9.2(a) unless the
amount of all Buyer's Damages (including claims for Buyer's Damages) under
Section 9.2 (a) exceeds a cumulative aggregate total of $53,500, at which time
rights to indemnification for Buyer's Damages may be asserted for any amounts in
excess of such cumulative aggregate total of $53,500. The Buyer not shall be
required to indemnify under this Section 9.3(a) unless the amount of all
Seller's Damages (including claims for Seller's Damages) under Section 9.3 (a)
exceeds a cumulative aggregate total of $53,500, at which time rights to
indemnification for Sellers' Damages may be asserted for any amounts in excess
of such cumulative aggregate total of $53,500. Notwithstanding any other
provision hereof, the aggregate amount of indemnification obligations of the
Sellers, under Section 9.2, and the Buyer, under Section 9.3, shall in either
case not exceed the Purchase Price.
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,
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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 and agrees, in writing,
that it is obligated 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. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay, settle or compromise any such
action, proceeding or claim, provided that in such event the Indemnified Party
shall waive any right to indemnity therefor hereunder unless the Indemnified
Party shall have sought the consent of the Indemnifying Party to such payment,
settlement or compromise and such consent was unreasonably withheld or delayed,
in which event no claim for indemnity therefor hereunder shall be waived.
(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, (ii) the
Indemnifying Party shall not have exercised its right to assume the defense, or
(iii) the Indemnifying Party shall have lost its right to continue the defense,
the Indemnified Party shall assume and control the defense of and contest such
action, proceeding or claim with counsel chosen by it and approved by the
Indemnifying Party, which approval shall not be unreasonably withheld. The
Indemnifying Party shall be entitled to participate in the defense of such
action, proceeding or claim, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Indemnified Party to the extent that such
fees and expenses relate to claims as to which indemnification is due under
Sections 9.2 or 9.3 hereof, as the case may be. The Indemnified Party shall have
full rights to dispose of such action, proceeding or claim and enter into any
monetary compromise or settlement; PROVIDED, HOWEVER, in the event that the
Indemnified Party shall settle or compromise any action, proceeding or claim for
which indemnification is due under Sections 9.2 or 9.3 hereof, as the case may
be, it shall act reasonably and in good faith in doing so.
(d) Both the Indemnifying Party and the Indemnified Party shall
cooperate fully with one another in connection with the defense, compromise or
settlement of any such action, proceeding or claim, including, without
limitation, by making available to the other all pertinent information and
witnesses within its control.
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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.
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 prior to the Closing Date Deadline (as the same may
have been extended pursuant to Article 2 hereof) by the Buyer (by written notice
to the Sellers' Agent) or the Sellers (by written notice to the Buyer), as the
case may be, in the event of a breach in any material respect by any of the
Sellers or the Buyer, respectively, of any of their or its, as the case may be,
representations, warranties or covenants contained in this Agreement;
(c) At any time after the Closing Date Deadline (as the same may
have been extended pursuant to Article 2 hereof), by written notice by the Buyer
or the Sellers' Agent to the other party(ies) hereto if the Closing shall not
have been completed on or before the Closing Date Deadline (as the same may have
been extended pursuant to Article 2 hereof);
(d) By written notice by the Buyer to the Seller's Agent if, after
any initial HSR Act filing, the FTC makes a "second request" for information
pursuant to 16 C.F.R. ss.803.20 , or if the FTC or the Antitrust Division
challenges the transactions contemplated hereby;
(e) By the Buyer, by written notice to the Sellers' Agent, in the
event that approval by the Manufacturer and/or floor plan financing provider of
the transactions contemplated by this Agreement is not received by the Closing
Date Deadline (as the same may have been extended pursuant to Article 2 hereof);
(f) By the Buyer, by written notice to the Sellers' Agent, in the
event that the Manufacturer (or any person claiming by, through or under the
Manufacturer) shall exercise any right of first refusal, preemptive right or
other similar right, with respect to the dealership business of the Company; or
(g) By the Buyer, by written notice to the Sellers' Agent, if the
Buyer in its sole discretion is not satisfied with its due diligence
investigation of the Company, at any time during the period (the "DUE DILIGENCE
PERIOD") commencing on the date hereof and ending on the close of business on
the thirtieth (30th) day after the later to occur of: (A) the date upon which
the Sellers and the Buyer agree upon the form and substance of all Schedules
delivered by the Sellers pursuant to Article III hereof; and (B) the date of
delivery by the Sellers to the Buyer of the due diligence materials listed on
Schedule 5.1 hereto;
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provided, however, no party may terminate this Agreement pursuant to Section
10.1(b) or (c) above if such party is in breach in any material respect of any
representation, warranty, covenant or obligation of such party contained in this
Agreement.
10.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of
this Agreement pursuant to Section 10.1, this Agreement shall be of no further
force or effect; PROVIDED, HOWEVER, that any termination pursuant to Section
10.1 shall not relieve (a) the Buyer of any liability under Section 10.3 below,
(b) the Sellers of any liability under Section 10.4 below, (c) the Company of
any liability under Section 10.6 below, (d) except as provided in Section 10.5
below, any party hereto of any liability for breach of any representation and
warranty, covenant or agreement hereunder occurring prior to such termination or
(e) any party hereto of its, his or her obligations hereunder to pay the fees
and expenses of third parties. In addition, in the event of any such
termination, all filings, applications and other submissions made pursuant to
this Agreement or prior to the execution of this Agreement in contemplation
thereof shall, to the extent practicable, be withdrawn from the agency or other
entity to which made.
10.3 PAYMENT OF BUYER'S TERMINATION FEE. If this Agreement is terminated
by the Sellers pursuant to Section 10.1(c) above and the failure to complete the
Closing on or before the Closing Date Deadline shall have been due to the
Buyer's breach in any material respect of any of its representations,
warranties, covenants or obligations under this Agreement, then the Buyer shall,
within ten days after receipt by the Buyer of written notice from the Seller's
Agent, promptly pay to the Sellers in immediately available funds, as liquidated
damages for the loss of the transaction and not as a penalty, a termination fee
of Five Hundred Thirty-Five Thousand Dollars ($535,000) (the "BUYER'S
TERMINATION FEE").
10.4 PAYMENT OF THE SELLERS' TERMINATION FEE. If this Agreement is
terminated by the Buyer pursuant to Section 10.1(c) above and the failure to
complete the Closing on or before the Closing Date Deadline shall have been due
to the Sellers' breach in any material respect of any of their representations,
warranties, covenants or obligations under this Agreement, then the Sellers,
jointly and severally, shall, within ten days after receipt by the Sellers'
Agent of written notice by the Buyer, promptly pay to the Buyer in immediately
available funds, as liquidated damages for the loss of the transaction and not
as a penalty, a termination fee of Five Hundred Thirty-Five Thousand Dollars
($535,000) (the "SELLERS' TERMINATION FEE").
10.5 TERMINATION FEES EXCLUSIVE REMEDIES FOR DAMAGES. In the case of a
termination of this Agreement pursuant to 10.1(c) above, the rights of the
terminating party to be paid the Sellers' Termination Fee or the Buyer's
Termination Fee, as the case may be, shall be such party's sole and exclusive
remedy 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 Agreement shall prevent any party from electing not to
exercise any right it may have to terminate this Agreement and, instead, seeking
any equitable relief to which it would otherwise be entitled in the event of
breach by any other party hereto.
10.6 SPECIAL TERMINATION PAYMENT. 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 Company
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hereby agrees to pay to the Buyer the sum of Five Hundred Thousand Dollars
($500,000) in the event that this Agreement is terminated by the Buyer pursuant
to Section 10.1(f) above. Such payment shall be made promptly upon demand by the
Buyer therefor in immediately available funds. The Company is a party to this
Agreement solely for the purpose of this Section 10.6.
ARTICLE 11
OTHER COVENANTS
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.
11.2 RIGHT OF FIRST OFFER ON RESALE.
(a) If, at any time prior to the fifth (5th) anniversary of the
Closing Date, the Buyer shall propose to sell the Company's business, the Buyer
shall first give notice in writing to the Sellers Agent of its intention to do
so, which notice (the "FIRST OFFER") shall constitute an offer to the Sellers to
purchase such dealership business from the Buyer at the price and upon payment
terms set forth in such notice. The Sellers, acting through the Sellers' Agent,
shall have a period of thirty (30) days after the giving of such notice by the
Buyer to accept in writing (the "FIRST OFFER ACCEPTANCE") the Buyer's offer set
forth in the First Offer. If the Sellers, acting through the Sellers' Agent,
shall have delivered the First Offer Acceptance to the Buyer prior to the
expiration of such thirty (30) day period, the parties shall negotiate in good
faith in an effort to finalize, execute and deliver a definitive purchase
agreement containing customary terms with respect to such proposed sale. If the
parties are unable to execute and deliver such definitive purchase agreement
within a period of thirty (30) days after receipt by the Buyer of the First
Offer Acceptance (the last day of such thirty (30) day period at 5:00 p.m.,
Eastern Time, being the "FIRST OFFER AGREEMENT DEADLINE"), the Buyer shall be
free to sell the dealership business to any other person or entity during the
one (1) year period commencing with the expiration of the First Offer Agreement
Deadline at a price that is not less than 90% of the price proposed by the Buyer
in the First Offer, and on payment terms which, in the overall, are no less
favorable than such payment terms proposed by the Buyer in the First Offer.
(b) The parties hereto acknowledge and agree that any rights granted
to the Sellers pursuant to this Section 11.2 are subject to the Manufacturer's
(or any person claiming by, through or under the Manufacturer) right of first
refusal, preemptive right or other similar right, with respect to the Company's
business, and that any exercise of such right by the Manufacturer shall not be
subject to this Section 11.2. Accordingly, the parties hereto acknowledge that
any potential closing of a purchase transaction pursuant to this Section 11.2
will be contingent upon a determination by the Manufacturer that it does not
wish to exercise its
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right of first refusal, preemptive right or other similar right with respect to
the Company's business.
11.3 COMPUTER MATTERS. The Buyer acknowledges that the Company does not
own the computer hardware server currently used in the Business and that,
pursuant to a lease, Hudiburg Chevrolet, Inc. provides access to its computer
hardware server to the Company. The Sellers acknowledge that the Buyer is not
purchasing the computer hardware server from the Sellers and that the Buyer will
not be able to have its own server in place at Closing. The Sellers agree to
take such steps as are necessary to permit the Buyer, upon reasonable terms and
conditions, to access and utilize the computer hardware server owned by Hudiburg
Chevrolet, Inc. and to cause Hudiburg Chevrolet, Inc. to enter into an agreement
with the Buyer to such effect. The Buyer will use commercially reasonable
efforts to obtain its own server as soon as reasonably practicable.
ARTICLE 12
MISCELLANEOUS
12.1 CERTAIN TAX RETURNS. The Sellers shall cooperate with and provide
assistance to the Buyer and the Company in connection with the preparation and
filing of all federal, state, local and foreign income tax returns which relate
to the Company 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 Company 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, which Schedules are hereby incorporated herein by
reference) 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, without the consent of the other parties, 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 Company (including any
such acquisition by merger or consolidation); 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 hereby
40
<PAGE>
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, sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally, or by confirmed facsimile 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
Telecopier No.: (704) 536-5116
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Attention: Edward W. Wellman, Jr.
Telecopier No.: (704) 334-4706
If to the Sellers or the Company, to the Sellers' Agent at:
David Hudiburg
6000 Tinker Diagonal
Midwest City, Oklahoma 73110
Telecopier No.: (405) 739-6343
41
<PAGE>
With a copy to:
Randall Calvert
Calvert Law Firm
6520 N. Western, Suite 100
Oklahoma City, OK 73116
Attention: Randall K. Calvert
Telecopier No.: (405) 848-5052
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 Oklahoma, 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; CONSTRUCTION.
(a) 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.
(b) This Agreement shall be construed equitably in accordance with
its terms, without regard to the degree to which the Sellers or the Buyer, or
their respective legal counsel, have participated in the drafting of this
Agreement.
12.12 KNOWLEDGE. Whenever any representation or warranty of any Seller
contained herein 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 such
Seller and (B) any information which such 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
Company, and (ii) the knowledge of any Seller shall be deemed to be the
knowledge of all of the Sellers.
12.13 JURISDICTION; ARBITRATION.
(a) [Intentionally Deleted]
(b) Any dispute, claim or controversy arising out of or relating to
this Agreement (except for accounting matters provided for in subsection (c)
below), or the interpretation or breach hereof (including, without limitation,
any of the foregoing based upon a
42
<PAGE>
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 the Buyer and one of whom
shall be appointed by the Seller within thirty (30) days after any request for
arbitration hereunder. The two arbitrators thus appointed shall choose the third
arbitrator within thirty (30) days after their appointment; PROVIDED, HOWEVER,
that if the two arbitrators are unable to agree on the appointment of the third
arbitrator within 30 days after their appointment, either arbitrator may
petition the American Arbitration Association to make the appointment. The place
of arbitration shall be Charlotte, North Carolina. The arbitrators shall be
instructed to render their decision within sixty (60) days after their selection
and to allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(c) Notwithstanding the provisions of Sections 12.13(a) or 12.13(b),
any dispute relating to accounting matters shall be resolved as provided in this
Section 12.13(c). The parties first shall use reasonable efforts to resolve any
such accounting dispute. In the event the dispute has not been resolved within a
reasonable amount of time, either the Buyer, on the one hand, or the Seller, on
the other hand, may provide written notice to the other party that the matter
will be submitted to a "Big Five" 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: (i) 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 present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
such determination by the Accountants, as set forth in a notice delivered to
both parties by the Accountants, will be binding and conclusive on the parties;
and (iii) the Buyer and the Seller shall each bear 50% of the fees and expenses
of the Accountants for such determination.
(d) 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.
12.14 COOPERATION IN SEC FILINGS. At the request of the Buyer and at the
Buyer's expense, the Sellers shall cooperate in the preparation by the Buyer of
all filings to be made by the Buyer with the SEC including, without limitation
any filing with respect to a registered offering of its securities by the Buyer
and the closing of the offering registered thereby.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
------------------------------
Name: O. Bruton Smith
Title: Chairman and CEO
SELLERS: /s/ David Hudiburg
------------------------------
David Hudiburg
/s/ Steven Hudiburg
------------------------------
Steven Hudiburg
/s/ Paula Tate
------------------------------
Paula Tate
/s/ Donna Dodson
------------------------------
Donna Dodson
/s/ Bob Hurley
------------------------------
Bob Hurley
/s/ Cruse Collins
------------------------------
Cruse Collins
/s/ Randy Grady
------------------------------
Randy Grady
Kenna Beth Tate Irrevocable Trust (dated
November 11, 1985)
By: /s/ David Hudiburg
------------------------------
David Hudiburg, Trustee
By: /s/ Donna Dodson
------------------------------
Donna Dodson, Trustee
Kyle Nicholas Tate Irrevocable Trust
(dated July 25, 1988)
By: /s/ David Hudiburg
------------------------------
David Hudiburg, Trustee
By: /s/ Donna Dodson
------------------------------
Donna Dodson, Trustee
<PAGE>
Kaylan Louise Hudiburg Irrevocable Trust
(dated July 25, 1988)
By: /s/ Paula Tate
------------------------------
Paula Tate, Trustee
By: /s/ Donna Dodson
------------------------------
Donna Dodson, Trustee
COMPANY: RIVERSIDE NISSAN, INC.
(solely for purposes of Section 10.6)
By: /s/ David Hudiburg
------------------------------
Name: David Hudiburg
Title: Vice President
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
Dated as of October 31, 1999,
Among
SONIC AUTOMOTIVE, INC.
FAA ACQUISITION CORP.
FIRSTAMERICA AUTOMOTIVE, INC.
And
CERTAIN OF THE STOCKHOLDERS OF
FIRSTAMERICA AUTOMOTIVE, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I SECURITIES PURCHASE ...................................................................................2
Section 1.1 The Securities Purchase ............................................................2
Section 1.2 Purchase Price .....................................................................2
Section 1.3 Registration, Offer or Sale of Parent Common Stocks ................................4
Section 1.4 The Closing ........................................................................6
Section 1.5 Record Transfer of Company Securities; Parent as Purchaser .........................6
Section 1.6 Treatment of Options ...............................................................6
ARTICLE II THE MERGER............................................................................................7
Section 2.1 The Merger .........................................................................7
Section 2.2 Effective Time .....................................................................7
Section 2.3 Effects of the Merger ..............................................................8
Section 2.4 Certificate of Incorporation; By-Laws ..............................................8
Section 2.5 Directors ..........................................................................8
Section 2.6 Officers ...........................................................................8
Section 2.7 Effect on Capital Stock ............................................................8
Section 2.8 Exchange of Certificates ...........................................................9
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................11
Section 3.1 Organization, Standing and Corporate Power ........................................11
Section 3.2 Subsidiaries; Investments .........................................................12
Section 3.3 Capital Structure .................................................................12
Section 3.4 Authority; Noncontravention .......................................................12
Section 3.5 SEC Documents .....................................................................14
Section 3.6 [INTENTIONALLY LEFT BLANK] ........................................................14
Section 3.7 Litigation ........................................................................14
Section 3.8 Labor Matters .....................................................................14
i
<PAGE>
Section 3.9 Employee Benefit Plans ............................................................15
Section 3.10 Tax Returns and Tax Payments ......................................................17
Section 3.11 Brokers ...........................................................................18
Section 3.12 [INTENTIONALLY LEFT BLANK] ........................................................18
Section 3.13 [INTENTIONALLY LEFT BLANK] ........................................................18
Section 3.14 [INTENTIONALLY LEFT BLANK] ........................................................18
Section 3.15 Title to Assets; Related Matters ..................................................18
Section 3.16 Accounts Receivable ...............................................................19
Section 3.17 Inventories .......................................................................19
Section 3.18 1999 Pro Forma Pre-Tax Earnings ...................................................19
Section 3.19 Real Property; Machinery and Equipment ............................................19
Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc. ......................20
Section 3.21 Certain Liabilities ...............................................................21
Section 3.22 No Undisclosed Liabilities ........................................................21
Section 3.23 Absence of Changes ................................................................21
Section 3.24 Compliance with Laws, Etc .........................................................22
Section 3.25 Permits, Etc ......................................................................22
Section 3.26 Compensation ......................................................................23
Section 3.27 Powers of Attorney ................................................................23
Section 3.28 Material Agreements ...............................................................23
Section 3.29 [INTENTIONALLY LEFT BLANK] ........................................................23
Section 3.30 Insurance .........................................................................23
Section 3.31 Warranties ........................................................................24
Section 3.32 Directors and Officers ............................................................24
Section 3.33 Suppliers and Customers ...........................................................24
Section 3.34 Environmental Matters .............................................................24
Section 3.35 Year 2000 Matters .................................................................26
Section 3.36 Business Generally ................................................................26
Section 3.37 Manufacturer Communications .......................................................27
<PAGE>
Section 3.38 Pending Acquisitions ..............................................................27
Section 3.39 Related Party Transactions ........................................................27
ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................................28
Section 3A.1 Power and Authority; Validity of Agreement ........................................28
Section 3A.2 No Conflicts; Consents and Approvals ..............................................28
Section 3A.3 Ownership of Shares ...............................................................28
Section 3A.4 No Encumbrances ...................................................................29
Section 3A.5 Brokers and Intermediaries ........................................................29
Section 3A.6 Special Representations Regarding the Reorganization Common Stock .................29
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO...............................................30
Section 4.1 Organization, Standing and Corporate Power ........................................30
Section 4.2 Subsidiaries ......................................................................31
Section 4.3 Capital Structure .................................................................31
Section 4.4 Authority; Noncontravention .......................................................31
Section 4.5 SEC Documents .....................................................................32
Section 4.6 [INTENTIONALLY LEFT BLANK.] .......................................................33
Section 4.7 Litigation ........................................................................33
Section 4.8 Brokers ...........................................................................33
Section 4.9 Interim Operations of Newco .......................................................33
Section 4.10 Absence of Certain Changes or Events ..............................................33
Section 4.11 Compliance with Laws, Etc. ........................................................34
ARTICLE V COVENANTS OF THE COMPANY..............................................................................34
Section 5.1 Conduct of Business of the Company ................................................34
Section 5.2 Cooperation Regarding Notice of Appraisal Rights ..................................36
Section 5.3 Access to Information; Confidentiality ............................................36
Section 5.4 No Solicitation ...................................................................37
Section 5.5 Public Announcements ..............................................................38
Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return ......................38
Section 5.7 Closing Conditions ................................................................38
Section 5.8 HSR Act ...........................................................................38
Section 5.9 Concerning Company Plans ..........................................................39
Section 5.10 Bridge Financing ..................................................................39
Section 5.11 280G Consent ......................................................................40
Section 5.12 Tax Free Reorganization ...........................................................40
ARTICLE VA COVENANTS OF THE STOCKHOLDERS........................................................................41
Section 5A.1 Agreement to Vote; Proxy ..........................................................41
Section 5A.2 No Solicitation ...................................................................42
Section 5A.3 Restriction on Transfer, Proxies and Non-Interference .............................42
Section 5A.4 Additional Shares .................................................................43
Section 5A.5 Waiver of Appraisal and Dissenter's Rights ........................................43
Section 5A.6 Actions Regarding Company Expenses ................................................43
Section 5A.7 Indemnity; Escrow Agreement .......................................................43
Section 5A.8 Further Assurances ................................................................46
Section 5A.9 Certain Events ....................................................................46
Section 5A.10 Stop Transfer .....................................................................46
Section 5A.11 Termination .......................................................................46
ARTICLE VI COVENANTS OF THE PARENT..............................................................................46
Section 6.1 Conduct of Business of Parent .....................................................46
Section 6.2 [INTENTIONALLY LEFT BLANK] ........................................................47
Section 6.3 Access to Information; Confidentiality ............................................47
Section 6.4 Indemnification ...................................................................47
Section 6.5 Public Announcements ..............................................................49
Section 6.6 Newco Obligations .................................................................49
Section 6.7 Application to Manufacturers ......................................................49
Section 6.8 Closing Conditions ................................................................49
<PAGE>
Section 6.9 HSR Act ...........................................................................49
Section 6.10 Tax Free Reorganization ...........................................................49
Section 6.11 Additional Agreements of Parent ...................................................49
Section 6.12 Employee Benefits .................................................................50
ARTICLE VII CONDITIONS PRECEDENT................................................................................50
Section 7.1 Conditions to Each Party's Obligation To Effect the Reorganization ................50
Section 7.2 Conditions to Obligations of the Parent and Newco .................................51
Section 7.3 Conditions to Obligation of the Company and the Stockholders ......................53
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER..................................................................55
Section 8.1 Termination .......................................................................55
Section 8.2 Effect of Termination .............................................................56
Section 8.3 Amendment .........................................................................56
Section 8.4 Extension; Waiver .................................................................56
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver .........................56
ARTICLE IX GENERAL PROVISIONS...................................................................................57
Section 9.1 Best Reasonable Efforts ...........................................................57
Section 9.2 Survival of Representations and Warranties ........................................57
Section 9.3 Fees and Expenses .................................................................57
Section 9.4 Notices ...........................................................................58
Section 9.5 Certain Definitions ...............................................................59
Section 9.6 Interpretation ....................................................................60
Section 9.7 Counterparts ......................................................................60
Section 9.8 Entire Agreement; No Third-Party Beneficiaries ....................................60
Section 9.9 Governing Law .....................................................................61
Section 9.10 Assignment ........................................................................61
Section 9.11 Enforcement .......................................................................61
<PAGE>
Section 9.12 Consent to Jurisdiction ...........................................................61
Section 9.13 Severability ......................................................................61
Section 9.14 Construction ......................................................................61
Section 9.15 Effectiveness of this Agreement; Merger Agreement and Stockholder
Agreement Superseded ..............................................................61
Section 9.16 Concerning the Stockholders' Agent ................................................62
EXHIBIT A - CALCULATION OF CONVERSION NUMBER
EXHIBIT B - CALCULATION OF PRO FORMA PRE-TAX EARNINGS FOR CALENDAR YEAR 1999
EXHIBIT BB WARRANT EXCHANGE FACTORS CALCULATION
EXHIBIT C PRO FORMA PRETAX EARNINGS
EXHIBIT D ESCROW AGREEMENT
EXHIBIT E ONE TIME CHARGES AND ADJUSTMENTS
EXHIBIT F GRAY CARY OPINION
EXHIBIT G PARKER POE OPINION
</TABLE>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October
31, 1999 (this "Agreement"), by and among SONIC AUTOMOTIVE, INC., a Delaware
corporation (the "Parent"), FAA ACQUISITION CORP., a Delaware corporation and a
wholly-owned subsidiary of the Parent ("Newco"), FIRSTAMERICA AUTOMOTIVE, INC.,
a Delaware corporation (the "Company"), and the stockholders and warrant holders
of the Company listed on Exhibit A hereto, and any other holders of securities
of the Company who shall become a party to this Agreement after the date hereof
(and such stockholders, warrant holders and other security holders being
collectively, the "Stockholders" and each, individually, a "Stockholder").
WHEREAS, the respective Boards of Directors of the Parent, Newco and
the Company have approved, and deem it fair, advisable and in the best interests
of their respective stockholders to consummate, the business combination
contemplated hereby upon the terms and subject to the conditions set forth
herein;
WHEREAS, it is intended that the business combination contemplated
hereby be accomplished by (i) a purchase (the "Securities Purchase") by Newco
from the Stockholders of all of the following securities of the Company held by
them: (A) all shares of Class A, Class B and Class C Common Stock, par value
$.00001 (collectively, the "Company Common Stock"); (B) all shares of the
Company's Redeemable Preferred Stock due 2005 and all shares of the Company's 8%
Cumulative Redeemable Preferred Stock due 2005 (collectively, the "Company
Preferred Stock"); and (C) all of the Warrants to Purchase Class A Common Stock
of the Company (the "Company Warrants" and, together with the Company Common
Stock and the Company Preferred Stock, sometimes hereinafter collectively called
the "Company Securities"), to be followed by a merger (the "Merger") of Newco
with and into the Company, with the Company being the surviving corporation and
a wholly-owned subsidiary of the Parent, all upon the terms and subject to the
conditions set forth herein (the Securities Purchase and the Merger being
sometimes hereinafter collectively called the "Reorganization");
WHEREAS, the Parent, Newco and the Company are parties to an Agreement
and Plan of Merger dated as of August 25, 1999 (the "Merger Agreement");
WHEREAS, the Parent and certain of the Stockholders are parties to a
Stockholder Agreement dated as of August 25, 1999 (the "Stockholder Agreement");
WHEREAS, it is intended that this Agreement shall supersede and replace
the Merger Agreement and the Stockholder Agreement;
WHEREAS, the Parent, Newco, the Company and the Stockholders desire to
make certain representations, warranties, covenants and agreements in connection
with the transactions contemplated hereby and also to prescribe various
conditions to the Reorganization;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties agree as follows:
<PAGE>
ARTICLE I
SECURITIES PURCHASE
Section 1.1 The Securities Purchase. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing (as defined in Section
1.4 below), the Stockholders shall sell, transfer, convey and deliver to Newco,
and Newco shall purchase from the Stockholders, all of the Company Securities
held by the Stockholders as of the Closing. At the Closing each Stockholder
shall deliver to Newco a certificate or certificates representing the number of
Company Securities set forth opposite such Stockholders name on Exhibit A hereto
and any other Company Securities acquired by such Stockholder after the date
hereof, duly endorsed in blank or with one or more fully executed stock powers
or other appropriate instruments of assignment and conveyance attached, all in
proper form for transfer with all transfer taxes, if any, paid by such
Stockholder. All Company Securities shall be delivered to Newco free and clear
of all liens, pledges, encumbrances, claims, security interests, charges, voting
trusts, voting agreements, other agreements, rights, options, warrants or
restrictions of any kind, nature or description.
Section 1.2 Purchase Price. As the full purchase price to be paid by
Newco to the respective Stockholders for the respective Company Securities to be
purchased hereunder, at the Closing, Newco shall deliver to the Stockholders
securities of the Parent as follows:
(a) For each share of Company Common Stock held by a Stockholder,
Newco shall deliver to such Stockholder .31246, as such number may be adjusted
as provided in Section 1.2(e) below (as so adjusted, the Conversion Number),
fully paid and non-assessable shares of Class A Common Stock, par value $.01 per
share, of the Parent (the Parent Common Stock).
(b) For each share of Company Preferred Stock held by a
Stockholder, Newco shall deliver to such Stockholder that number of fully paid
and non-assessable shares of Parent Common Stock (collectively, the Preferred
Stock Consideration Shares) obtained by dividing (i) One Thousand Dollars
($1,000) by (ii)the average closing price per share of Parent Common Stock as
reported on the Composite Tape for the New York Stock Exchange (the NYSE) for
the twenty (20) consecutive trading days ending on and including the trading day
immediately preceding the Closing Date (as defined in Section 1.4 below). If, as
of the Recalculation Date (as defined below), the Recalculation Market Value (as
defined below) of the Preferred Stock Consideration Shares is less than One
Thousand and Thirty Dollars ($1,030), the Parent shall issue and deliver to each
of the Stockholders who sold shares of Company Preferred Stock, for each share
of Company Preferred Stock sold by such Stockholder hereunder, that number of
additional shares of Parent Common Stock which, together with the Preferred
Stock Consideration Shares, have an aggregate Recalculation Market Value equal
to One Thousand and Thirty Dollars ($1,030). As used in this Subsection(b) the
following terms shall have the following meanings: (A) Recalculation Date shall
mean the date which is ninety (90) days after the Closing Date; and (B)
Recalculation Market Value shall mean the average closing price share of Parent
Common Stock as reported on the NYSE for the twenty (20) consecutive trading
days ending on and including the trading day immediately preceding the
Recalculation Date. No fractional shares of such additional Parent Common Stock
shall be issued; any such
2
<PAGE>
portion of a share shall be paid in cash in an amount (rounded to the nearest
whole cent) equal to the product of such fraction multiplied by the
Recalculation Market Value.
(c) For each Company Warrant held by a Stockholder, Newco shall
deliver to such Stockholder that number of fully paid and non-assessable shares
of Parent Common Stock determined as follows:
(i) for each Company Warrant with an exercise price of $0.92
per share of Company Common Stock, Newco shall deliver .2455 shares of Parent
Common Stock for each share of Company Common Stock issuable upon exercise of
such Company Warrant in full; and
(ii) for each Company Warrant with an exercise price of $2.00
per share of Company Common Stock, Newco shall deliver .1667 shares of Parent
Common Stock for each share of Company Common Stock issuable upon exercise of
such Company Warrant in full.
The numbers of shares of Parent Common Stock set forth in clauses (i)
and (ii) immediately above (the "Warrant Exchange Factors") are determined in
accordance with the provisions of Exhibit BB hereto, which reflects a Conversion
Number of .30769. In the event that the Conversion Number is adjusted as
provided in Section 1.2(e) below, the respective Warrant Exchange Factors shall
be correspondingly adjusted.
(d) Except as set forth in Subsection(b) above, no fractional
shares of Parent Common Stock shall be delivered with respect to the purchase
hereunder of any Company Common Stock or Company Warrants; any such fraction of
a share of Parent Common Stock shall be paid in cash in an amount (rounded to
the nearest whole cent) equal to the product of (i) such fraction multiplied by
(ii) the average closing price per share of Parent Common Stock as reported on
the Composite Tape for the NYSE for the five (5) consecutive trading days ending
on and including the trading day immediately preceding the Closing Date.
(e) The Conversion Number set forth in Section 1.2(a) above has
been determined in accordance with Exhibit B hereto. If between the date of this
Agreement and the Closing the outstanding shares of Company Common Stock or
Parent Common Stock shall have been changed (subject to compliance with any
other applicable provisions of this Agreement) into a different number of shares
or a different class, by reason of any stock dividend, subdivision,
reclassification, split-up, combination, or the like, the Conversion Number
shall be correspondingly adjusted. If between the date of this Agreement and the
Closing, the outstanding shares of Company Common Stock shall have been reduced
(subject to compliance with any other applicable provisions of this Agreement)
as a result of any transaction that does not involve an expenditure or
disposition of assets of the Company (other than the disposition of shares of
DSW Associates, Inc., d/b/a "Auto Town" in connection with the divestiture or
liquidation thereof contemplated by Section 7.2(m) below), or an increase in
liabilities of the Company, or which otherwise reduces the net assets of the
Company, the Conversion Number shall be recalculated in accordance with Exhibit
B hereto utilizing such reduced number of outstanding shares of Company Common
Stock.
3
<PAGE>
Section 1.3 Registration, Offer or Sale of Parent Common Stocks.
----------------------------------------------------
(a) Not later than one hundred eighty (180) days after the
Closing, the Parent shall cause the resale by the Stockholders of the shares of
Parent Common Stock issued pursuant to Section 1.2 above (the "Reorganization
Common Stock") to be registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to an effective shelf registration statement on
Form S-3 (the "Registration Statement") filed by the Parent with the Securities
Exchange Commission (the "SEC"). The Parent shall use its best reasonable
efforts to cause the Registration Statement to be filed and to become effective
by the ninetieth (90th) day after the Closing. In connection with the
Registration Statement, the Parent shall:
(i) deliver to the Stockholders such number of copies of a
prospectus, and supplements thereto, that is part of the Registration Statement
(the "Resale Prospectus") to enable the Stockholders to offer and sell the
shares of the Reorganization Common Stock received by them pursuant to this
Agreement;
(ii) maintain the effectiveness of the Registration Statement
and the currency of the Resale Prospectus until such time as all shares of the
Reorganization Common Stock may be sold by the Stockholders without restriction
pursuant to Rule 144 under the Securities Act or any successor rule or
regulation thereto ("Rule 144");
(iii) cause the Reorganization Common Stock to be listed for
trading on the NYSE not later than the date of the effectiveness of the
Registration Statement;
(iv) pay all expenses, including legal and accounting fees, in
connection with the preparation, filing and maintenance of the Registration
Statement, including any amendments thereto, the Resale Prospectus, including
any supplements thereto, and any other expenses incurred by the Parent in
meeting its obligations under this Section 1.3; and
(v) indemnify the Stockholders for any liabilities arising
under he Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or any state securities or blue sky laws resulting from any
material misstatements in, or omissions of material information from, the Resale
Prospectus or the Registration Statement, including the information incorporated
by reference therein, except for the Stockholders Liabilities (as defined in
Section 1.3(b)(vi) below).
(b) In connection with the Registration Statement, the
Stockholders agree as follows:
(i) the Stockholders shall effect each resale of the
Reorganization Common Stock only pursuant to the Resale Prospectus and the
methods described therein and subject to the provisions of Section 1.3(d) below;
(ii) any offering of any Reorganization Common Stock by a
Stockholder will be effected in an orderly manner through a securities dealer
acting as broker or dealer, selected by the Stockholder and reasonably
acceptable to the Parent (the "Designated Broker");
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(iii) if requested by the Parent, the Stockholders will enter
into one or more custody agreements with one or more banks (the "Custodial
Banks") with respect to the Reorganization Common Stock so that all such shares
of Reorganization Common Stock are held in the custody of such Custodial Banks
until offered pursuant to clause (ii) immediately above;
(iv) each of the Stockholders shall pay any and all expenses
directly related to the sale of the Reorganization Common Stock by it,
including, but not limited to, the commissions or fees of the Designated Broker,
but excluding the fees and expenses of the Custodial Banks holding the
Reorganization Common Stock, if applicable, which shall be borne by the Parent;
(v) because the shares of Reorganization Common Stock will be
"restricted securities" within the meaning of Rule 144, the certificates
representing the Reorganization Common Stock will be issued by the Parent to the
Stockholders with such legends as the Parent may reasonably require until such
shares are offered pursuant to the foregoing terms under the Resale Prospectus,
at which time such certificates shall be tendered to the Parent by the
Stockholder and a new certificate or certificates without legends shall be
issued by the Parent to the Designated Broker in order to settle any resales by
the Stockholders;
(vi) the Stockholders shall provide the Parent with all
information concerning the Stockholders and their resale of the Reorganization
Common Stock as may then be required by the Securities Act, and the Stockholders
shall indemnify the Parent for any liabilities (the "Stockholders Liabilities")
arising under the Securities Act, the Exchange Act or any state securities or
blue sky laws resulting from any material misstatements in, or omissions of any
material information from, such information provided by the Stockholders to the
Parent pursuant to this Section 1.3(b)(vi).
(c) Lock-Up. During the Lock-Up Period (as defined below), the
Stockholders agree that they will not, without the prior written consent of the
Parent, directly or indirectly, (i) offer, pledge, sell, sell short, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right to warrant for the sale of, or otherwise
dispose of or transfer any shares of Reorganization Common Stock or any shares
of the Parent Common Stock issuable upon exercise of Parent Options (as defined
in Section 1.6 below) (all of the foregoing shares being, collectively, the
"Lock-Up Shares"), or file any registration statement under the Securities Act,
with respect to any Lock-Up Shares, or (ii) enter into any swap or any other
agreement or hedging arrangement or any transaction that transfers, in whole or
in part, directly or indirectly, the economic consequence of ownership of
Lock-Up Shares, whether any such swap or transaction is to be settled by
delivery of Parent Common Stock or other securities, in cash or otherwise
provided, however, that, other than with respect to shares of Parent Common
Stock constituting any part of the Escrow Shares (as defined in Section 5A.7(b)
below), a Stockholder may (i)transfer Lock-Up Shares to such Stockholders spouse
or lineal descendant (natural or adopted) or an executor, administrator or
testamentary trustee (in their capacity as such) of such Stockholder or to a
trust the beneficiaries of which include only such Stockholder and his or her
spouse or lineal descendants (natural or adopted); provided, however, it shall
be a condition precedent to such transfer that the transferee agree in a writing
reasonably satisfactory to the Parent to be bound by the terms of this
Section1.3(c), (ii)purchase at its own expense one or several European style put
options, at exercise prices not
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to exceed 80% of the then current market value and with expiration dates not
earlier than the first anniversary of the Effective Time, (iii) sell at their
own expense one or several European style call options at exercise prices no
less than 120% of the then current market value and with expiration dates not
earlier than the first anniversary of the Effective Time, and (iv) pledge shares
of Parent Common Stock as security for loans so long as the pledgee agrees in a
writing reasonably satisfactory to the Parent that (A) such shares in the hands
of the pledgee remain subject to the provisions of this Section 1.3(c) and (B)
are restricted securities under applicable federal securities laws. The "Lock-Up
Period" shall be for a period beginning on the Closing Date and (i) for 15% of
each of the Stockholders Lock-Up Shares, ending on the date that is 180 days
following the Closing Date, and (ii) for 85% of each of the Stockholders Lock-Up
Shares, ending on the date that is one (1) year following the Closing Date.
Nothing contained in this Section 1.3(c) shall prevent the Parent and the
holders of the Preferred Stock Consideration Shares from entering into a
different lock-up agreement with respect to the shares of Parent Common Stock
delivered to such holders pursuant to Section 1.2(b) above, in which case the
provisions of this Section 1.3(c) shall be deemed modified by such different
lock-up agreement with respect to such holders and such shares of Parent Common
Stock only.
(d) Concerning Rule 144 Sales. For a period of four (4) years from
the Closing Date, any sales by the Stockholders of Reorganization Common Stock
pursuant to Rule 144, shall be effected through the Designated Broker and, if
requested by the Parent, the Custodial Banks. The Parent shall use its best
reasonable efforts to obtain favorable commission rates (similar to large
institutional rates) from the Designated Broker.
Section 1.4 The Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to Section 8.1, and subject to the satisfaction or waiver of the
conditions set forth in Article VII, the closing of the Securities Purchase
shall take place at a closing (the "Closing") to be held at 10:00 a.m.,
California time no later than the second business day after satisfaction (or
waiver if permissible) of the conditions set forth in Article VII (the "Closing
Date"), at the offices of Gray Cary Ware & Freidenrich LLP, 139 Townsend Street,
Suite 400, San Francisco, California, unless another date, time or place is
agreed to in writing by the parties hereto.
Section 1.5 Record Transfer of Company Securities; Parent as Purchaser.
As promptly as possible after the Closing, the Company shall cause the
respective Company Securities to be transferred of record into the name of Newco
on the books and records of the Company. Promptly thereafter, Newco shall take
the necessary board of director action to authorize the Merger under Section 253
of the Delaware General Corporation Law (the "DGCL"). Notwithstanding the other
provisions of this Article I, the Parent may elect to purchase the Company
Securities (in lieu of Newco purchasing the Company Securities) in accordance
with the provisions of this Article I. In such event, the Parent shall promptly
contribute the Company Securities to the capital of Newco, so that they may be
transferred of record into the name of Newco.
Section 1.6 Treatment of Options.
(a) Effective upon the Closing, each unexpired and unexercised
option to purchase shares of Company Common Stock (each a "Company Option")
under the Company's
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1997 Stock Option Plan, as amended through April 7, 1999 (the "Company Stock
Option Plan") shall be deemed to be automatically converted into an option (a
"Parent Option") to purchase a number of shares of Parent Common Stock equal to
the number of shares of Company Common Stock that could have been purchased
under the Company Option multiplied by the Conversion Number (with the resulting
number of shares being rounded to the nearest whole share), at a price per share
of Parent Common Stock equal to the option exercise price of the Company Option,
divided by the Conversion Number provided, that there shall be no accelerated
exercisability of any Company Option solely as a result of consummation of the
Merger except as provided in employment contracts in effect as of the date
hereof and, provided further, the shares of Parent Common Stock issuable upon
exercise of the Parent Option thereof shall be subject to a "lock-up" period of
180 days after the Closing, wherein such shares may not be sold or otherwise
disposed, and such "lock up" period shall be provided for under each of the
Company Option holder's stock option agreements. The date of grant of the
applicable Parent Option shall be the date on which the corresponding Company
Option was granted.
(b) Effective upon the Closing, the Parent shall (i) assume all of the
Company's obligations with respect to Company Options as contemplated by Section
1.6(a) above, (ii) reserve for issuance the number of shares of Parent Common
Stock that will become subject to Parent Options in accordance with the terms
thereof, and (iii) make available for issuance all shares of Parent Common Stock
covered thereby.
(c) Not later than one hundred eighty (180) days after the Closing, the
Parent shall prepare and file with the SEC a registration statement on Form S-8
(or another appropriate form) registering the number of shares of Parent Common
Stock issuable upon the exercise of all Company Options assumed by Parent with
Parent Options pursuant to Section 1.6(a) above, and shall use its best efforts
to cause the offer and sale of such shares to be registered under the Securities
Act and to maintain such registration in effect until the exercise or
termination of the Company Options and the termination of all of the Company
Stock Option Plan.
ARTICLE II
THE MERGER
Section 2.1 The Merger. As promptly as possible after the Closing and
the completion of the matters described in Section 1.5 above but in no event
later than thirty (30) days after the Closing, upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Section 253 of
the DGCL, Newco shall be merged with and into the Company at the Effective Time
(as defined in Section 2.2 below). At the Effective Time, the separate existence
of Newco shall cease, and the Company shall continue as the surviving
corporation under the name "FIRSTAMERICA AUTOMOTIVE, INC." and as a wholly-owned
Subsidiary (as defined in Section 9.5) of the Parent (the Company and Newco are
sometimes herein referred to as the "Constituent Corporations" and the Company
as the surviving corporation in the Merger is sometimes referred to herein as
the "Surviving Corporation").
Section 2.2 Effective Time. As promptly as possible after the Closing
and the completion of the matters described in Section 1.5 above but in no event
later than thirty (30) days after the Closing, Newco shall file with the
Secretary of State of the State of Delaware a
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certificate of ownership and merger (the "Certificate of Merger") in accordance
with the relevant provisions of the DGCL, and shall make all other filings or
recordings required under the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or at such other time as is permissible in accordance
with the DGCL and as Newco and Thomas A. Price as agent for the Stockholders
(the "Stockholders' Agent") shall agree, as specified in the Certificate of
Merger (the time the Merger becomes effective being herein called the "Effective
Time").
Section 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the applicable provisions of the DGCL.
Section 2.4 Certificate of Incorporation; By-Laws.
(a) At the Effective Time, and without any further action on the
part of the Company or Newco, the Certificate of Incorporation of the Surviving
Corporation shall be amended and restated in its entirety to read the same as
the certificate of incorporation of Newco immediately prior to the Merger, until
thereafter amended as provided therein and under the DGCL.
(b) At the Effective Time, and without any further action on the
part of the Company or Newco, the By-laws of Newco as in effect at the Effective
Time shall be the By-laws of the Surviving Corporation following the Merger,
until thereafter amended as provided therein and under the DGCL.
Section 2.5 Directors. The directors of Newco at the Effective Time
shall be the directors of the Surviving Corporation following the Merger, until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
Section 2.6 Officers. The officers of Newco at the Effective Time shall
be the officers of the Surviving Corporation following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed and qualified, as the case may be.
Section 2.7 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the Company, Newco or
any holder of any shares of capital stock of the Company or any shares of
capital stock of Newco:
(a) Each share of common stock of Newco issued and outstanding
immediately prior to the Effective Time shall be converted into one fully paid
and non-assessable share of common stock, par value $1.00, of the Surviving
Corporation.
(b) Each share of Company Common Stock as well as each share of
Company Preferred Stock that is owned by the Company or by any Subsidiary of the
Company, and each share of the Company Common Stock and Company Preferred Stock
that is owned by the Parent, Newco or any other Subsidiary of the Parent, shall
automatically be canceled and retired and shall cease to exist, and no cash or
other consideration shall be delivered or deliverable in exchange therefor.
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(c) Except as otherwise provided herein, each issued and
outstanding share of the Company Common Stock (other than shares canceled
pursuant to Section 2.7(b) and Dissenting Shares (as defined in Section 2.7(d)
below) shall be converted into the right to receive, without interest, an amount
in cash, without interest, equal to (i) the greater of (A) the average closing
price per share of Parent Common Stock as reported on the Composite Tape for the
NYSE for the twenty (20) consecutive trading days ending on and including the
trading day immediately preceding the day upon which the Effective Time occurs
or (B) $13.72, (ii) in either case multiplied by the Conversion Number (the
"Merger Consideration").
(d) Notwithstanding anything in this Agreement to the contrary,
shares of the Company Common Stock issued and outstanding immediately prior to
the Effective Time and held by a holder (if any) who has the right to demand
payment for and an appraisal of such shares in accordance with Section 262 of
the DGCL, or any successor provision, or Chapter 13 of the California General
Corporation Law (the "CGCL"), or any successor provision ("Dissenting Shares"),
shall not be converted into a right to receive any Merger Consideration (but
shall have the rights set forth in Section 262 of the DGCL (or any successor
provision) or Chapter 13 of the CGCL (or any successor provision)) unless such
holder fails to perfect or otherwise loses such holder's right to such payment
or appraisal, if any. If, after the Effective Time, such holder fails to perfect
or loses any such right to appraisal, each such share of such holder shall be
treated as a share that had been converted as of the Effective Time into the
right to receive Merger Consideration in accordance with this Section 2.7. The
Company shall give prompt notice to the Parent of any demands received by the
Company for appraisal of shares of the Company Common Stock, and the Parent
shall have the right to participate in and approve all negotiations and
proceedings with respect to such demands. The Company shall not, except with the
prior written consent of the Parent, make any payment with respect to, or settle
or offer to settle, any such demands or appraisal actions related thereto.
Promptly after the Closing, the Parent and Newco shall cause the Company to
comply with the notice requirements of Section 262 of the DGCL and/or Chapter 13
of the CGCL (or, in either case, any successor provision).
(e) As of the Effective Time, all shares of the Company Common
Stock and Company Preferred Stock (other than shares referred to in Section
2.7(d)) issued and outstanding immediately prior to the Effective Time shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
the Company Common Stock shall, to the extent such certificate represents such
shares, cease to have any rights with respect thereto, except the right to
receive the Merger Consideration to be paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.8.
Section 2.8 Exchange of Certificates.
(a) Prior to the Closing, the Company shall appoint First
Union National Bank or another bank or trust company located in the United
States which is reasonably satisfactory to the Company to act as exchange agent
(the "Exchange Agent") for the payment of the Merger Consideration. At the
Closing, the Stockholders shall cause the Company to deposit with the Exchange
Agent, for the benefit of the holders of shares of the Company Common Stock,
other than the Company or any Subsidiary of the Company or the Parent, Newco or
any other
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Subsidiary of the Parent, for exchange in accordance with this Section 2.8, cash
in an amount equal to the aggregate Merger Consideration projected to be paid
hereunder (the "Exchange Fund").
(b) As soon as practicable after the Effective Time, each holder of
an outstanding certificate or certificates which prior thereto represented
shares of the Company Common Stock shall, upon surrender of such certificate or
certificates to the Exchange Agent, be entitled to the amount of cash into which
the shares of Company Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After the
Effective Time, there shall be no further transfer on the records of the Company
or its transfer agent of certificates representing shares of the Company Common
Stock and if such certificates are presented to the Company for transfer, they
shall be canceled against delivery of the applicable Merger Consideration. If
any Merger Consideration is to be remitted to a name other than that in which
the certificate for the Company Common Stock surrendered for exchange is
registered, it shall be a condition of such exchange that the certificate so
surrendered shall be properly endorsed, with signature guaranteed, or otherwise
in proper form for transfer and that the Person (as defined in Section 9.5)
requesting such exchange shall pay to the Company or its transfer agent any
transfer or other taxes required by reason of the payment of Merger
Consideration to a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Parent or its
transfer agent that such tax has been paid or is not applicable. Until surrender
as contemplated by this Section 2.3(b), each certificate for shares of the
Company Common Stock shall be deemed at any time after the Effective Time to
represent only the right to receive upon surrender the applicable Merger
Consideration as contemplated by Section 2.7. No interest will be paid or will
accrue on any amount payable as Merger Consideration.
(c) Merger Consideration paid upon the surrender for exchange of
certificates representing shares of the Company Common Stock in accordance with
the terms of this Section 2.8 shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of the Company Common Stock
represented by such certificates.
(d) Any portion of the Exchange Fund (including any interest and
other income received by the Exchange Agent in respect of all such funds) which
remains undistributed to the holders of the certificates representing shares of
the Company Common Stock for one year after the Effective Time shall be
delivered to the Surviving Corporation, upon demand, and any holders of shares
of the Company Common Stock prior to the Merger who have not theretofore
complied with this Section 2.8 shall thereafter look only to the Surviving
Corporation for payment of their claim for Merger Consideration to which such
holders may be entitled.
(e) No party to this Agreement shall be liable to any Person (as
defined in Section 9.5) in respect of any amount from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law, if any certificates representing shares of the Company
Common Stock shall not have been surrendered in exchange for Merger
Consideration prior to one year after the Effective Time (or immediately prior
to such
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earlier date on which any Merger Consideration would otherwise escheat to or
become the property of any governmental entity), and any such amount shall, to
the extent permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any Person previously
entitled thereto.
(f) The Exchange Agent shall invest the cash, included in the
Exchange Fund as directed by the Parent, and any interest and other income
resulting from such investment shall be the property of, and paid to the Parent.
(g) In the event any certificate or certificates representing
shares of the Company Common Stock or shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
certificate or certificates to be lost, stolen or destroyed, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
this Section 2.8, provided that the Person to whom the Merger Consideration is
paid shall, if requested by the Surviving Corporation and as a condition
precedent to the payment thereof, give the Surviving Corporation a bond in such
reasonable amount as it may direct or otherwise indemnify the Surviving
Corporation in a manner satisfactory to it against any claim that may be made
against the Surviving Corporation with respect to the certificate claimed to
have been lost, stolen or destroyed.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY
Except as disclosed in the Company Disclosure Schedule attached hereto
and referring to the representations and warranties in this Agreement (the
"Company Disclosure Schedule"), the Company represents and warrants to the
Parent and Newco with respect to itself and its Subsidiaries as of the date of
this Agreement and, with respect to the Pending Acquisitions, to the Company's
knowledge, as follows:
Section 3.1 Organization, Standing and Corporate Power. Each of the
Company and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to carry on its business as now
being conducted. Each of the Company and its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a Material Adverse Effect (as defined in Section 9.5)
with respect to the Company. Prior to the date hereof, the Company has delivered
to the Parent or its representative complete and correct copies of the
respective Certificates of Incorporation and By-laws (or other organizational
documents) of the Company and its Subsidiaries as currently in effect. All of
the outstanding capital stock of, or other ownership interests in, each of the
Subsidiaries is owned of record and beneficially by the Company, free and clear
of all Liens.
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Section 3.2 Subsidiaries; Investments. The Company does not own,
directly or indirectly, any capital stock or other ownership interest in any
other corporation, partnership, business association, joint venture or other
entity.
Section 3.3 Capital Structure. The authorized capital stock of the
Company consists of (i) 65,000,000 shares of the Company Common Stock and (ii)
10,000 shares of Company Preferred Stock. Subject to any Permitted Changes (as
defined in Section 5.1(a)(ii)) there are: (i) 15,207,711 shares of Company
Common Stock issued and outstanding (excluding shares held in the treasury of
the Company) and held by the stockholders listed on Attachment BB to the
Disclosure Schedule; (ii) no shares of Company Common Stock held in the treasury
of the Company; (iii) 1,689,867 shares of the Company Common Stock reserved for
issuance upon exercise of authorized but unawarded Company Options pursuant to
the Company Stock Option Plan; (iv) 1,310,133 shares of Company Common Stock
issuable upon exercise of outstanding Company Options, with an exercise price
per each awarded but unexercised Company Option as is set forth in Section 3.3
of the Company Disclosure Schedule hereto; (v) 100,000 shares of Company Common
Stock reserved for issuance upon conversion of outstanding promissory notes;
(vi) 371,700 shares of Company Common Stock reserved for issuance upon exercise
of outstanding warrants; (vii) 4,000 shares of Company Preferred Stock issued
and outstanding; and (viii) no shares of Company Preferred Stock are held in the
treasury of the Company. Except as set forth above, no shares of capital stock
or other equity securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to the Company Stock Option Plan will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth above, there are no
outstanding bonds, debentures, notes or other indebtedness or other securities
of the Company having the right to vote (or convertible into, or exchangeable
for, securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no outstanding
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company is a party or by
which it is bound obligating the Company to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other equity
or voting securities of the Company or obligating the Company to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no outstanding
contractual obligations, commitments, understandings or arrangements of the
Company to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company and, except as set forth
in the Stockholder Agreement and this Agreement, there are no irrevocable
proxies with respect to shares of capital stock of the Company. There are no
agreements or arrangements pursuant to which the Company is or could be required
to register shares of the Company Common Stock or other securities under the
Securities Act, or other agreements or arrangements with or, to the knowledge of
Company, among any security holders of the Company ith respect to securities of
the Company. The Company has no rights plan or similar preferred stock purchase
plan or arrangement.
Section 3.4 Authority; Noncontravention.
(a) The Company has the requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and
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delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby, including the Reorganization, have been
duly authorized by the Board of Directors of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that (i)
such enforcement may be subject to applicable bankruptcy, insolvency or similar
laws, now or hereafter in effect, affecting creditors, rights generally, and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(c) The execution and delivery of this Agreement does not, and the
consummation by the Company of the transactions contemplated by this Agreement
and compliance by the Company with the provisions hereof will not, conflict
with, or result in any breach or violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or any loss of a material
benefit under, or result in the creation of any Lien (as defined in Section 9.5)
upon any of the properties or assets of the Company or any of its Subsidiaries
under (i) the Certificate of Incorporation or By-laws (or other organizational
documents) of the Company or any of its Subsidiaries, (ii) any loan or credit
agreement, note, note purchase agreement, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license applicable
to the Company or any of its Subsidiaries or any of their respective properties
or assets, or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any judgment, order, decree, statute,
law, ordinance, rule, regulation or arbitration award applicable to the Company
or any of its Subsidiaries or any of their properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, breaches, violations,
defaults, rights, losses or Liens that individually or in the aggregate would
not have a Material Adverse Effect with respect to the Company or could not
prevent, materially hinder or materially delay the ability of the Company to
consummate the transactions contemplated by this Agreement.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any federal, state or
local government or any court, administrative agency or commission or other
governmental authority or agency, domestic or foreign (a "Governmental Entity"),
is required by or with respect to the Company or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
for (i) the filing of a pre-merger notification and report form by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (ii) the filing with the SEC of such reports under the Exchange Act
as may be required in connection with this Agreement and the transactions
contemplated by this Agreement, (iii) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate documents
with the relevant authorities of other states in which the Company is qualified
to do business, and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices the failure of which to make or
obtain, individually or in the aggregate, would not (x) prevent or materially
delay consummation of the Reorganization or (y) have a Material Adverse Effect
with respect to the Company.
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Section 3.5 SEC Documents. The Company has filed with the SEC all
reports, schedules, forms, statements and other documents required pursuant to
the Securities Act and the Exchange Act since January 1, 1998, including,
without limitation, the Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-75907) (such Amendment No. 4 being herein
called the "Form S-1") and the Company's quarterly report on Form 10-Q for the
period ended June 30, 1999 (collectively, and in each case including all
exhibits and schedules thereto and documents incorporated by reference therein,
the "SEC Documents"). As of their respective dates, the Form S-1 and the other
SEC Documents complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such SEC Documents,
and none of the SEC Documents (including any and all financial statements
included therein) as of such dates contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in all SEC Documents filed since
January 1, 1998 (the "SEC Financial Statements") and the Company's pro-forma
consolidated financial statements set forth in the Form S-1 comply as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the case of
unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC), applied on a consistent basis during the periods involved (except as may
be indicated in the notes thereto) and fairly present in accordance with
generally accepted accounting principles the consolidated financial position of
the Company (and its Subsidiaries) as of the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited quarterly statements, to normal year-end audit
adjustments).
Section 3.6 [INTENTIONALLY LEFT BLANK]
Section 3.7 Litigation. There is (i) no suit, action or proceeding
pending, and (ii) to the knowledge of the Company, no suit, action or proceeding
threatened against or investigation pending with respect to the Company or any
of its Subsidiaries that, individually or in the aggregate, would have a
Material Adverse Effect with respect to the Company or prevent, materially
hinder or materially delay the ability of the Company to consummate the
transactions contemplated by this Agreement, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against the Company which, individually or in the aggregate, would have any such
Material Adverse Effect.
Section 3.8 Labor Matters. (i) There are no labor strikes, disputes,
slowdowns, stoppages or lockouts actually pending, or, to the knowledge of the
Company, threatened against or affecting Company or any of its Subsidiaries and
during the past five years there have been no such actions; (ii) the Company is
not a party to or bound by any collective bargaining or similar agreement with
any labor organization, or by any work rules or practices agreed to with any
labor organization or employee association applicable to employees of the
Company or any of its Subsidiaries; (iii) to the knowledge of the Company, there
are no current union organizing activities among the employees of the Company or
any of its Subsidiaries; (iv) true, correct and complete copies of all written
personnel policies, rules or procedures applicable to employees of
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the Company and its Subsidiaries have been made available to the Parent; (v)
there are no material complaints, charges, arbitrations, controversies, lawsuits
or other proceedings pending or, to the knowledge of the Company, threatened in
any forum against the Company or any of its Subsidiaries alleging breach of any
express or implied contract of employment, any law or regulation governing
employment or the termination thereof or other discriminatory, wrongful or
tortious conduct in connection with the employment relationship; (vi) there are
no employment contracts or severance agreements with any employees of the
Company or any of its Subsidiaries; and (vii) since the enactment of the Worker
Adjustment and Retraining Notification Act of 1988 (the "WARN Act"), the Company
has not effectuated (A) a "plant closing" (as defined in the WARN Act) affecting
any site of employment or one or more facilities or operating units within any
site of employment or facility of the Company or any of its Subsidiaries, or (B)
a "mass layoff" (as defined in the WARN Act) affecting any site of employment or
facility of the Company or any of its Subsidiaries; nor has the Company or any
of its Subsidiaries engaged in layoffs or employment terminations sufficient in
number to trigger application of any similar state or local law.
Section 3.9 Employee Benefit Plans.
(a) Section 3.9 of the Company Disclosure Schedule hereto contains
a true and complete list of each written and material unwritten "employee
benefit plan" (within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") (including, without
limitation, multiemployer plans within the meaning of ERISA Section 3(37)),
stock purchase, stock option, severance, employment, change-in-control, fringe
benefit, collective bargaining, bonus, incentive, deferred compensation and all
other employee benefit plans, agreements, programs, policies or other
arrangements relating to employment, benefits or entitlements, whether or not
subject to ERISA (including any funding mechanism therefor now in effect or
required in the future as a result of the transaction contemplated by this
Agreement or otherwise), under which any employee or former employee of the
Company or any of its Subsidiaries has any present or future right to benefits
or under which the Company or any of its Subsidiaries has any present or future
liability. All such plans, agreements, programs, policies and arrangements shall
be collectively referred to as the "Company Plans."
(b) With respect to each Company Plan, the Company has made
available to the Parent a current, accurate and complete copy (or, to the extent
no such copy exists, an accurate description) thereof and, to the extent
applicable, (i) any related trust agreement, annuity contract or other funding
instrument; (ii) the most recent determination letter; (iii) any summary plan
description and other written communications by the Company to its employees
concerning the extent of the benefits provided under a Company Plan; and (iv)
for the three most recent years (I) the Form 5500 and attached schedules; (II)
audited financial statements; and (III) actuarial valuation reports.
(c) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable federal and state laws, rules and
regulations, in each case, in all material respects; (ii) each Company Plan
which is intended to be qualified within the meaning of Code Section 401(a) has
received a favorable determination letter as to its qualification and to the
knowledge of the Company nothing has occurred, whether by action or failure to
act, which
15
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would cause the loss of such qualification; (iii) with respect to any Company
Plan, no material actions, suits or claims (other than routine claims for
benefits in the ordinary course) are pending or, to the knowledge of the
Company, threatened, and, to the knowledge of the Company, no facts or
circumstances exist which could give rise to any such material actions, suits or
claims, and the Company will promptly notify the Parent in writing of any
pending claims or, to the knowledge of the Company, any threatened claims
arising between the date hereof and the Effective Time; (iv) neither the Company
or any of its Subsidiaries nor, to the knowledge of the Company, any other party
has engaged in a prohibited transaction, as such term is defined under Code
Section 4975 or ERISA Section 406, which would subject the Company or the Parent
to any material taxes, penalties or other liabilities under the Code or ERISA;
(v) no event has occurred and no condition exists that would subject the
Company, either directly or by reason of its affiliation with any member of its
"Controlled Group" (defined as any organization which is a member of a
controlled group of organizations within the meaning of Code Sections 414(b),
(c), or (m)), to any material tax, fine or penalty imposed by ERISA, the Code or
other applicable federal and state laws, rules and regulations; (vi) all
insurance premiums required to be paid and all contributions required to be made
under the terms of any Company Plan, the Code, ERISA or other applicable federal
and state laws, rules and regulations (including the applicable laws, rules and
regulations of any foreign jurisdiction) as of the Effective Time have been or
will be timely paid or made prior thereto and adequate reserves have been
provided for on the Company's balance sheet for any premiums (or portions
thereof) and for all benefits attributable to service on or prior to the
Effective Time; (vii) for each Company Plan with respect to which a Form 5500
has been filed, to the knowledge of the Company, no material change has occurred
with respect to the matters covered by the most recent Form 5500 since the date
thereof; and (viii) no Company Plan provides for a material increase in benefits
on or after the Effective Time.
(d) The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to any pension plan
which is subject to Title IV of ERISA or Section 412 of the Code.
(e) With respect to any multiemployer plan (within the meaning of
Section 4001(a)(3) of ERISA) to which the Company or any member of its
Controlled Group has any liability or contributes (or has at any time
contributed or had an obligation to contribute): (i) the Company and each member
of its Controlled Group has or will have, as of the Effective Time, made all
contributions to each such multiemployer plan required by the terms of such
multiemployer plan or any collective bargaining agreement; (ii) neither the
Company nor any member of its Controlled Group has incurred any material
withdrawal liability under Title IV of ERISA or would be subject to such
liability if, as of the Closing, the Company or any member of its Controlled
Group were to engage in a complete withdrawal (as defined in ERISA Section 4203)
or partial withdrawal (as defined in ERISA Section 4205) from any such
multiemployer plan; (iii) no such multiemployer plan is in reorganization or is
insolvent (as those terms are defined in ERISA Sections 4241 and 4245,
respectively); and (iv) neither the Company nor any member of its Controlled
Group has engaged in a transaction which could subject it to liability under
ERISA Section 4212(c).
(f) (i) Each Company Plan which is intended to meet the
requirements for tax-favored treatment under Subchapter B of Chapter 1 of
Subtitle A of the Code meets such
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requirements; and (ii) the Company has received a favorable determination from
the Internal Revenue Service with respect to any trust intended to be qualified
within the meaning of Code Section 501(c)(9).
(g) Section 3.9 of the Company Disclosure Schedule hereto sets
forth, on a plan by plan basis, the present value of benefits payable presently
or in the future to present or former employees of the Company under each
unfunded Company Plan that must be accounted for in accordance with SFAS No. 87
or 106.
(h) No Company Plan exists which could result in the payment to any
Company employee of any money or other property or rights or accelerate or
provide any other rights or benefits to any Company employee as a result of the
transaction contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Code Section 280G.
Section 3.10 Tax Returns and Tax Payments.
(a) The Company and each of its Subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its Subsidiaries is or has been a member (a "Consolidated
Group") has timely filed all Tax Returns required to be filed by it, in material
compliance with all applicable laws, and such Tax Returns are complete and
correct in all material respects, has timely paid all Taxes required to be shown
thereon to be due and has provided adequate reserves in its financial statements
for any Taxes that have not been paid, whether or not shown as being due on any
Tax Returns. Additionally, (i) no material claim for unpaid Taxes has become a
lien against the property of the Company or a member of any Consolidated Group
or is being asserted against the Company or a member of any Consolidated Group
except for liens for Taxes not yet due and payable; (ii) no audit of any Tax
Return of the Company or a member of any Consolidated Group is pending, being
conducted or, to the knowledge of the Company, threatened by a Tax authority;
(iii) no extension of the statute of limitations on the assessment of any Taxes
has been granted by the Company or a member of any Consolidated Group and is
currently in effect; (iv) no consent under Section 341(f) of the Code has been
filed with respect to the Company; (v) the Company is not a party to any
agreement or arrangement that would result, separately or in the aggregate, in
the actual or deemed payment by the Company of any "excess parachute payments"
within the meaning of Section 280G of the Code; (vi) no acceleration of the
vesting schedule for any property that is substantially unvested within the
meaning of the regulations under Section 83 of the Code will occur in connection
with the transactions contemplated by this Agreement; (vii) the Company is not
and has not been at any time a member of any partnership or joint venture or the
holder of a beneficial interest in any trust for any period for which the
statute of limitations for any Tax has not expired; (viii) the Company has not
been at any time a member of an affiliated group of corporations for purposes of
Section 1501 of the Code that have filed consolidated returns except as a member
of a Consolidated Group of which the Company is the common parent; (ix) the
Company is not a party to any tax sharing or allocation agreement, nor has it
given any indemnity against Taxes imposed on any other Person, that has not
expired by its terms or otherwise have been terminated and for which no amount
is claimed to be owed; (x) the Company has not been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the Code
during the applicable period specified in Section 897(c)(1)(A)(ii)
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of the Code; (xi) the Company is neither doing business in nor engaged in a
trade or business in any jurisdiction in which it has not filed all required
income or franchise tax returns; (xii) the Company has made all payments of
estimated Taxes required to be made under Section 6655 of the Code and any
comparable state, local or foreign Tax provision; (xiii) all Taxes required to
be withheld, collected or deposited by or with respect to the Company have been
timely withheld, collected or deposited, as the case may be, and, to the extent
required, have been paid to the relevant taxing authority; (xiv) the Company has
not issued or assumed (A) any obligations described in Section 279(a) of the
Code, (B) any applicable high yield discount obligations, as defined in Section
163(i) of the Code, or (C) any registration-required obligations, within the
meaning of Section 163(f)(2) of the Code, that are not in registered form; (xv)
there are no proposed reassessments of any property owned by the Company or
other proposals that could materially increase the amount of any Tax to which
the Company would be subject, except any reassessment of property required as a
result of the Reorganization; and (xvi) there is no power of attorney currently
in force with respect to any matter relating to Taxes that could materially
affect the Tax liability of the Company. As used herein, "Taxes" shall mean all
taxes of any kind, including, without limitation, those on or measured by or
referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
occupation, premium, value added, property or windfall profits taxes, customs,
duties or similar fees, assessments or charges of any kind whatsoever, or
combination of two or more of the foregoing, together with any interest and any
penalties, additions to tax or additional amounts imposed by any governmental
authority, domestic or foreign. As used herein, "Tax Return" shall mean any
return, report or statement required to be filed with any governmental authority
with respect to Taxes.
Section 3.11 Brokers. No broker, investment banker, financial advisor
or other Person, other than Merrill Lynch Pierce Fenner & Smith Incorporated and
NCM Associates, Inc., the fees and expenses of which will be paid by the Company
(pursuant to fee agreements, copies of which have been provided to the Parent),
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
Section 3.12 [INTENTIONALLY LEFT BLANK]
Section 3.13 [INTENTIONALLY LEFT BLANK]
Section 3.14 [INTENTIONALLY LEFT BLANK]
Section 3.15 Title to Assets; Related Matters. Each of the Company and
its Subsidiaries has good and valid title to all assets, rights, interests and
other properties, real, personal and mixed, tangible and intangible, owned by it
(collectively, the "Assets"), free and clear of all Liens, except those Liens
which, individually or in the aggregate, would not have a Material Adverse
Effect on the Company. The Assets include all properties and assets (real,
personal and mixed, tangible and intangible) owned by the Company and its
Subsidiaries and used in the conduct of their respective businesses. The
tangible assets included within the Assets are in the possession or control of
the Company and its Subsidiaries and no other person or entity has a right to
possession or claims possession of all or a material part of such Assets.
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Section 3.16 Accounts Receivable. All accounts receivable of the
Company and its Subsidiaries are collectible at the aggregate recorded amounts
thereof, subject to the reserve for doubtful accounts maintained by the Company
and its Subsidiaries in the ordinary course of business, and are not subject to
any known counterclaims or setoffs. An adequate reserve for doubtful accounts
for the Company and its Subsidiaries has been established and such reserve is
consistent with the operation of the Company in both the ordinary course of
business and past practice.
Section 3.17 Inventories. All inventories of the Company and its
Subsidiaries consist of items of a quality and quantity usable and saleable in
the ordinary course of business of the Company and its Subsidiaries, and the
levels of inventories are consistent with the levels maintained by the Company
and its Subsidiaries in the ordinary course consistent with past practice and
the Company's obligations under its agreements with the Manufacturers and all
applicable distributors. An adequate reserve has been established by the Company
for damaged, spoiled, obsolete, defective, or slow-moving goods and such reserve
is consistent with both the operation of the Company in the ordinary course of
business and past practice.
Section 3.18 1999 Pro Forma Pre-Tax Earnings. The consolidated pro
forma pre-tax earnings of the Company and its Subsidiaries for the calendar year
2000, subject to the adjustments enumerated and described in Exhibit C hereto,
shall be at least Forty-Five Million Dollars ($45,000,000).
Section 3.19 Real Property; Machinery and Equipment.
(a) Owned Real Property. None of the Company or its Subsidiaries
own, or has owned, any real property.
(b) Leased Premises. Schedule 3.19(b) hereto contains a complete
list and brief description of all real property of which the Company or any of
its Subsidiaries is a tenant (herein collectively referred to as the "Leased
Premises" or the "Real Property." True, correct and complete copies of all
leases of all Leased Premises (the "Leases") have been made available to the
Parent. To the Company's knowledge, the Leased Premises (including, without
limitation, the roof, the walls and all plumbing, wiring, electrical, heating,
air conditioning, fire protection and other systems, as well as all paved areas,
included therein or located thereat) are in good working order, condition and
repair, except for such exceptions as would not be material to the business of
the Company and its Subsidiaries. To the Company's knowledge, with respect to
each Lease, no event or condition currently exists which would give rise to a
material repair or restoration obligation of the Company or any Subsidiary if
such Lease were to terminate. The Company has no knowledge of any event or
condition which currently exists which would create a legal or other material
impediment to the use of the Leased Premises as currently used, or would
increase the additional charges or other sums payable by the tenant under any of
the Leases other than as set forth in such Leases (including, without
limitation, any pending tax reassessment or other special assessment affecting
the Leased Premises).
(c) Claims. 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 Leased Premises
by or on behalf of the
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Company or its Subsidiaries 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 mechanics' or materialman's lien against the Leased
Premises with respect to work performed for the Company or its Subsidiaries; and
there is no person or entity other than the Company and its Subsidiaries in, or,
to the Company's knowledge, entitled to, possession of the Leased
Premises.
(d) Easements, Etc. The Company and its Subsidiaries have all
rights under the various Leases concerning utilities, access, ingress and
egress, necessary to conduct the business the Company and its Subsidiaries now
conduct.
(e) Condemnation. To the Company's knowledge, neither the
whole nor any portion of any of the Leased Premises has been condemned,
expropriated, ordered to be sold or otherwise taken by any public authority,
with or without payment or compensation therefor, and the Company has not
received notice that any such condemnation, expropriation, sale or taking is
threatened or contemplated.
(f) Zoning, Etc. None of the Leased Premises is in material
violation of any applicable recorded covenant, condition or restriction or other
deed restriction, or any applicable government building, zoning, health, safety,
fire or other law, ordinance, code or regulation that would materially and
adversely affect the ability of the Company or its Subsidiaries to conduct their
respective business as presently conducted, and no notice from any governmental
body has been served upon the Company or any of its Subsidiaries or, to the
Company's knowledge, upon any of the landlords of the Leased Premises claiming
any violation of any such law, ordinance, code or regulation or requiring or
calling to the attention of the Company or any of its Subsidiaries the need for
any work, repair, construction, alterations or installation on or in connection
with said properties which has not been complied with.
(g) Maintenance of Equipment. All material machinery, equipment,
motor vehicles, furniture and fixtures, whether owned or leased by the Company
and its Subsidiaries, and used in the conduct of its business, are in reasonably
good operating condition, maintenance and repair in accordance with applicable
industry standards taking into account the age thereof.
Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses;
Etc.
(a) Excluding "off the shelf" or other software available through
regular commercial distribution channels on standard terms and conditions as
modified for the Company's operations, 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 or other
proprietary information, know-how and intellectual property rights, whether
patentable or unpatentable, that are owned or leased by the Company or any of
its Subsidiaries or used in the conduct of the Company's or any of its
Subsidiaries' businesses. Neither the Company nor any of its Subsidiaries is a
party to, and the Company and its Subsidiaries pay no royalty to anyone under,
any license or similar agreement. There is no existing claim, or, to the
knowledge of the Company, any basis for any claim, against the Company or any of
its Subsidiaries that any of its operations, activities or products infringe the
patents, trademarks, trade names, copyrights or
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other intellectual property rights of others or that the Company or any of its
Subsidiaries is wrongfully or otherwise using the intellectual property rights
of others.
(b) The Company and its Subsidiaries have the right to use their
respective names in the States in which they conduct their businesses, and to
the knowledge of the Company, 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.
Section 3.21 Certain Liabilities.
(a) All accounts payable by the Company and its Subsidiaries to
third parties as of the date hereof arose in the ordinary course of business and
none are delinquent or past-due.
(b) Section 3.21 of the Company Disclosure Schedule hereto sets
forth a list and brief description of all indebtedness of the Company and its
Subsidiaries, other than accounts payable, as of June 30, 1999 the close of
business on the day preceding the date hereof, including, without limitation,
money borrowed, indebtedness of the Company or its Subsidiaries owed to
stockholders and former stockholders, the deferred purchase price of assets,
letters of credit and capitalized leases.
Section 3.22 No Undisclosed Liabilities. Neither the Company nor any of
its Subsidiaries 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 SEC Financial Statements, (b) incurred in the ordinary
course of business since June 30, 1999, and of the type and kind reflected in
the SEC Financial Statements, or (c) disclosed specifically on Section 3.22 of
the Company Disclosure Schedule hereto or otherwise specifically disclosed in
this Agreement or the other schedules hereto.
Section 3.23 Absence of Changes. Since June 30, 1999, the business of
the Company and its Subsidiaries has been operated in the ordinary course,
consistent with past practices and hereto, there has not been incurred, nor has
there occurred: (a) Any damage, destruction or loss to the property of the
Company or its Subsidiaries or the Leased Premises (whether or not covered by
insurance), adversely affecting the business or assets of the Company or its
Subsidiaries in excess of $50,000; (b) Any strikes, work stoppages or other
labor disputes involving the employees of the Company or its Subsidiaries; (c)
Any sale, transfer, pledge or other disposition of any of the assets of the
Company or its Subsidiaries 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 declaration or payment of any dividend or other distribution
in respect of its capital stock or any redemption, repurchase or other
acquisition of its capital stock; (e) Any amendment, termination, waiver or
cancellation of any Material Agreement (as defined in Section 3.28 hereof) or
any termination, amendment, waiver or cancellation of any material right or
claim of the Company or any of its Subsidiaries under any Material Agreement
(except in each case in the ordinary course of business and consistent with past
practice); (f) Any (1) general uniform increase in the compensation of the
employees of the Company or any of its Subsidiaries (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation or other plan or commitment), (2) increase in any such
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compensation payable to any individual officer, director, consultant or agent
thereof, or (3) loan or commitment therefor made by the Company or any of its
Subsidiaries to any officer, director, stockholder, employee, consultant or
agent of the Company or any of its Subsidiaries; (g) Any change in the
accounting methods, procedures or practices followed by the Company and its
Subsidiaries or any change in depreciation or amortization policies or rates
theretofore adopted by the Company; (h) Any material change in policies,
operations or practices of the Company and its Subsidiaries with respect to
business operations followed by the Company and its Subsidiaries, 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
Company and its Subsidiaries concerning the employees of the Company and its
Subsidiaries; (i) Any capital appropriation or expenditure or commitment
therefor on behalf of the Company or any of its Subsidiaries in excess of
$50,000 individually or $100,000 in the aggregate; (j) Any write-down or
write-up of the value of any inventory or equipment of the Company or any of its
Subsidiaries or any increase in inventory levels in excess of historical levels
for comparable periods; (k) Any account receivable in excess of $50,000 or note
receivable in excess of $50,000 owing to the Company or any of its Subsidiaries
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; (l) Any other
change in the condition (financial or otherwise), business operations, assets,
earnings, business or prospects of the Company or any of its Subsidiaries which
has, or could reasonably be expected to have, a Material Adverse Effect on the
assets, business or operations of the Company or any of its Subsidiaries; or (m)
Any agreement, whether in writing or otherwise, for the Company or any of its
Subsidiaries to take any of the actions enumerated in this Section 3.23.
Section 3.24 Compliance with Laws, Etc. Each of the Company and its
Subsidiaries has conducted its operations and business in compliance in all
material respects, with, and all of the Assets (including the Leased Premises)
comply with, (i) all 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 3.34 hereof) which are material to the Company and its
Subsidiaries and its operations and (ii) all applicable orders, rules, writs,
judgments, injunctions, decrees and ordinances which are material to the Company
and its Subsidiaries and its operations. The Company and its Subsidiaries have
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 in Section 3.24 of the Company
Disclosure Schedule hereto are all orders, writs, judgments, injunctions,
decrees and other awards of any court or governmental agency applicable to the
Company and/or its Subsidiaries and/or their respective businesses or
operations. The Company has made available to the Parent copies of all reports,
if any, of the Company 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 Company and any deficiencies noted by inspection
through the Closing Date will have been corrected by the Company by the Closing
Date.
Section 3.25 Permits, Etc. Each of the Company and its Subsidiaries has
all material governmental licenses, permits, approvals, certificates of
inspection and other authorizations,
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filings and registrations (collectively "Permits") that are necessary for the
Company and its Subsidiaries to own and operate their respective businesses as
presently conducted in all material respects. All such Permits have been duly
and lawfully secured or made by the Company and its Subsidiaries and are in full
force and effect. There is no proceeding pending, or, to the Company's
knowledge, threatened or probable of assertion, to revoke or limit any
Permit.
Section 3.26 Compensation. Section 3.26 of the Company Disclosure
Schedule contains a list of employees (1) whose base salary for 1999 is in
excess of $100,000, (2) whose base salary for 1999 is less than $100,000, but
who have earned more than $100,000 in 1999 to date, and (3) whose earnings to
date in 1999, when annualized for the full year, would equal or exceed
$100,000.
Section 3.27 Powers of Attorney. There are no persons, firms,
associations, corporations or business organizations or entities holding general
or special powers of attorney from the Company or any of its
Subsidiaries.
Section 3.28 Material Agreements.
(a) List of Material Agreements. Set forth in Section 3.28(a) of
the Company Disclosure Schedule hereto is a list of all leases and all other
contracts, agreements, documents, instruments, guarantees, plans, understandings
or arrangements, written or oral, which are material to the Company and its
Subsidiaries 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 in Section 3.28(a) of the Company Disclosure Schedule have been made
available to Parent.
(b) Performance, Defaults, Enforceability. Each of the Company and
its Subsidiaries 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
Company, no other party to any Material Agreement is in default in any material
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 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.
(c) Schedule of Acceleration. Section 3.28(c) of the Company
Disclosure Schedule sets forth all Material Agreements which contain terms
requiring the acceleration of payments upon a change of control of the Company.
All of such amounts other than principal and interest on debt will be included
in the one-time charges referred to in Section 5A.7(d).
Section 3.29 [INTENTIONALLY LEFT BLANK]
Section 3.30 Insurance.
(a) Section 3.30(a) of the Company Disclosure Schedule hereto
contains a list of all policies of liability, theft, fidelity, life, fire,
product liability, workmen's compensation,
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health and any other insurance and bonds maintained by, or on behalf of, the
Company and its Subsidiaries on their respective properties, operations,
inventories, assets, business or personnel (specifying the insurer, amount of
coverage, type of insurance, policy number and any pending claims in excess of
$5,000 thereunder). Each such insurance policy identified therein is and shall
remain in full force and effect on and as of the Closing Date and the Company
and its Subsidiaries are not in default in any material respect to any provision
contained in any such insurance policy and has not failed to give any notice or
present any material claim under any such insurance policy in a due and timely
fashion. To the knowledge of the Company, the insurance maintained by, or on
behalf of, the Company and its Subsidiaries is adequate in accordance with the
standards of business of comparable size in the location and industry in which
the Company operates and no notice of cancellation or termination has been
received with respect to any such policy. The Company and its Subsidiaries have
not, since July 1997, been denied or had revoked or rescinded any policy of
insurance.
(b) Set forth in Section 3.30(b) of the Company Disclosure Schedule
hereto is a summary of information pertaining to material property damage and
personal injury claims in excess of $5,000 against the Company since July 1997,
all of which are fully satisfied or are being defended by the insurance carrier
and, to the knowledge of the Company, involve no exposure to the Company.
Section 3.31 Warranties. Set forth in Section 3.31 of the Company
Disclosure Schedule hereto are descriptions or copies of the forms of all
express warranties and disclaimers of warranty made by the Company and its
Subsidiaries (separate and distinct from any applicable manufacturers',
suppliers' or other third-parties' warranties or disclaimers of warranties)
since July 1997 to customers or users of the vehicles, parts, products or
services of the Company and its Subsidiaries. There have been no breach of
warranty or breach of representation claims against the Company and its
Subsidiaries since July 1997 which have resulted in any cost, expenditure or
exposure to the Company and its Subsidiaries of more than $50,000 individually
or $200,000 in the aggregate.
Section 3.32 Directors and Officers. Set forth in Section 3.32 of the
Company Disclosure Schedule hereto is a true and correct list of the names and
titles of each director and officer of the Company.
Section 3.33 Suppliers and Customers. The Company and its Subsidiaries
are 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 Company, 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 Company or any of its
Subsidiaries.
Section 3.34 Environmental Matters.
(a) For purposes of this Section 3.34, the following terms shall
have the following meaning: (i) "Environmental Law" means all applicable present
federal, state and local laws, statutes, regulations, rules, ordinances and
common law, and all applicable judgments, decrees, orders, agreements, or
permits, issued, promulgated, approved or entered
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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, asbestos, radioactive materials, polychlorinated biphenyls, 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 Company and its Subsidiaries have 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 Company
("Environmental Permits"). All such Environmental Permits are in good standing,
the Company and its Subsidiaries are and, during the period the Company and its
Subsidiaries have held such Environmental Permits, have been, in compliance in
all material respects with the terms and conditions of all such Environmental
Permits, and no appeal or any other action is pending or, to the Company's
knowledge, threatened to revoke any such Environmental Permit.
(c) The Company and its Subsidiaries and their respective
businesses, operations and assets are, and, during the period the Company and
its Subsidiaries have owned, leased, or conducted such business, operations and
assets, have been in compliance in all material respects with all Environmental
Laws.
(d) Neither the Company nor any of its Subsidiaries has received
any written order, notice of liability, complaint, request for information,
claim, or demand from any government authority or private claimant, 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 used or leased by the Company, (ii) any other
circumstances forming the basis of any actual or alleged violation by the
Company or its Subsidiaries of any Environmental Law or any liability of the
Company or its Subsidiaries under any Environmental Law, (iii) any remedial or
removal action required to be taken by the Company or its Subsidiaries 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. Neither the Company nor any of its Subsidiaries has
entered into any agreements concerning any removal or remediation of Hazardous
Materials.
(e) No lawsuits, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other governmental actions are
pending or to the Company's knowledge, threatened, under any Environmental Law
with respect to the Company or its Subsidiaries or, to the Company's knowledge,
the Real Property.
(f) The Company has not released, discharged, spilled or disposed
of, and, to the knowledge of the Company, the Real Property does not contain,
any Hazardous Materials and, to the knowledge of the Company, no Hazardous
Materials have migrated onto the Real
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Property, and, to the knowledge of the Company, no environmental condition
exists (including, without limitation, the presence, release, threatened release
or disposal of Hazardous Materials) related to the Real Property, to any
property previously owned, operated or leased by the Company or any of its
Subsidiaries, or to the Company's or any of its Subsidiaries' 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 by the Company and any of its Subsidiaries.
(g) To the Company's knowledge, neither the Company or any of its
Subsidiaries, nor any of their respective predecessors in interest for whom the
Company has assumed environmental liability by contract or by operation of law,
has transported or disposed of, or arranged for the transportation or disposal
of, any Hazardous Materials to any location (i) which is listed on the National
Priorities List, the CERCLIS list under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or any similar
federal, state or local list, (ii) which is the subject of any federal, state or
local enforcement action or other investigation, or (iii) about which the
Company or any of its Subsidiaries has received a potentially responsible party
notice under any Environmental Law.
(h) To the Company's knowledge, no environmental lien has attached
or is threatened to be attached to the Real Property.
(i) The Leased Premises do not contain nor, to the knowledge of the
Company, does any other property previously owned, operated or leased by the
Company or any of its Subsidiaries 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.
(j) Except as made available for review by Parent prior to the date
hereof, there have been no environmental assessment studies or reports made
relating to the Leased Premises or any other property or facility previously
operated or leased by the Company or its Subsidiaries and that are in the
Company's possession or control.
(k) The Company and its Subsidiaries have not agreed in writing
nor, to the Company's knowledge, have they agreed orally 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 or entity under any Environmental Law for environmental matters or
conditions.
Section 3.35 Year 2000 Matters. The Company's quarterly report on Form
10-Q for the period ended June 30, 1999 truly and completely describes the
Company's process and preparation for addressing the impact of its operations
that could be adversely affected by the "Year 2000 Problem" (that is, the risk
that computer applications used by the Company and its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999).
Section 3.36 Business Generally. The Company has no knowledge of the
existence of any conditions, including, without limitation, any actual or
potential competitive factors in the
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markets in which the Company and its Subsidiaries participate, which have not
been disclosed in writing to the Parent and which could reasonably be expected
to have a Material Adverse Effect on the Company, other than general business
and economic conditions generally affecting the industry and markets in which
the Company and its Subsidiaries participate.
Section 3.37 Manufacturer Communications. No Manufacturer has (a)
notified the Company or any of its Subsidiaries of any deficiency in dealership
operations, including, but not limited to, the following areas: (i) brand
imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer
satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives
except, in the case of (a)(iii), (iv) and (vi) preceding, for such matters the
failure of which to cure or comply with could not reasonably be expected to
materially adversely affect the Company's relationship with the Manufacturer or
affect the Company's ability to complete the Merger; (b) otherwise advised the
Company or any of its Subsidiaries of a present or future need for facility
improvements or upgrades in connection with the Company's or any of the
Subsidiaries' businesses; or (c) notified the Company or any of its Subsidiaries
of the awarding or possible awarding of its franchise to an entity or entities
other than the Company and its Subsidiaries in the Metropolitan Statistical Area
in which the Company and its Subsidiaries operate.
Section 3.38 Pending Acquisitions. Each of the agreements, as amended
to date (collectively, the "Acquisition Agreements"), governing the Pending
Acquisitions (such Pending Acquisitions set forth in Section 3.38 of the Company
Disclosure Schedule) has been duly authorized, executed and delivered by the
Company and, to the Company's knowledge, each of the other parties thereto, and
constitutes a legally valid and binding obligation of the Company and, to the
Company's knowledge is enforceable against each such party thereto in accordance
with its terms; and except as described in the Form S-1, each of the
representations and warranties of the Company and its subsidiaries and each of
the other parties set forth in the Acquisition Agreements as modified by any
disclosure schedule to such Acquisition Agreements was true and correct at the
time such representations and warranties were made and will be true and correct
at and as of the Closing Date. The Company has delivered to Parent true and
complete copies of each Acquisition Agreement and the Company has no reason to
believe that it will not be able to consummate the transactions contemplated by
the Acquisition Agreements which have not been previously consummated.
Section 3.39 Related Party Transactions. There are no business
relationships or related party transactions of the nature described in Item 404
of Regulation S-K involving the Company or any of businesses being acquired
pursuant to the Acquisitions and any person described in such Item that are
required to be disclosed in the Registration Statement and which have not been
so disclosed.
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ARTICLE IIIA
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants to the Parent and
Newco, severally as to itself only, as follows:
Section 3A.1 Power and Authority; Validity of Agreement. Such
Stockholder has the legal capacity, power and authority to enter into and
perform all of its obligations under this Agreement. The execution, delivery and
performance of this Agreement by such Stockholder will not violate any other
agreement to which such Stockholder is a party, including, without limitation,
any voting agreement, shareholders' agreement or voting trust. This Agreement
has been duly and validly executed and delivered by such Stockholder and
constitutes a valid and binding obligation of such Stockholder enforceable
against such Stockholder in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
Section 3A.2 No Conflicts; Consents and Approvals. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated hereby will not, conflict with or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to any third party right of termination, cancellation, material modification or
acceleration of any obligation or to loss of a material benefit under, any
provision of the Certificate of Incorporation, By-laws, partnership agreement,
limited liability company agreement or other constituent documents of such
Stockholder (if such Stockholder is an entity) or any loan or credit agreement,
note, bond, mortgage, indenture, lease, or other agreement, instrument, permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to such Stockholder or any of its
properties or assets, other than such conflicts, violations or defaults or
terminations, cancellations or accelerations which individually or in the
aggregate do not materially impair the ability of such Stockholder to perform
its obligations hereunder. No consent, approval, order or authorization of, or
registration, declaration, or filing with, any governmental entity is required
by or with respect to the execution and delivery of this Agreement by such
Stockholder and the consummation by such Stockholder of the transactions
contemplated hereby.
Section 3A.3 Ownership of Shares. Such Stockholder is the record and/or
beneficial owner of that number of Company Securities set forth opposite such
Stockholder's name on Exhibit A hereto (such Company Securities being sometimes
hereafter called the "Existing Shares" and, together with any shares of Company
Common Stock or Company Preferred Stock acquired of record or beneficially by
such Stockholder in any capacity after the date hereof and prior to the
termination hereof, whether upon the exercise of warrants or options, conversion
of convertible securities, purchase, exchange or otherwise, collectively
referred to as the "Shares"). Also listed on Exhibit A are such other securities
of the Company, including any options or warrants, owned by such Stockholder.
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(i) On the date hereof, the Existing Shares constitute all of the
outstanding shares of Company Common Stock, Company Preferred Stock and Company
Warrants, as the case may be, owned of record and/or beneficially by the
Stockholders.
(ii) Such Stockholder has sole power of disposition, sole voting
power and sole power to demand dissenter's or appraisal rights, in each case
with respect to the Existing Shares owned by such Stockholder, with no
restrictions on such rights, subject to applicable federal securities laws and
the terms of this Agreement.
(iii) Such Stockholder will have sole power of disposition, sole
voting power and sole power to demand dissenter's or appraisal rights, in each
case with respect to the shares of Company Common Stock or Company Preferred
Stock, other than Existing Shares, if any, which become beneficially owned by
such Stockholder with no restrictions on such rights, subject to applicable
federal securities laws and the terms of this Agreement.
Section 3A.4 No Encumbrances. The Existing Shares and the certificates
representing the Existing Shares are now, and the Shares and the certificates
representing such shares at all times during the term hereof will be, held by
such Stockholder, free and clear of all claims, liens, charges, security
interests, proxies, voting trusts or agreements, understandings or arrangements
and any other encumbrances of any kind or nature whatsoever, except as otherwise
provided in this Agreement.
Section 3A.5 Brokers and Intermediaries. No broker, investment banker,
financial advisor or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
such Stockholder.
Section 3A.6 Special Representations Regarding the Reorganization
Common Stock. Each of the Stockholders severally and not jointly represents and
warrants to the Parent and Newco as follows with respect to the shares of
Reorganization Common Stock to be issued to the Stockholders pursuant to this
Agreement (the "Reorganization Shares"):
(i) Such Stockholder understands that, except as set forth in this
Agreement, the Reorganization Shares will not be registered under the Securities
Act or applicable state securities laws on the basis that the sale provided for
in this Agreement and the issuance of the Reorganization Shares hereunder is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof, and that the Parent's reliance on such exemption is predicated on the
representations and warranties of such Stockholder.
(ii) The Reorganization Shares are being acquired for the account
of such Stockholder for the purposes of investment and not with a view to the
distribution thereof, as those terms are used in the Securities Act and the
rules and regulations promulgated thereunder.
(iii) Such Stockholder has delivered to the Parent an Investor
Qualification Questionnaire regarding such Stockholder. As indicated in such
Investor Qualification Questionnaire, such Stockholder is an "accredited
investor" within the meaning of Rule 501(a) of Regulation D promulgated under
the Securities Act; and such Stockholder has
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sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of acquiring the Reorganization
Shares.
(iv) Such Stockholder has had made available to it copies of: (i)
the Prospectus of the Parent dated April 29, 1999; (ii) the Form 10-K filing of
the Parent for the year ended December 31, 1998; (iii) the Form 10-Q filing of
the Parent for the quarter ended March 31, 1999; (iv) the Form 10-Q filing of
the Parent for the quarter ended June 30, 1999; (v) all Form 8-K filings of the
Parent filed since the most recent 10-Q filing of the Parent; and has been
furnished such other information, and has had an opportunity to ask such
questions and have them answered by the Parent, as such Stockholder has deemed
necessary in order to make an informed investment decision with respect to the
acquisition of the Reorganization Shares.
(v) Such Stockholder understands, and has the financial capability
of assuming, the economic risk of an investment in the Reorganization Shares for
an indefinite period of time.
(vi) Such Stockholder has been advised that such Stockholder will
not be able to sell, pledge or otherwise dispose of the Reorganization Shares,
or any interest therein, without first complying with the relevant provisions of
the Securities Act and any applicable state securities laws, and that the
provisions of Rule 144, permitting routine sales of securities of certain
issuers subject to the terms and conditions thereof, is not currently available
to such Stockholder with respect to the Reorganization Shares.
(vii) Such Stockholder has, to the extent such Stockholder has
deemed necessary, consulted with such Stockholder's own investment advisors,
legal counsel and tax advisors regarding an investment in the Reorganization
Shares.
(viii) Such Stockholder acknowledges that, except as specifically
set forth in this Agreement, the Parent and Newco are not under any obligation
(i) to register the Reorganization Shares, or (ii) to furnish any information or
to take any other action to assist such Stockholder in complying with the terms
and conditions of any exemption which might be available under the Securities
Act or any state securities laws with respect to sales of the Reorganization
Shares by such Stockholder in the future.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND NEWCO
The Parent and Newco represent and warrant to the Company and the
Stockholders as follows:
Section 4.1 Organization, Standing and Corporate Power. Each of the
Parent and Newco is duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of the Parent and Newco is duly qualified or licensed to do business and is
in good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than
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in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect with
respect to it.
Section 4.2 Subsidiaries.
Section 4.3 Capital Structure.
(a) The authorized capital stock of the Parent consists of:
(i) 3,000,000 shares of Preferred Stock, par value $0.10 per
share, of the Parent, of which 300,000 shares are designated Class A Convertible
Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the
"Parent Series I Preferred Stock"), 100,000 shares of Series II (the "Parent
Series II Preferred Stock") and 100,000 shares of Series III (the "Parent Series
III Preferred Stock"); as of September 21, 1999, there were 9,360 shares of
Parent Series I Preferred Stock issued and outstanding with no such shares of
Parent Series I Preferred Stock held in the treasury of the Parent, 7,675 shares
of Parent Series II Preferred Stock issued and outstanding with no such shares
of Parent Series II Preferred Stock held in the treasury of the Parent, and
11,683 shares of Parent Series III Preferred Stock issued and outstanding with
no such shares of Parent Series III Preferred Stock held in the treasury of the
Parent;
(ii) 100,000,000 shares of the Parent Common Stock, par value
$.01 per share, as of September 21, 1999, there were 23,644,696 shares of Parent
Common Stock issued and outstanding with no such shares of Parent Common Stock
held in the treasury of the Parent; and
(iii) 30,000,000 shares of Class B Common Stock, par value $.01
per share, of the Parent (the "Parent Class B Common Stock"); as of September
21, 1999, there were 12,250,000 shares of Parent Class B Common Stock issued and
outstanding with no such shares of Parent Class B Common Stock held in the
treasury of the Parent.
Except as set forth above, no shares of capital stock or other equity
securities of the Parent are issued or outstanding. All outstanding shares of
capital stock of the Parent are duly authorized, validly issued, fully paid and
nonassessable.
(b) The authorized capital stock of Newco consists of 1000 shares
of common stock, par value $.01 per share, all of which have been validly
issued, are fully paid and nonassessable and are owned by the Parent, free and
clear of any Lien.
Section 4.4 Authority; Noncontravention.
(a) Each of the Parent and Newco has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
the Parent and Newco and the consummation by the Parent and Newco of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Parent and Newco.
(b) This Agreement has been duly executed and delivered by the
Parent and Newco and constitutes a valid and binding obligation of each of the
Parent and Newco,
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enforceable against each of the Parent and Newco in accordance with its terms,
except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or similar laws, now or hereafter in effect, affecting creditors,
rights generally, and (ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
(c) Except as set forth in Schedule 4.4(c) hereto, the execution
and delivery of this Agreement do not, and the consummation by the Parent and
Newco of the transactions contemplated by this Agreement and compliance by the
Parent and Newco with the provisions of this Agreement will not, conflict with,
or result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation, or any loss of a material
benefit under, or result in the creation of any Lien upon any of the properties
or assets of the Parent or Newco under, (i) the Certificate of Incorporation or
By-laws of the Parent or Newco, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Parent or Newco or its properties or
assets, or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Parent or
Newco or their respective properties or assets, other than, in the case of
clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not have a
Material Adverse Effect with respect to the Parent or Newco or could not
prevent, hinder or materially delay the ability of the Parent or Newco to
consummate the transactions contemplated by this Agreement.
(d) No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any governmental entity
is required by or with respect to the Parent or Newco in connection with the
execution and delivery of this Agreement by the Parent and Newco or the
consummation by the Parent and Newco of any of the transactions contemplated by
this Agreement, except for (i) the filing of a pre-merger notification and
report form under the HSR Act, (ii) the filing with the SEC of such reports
under the Exchange Act as may be required in connection with this Agreement and
the transactions contemplated hereby, (iii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which the Company is
qualified to do business and (iv) such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices, the failure of
which to make or obtain, individually or in the aggregate, would not (x) prevent
or delay the consummation of the Reorganization or (y) have a Material Adverse
Effect with respect to the Parent or Newco.
Section 4.5 SEC Documents. The Parent has filed with the SEC all
reports, schedules, forms, statements and other documents required pursuant to
the Securities Act and the Exchange Act since November 17, 1997 (collectively,
and in each case including all exhibits and schedules thereto and documents
incorporated by reference therein, the "Parent SEC Documents"). As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Parent SEC Documents, and none of the Parent SEC Documents (including any and
all financial statements included therein) as of such dates contained any untrue
statement of a material fact or omitted to state a material
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fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Parent included in all
Parent SEC Documents filed since November 17, 1997 (the "Parent SEC Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited consolidated quarterly
statements, as permitted by Form 10-Q of the SEC), applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in accordance with generally accepted accounting principles
the consolidated financial position of the Parent (and its Subsidiaries) as of
the dates thereof and the consolidated results of its operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end audit adjustments). The audited consolidated
balance sheet of the Parent as of December 31, 1998 is referred to herein as the
"Parent Balance Sheet."
Section 4.6 [INTENTIONALLY LEFT BLANK.]
Section 4.7 Litigation. There is (i) no suit, action or proceeding
pending, and (ii) to the knowledge of the Parent, no suit, action or proceeding
threatened against or investigation pending with respect to the Parent or any of
its Subsidiaries that, individually or in the aggregate, would have a Material
Adverse Effect with respect to the Parent or prevent, materially hinder or
materially delay the ability of the Parent to consummate the transactions
contemplated by this Agreement, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding against the
Parent which, individually or in the aggregate, would have any such Material
Adverse Effect.
Section 4.8 Brokers. No broker, investment banker, financial advisor or
other Person, other than Stephens, Inc., the fees and expenses of which will be
paid by the Parent or its Affiliates (as defined in Section 9.5), is entitled to
any broker's, finder's, financial advisor's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent or its Affiliates.
Section 4.9 Interim Operations of Newco. Newco was formed on August 20,
1999 solely for the purpose of engaging in the transactions contemplated hereby,
has engaged in no other business activities and has conducted its operations
only as contemplated hereby.
Section 4.10 Absence of Certain Changes or Events. Since the date of
the Parent Balance Sheet, Parent and its Subsidiaries have conducted their
businesses only in the ordinary course in a manner consistent with past
practice, and since such date there has not been: (a) any Material Adverse
Effect on the Parent or any of its Subsidiaries or any fact or circumstance that
would be reasonably likely to result in an Material Adverse Effect on the Parent
or any of its Subsidiaries or (b) any material change by Parent or any of its
Subsidiaries in its accounting methods, principles or practices; (c) any
revaluation by Parent or any of its Subsidiaries of any material asset or any
writedown of the value of inventory, or any write-off of notes or accounts
receivable other than in the ordinary course of business consistent with past
practice; or (d) any other action or event that would have been a violation of
Section 6.1 of this Agreement had such
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action or event occurred after the date of this Agreement and that could
reasonably be expected to result in a Material Adverse Effect on the Parent or
any of its Subsidiaries.
Section 4.11 Compliance with Laws, Etc. To the knowledge of the Parent,
each of the Parent and its Subsidiaries has conducted its operations and
business in compliance 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), and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances,
except where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect on the Parent or its Subsidiaries. The Parent and its
Subsidiaries have 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.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.1 Conduct of Business of the Company.
(a) During the period from the date of this Agreement until the
Closing (except as otherwise expressly contemplated by the terms of this
Agreement), the Company shall act and carry on its business in the usual,
regular and ordinary course of business consistent with past practice and use
its reasonable best efforts to preserve substantially intact its current
business organization, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, licensors,
licensees, advertisers, distributors and others having significant business
dealings with it. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Closing, the Company shall not,
nor shall it permit any of its Subsidiaries to, and except as set forth in
Schedule 5.1 hereto, without the prior written consent of the Parent:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split, combine
or reclassify any capital stock of the Company or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of the Company, or (C) purchase, redeem or otherwise
acquire any shares of capital stock of the Company or any other securities
thereof or any rights, warrants or options to acquire any such shares or other
securities;
(ii) authorize for issuance, issue, deliver, sell, pledge or
otherwise encumber any shares of its capital stock, any other voting securities
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities or any
other securities or equity equivalents (including without limitation stock
appreciation rights) other than the issuance of the Company Common Stock upon
the exercise of the Company Options awarded but unexercised on the date of this
Agreement and in accordance with their present terms (such issuances being
referred to herein as "Permitted Changes");
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(iii) amend its Certificate of Incorporation, or By-laws;
(iv) except for the Pending Acquisitions (as defined in Section
9.5) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien (as defined in Section 9.5) or otherwise dispose of any of
its properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice;
(vi) (A) except pursuant to credit arrangements in effect as of
the date hereof and disclosed in Schedule 3.21 hereto, incur any indebtedness
for borrowed money or guarantee any such indebtedness of another Person, issue
or sell any debt securities or warrants or other rights to acquire any debt
securities, guarantee any debt securities of another Person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another Person or enter into any arrangement having the economic effect of any
of the foregoing, or (B) make any loans, advances or capital contributions to,
or investments in, any other Person;
(vii) acquire or agree to acquire any assets, other than in the
ordinary course of business consistent with past practice, that are material,
individually or in the aggregate, or make or agree to make any capital
expenditures except capital expenditures of less than $50,000, individually, or
less than $100,000 in the aggregate;
(viii) pay, discharge or satisfy any claims (including claims
of stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of (x) liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof, or (y) claims settled or compromised to the extent
permitted by Section 5.1(a)(xii), or waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing material license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice;
(ix) adopt a plan of complete or partial liquidation or
resolutions providing for or authorizing such a liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or reorganization;
(x) enter into any collective bargaining agreement;
(xi) change any material accounting principle used by it,
except as required by the SEC or applicable law;
(xii) settle or compromise any litigation or settle a dispute
under any contract or other agreement (whether or not commenced prior to the
date of this Agreement) other than settlements or compromises of litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $100,000, provided that
the aggregate amount paid in connection with the settlement or compromise of all
such matters shall not exceed $250,000;
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(xiii) engage in any transaction with, or enter into any
agreement, arrangement, or understanding with, directly or indirectly, any
Affiliates (as defined in Section 9.5) of the Company;
(xiv) except as contemplated by this Agreement, abandon any
Pending Acquisitions; or
(xv) authorize any of, or commit or agree to take any of, the
foregoing actions.
(b) During the period from the date of this Agreement to the
Closing, the Company shall not adopt or amend (except as may be required by law)
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement (including any Company Plan) for the benefit or
welfare of any employee, director or former director or employee or, other than
increases for individuals (other than officers and directors) in the ordinary
course of business consistent with past practice, increase the compensation or
fringe benefits of any director, employee or former director or employee or pay
any benefit not required by any existing plan, arrangement or agreement.
(c) During the period from the date of this Agreement to the
Closing, the Company shall not grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date hereof.
(d) During the period from the date of this Agreement to the
Closing, except in the ordinary course of business and consistent with past
practice, the Company shall not make any Tax election, change or request to
change its method of accounting, or settle or compromise any federal, state,
local or foreign Tax liability.
Section 5.2 Cooperation Regarding Notice of Appraisal Rights. The
Company will cooperate with the Parent and Newco in connection with the Parent's
and Newco's performance of their obligations under Section 2.7(d). Without
limiting the generality of the foregoing, at the Closing, the Company will
deliver to the Parent a list of the Company's stockholders of record as of the
Closing setting forth the name and mailing address of, and the number of shares
of Company Common Stock held by, each stockholder.
Section 5.3 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its officers, employees,
counsel, financial advisors and other representatives to, afford to the Parent
and its representatives and to potential financing sources reasonable access
during normal business hours to its properties, books, contracts, commitments,
personnel and records, including security position listings and other
information concerning beneficial owners and/or record owners of the Company's
securities which may be relevant to the Reorganization, and, during such period,
the Company shall, and shall cause its officers, employees and representatives
to, furnish promptly to the Parent (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
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other information concerning its business, properties, financial condition,
operations and personnel as the Parent may from time to time reasonably request.
Each of the Parent and Newco will hold, and will cause its respective directors,
officers, employees, accountants, counsel, financial advisors and other
representatives and Affiliates to hold, any nonpublic information in confidence
to the extent required by, and in accordance with, the provisions of the Letter
Agreement dated August 13, 1999 from the Company to, and accepted by, Parent
regarding confidential treatment of the negotiation of a potential business
combination (the "Confidentiality Agreement").
(b) No investigation pursuant to this Section 5.3 shall affect
any representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
Section 5.4 No Solicitation. The Company shall not (whether directly or
indirectly through advisors, agents or other intermediaries), nor shall the
Company authorize or permit any of its officers, directors, agents,
representatives, advisors to (a) solicit, initiate or take any action knowingly
to facilitate the submission of inquiries, proposals or offers from any Person
(other than Newco or the Parent) relating to (i) any acquisition or purchase of
any of the consolidated assets of the Company and its Subsidiaries (other than
sales or disposition of assets in the ordinary course of business) any class of
equity securities of the Company, (ii) any tender offer (including a self tender
offer) or exchange offer of any class of equity securities of the Company, (iii)
any merger, consolidation, business combination, sale of substantially all
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company other than the transactions contemplated by this
Agreement, or (iv) any other transaction the consummation of which would or
could reasonably be expected to impede, interfere with, prevent or materially
delay the Reorganization or which would or could reasonably be expected to
materially dilute the benefits to the Parent of the transactions contemplated
hereby (collectively, "Transaction Proposals"), (b) agree to or endorse any
Transaction Proposal, or (c) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other Person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or knowingly assist or
participate in, facilitate or encourage, any effort or attempt by any other
Person (other than Newco or the Parent) to do or seek any of the foregoing.
(b) Notwithstanding anything in Section 5.2(b) to the contrary, to
the extent the Company's Board of Directors receives an unsolicited bona-fide
written proposal with respect to a Transaction Proposal to acquire all of the
outstanding shares of capital stock of the Company which the Board of Directors
determines, after consultation with its independent financial advisors, may be
reasonably likely to result in a transaction (an "Alternative Transaction") that
is more favorable to the shareholders of the Company than the transactions
contemplated by the Reorganization and this Agreement (taking into account the
nature of the proposed transaction, the nature and amount of the consideration,
the Bridge Financing contemplated by Section 5.10 below, the likelihood of
completion and any other factors deemed appropriate by the Board of Directors),
the Board of Directors, upon the advice from outside legal counsel to the
Company that the Board of Directors of the Company is required in the exercise
of its fiduciary duty under the DGCL to do so, may engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any
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person relating to an Alternative Transaction or otherwise facilitate such
person presenting an Alternate Transaction to the Company's shareholders;
provided, however, that upon engaging in such negotiations or discussions,
providing such information or otherwise facilitating any effort to present to
the Company's shareholders an Alternative Transaction, the Company shall give
notice to Parent of the Company's engagement in such activities ("Alternative
Transaction Notice"). Prior to furnishing nonpublic information to, or entering
into discussions or negotiations with, any other persons or entities, the
Company shall obtain from such person or entity an executed confidentiality
agreement with terms no less favorable, taken as a whole, to the Company than
those contained in the Confidentiality Agreement, but which confidentiality
agreement shall not include any provision calling for an exclusive right to
negotiate with the Company, and the Company shall advise Parent of the nature of
such nonpublic information delivered to such person reasonably promptly
following its delivery to the requesting party. If the Board of Directors
determines that an Alternative Transaction is more favorable to the shareholders
of the Company than the Reorganization and this Agreement as provided above, the
Board of Directors of the Company may then (and only then) recommend that
Alternative Transaction. Nothing herein shall in any way limit the obligations
of the Stockholders contained in this Agreement.
Section 5.5 Public Announcements. Neither the Company nor any of its
Subsidiaries will issue any press release or public statement with respect to
the transactions contemplated by this Agreement, including the Reorganization,
without the Parent's prior consent (such consent not to be unreasonably
withheld), except as may be required by applicable law or court process. In
addition to the foregoing, the Company and the Parent will consult with each
other before issuing, and provide the to the other the opportunity to review and
comment upon, any such press release or other public statements with respect to
such transactions.
Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts
Return. The Company shall promptly notify the Manufacturers (as defined in
Section 9.5) of the execution and delivery of this Agreement, and thereafter
shall use reasonable best efforts in cooperating with the Parent in the
preparation of and delivery to the Manufacturers, as soon as practicable after
the date hereof, of applications and any other information necessary to obtain
the Manufacturers' consents to or the approval of the transactions contemplated
by this Agreement. At the request of the Parent, the Company shall use its
reasonable best efforts to assist the Parent in effecting any one-time parts
return offered by the Manufacturers.
Section 5.7 Closing Conditions. The Company shall use all reasonable
best efforts to satisfy promptly the conditions to Closing set forth in Article
VII hereof required herein to be satisfied by the Company prior to
Closing.
Section 5.8 HSR Act. The Company shall promptly prepare and file
Notification and Report Forms under 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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Section 5.9 Concerning Company Plans.
(a) If requested by the Parent not less than five (5) days prior to
the Closing, the Company shall terminate its 401(k) Plan not later than the day
prior to the Closing and, in connection therewith, the Company shall amend such
401(k) Plan to fully vest all accounts of all participants in such 401(k) Plan
and to provide for the distribution of all such accounts. At the Closing, the
Company shall deliver to the Parent a duly executed plan amendment and
resolutions of the Company's Board of Directors reflecting the termination of
such 401(k) Plan and such related amendments to such 401(k) Plan, provided that
the Parent shall have timely requested the termination of the Company's 401(k)
Plan. If requested by the Parent not less than five (5) days prior to the
Closing, the Company shall also terminate all other Company Plans as of the
Closing Date and shall provide the Parent at Closing with documentation
satisfactory to the Parent evidencing such terminations.
Section 5.10 Bridge Financing.
(a) In consideration of the issuance by Sonic Financial Corporation
and/or O. Bruton Smith (collectively, the "Guarantor") of one or more guaranties
(the "Guaranty") of the Company's indebtedness to Ford Motor Credit or other
financing institutions of approximately $107,000,000 to enable the Company to
complete the Pending Acquisitions which were pending on August 25, 1999, the
Company in the Merger Agreement granted, and does hereby in this Agreement
confirm its grant, to the Parent an option (the "Option") to purchase up to all
of the dealership properties included in such Pending Acquisitions, including,
without limitation, the Lucas Group acquisition which closed effective September
30, 1999 (the "Dealership Properties"), on the following terms, in the event
that this Agreement is terminated prior to the Closing:
(i) The Option shall be exercisable for a period of sixty (60)
days (the "Option Period") commencing on the ninety-first (91st) day after the
date of such termination of this Agreement, unless the Company shall, during the
ninety (90) day period after such termination, have caused a complete release
and discharge of the Guarantor from the Guaranty. The Company hereby agrees to
use its best reasonable efforts to obtain such release and discharge.
(ii) (The Option shall be exercisable from time to time during
the Option Period with respect to any or all of the Dealership Properties;
provided, however, with respect to any distinct dealership group (for example,
the Lucas Group), the Option, if exercised, must be exercised as to all
Dealership Properties within that group.
(iii) The Option may be assigned by the Parent to any Person.
(iv) The exercise price for the Option will be the price
(including directly related transactions expenses) at which the Dealership
Property was purchased by the Company (the "Exercise Price").
(v) With respect to any exercise of the Option during the
Option Period, the period during which the Parent will have to close the
purchase (the "Closing Period") will begin on the date of exercise and will end
one hundred twenty (120) days after the end of the
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Option Period. The purchase will be made pursuant to purchase documentation
substantially equivalent including as to form, representations and warranties
and indemnification obligations of the agreements pursuant to which such
Dealership Properties were purchased by the Company. The parties will negotiate
in good faith and will reasonably cooperate with each other to finalize the
purchase documentation and close the purchase within the Closing Period.
(vi) The entire proceeds of the Exercise Price with respect to any
particular Dealership Property shall be applied toward the prepayment of the
indebtedness secured by the Guaranty or the reimbursement of the Guarantor to
the extent of any amount paid by the Guarantor pursuant to the Guaranty. In the
event that the Company shall sell any of the Dealership Properties at any time,
the proceeds of the sale shall also be applied to reduce the indebtedness
secured by the Guaranty.
(vii) Notwithstanding the last sentence of Section 5.10(a)(vi)
above, during the Option Period, the Company will not sell or otherwise dispose
of, or attempt in any way to sell or otherwise dispose of, any of the Dealership
Properties.
(viii) Notwithstanding the expiration of Option Period or the
Closing Period with respect to any particular exercise under the Option, in the
event that the Guarantor is required to pay any amount under the Guaranty, the
Option shall be reinstated on the terms of this Section 5.10, except that there
shall be no limitations on the duration of the Option Period or on any Closing
Period. Notwithstanding the foregoing, the Company may terminate such reinstated
Option prior to the exercise thereof by the Parent by (i) reimbursing the
Guarantor in full for all amounts paid by it under the Guaranty, together with
interest thereon at the rate of 12% per annum, and (ii) obtaining a complete
release and discharge of the Guarantor from the Guaranty.
(ix) The Guarantor shall be paid a fee for issuance of the Guaranty
in an amount equal to twenty-five basis points (.0025) of the principal amount
of indebtedness guaranteed. Such fee will be paid at the time of the first draw
down under the bridge facility.
(x) The provisions of this Section 5.10 shall survive the
termination of this Agreement.
(b) The rights of the parties under this Section 5.10 are
subordinate to the rights of the Manufacturers.
Section 5.11 280G Consent. Prior to the Closing, the Company shall take
such steps as may be necessary to prevent any payment or benefit from being
subject to the excise tax payable under Section 4999 of the Code or the loss of
deductibility under Section 280G of the Code in connection with the transactions
contemplated by this Agreement.
Section 5.12 Tax Free Reorganization. The Company shall use its best
reasonable efforts to cause the Securities Purchase to be treated as a tax free
reorganization within the meaning of Section 368(a) of the Code.
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ARTICLE VA
COVENANTS OF THE STOCKHOLDERS
Section 5A.1 Agreement to Vote; Proxy.
(a) Each of the Stockholders hereby agrees that, until the
Termination Date (as defined in Section 5A.11 below), at any meeting of the
stockholders of the Company, however called (including any adjournments or
postponements thereof), or in connection with any written consent of the
stockholders of the Company, such Stockholder shall vote (or cause to be voted)
the Shares held of record or beneficially by such Stockholder (i) in favor of
the Reorganization, the execution and delivery by the Company of this Agreement
and the approval of the terms thereof and each of the actions contemplated by
this Agreement and any actions required in furtherance hereof and thereof; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under this Agreement; and (iii) except as specifically requested in writing by
the Parent in advance, against the following actions or agreements (other than
the Reorganization and the transactions contemplated by this Agreement): (A) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its Subsidiaries
(including, without limitation, any Transaction Proposal); (B) a sale, lease or
transfer of any assets of the Company or any of its Subsidiaries (other than in
the ordinary course of business) or reorganization, recapitalization,
dissolution or liquidation of the Company or any of its Subsidiaries, (C) any
change in the management or board of directors of the Company; (D) any change in
the present capitalization or dividend policy of the Company or any of its
Subsidiaries; (E) any amendment to the Company's Certificate of Incorporation or
By-Laws; (F) any other material change in the corporate structure or business of
the Company or any of its Subsidiaries; or (G) any other action which is
intended, or could reasonably be expected, to impede, interfere with, delay,
postpone, discourage or adversely affect, the
Reorganization or the transactions contemplated by this Agreement or
the contemplated economic benefits of any of the foregoing. No Stockholder shall
enter into any agreement or understanding with any person or entity prior to the
Termination Date to vote or give instructions after the Termination Date in any
manner inconsistent with clauses (i), (ii) or (iii) of the preceding sentence.
(b) PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, THE PARENT
AND O. BRUTON SMITH, CHIEF EXECUTIVE OFFICER OF THE PARENT, AND THEODORE M.
WRIGHT, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER OF THE PARENT, IN
THEIR RESPECTIVE CAPACITIES AS OFFICERS OF THE PARENT, AND ANY INDIVIDUAL WHO
SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF THE PARENT, AND ANY OTHER DESIGNEE
OF THE PARENT, EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL
THE TERMINATION DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF
SUBSTITUTION) TO VOTE THE SHARES AS INDICATED IN SECTION 5A.1(a) ABOVE. EACH
STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE)
AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE
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SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS
PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH
RESPECT TO THE SHARES.
(c) Notwithstanding anything contained in this Agreement to the
contrary, as to any Stockholder who is also a director of the Company, the
obligations of such Stockholder under this Section 5A.1 and Section 5A.2 below
to support the Reorganization in his capacity as stockholder shall in no way
prevent such Stockholder from exercising his fiduciary duties as a director of
the Company, with respect to the Reorganization or an Alternative Transaction,
it being also understood that the exercise of such fiduciary duties shall not
affect such Stockholder's obligations in his capacity as a stockholder under
this Section 5A.1 and Section 5A.2 below to support the Reorganization.
Section 5A.2 No Solicitation. Prior to the Termination Date, no
Stockholder shall (directly or indirectly through advisors, agents or other
intermediaries), nor shall such Stockholder authorize or permit any of their
officers, directors, agents, representatives or advisors to (i) solicit,
initiate or take any action knowingly to facilitate the submission of inquiries,
proposals or offers from any Person (other than the Parent or any of its
affiliates) relating to any Transaction Proposal, or (ii) enter into or
participate in any discussions or negotiations regarding any of the foregoing,
or furnish to any other Person any information with respect to the business,
properties or assets or any of the foregoing, or otherwise cooperate in any way
with, or knowingly assist or participate in, facilitate or encourage, any effort
or attempt by any other Person (other than the Parent or any of its affiliates)
to do or seek any of the foregoing. If a Stockholder receives any such inquiry
or proposal, then such Stockholder shall promptly inform the Parent of the terms
and conditions, if any, of such inquiry or proposal and the identity of the
person making it. Each Stockholder will immediately cease and cause its
advisors, agents and other intermediaries to cease any and all existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing, and shall use its reasonable best efforts
to cause any such parties in possession of confidential information about the
Company that was furnished by or on behalf of the Company to return or destroy
all such information in the possession of any such party or in the possession of
any agent or advisor of such party.
Section 5A.3 Restriction on Transfer, Proxies and Non-Interference.
Prior to the Termination Date, no Stockholder shall, directly or indirectly: (i)
except to the Parent pursuant to this Agreement, offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, any or all of the
Shares owned by it, and no Stockholder shall, directly or indirectly, enforce or
permit the execution of the provisions of any redemption agreement with the
Company or enter into any contract, option or other arrangement or understanding
with respect to or consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, or exercise any
discretionary powers to distribute, any or all of the Shares owned by it or any
interest therein, (ii) except as contemplated hereby, grant any proxies or
powers of attorney with respect to the Shares, deposit any Shares into a voting
trust or enter into any voting agreement with respect to any Shares, or (iii)
take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling any Stockholder from performing its obligations under
this Agreement. Notwithstanding the foregoing, a Stockholder may transfer Shares
to such
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Stockholder's spouse or lineal descendant (natural or adopted) or to an
executor, administrator or testamentary trustee (in their capacity as such) of
such Stockholder or to a trust the beneficiaries of which include only such
Stockholder and his or her spouse or lineal descendants; provided, however, it
shall be a condition precedent to such transfer that the transferee agree in a
writing reasonably satisfactory to the Parent and Newco to be bound by the terms
of this Agreement with respect to the shares so transferred, and provided,
further, that such transfer shall not release the transferring Stockholder from
its obligations under this Agreement with respect to the Shares so transferred,
and the Parent and Newco shall be entitled to continue to treat the transferring
Stockholder as the owner of the Shares transferred for all purposes of this
Agreement.
Section 5A.4 Additional Shares. Each of the Stockholders hereby agrees,
while this Agreement is in effect, to promptly notify the Parent of the number
of any new shares of Company Common Stock or Company Preferred Stock acquired by
such Stockholder after the date hereof.
Section 5A.5 Waiver of Appraisal and Dissenter's Rights. Each
Stockholder hereby waives any rights of appraisal or rights to dissent from the
Reorganization (including the Merger) that such Stockholder may have.
Section 5A.6 Actions Regarding Company Expenses. Each of the
Stockholders agrees that they shall take no actions and shall not vote their
Shares in favor of any action which shall cause a substantial increase in the
expenses which are the subject of the indemnity contained in Section 5A.7(d)
below.
Section 5A.7 Indemnity; Escrow Agreement.
(a) The Stockholders hereby agree to indemnify and save the Parent
and the Surviving Corporation, their respective shareholders, officers,
directors and employees, and the successors and assigns of each of the foregoing
(each, an "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
Indemnitee (collectively, "Damages") arising out of, based upon, in connection
with, or as a result of (i) the untruth, inaccuracy or breach of any
representation and warranty of the Company contained in or made pursuant to this
Agreement, including in any Schedule or certificate delivered hereunder or in
connection herewith, and (ii) the breach or nonfulfillment of any covenant or
agreement of the Company contained in this Agreement or in any other agreement,
document or instrument delivered hereunder or pursuant hereto. With respect to
the Stockholders' obligations to pay Damages pursuant to this Section 5A.7(a),
the Stockholders shall have no personal liability, and the Parent's and the
Surviving Corporation's sole recourse shall be to make demand for payment out of
the Escrow Amount (as defined in Section 5A.7(b) below).
(b) At the Closing, the Stockholders shall place into escrow with
First Union National Bank or another escrow agent mutually acceptable to the
parties hereto (the "Escrow Agent") 473,571 shares (adjusted for any stock
dividend, subdivision, reclassification, split-up, combination, or the like,
with respect to the Parent Common Stock) of Reorganization Common
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Stock (the "Escrow Shares" or "Escrow Amount"), pro rata among the Stockholders
according to the number of shares of Parent Common Stock issued to the
Stockholders in exchange for the Company Common Stock and the Company Warrants
(such shares being hereinafter called the "Pro Rata Shares"), in accordance with
the escrow agreement in the form of Exhibit D hereto, with such other changes
thereto as the Escrow Agent shall reasonably request (the "Escrow Agreement").
The term of the Escrow Agreement shall be for the period beginning with the
Closing and ending on March 31, 2001 (the "Escrow Period"). If the Parent shall
have made no claims for indemnification under Section 5A.7(a) above or otherwise
under this Section 5A.7, during the Escrow Period, the Parent will execute a
joint instruction with the Stockholders' Agent pursuant to the Escrow Agreement
to instruct the Escrow Agent to pay all of the Escrow Shares to the Stockholders
pursuant to the terms of the Escrow Agreement, pro rata according to their
respective Pro Rata Shares. To the extent that the Parent shall be entitled to
Damages, the Stockholders' Agent shall execute a joint instruction with the
Parent pursuant to the Escrow Agreement to instruct the Escrow Agent to disburse
to the Parent from the Escrow Amount that number of Escrow Shares having a
Market Price at the time of disbursement equal to the amount of such Damages.
All such disbursements from the Escrow Shares shall be charged to the
Stockholders pro rata according to their Pro Rata Shares of the Escrow Shares.
As used herein, the term "Market Price" shall mean the average of the daily
closing prices on the NYSE for one share of Parent Common Stock for the twenty
(20) consecutive trading days ending on and including the trading day
immediately prior to the date of determination. Reference is hereby made to
Section 9.16 with respect to certain matters concerning the Stockholders' Agent.
(c) The parties acknowledge that the purchase agreements for the
Pending Acquisitions (the "Pending Purchase Agreements") provide that the
Company is entitled to indemnification for breaches of representations,
warranties and covenants contained therein in accordance with the terms of such
agreements. The Parent and the Stockholders agree that:
(i) If an Indemnitee is entitled to indemnification under this
Agreement and the breach which gives rise to such right of indemnification under
this Agreement shall also be a matter for which the Company is entitled to
pursue indemnification under any of the Pending Purchase Agreements, the
Indemnitee (or Parent, on their behalf) shall first attempt to recover such
Damages as are indemnifiable under the Pending Purchase Agreements from the
indemnifying persons under such Pending Purchase Agreements. Such claims are
referred to herein as "Dual Indemnity Claims."
(ii) Provided a Dual Indemnity Claim shall be made prior to the
Claim, Termination Date as such term is defined in the Escrow Agreement, during
such period as the Parent is pursuing indemnification pursuant to the terms of a
Pending Purchase Agreement, it shall be entitled to retain Escrow Shares
relating to such breaches as a Pending Claim as provided in the Escrow Agreement
to cover the amount of such Dual Indemnity Claims as are also covered by the
indemnification provisions of this Agreement.
(iii) When a Dual Indemnity Claim shall be finally resolved
pursuant to the terms of a Pending Acquisition Agreement, the resolution of such
claim shall be determinative except in the case where the amount of damages for
such Dual Indemnity Claim shall exceed the indemnification obligations of the
indemnifying parties under such Pending Acquisition Agreement. In such case the
Stockholders' Agent (as such term is defined in the
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Escrow Agreement) shall have opportunity to defend such claim in its entirety
pursuant to the terms of this Agreement. Upon the resolution of a Dual Indemnity
Claim, any Escrow Shares held beyond the Claim Termination Date in respect of
such Pending Claim shall, to the extent not required to cover other pending
Claims, be released.
(d) The parties hereby agree that the Parent shall be entitled to
claim against the Escrow Amount with respect to the actual amount of "one-time"
charges and adjustments (net of tax benefits), the categories of which are
generally summarized (with current estimates thereof which estimates are for
information purposes only) in Exhibit E hereto and consisting of (i) (A)
redemption premiums related to payments to the Trust Company of the West and its
affiliates ("TCW") in connection with the sale of the shares of the Company
Preferred Stock hereunder and (B) prepayment penalties in connection with the
prepayment of the Company's indebtedness under the promissory notes issued to
TCW by the Company (the "TCW Loan"); (ii) severance payments (including those
payable when the employee terminates "for good reason" under the relevant
employment contract) and stay-on bonuses to certain employees of the Company;
(iii) the tax charges for stock grants made to certain employees of the Company
and disclosed in the Company Disclosure Schedule (the "FAA Stock Grants"); (iv)
out-of-pocket expenses incurred by the Company in connection with its recently
attempted initial public offering; (v) fees or commissions payable to Merrill
Lynch and NCM Associates for their services to the Company in connection with
the Reorganization; (vi) transaction fees and expenses incurred in connection
with the Reorganization, including those for services rendered by its legal
counsel and accountants, but excluding fees and expenses of legal counsel in
connection with the Registration Statement contemplated by the Merger Agreement;
(vii) costs and expenses incurred in connection with the divestiture of DSW
Associates, Inc., d/b/a "Auto Town" by the Company; (viii) payments under
contracts with "change of control" clauses which are triggered by the
Reorganization and not included in clause (ii) above; and (ix) expenses of
establishing the "bridge financing" contemplated by Section 5.10 of this
Agreement; provided, however, that the aggregate total of such actual charges
and adjustments enumerated above shall be reduced by (i) the out-of-pocket
expenses of the IPO referred to in clause (iv) above up to $1,500,000 and (ii)
the dollar amount equal to any net income earned by the Company from July 1,
1999 through the Closing Date and, if the Closing Date takes place prior to
December 31, 1999, the sum of $123,288 per day for each day from the Closing
Date to and including December 31, 1999; and provided further that such charges
and adjustments shall exclude (x) any unamortized deferred loan costs incurred
by the Company in the prepayment of the TCW Loan, (y) the increase in the
Company's equity capitalization base in connection with the FAA Stock Grants,
and (z) any non-cash items related to the divestiture or liquidation of DSW
Associates, Inc. d/b/a "Auto Town", including unamortized deferred loan costs.
(e) With respect to any claim against the Escrow Amount by the
Parent for a breach of Section 3.18 of this Agreement regarding the Company's
representation and warranty to the effect that the Company and its subsidiaries
consolidated pro-forma pre-tax earnings will be a minimum of $45,000,000 (the
"Minimum Amount"), Parent shall be entitled to recover from such Escrow Amount
any discrepancy from the Minimum Amount on a dollar-for-dollar basis.
(f) With respect to any claim against the Escrow Amount by the
Parent for a breach of Section 3.5 of this Agreement regarding the Company's
representation and warranty to
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the effect, without limitation, that the Company's consolidated financial
statements as of June 30, 1999 have been prepared in accordance with generally
accepted accounting principles and fairly present the consolidated financial
position of the Company, the Parent shall not be entitled to claim that such one
time charges and expenses as are considered in Section 5A.7(d) above have caused
or contributed to a breach of such representation.
(g) The Parent shall be entitled to a claim against the Escrow
Amount for any Damages in excess of $50,000 incurred as a result of the
Department of Labor audit of the Company's 401(k) Plan.
(h) The Parent shall be entitled to a claim against the Escrow
Amount for any Damages in excess of the sum of (i) $100,000 plus (ii) the
Company's accruals therefore in accordance with GAAP, incurred as a result of
the Pierson/Portin litigation (or related class action) referred to in Section
3.7 of the Company Disclosure Schedule.
Section 5A.8 Further Assurances. From time to time, at the request of
the Stockholders, on the one hand, or at the request of the Parent, on the other
hand, and without further consideration, each party hereto shall execute and
deliver such additional documents and take all such further action as may be
necessary or desirable to consummate and make effective, in the most expeditious
manner practicable, the transactions contemplated by this Agreement.
Section 5A.9 Certain Events. Each Stockholder agrees that this
Agreement and the obligations hereunder shall attach to all Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise.
Section 5A.10 Stop Transfer. Each Stockholder agrees with, and
covenants to the Parent that it shall not request that the Company register the
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Shares.
Section 5A.11 Termination. The obligations of each Stockholder under
Sections 5A.1, 5A.2, 5A.3 and 5A.10 of this Agreement shall terminate upon the
first to occur of (a) the Closing, and (b) the date that is one hundred eighty
(180) days after the date this Agreement is terminated in accordance with its
terms (such earlier date being the "Termination Date"). Except as set forth in
this Section 5A.11 all other agreements and obligations of the parties hereto
shall survive the Closing and/or the Termination Date, as applicable.
ARTICLE VI
COVENANTS OF THE PARENT
Section 6.1 Conduct of Business of Parent. During the period from the
date of this Agreement to the Closing (except as otherwise expressly
contemplated by the terms of this Agreement), the Parent shall act and carry on
its business in the usual, regular and ordinary course of business consistent
with past practice and use its reasonable best efforts to preserve substantially
intact its current business organization, keep available the services of its
current officers and employees and preserve its relationships with customers,
suppliers, licensors, licensees, advertisers, distributors and others having
significant business dealings with it and
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provided that nothing contained in the foregoing shall prevent the Parent from
its business of acquiring automobile dealerships.
Section 6.2 [INTENTIONALLY LEFT BLANK]
Section 6.3 Access to Information; Confidentiality.
(a) Parent shall, and shall cause its officers, employees, counsel,
financial advisors and other representatives to, afford to the Company and its
representatives reasonable access during normal business hours to its
properties, books, contracts, commitments, personnel and records, including
security position listings and other information concerning beneficial owners
and/or record owners of the Parent's securities which may be relevant to the
Reorganization, and, during such period, the Parent shall, and shall cause its
officers, employees and representatives to, furnish promptly to the Company (i)
a copy of each report, schedule, registration statement and other document filed
by it during such period pursuant to the requirements of federal or state
securities laws and (ii) all other information concerning its business,
properties, financial condition, operations and personnel as the Company may
from time to time reasonably request. The Company will hold, and will cause its
respective directors, officers, employees, accountants, counsel, financial
advisors and other representatives and Affiliates to hold, any nonpublic
information in confidence to the same extent that nonpublic information
regarding the Company, as contemplated by Section 5.3 above, is required to be
held confidential by the Parent and Newco pursuant to the Confidentiality
Agreement.
(b) No investigation pursuant to this Section 6.3 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
Section 6.4 Indemnification.
(a) The certificate of incorporation and the by-laws of the
Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability substantially as set forth in the
Company's certificate of incorporation and by-laws on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise modified
for a period of six years from the Closing in any manner that would adversely
affect the rights thereunder of individuals who on or prior to the Closing were
directors, officers, employees or agents of the Company, unless such
modification is required by law.
(b) From and after the Effective Time, the Parent agrees to
indemnify and agrees to cause the Surviving Corporation to indemnify each person
who is now, or who becomes after the Closing, an officer or director of the
Company or any of it Subsidiaries (the "Indemnified Parties"), to the fullest
extent permitted by applicable law, with respect to all acts and omissions
arising out of the Indemnified Parties' services as officers, directors,
employees or agents of the Company or as trustees or fiduciaries of any plan for
the benefit of employees of the Company, occurring prior to the Closing
including, without limitation, the transactions
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contemplated by this Agreement. Without limitation of the foregoing, in the
event any such Indemnified Party is or becomes involved in any capacity in any
action, proceeding or investigation in connection with any matter, including
without limitation, the transactions contemplated by this Agreement, occurring
prior to, and including, the Closing, the Parent, from and after the Closing,
will pay as incurred such Indemnified Party's reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith. Subject to Section 6.4(c), the Parent shall advance (in
reasonable amounts) and pay all reasonable expenses, including attorneys' fees,
that may be incurred by any Indemnified Party in enforcing this Section 6.4 or
any action involving an Indemnified Party resulting from the transactions
contemplated by this Agreement. Notwithstanding anything to the contrary
contained herein, the Parent shall not have any obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by, or otherwise is not available pursuant to, applicable law.
(c) Any Indemnified Party wishing to claim indemnification under
this Section 6.4, upon learning of any claim, action, suit, proceeding or
investigation which may give rise to a right to indemnification under this
Section 6.4, shall promptly notify the Parent thereof. In the event of any such
claim, action, suit, proceeding or investigation, (i) the Parent or the
Surviving Corporation shall have the right to assume the defense thereof (with
counsel engaged by the Parent or the Surviving Corporation to be reasonably
acceptable to the Indemnified Party) and, provided there is no conflict of
interest, the Parent shall not be liable to such Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof, (ii)the Indemnified
Party will cooperate in the defense of any such matter, and (iii)the Parent
shall not be liable for any settlement effected without its prior written
consent.
(d) Parent and the Surviving Corporation, shall, until the sixth
anniversary of the Closing or such earlier date as may be mutually agreed upon
by Parent, the Surviving Corporation and the applicable Indemnified Party, cause
to be maintained in effect, to the extent available, the policies of directors'
and officers' liability insurance maintained by the Company and its Subsidiaries
as of the date hereof (or policies of at least the same coverage and amounts
containing terms that are not less advantageous to the insured parties) with
respect to claims arising from facts or events that occurred on or prior to the
Closing, including without limitation all claims based upon, arising out of,
directly or indirectly resulting from, in consequence of, or in any way
involving the Reorganization and any and all related events. In lieu of
maintaining the Company's current policies, Parent may cause to be obtained and
maintained in effect directors' and officers' liability insurance of at least
the same coverage and amounts and containing terms that are, as a whole,
substantially no less advantageous than policies presently maintained by the
Company with respect to claims arising from facts or events which occurred on or
before the Closing. Notwithstanding the foregoing, in no event shall Parent or
the Surviving Corporation be required pursuant to this Section 6.4(d) to expend,
in order to maintain or procure insurance coverage pursuant to this Section 6.5,
any amount per annum in excess of 150% of the annual rate of premiums currently
being paid for the current Company officers' and directors' liability insurance
policy.
(e) The obligations of the Company, the Surviving Corporation and
the Parent under this Section 6.4 shall not be terminated or modified in such a
manner as to adversely affect any of the Indemnified Parties without the consent
of such Indemnified Party (it being expressly agreed that each such Indemnified
Party shall be a third party beneficiary of this Section 6.4).
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Section 6.5 Public Announcements. Neither the Parent nor Newco will
issue any press release or public statement with respect to the transactions
contemplated by this Agreement, including the Reorganization, without the
Company's prior consent (such consent not to be unreasonably withheld), except
as may be required by applicable law, court process or by obligations pursuant
to any listing agreement with the NYSE. In addition to the foregoing, the Parent
will consult with the Company before issuing, and provide the Company the
opportunity to review and comment upon, any such press release or other public
statements with respect to such transactions.
Section 6.6 Newco Obligations. Parent shall cause Newco to perform all
of its obligations, agreements and covenants under this Agreement.
Section 6.7 Application to Manufacturers. Subject to the reasonable
cooperation of the Company, the Parent shall provide to the Manufacturers 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 consent of the Manufacturers to the
transactions contemplated by this Agreement.
Section 6.8 Closing Conditions. Parent shall use all reasonable best
efforts to satisfy promptly the conditions to Closing set forth in Article VII
hereof required herein to be satisfied by the Parent prior to Closing.
Section 6.9 HSR Act. Parent 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 Parent shall pay all filing fees in connection therewith, including any
such filing fee required to be paid by Thomas A. Price.
Section 6.10 Tax Free Reorganization. Parent and the Company shall use
its best reasonable efforts to cause the Securities Purchase to be treated as a
tax free reorganization within the meaning of Section 368(a) of the Code.
Section 6.11 Additional Agreements of Parent. At the Closing, the
Parent shall, or shall cause the Surviving Corporation immediately after the
Closing to:
(a) Repay all outstanding loans (set forth in Schedule 6.11(a)
hereto) by the officers of the Company to the Company;
(b) Secure the release of all officers of the Company, or any of
such officers' Affiliates from any guaranties (set forth in Schedule 6.11(b)
hereto) they have given in favor of the Company; and
(c) Repay all outstanding loans under the promissory notes issued
to TCW and its Affiliates.
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Section 6.12 Employee Benefits.
(a) Parent will give, or will cause Surviving Corporation to give,
to each employee of Parent or Surviving Corporation who immediately prior to the
Effective Time was an employee of the Company (each such employee, a "Continuing
Employee") full credit for purposes of eligibility, vesting, vacation, seniority
and sick pay to the extent permissible under applicable law. In the event Parent
causes Surviving Corporation to terminate a welfare plan so that there is a
short plan year, Parent will use its best efforts to, or will cause Surviving
Corporation to provide each Continuing Employee with credit for the remaining
short plan year for any co-payments and deductibles paid under each comparable
employee welfare benefit plan maintained by Company prior to the Effective Time
in satisfying any applicable deductible or co-payment requirements under any of
Parent's employee welfare benefit plans that such Continuing Employees are
eligible to participate in after the Effective Time. From and after the
Effective Time, the Continuing Employees shall be eligible to participate in
Parent's or Surviving Corporation's employee benefit plans and arrangements in
which similarly situated employees of Parent or Surviving Corporation
participate, to the same extent as such similarly situated employees.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation To Effect the
Reorganization.
The respective obligation of each party to effect the Reorganization is
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) The waiting period (and any extension thereof) applicable to
the Reorganization under the HSR Act shall have been terminated or shall have
expired.
(b) No temporary restraining order, preliminary or permanent
injunction or other order issued by any court of competent jurisdiction or other
legal restraint or prohibition preventing the consummation of the Reorganization
shall be in effect; provided, however, that the parties hereto shall use their
best efforts to have any such injunction, order, restraint or prohibition
vacated.
(c) The Parent and the Company shall each have received written
opinions from their respective counsel to the effect that the Securities
Purchase will constitute a reorganization within the meaning of Section 368(a)
of the Code; provided, however, that if the counsel to either the Parent or the
Company does not render such opinion, this condition shall nonetheless be deemed
to be satisfied with respect to such party if counsel to the other party renders
such opinion to such party. The parties to this Agreement agree to make
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(d) Employment Agreement. The Parent and Thomas A. Price shall have
entered into a mutually agreed upon employment agreement.
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Section 7.2 Conditions to Obligations of the Parent and Newco. The
obligations of the Parent and Newco to effect the Reorganization are further
subject to the following conditions:
(a) Representations and Warranties. The representations and
warranties of the Company and the Stockholders set forth in this Agreement shall
be true and correct, in each case as of the date of this Agreement and (except
to the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date, except (in
the case of the representations and warranties of the Company only) where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect, or (in the case of the representations and
warranties of any particular Stockholder only) where the failure of such
representations and warranties to be so true and correct would prevent the
purchase of the Company Securities from such Stockholder in accordance with the
terms hereof such that the condition set forth in Section 7.2(g) below would not
be satisfied. The Parent shall have received (i) with respect to the
representations and warranties of the Company, a certificate signed on behalf of
the Company by the chief executive officer and the chief financial officer of
the Company, and (ii) with respect to the representations and warranties of the
Stockholders, a certificate signed by the Stockholders' Agent on behalf of each
of the Stockholders, in each case to the effect set forth in this paragraph.
(b) Performance of Obligations. The Company and the Stockholders
shall have performed the respective obligations required to be performed by them
under this Agreement at or prior to the Closing Date (except, in the case of the
obligations of the Company only, for such failures to perform either
individually or in the aggregate that would not have a Material Adverse Effect
with respect to the Company or materially adversely affect the ability of the
Company to consummate the transactions herein contemplated or perform its
obligations hereunder).
(c) Consents, etc. The Parent shall have received evidence, in form
and substance reasonably satisfactory to it, that such licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and other third parties as are necessary in connection with the
transactions contemplated hereby have been obtained, except where the failure to
obtain such licenses, permits, consents, approvals, authorizations,
qualifications and orders individually or in the aggregate would not have a
Material Adverse Effect with respect to the Company, provided, however, that
insofar as the foregoing Material Adverse Effect exception relates to Leases of
Real Property, the parties agree that it would constitute a Material Adverse
Effect if the failure to obtain the consent from a particular landlord under a
Lease could reasonably be expected to result in the inability of a dealership to
continue its operations substantially at that location.
(d) No Litigation. There shall not be pending any suit, action or
proceeding by any Governmental Entity or by any other Person, which has a
reasonable likelihood of success and which, if successful, would have a Material
Adverse Effect with respect to the Company or the Parent, or materially
adversely affect the ability of the parties hereto to consummate the
transactions contemplated herein.
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(e) Closing Documentation. The Parent shall have received the
following documents, agreements and instruments from the Company:
(i) an opinion of Gray Cary Ware & Freidenrich LLP, dated the
Closing Date and addressed to the Parent and Newco, in substantially the form of
Exhibit F hereto;
(ii) certificates dated as of a recent date from the Secretary
of State of the States of Delaware and any other applicable states to the effect
that each of the Company and its Subsidiaries is duly incorporated and in good
standing in such state and stating that the Company and its Subsidiaries owes no
franchise taxes in such state and listing all documents of the Company and its
Subsidiaries on file with said Secretary of State;
(iii) a copy of the Certificate of Incorporation of the
Company, including all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Delaware;
(iv) evidence, reasonably satisfactory to the Parent, of the
authority and incumbency of the persons acting on behalf of the Company in
connection with the execution of any document delivered in connection with this
Agreement;
(v) Uniform Commercial Code Search Reports on Form UCC-11 with
respect to the Company and its Subsidiaries from the states and local
jurisdictions where the principal place of business of the Company and its
Subsidiaries and their respective assets are located, the search reports of
which shall confirm compliance with Section 3.15 (and Schedule thereto) of this
Agreement;
(vi) the corporate minute books and stock record books of the
Company and its Subsidiaries;
(vii) estoppel letters of lenders to the Company, in form and
substance reasonably satisfactory to the Parent, with respect to amounts
(including any pre-payment penalties) owing by the Company as of the Closing;
and
(viii) such other instruments and documents as the Parent shall
reasonably request not inconsistent with the provisions hereof.
(f) No Material Adverse Change. There shall have been no Material
Adverse Change in the Company since June 30, 1999.
(g) Company Securities. The Company Securities held by the
Stockholders as of the Closing Date shall include not less than 96% of the
issued and outstanding shares of Company Common Stock, or such lesser
percentage, not less than 90%, as shall have been specifically agreed to by the
Parent pursuant to Section 9.15.
(h) Manufacturer Approval. The Manufacturers shall have given any
required approval of the Reorganization and shall have given any required
approval of O. Bruton Smith or his designee as the authorized dealer operator of
the Company's and its Subsidiaries' dealership
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franchises with the Manufacturers at the present dealership locations in their
existing facilities as currently configured for dealership operations, and the
Manufacturers shall have executed any required dealer agreements and/or
amendments or supplements thereto in connection with the foregoing.
(i) Prepayment of Convertible Debt; Termination of Registration
Rights. All convertible debt shall have been prepaid, and the Parent shall have
received reasonably satisfactory evidence thereof. Additionally, all of the
registration rights underlying the Company Warrants shall have been
terminated.
(j) Delivery of Company Securities. The respective Stockholders
shall have delivered the certificate or certificates representing all of the
Company Securities, in accordance with Section 1.1 hereof.
(k) [INTENTIONALLY LEFT BLANK]
(l) [INTENTIONALLY LEFT BLANK]
(m) Auto Town Spin-Off. The divestiture or liquidation of DSW
Associates, Inc., d/b/a Auto Town, shall have been completed with the prior
approval of the Parent. The Company shall inform the Parent of the manner of
divesting, liquidating or otherwise disposing of DSW Associates, d/b/a "Auto
Town", prior to the Completion thereof, it being understood that the Parent
shall not unreasonably withhold such prior approval. Notwithstanding the
foregoing, it shall be a basis for the Parent to withhold its approval if such
divestiture, liquidation or other disposition is on terms which could result in
any continuing material liability or obligation of the Company to Auto Town or
its stockholders.
(n) Termination of Stockholder Agreement. The Stockholder Agreement
dated as of July 11, 1997, as amended to date, by and among the Company, Thomas
Price, Donald Strough, Steven Hallock, Fred Cziska, Al Babbington, John Driebe,
Embarcadero Automotive, L.L.C., Raintree Capital LLC, BB Investments and certain
affiliates of Trust Company of the West, shall have been terminated.
(o) [INTENTIONALLY LEFT BLANK]
(p) The Parent shall have obtained the consents or approvals of the
parties set forth in Schedule 4.4(c) hereto.
Notwithstanding the foregoing, the obligations of the Parent and Newco
to effect the Reorganization shall not be relieved by the failure of any of the
foregoing conditions if such failure is the result, direct or indirect, of any
breach by the Parent or Newco of any of their obligations under this Agreement.
Section 7.3 Conditions to Obligation of the Company and the
Stockholders. The obligations of the Company and the Stockholders to effect the
Reorganization are further subject to the following conditions:
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(a) Representations and Warranties. The representations and
warranties of the Parent and Newco set forth in this Agreement shall be true and
correct, in each case as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date, except where the
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Material
Adverse Effect" set forth therein) would not individually or in the aggregate
have a Material Adverse Effect with respect to, the Parent and Newco. The
Company shall have received a certificate signed on behalf of the Parent by an
authorized officer of the Parent to the effect set forth in this paragraph.
(b) Performance of Obligations of the Parent and Newco. The Parent
and Newco shall have performed the obligations required to be performed by them
under this Agreement at or prior to the Closing Date (except for such failures
to perform, either individually or in the aggregate, that would not have a
Material Adverse Effect with respect to the Parent and Newco or materially
adversely affect the ability of the Parent and Newco to consummate the
transactions herein contemplated or perform their respective obligations
hereunder).
(c) Closing Documentation. The Company shall have received the
following documents, agreements and instruments from the Parent:
(i) an opinion of Parker, Poe, Adams & Bernstein L.L.P., dated
the Closing Date and addressed to the Company and the Stockholders,
substantially in the form of Exhibit G hereto;
(ii) certificates dated as of a recent date from the Secretary
of State of the State of Delaware to the effect that the Parent is duly
incorporated and in good standing in such State;
(iii) a copy of the Parent's Certificate of Incorporation,
including all amendments thereto, certified by the Secretary of State of the
State of Delaware;
(iv) evidence reasonably satisfactory to the Company as to the
authority and incumbency of the persons acting on behalf of the Parent in
connection with the execution of any document delivered in connection with this
Agreement; and
(v) such other instruments and documents as the Company shall
reasonably request not inconsistent with the provisions hereof.
Notwithstanding the foregoing, the obligations of the Company and the
Stockholders to effect the Reorganization shall not be relieved by the failure
of any of the foregoing conditions if such failure is the result, direct or
indirect, of any breach by the Company or any of the Stockholders of any of
their respective obligations under this Agreement.
(d) No Material Adverse Change. There shall have been no Material
Adverse Change in Parent since the Parent Balance Sheet Date.
54
<PAGE>
(e) Delivery of Parent Common Stock. Newco shall have delivered to
the respective Stockholders the certificates representing the Parent Common
Stock, in accordance with Section 1.2 hereof.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated and abandoned
at any time prior to the Closing:
(a) by mutual written consent of the Parent, the Company and the
Stockholders' Agent; or
(b) by either the Parent or the Company, if any governmental entity
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Reorganization
and such order, decree, ruling or other action shall have become final and
nonappealable; or
(c) by (i) the Parent, if the Reorganization shall not have been
consummated on or before the Closing Date Deadline (as defined in Section 9.5)
(other than due to the failure of the Parent or Newco to perform its obligations
under this Agreement required to be performed at or prior to the Closing), or
(ii) the Company, if the Reorganization shall not have been consummated on or
before the Closing Date Deadline (other than due to the failure of the Company
or any of the Stockholders to perform its obligations under this Agreement
required to be performed at or prior to the Closing); provided, however, that
any such termination by either such party shall be subject to the right of the
other party to extend the Closing Date Deadline, as contemplated by Section 9.5;
or
(d) by the Parent, if the holders of a majority of the outstanding
shares of the Company Common Stock and Company Preferred Stock shall not have
approved the Reorganization, this Agreement and the consummation of the
transactions contemplated hereby; or
(e) by the Parent, if the Company or its Board of Directors shall
have (i) withdrawn, modified or amended in any respect adverse to the Parent its
approval or recommendation of this Agreement or any of the transactions
contemplated herein, (ii) recommended any Transaction Proposal from a Person
other than the Parent or Newco or any of their Affiliates, or (iii) resolved to
do any of the foregoing; or
(f) by the Parent if a breach of any representation, warranty,
covenant or agreement on the part of the Company or any of the Stockholders set
forth in this Agreement shall have occurred which if uncured would cause any
condition set forth in Section 7.2(a) or Section 7.2(b) not to be satisfied, and
such breach is incapable of being cured or, if capable of being cured, shall not
have been cured within twenty (20) business days following receipt by the
Company of written notice of such breach from Parent; or
55
<PAGE>
(g) by the Company, if a breach of any representation, warranty,
covenant or agreement on the part of Parent or Newco set forth in this Agreement
shall have occurred which if uncured would cause any condition set forth in
Section 7.3(a) or Section 7.3(b) not to be satisfied, and such breach is
incapable of being cured or, if capable of being cured, shall not have been
cured within twenty (20) business days following receipt by Parent of written
notice of such breach from the Company.
Section 8.2 Effect of Termination. In the event of termination of this
Agreement by either the Company or the Parent as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of the Parent, Newco or the Company, other than the
provisions of Section 3.11 (Brokers), Section 4.8 (Brokers), the last sentence
of Section 5.3(a) (Access to Information; Confidentiality), the last sentence of
Section 6.3(a) (Access to Information; Confidentiality), Section 5.10 (Bridge
Financing), this Section 8.2, Section 9.3 (Fees and Expenses), Section 9.8
(Entire Agreement; No Third Party Beneficiaries) and Section 9.9 (Governing
Law). Nothing contained in this Section shall relieve any party of any liability
for any breach of the representations, warranties, covenants or agreements set
forth in this Agreement.
Section 8.3 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties. Notwithstanding
the foregoing, the Stockholders' Agent may execute any such writing on behalf of
all of the Stockholders so long as such writing does not (a) amend any provision
of Articles I, IIIA or VA hereof or (b) amend any other provision of this
Agreement in a way which materially increases any liability or materially
decreases any right of the Stockholders hereunder.
Section 8.4 Extension; Waiver. At any time prior to the Closing, the
parties may (a) extend the time for the performance of any of the obligations or
other acts of the other parties, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. Notwithstanding the
foregoing, the Stockholders' Agent may execute any such agreement on behalf of
all of the Stockholders so long as such agreement does not apply to an extension
or waiver with respect to any provision of Article I, IIIA or VA hereof or to
any other provision of this Agreement where such extension or waiver materially
increases any liability or materially decreases any right of the Stockholders
hereunder. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
Section 8.5 Procedure for Termination, Amendment, Extension or Waiver.
A termination of this Agreement pursuant to Section 8.1, an amendment of this
Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of the Parent or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
56
<PAGE>
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Best Reasonable Efforts. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
best reasonable efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, in the most expeditious manner
practicable, the Reorganization and the other transactions contemplated by this
Agreement. The Parent and the Company will use their best reasonable efforts and
cooperate with one another (i) in promptly determining whether any filings are
required to be made or consents, approvals, waivers, licenses, permits or
authorizations are required to be obtained (or, which if not obtained, would
result in an event of default, termination or acceleration of any agreement or
any put right under any agreement) under any applicable law or regulation or
from any governmental entities or third parties, including parties to loan
agreements or other debt instruments, in connection with the transactions
contemplated by this Agreement, including the Reorganization and (ii) in
promptly making any such filings, in furnishing information required in
connection therewith and in timely seeking to obtain any such consents,
approvals, permits or authorizations.
Section 9.2 Survival of Representations and Warranties. The
representations and warranties of the Stockholders contained in this Agreement
shall survive the Closing. Except as provided in the last sentence of this
Section 9.2, none of the representations and warranties of the Company, the
Parent or Newco contained in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing and all such
representations and warranties will be extinguished on consummation of the
Reorganization and neither the Company, the Parent or Newco, nor any officer,
director, or employee or stockholder of the Company, the Parent or Newco, shall
be under any liability whatsoever with respect to any such representation or
warranty of the Company, the Parent or Newco contained after such time. This
Section 9.2 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Closing. Notwithstanding the
foregoing, for purposes of the indemnification obligations of the Stockholders
under Section 5A.7 of this Agreement, the representations and warranties of the
Company contained in this Agreement shall be deemed to survive the
Closing.
Section 9.3 Fees and Expenses.
(a) If this Agreement is terminated pursuant to Section 8.1(d) or
Section 8.1(e), then the Company shall (provided that the Parent or Newco is not
then in material breach of its obligations under this Agreement), promptly, but
in no event later than four (4) business days after the termination of this
Agreement, reimburse the Parent and Newco for all documented out-of-pocket
expenses and fees (including, without limitation, fees payable to all banks,
investment banking firms and other financial institutions, and their respective
agents and counsel, and all fees of counsel, accountants, financial printers,
experts and consultants to Newco and its Affiliates), whether incurred prior to,
on or after the date hereof, in connection with the Reorganization and the
consummation of all transactions contemplated by this Agreement and the
financing thereof.
57
<PAGE>
(b) In the event a fee is or becomes payable pursuant to Section
9.3(a) hereof, the Company agrees promptly, but in no event later than four (4)
business days following written notice thereof, together with related bills or
receipts, to reimburse the Parent and Newco for all reasonable out-of-pocket
costs, fees and expenses, including, without limitation, the reasonable fees and
disbursements of counsel and the expenses of litigation, incurred in connection
with collecting the expenses pursuant to said Section 9.3(a), as a result of any
breach by the Company of its obligations under this Section 9.3.
(c) Except as provided otherwise in Section 9.3(a) above, all costs
and expenses incurred in connection with this Agreement and the transactions
contemplated hereby and thereby shall be paid by the party incurring such
expenses.
Section 9.4 Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if (i) delivered personally, (ii) sent by overnight courier (providing
proof of delivery) or (iii) upon transmission (with confirmed delivery to the
recipient of such communication) by facsimile to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to the Parent or Newco, to(a)
Sonic Automotive, Inc.
5401 East Independence Boulevard
Charlotte, North Carolina 28212
Attention: Mr. Theodore M. Wright
with a copy to
Parker, Poe, Adams & Bernstein, LLP
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Attention: Edward W. Wellman, Jr.
(b) if to the Company, to
FirstAmerica Automotive, Inc.
601 Brannon Street
San Francisco, California 94107
Attention: Mr. Thomas A. Price
58
<PAGE>
with copies to:
Gray, Cary, Ware & Freidenrich, LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Attention: Andrew D. Zeif, Esq. or
(c) if to the Stockholders or any of them, to the addresses listed
below their respective names on Exhibit A attached hereto.
Section 9.5 Certain Definitions. For purposes of this Agreement:
(a) "Affiliate" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person;
(b) The terms "beneficially own" or "beneficial ownership" with
respect to any securities shall mean having "beneficial ownership" of such
securities (as determined pursuant to Rule 13d-3 under the Exchange Act),
including pursuant to any agreement, arrangement or understanding, whether or
not in writing. Without duplicative counting of the same securities by the same
holder, securities beneficially owned by a Person shall include securities
beneficially owned by all other Persons with whom such Person would constitute a
"group" as described in Section 13(d)(3) of the Exchange Act.
(c) "Closing Date Deadline" means December 31, 1999; provided,
however, if as of such date the approvals of the Manufacturers contemplated by
Section 7.2(h) shall not have been obtained or the waiting period (and any
extension thereof) applicable to the Reorganization under the HSR Act shall not
have been terminated or shall not have expired, the Parent or the Company may,
by written notice to the other, elect to extend the Closing Date Deadline for an
additional sixty (60) days.
(d) "Knowledge" with respect to the Company means the actual
knowledge of the following persons: Thomas A. Price, Donald V. Strough, W. Bruce
Bercovich, Charles R. Oglesby, Debra L. Smithart, and David J. Moeller, in each
case after reasonable investigation and inquiry; provided, however, the Company
shall be deemed to have knowledge of all material facts disclosed in the
agreements (including related disclosure schedules) with respect to the Pending
Acquisition;
(e) "Lien" means any pledge, claim, lien, charge, encumbrance or
security interest of any kind or nature whatsoever;
(f) "Manufacturers" means Acura Division of American Honda Motor
Co., Inc., BMW of North America, Inc., Cadillac Motor Car Division of General
Motors Corp., Chevrolet Motor Division of General Motors Corp.,
Chrysler-Plymouth-Jeep (Chrysler Corp.), Dodge Division of Chrysler Corp., Ford
Division of Ford Motor Co., Honda Division of America Honda Motor Co., Inc.,
American Isuzu Motors, Inc., Lexus Division of Toyota Motor Sales,
59
<PAGE>
U.S.A., Inc., Daimler-Chrysler (Mercedes), Mitsubishi Motor Sales of America,
Inc., Nissan Motor Corporation in U.S.A., Oldsmobile Division of General Motors
Corp., Toyota Motor Sales, U.S.A., Inc., Volkswagen of America, Inc. and Volvo
Cars North-America, Inc.
(g) "Material Adverse Change" or "Material Adverse Effect" means,
when used in connection with any Person, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, liabilities, financial condition or
results of operations of such Person but shall exclude any change or effect
resulting from (i) general economic conditions or (ii) general conditions in the
automotive industry;
(h) "Pending Acquisitions" means the pending acquisitions
identified as such in Amendment No. 4 to the Company's Registration Statement on
Form S-1 (Registration No. 333-75907), as well as the following pending
acquisitions: Capitol Ford, Inc.; and RAB Motors, Inc., d/b/a Lexus of Marin and
Land Rover of Marin. The fact that any Pending Acquisition identified in the
foregoing Registration Statement shall have closed prior to the date hereof or
the Closing shall not affect its status hereunder as a Pending Acquisition.
(i) "Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity; and
(j) "Subsidiary" of any Person means another Person, an amount of
the voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
Person.
(k) In the event of a stock dividend or distribution, or any change
in the Company Common Stock or Company Preferred Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such stock dividends and distributions and any shares into which or
for which any or all of the Shares may be changed or exchanged.
Section 9.6 Interpretation. When a reference is made in this Agreement
to a Section, Exhibit or Schedule, such reference shall be to a Section of, or
an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
Section 9.7 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.8 Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the other agreements referred to herein constitute the entire
agreement, and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the
60
<PAGE>
subject matter of this Agreement. This Agreement, other than Section 6.4, is not
intended to confer upon any Person other than the parties hereto any rights or
remedies.
Section 9.9 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under principles of conflicts of laws.
Section 9.10 Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 9.11 Enforcement. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
Section 9.12 Consent to Jurisdiction. Any judicial proceeding brought
with respect to this Agreement must be brought in any court of competent
jurisdiction in the State of California, 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 a court
or that such court is an inconvenient forum. THE PARTIES HEREBY WAIVE TRIAL BY
JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH
THIS AGREEMENT.
Section 9.13 Severability. Whenever possible, each provision or portion
of any provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
Section 9.14 Construction. This Agreement shall be construed equitably
in accordance with its terms, without regard to the degree to which the Company,
the Stockholders or the Parent, or their respective legal counsel, have
participated in the drafting of this Agreement.
Section 9.15 Effectiveness of this Agreement; Merger Agreement and
Stockholder Agreement Superseded. This Agreement shall become effective when it
shall have been executed by the Parent, Newco and Stockholders who hold,
benefiically and of record, at least
61
<PAGE>
96% of the issued and outstanding shares of Company Common Stock, or such lesser
percentage, not less than 90%, as shall be specifically agreed to in writing by
the Parent. Upon the effectiveness of this Agreement and provided that this
Agreement shall have been executed by the Stockholders who are party to the
Stockholder Agreement, each of the Merger Agreement and the Stockholder
Agreement shall be superseded hereby and of no further force or effect.
Section 9.16 Concerning the Stockholders' Agent. By their respective
signatures below, the Stockholders hereby acknowledge the appointment of Thomas
A. Price as the Stockholders' Agent hereunder and under the Escrow Agreement.
The parties hereto agree that a decision, consent, instruction or other act of
the Stockholders' Agent, including, but not limited to, a termination,
amendment, extension or waiver of this Agreement pursuant to Section 8.1,
Section 8.3 and Section 8.4 hereof, shall constitute a decision, consent,
instruction or other act, as the case may be, of the Stockholders and shall be
final, binding and conclusive upon the Stockholders; and the parties hereto
agree that the Escrow Agent, the Parent, Newco and the Surviving Corporation may
each rely upon any such decision, consent, instruction or other act of the
Stockholders' Agent as being the decision, consent, instruction or other act, as
the case may be, of the Stockholders.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
62
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
IN WITNESS WHEREOF, the Parent, Newco, the Company and the Stockholders
have signed this Agreement or have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first written
above.
PARENT: SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
-----------------------------------
Name: Theodore M. Wright
Title: Chief Financial Officer, Vice
President-Finance, Treasurer and
Secretary
NEWCO: FAA ACQUISITION CORP.
By: /s/ Theodore M. Wright
-----------------------------------
Name: Theodore M. Wright
Title: Vice President, Secretary and
Treasurer
COMPANY: FIRSTAMERICA AUTOMOTIVE, INC.
By: /s/ Thomas A. Price
-----------------------------------
Name: Thomas A. Price
Title: President and Chief Executive Officer
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
STOCKHOLDERS:
/s/ Thomas A. Price /s/ Gwendolyn L. Price
- ------------------------------------ -------------------------------
Name: Thomas A. Price, Spouse: Gwendolyn L. Price
individually and as trustee
/s/ Donald V. Strough /s/ Linda L. Strough
- ------------------------------------ -------------------------------
Name: Donald V. Strough Spouse: Linda L. Strough
/s/ T. Al Babbington /s/ Alliana W. Babbington
- ------------------------------------ -------------------------------
Name: T. Al Babbington Spouse: Alliana W. Babbington
/s/ John M. Driebe /s/ Christina Driebe
- ------------------------------------ -------------------------------
Name: John M. Driebe Spouse: Christina Driebe
/s/ Fred Cziska /s/ Teresa Cziska
- ------------------------------------ -------------------------------
Name: Fred Cziska Spouse: Teresa Cziska
/s/ Steve Hallock /s/ Kathryn Hallock
- ------------------------------------ -------------------------------
Name: Steve Hallock Spouse: Kathryn Hallock
/s/ Brad Hallock
- ------------------------------------ -------------------------------
Name: Brad Hallock Spouse:
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BB INVESTMENTS
a California General Partnership
/s/ W. Bruce Bercovich
- ----------------------------
Name: W. Bruce Bercovich
EMBARCADERO AUTOMOTIVE, LLC
/s/ W. Bruce Bercovich
- ----------------------------
Name: W. Bruce Bercovich
GEARY PLAZA IRREVOCABLE TRUST
/s/ W. Bruce Bercovich
- ----------------------------
Name: W. Bruce Bercovich
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
its investment advisor
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
TCW SHARED OPPORTUNITY FUND II, L.P.
By: TCW Investment Management Company,
its investment advisor
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TCW LEVERAGED INCOME TRUST II, L.P.
By: TCW (LINC II), L.P., as General Partner
By TCW Advisors (Bermuda), Limited,
as General Partner
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
Managing Director
By: TCW Investment Management Company
its investment advisor
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
Managing Director
By: TCW Investment Management Company
its investment advisor
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
TCW/CRESCENT MEZZANINE
PARTNERS, L.P.
TCW/CRESCENT MEZZANINE TRUST
TCW/CRESCENT MEZZANINE INVEST-
MENT PARTNERS, L.P.
By: TCW/Crescent Mezzanine, L.L.C.
its general partner or managing owner
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
President
TCW LEVERAGED INCOME TRUST, L.P.
By: TCW Advisors (Bermuda), Limited,
as General Partner
/s/ Nicholas W. Tell, Jr.
- ----------------------------
Name: Nicholas W. Tell, Jr.
Managing Director
By: TCW Investment Management Company
its investment advisor
/s/ Jean-Marc Chapus
- ----------------------------
Name: Jean-Marc Chapus
Managing Director
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
CRESCENT/MACH I PARTNERS, L.P.
By: TCW Asset Management Company,
as investment manager and attorney-in-fact
/s/ Jean-Marc Chapus
- --------------------------
Name: Jean-Marc Chapus
Managing Director
/s/ Nicholas W. Tell, Jr.
- --------------------------
Name: Nicholas W. Tell, Jr.
Managing Director
ASIAN PACIFIC
By:_______________________
RAINTREE CAPITAL
By: /s/ Douglas Y. Bech
----------------------
Douglas Y. Bech
/s/ Ralph McBride
- --------------------
Ralph McBride
/s/ Thomas R. Powers
- --------------------
Thomas R. Powers
/s/ Jack R. Tompkins
- --------------------
Jack R. Tompkins
/s/ Brian Tucker
- --------------------
Brian Tucker
/s/ Bert Wollen
- --------------------
Bert Wollen
<PAGE>
COUNTERPART SIGNATURE PAGE TO
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
WARRANT HOLDERS:
/s/ T.J. Holterhoff /s/ Canale Holterhoff
- ----------------------------------- --------------------------------
Name: T.J. Holterhoff Spouse: Canale Holterhoff
/s/ Carlanee Foushee /s/ Dennis S. Morgan
- ----------------------------------- --------------------------------
Name: Carlanee Foushee Spouse: Dennis S. Morgan
BROWN, GIBBONS, LANG
By: /s/ Scott H. Lang
_______________________________
Scott H. Lang
CAPMAN, INC.
By: _______________________________
<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 NINE MONTHS
ENDING SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 69,865
<SECURITIES> 0
<RECEIVABLES> 54,831
<ALLOWANCES> 1,465
<INVENTORY> 362,645
<CURRENT-ASSETS> 499,929
<PP&E> 42,315
<DEPRECIATION> 0
<TOTAL-ASSETS> 910,150
<CURRENT-LIABILITIES> 344,950
<BONDS> 214,235
0
27,254
<COMMON> 360
<OTHER-SE> 306,251
<TOTAL-LIABILITY-AND-EQUITY> 910,150
<SALES> 1,904,602
<TOTAL-REVENUES> 2,186,946
<CGS> 1,897,956
<TOTAL-COSTS> 1,897,956
<OTHER-EXPENSES> 214,436
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,295
<INCOME-PRETAX> 47,621
<INCOME-TAX> 18,250
<INCOME-CONTINUING> 29,371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,371
<EPS-BASIC> 0.98
<EPS-DILUTED> 0.88
</TABLE>
